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 September 30,
2010





o  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 o





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 x No o





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





Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
              (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 o No x





The
      number of shares of Common Stock outstanding on November 11, 2010 was
      32,685,331 shares.









CHINA
      HOUSING & LAND DEVELOPMENT,
INC.


Index





.
                                      
                                      
                                      
                                      Page
                                        NumberPART
      I
                                      
                                      FINANCIAL
      INFORMATION
                                      
                                      1Item
      1.
                                      
                                      Financial
      Statements
                                      
                                      1Interim
      Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited)
                                        and
      December 31, 2009
                                      
                                      1Interim
      Condensed Consolidated Statements of Income for the three and nine months
      ended
                                        September
      30, 2010and
      2009 (unaudited)
                                      
                                      2Interim
      Condensed Consolidated Statements of Comprehensive Income for the three
      and
                                        nine
      months ended September 30, 2010 and 2009 (unaudited)
                                      
                                      3Interim
      Condensed Consolidated Statements of Cash Flows for the nine months ended
                                        September
      30, 2010 and 2009 (unaudited)
                                      
                                      4Interim
      Condensed Consolidated Statements of Shareholders’
      Equity
                                        As
      at September 30, 2010 and December 31, 2009 (unaudited)
                                      
                                      5Notes
      to Interim Condensed Consolidated Financial Statements
      (unaudited)
                                      
                                      6Item
      2.
                                      
                                      Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                      
                                      17Item
      3.
                                      
                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                      
                                      38Item
      4.
                                      
                                      Controls
      and Procedures
                                      
                                      38PART
      II.
                                      
                                      OTHER
      INFORMATION
                                      
                                      39Item
      1.
                                      
                                      Legal
      Proceedings
                                      
                                      39Item
      1A.
                                      
                                      Risk
      Factors
                                      
                                      39Item
      2.
                                      
                                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                                      
                                      39Item
      3.
                                      
                                      Defaults
      Upon Senior Securities
                                      
                                      39Item
      4.
                                      
                                      (Removed
      and reserved)
                                      
                                      39Item
      5.
                                      
                                      Other
      Information
                                      
                                      39Item
      6.
                                      
                                      Exhibits
                                      
                                      39SIGNATURESEX-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)









PART I.
FINANCIAL INFORMATION





Item
1. Financial Statements





CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES





Interim
Condensed Consolidated Balance Sheets


As of
September 30, 2010 and December 31, 2009


(Unaudited)


September 30,
                    
                    
                    December 31,2010
                    
                    
                    2009ASSETSCash
      and cash equivalents
                    
                    $
                    71,610,809
                    
                    
                    $
                    36,863,216Cash
      - restricted
                    
                    
                    790,723
                    
                    
                    
                    701,017Accounts
      receivable, net of allowance for doubtful
                      accounts
      of $392,550 and $389,996, respectively
                    
                    
                    11,823,982,
                    
                    
                    
                    6,088,482Other
      receivables, prepaid expenses and deposits, net
                    
                    
                    5,753,875
                    
                    
                    
                    2,484,221Real
      estate held for development or sale
                    
                    
                    110,716,253
                    
                    
                    
                    103,003,529Property
      and equipment, net
                    
                    
                    13,080,882
                    
                    
                    
                    15,307,478Asset
      held for sale
                    
                    
                    13,987,503
                    
                    
                    
                    14,301,564Advance
      to suppliers
                    
                    
                    4,497,831
                    
                    
                    
                    10,368,386Deposits
      on land use rights
                    
                    
                    58,771,753
                    
                    
                    
                    28,084,346Intangible
      assets, net
                    
                    
                    42,192,065
                    
                    
                    
                    41,355,134Goodwill
                    
                    
                    832,993
                    
                    
                    
                    816,469Deferred
      financing costs
                    
                    
                    439,072
                    
                    
                    
                    411,457Total
      assets
                    
                    $
                    334,497,741
                    
                    
                    $
                    259,785,299LIABILITIESAccounts
      payable
                    
                    $
                    19,658,037
                    
                    
                    $
                    20,706,263Advances
      from customers
                    
                    
                    45,560,387
                    
                    
                    
                    21,301,876Accrued
      expenses
                    
                    
                    2,482,097
                    
                    
                    
                    5,587,837Loans
      payable
                    
                    
                    1,166,490
                    
                    
                    
                    5,916,354Income
      and other taxes payable
                    
                    
                    13,789,950
                    
                    
                    
                    8,194,659Other
      payables
                    
                    
                    5,147,919
                    
                    
                    
                    4,524,288Loans
      from employees
                    
                    
                    5,383,006
                    
                    
                    
                    2,864,824Bank
      loans
                    
                    
                    52,312,981
                    
                    
                    
                    36,185,705Deferred
      tax liability
                    
                    
                    13,268,309
                    
                    
                    
                    11,505,181Warrants
      liability
                    
                    
                    2,090,720
                    
                    
                    
                    5,074,191Fair
      value of embedded derivatives
                    
                    
                    3,078,576
                    
                    
                    
                    3,991,047Convertible
      debt
                    
                    
                    15,873,701
                    
                    
                    
                    14,834,987Mandatorily
      redeemable noncontrolling interests in Subsidiaries
                    
                    
                    57,374,833
                    
                    
                    
                    -Total
      liabilities
                    
                    
                    237,187,006
                    
                    
                    
                    140,687,212Commitments
      and contingenciesSHAREHOLDERS'
      EQUITYCommon
      stock: $.001 par value, authorized 100,000,000 sharesissued
      and outstanding 33,083,354 and 31,884,969, respectively
                    
                    
                    33,083
                    
                    
                    
                    31,885Additional
      paid in capital
                    
                    
                    38,995,679
                    
                    
                    
                    35,461,706Common
      stock subscribed
                    
                    
                    -
                    
                    
                    
                    252,118Statutory
      reserves
                    
                    
                    4,922,248
                    
                    
                    
                    4,922,248Retained
      earnings
                    
                    
                    40,827,482
                    
                    
                    
                    39,895,179Accumulated
      other comprehensive income
                    
                    
                    12,532,243
                    
                    
                    
                    10,163,483Total
      China Housing & Land Development, Inc. shareholders’
      equity
                    
                    
                    97,310,735
                    
                    
                    
                    90,726,619Noncontrolling
      interests
                    
                    
                    -
                    
                    
                    
                    28,371,468Total
      shareholders' equity
                    
                    
                    97,310,735
                    
                    
                    
                    119,098,087Total
      liabilities and shareholders' equity
                    
                    $
                    334,497,741
                    
                    
                    $
                    259,785,299





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




- 1
-




CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES





Interim
Condensed Consolidated Statements of Income


For The
Three and Nine Months Ended September 30, 2010 and 2009


(Unaudited)







3
      Months
                    
                    
                    3
      Months
                    
                    
                    9
      Months
                    
                    
                    9
      MonthsSeptember
      30,
                      2010
                    
                    
                    September
      30,
                      2009
                    
                    
                    September30,
                      2010
                    
                    
                    September
      30,
                      2009REVENUESSale
      of properties
                    
                    $
                    31,455,921
                    
                    
                    $
                    22,728,282
                    
                    
                    $
                    99,067,368
                    
                    
                    $
                    56,835,091Other
      income
                    
                    
                    2,592,853
                    
                    
                    
                    1,152,408
                    
                    
                    
                    5,148,115
                    
                    
                    
                    3,689,359Total
      revenues
                    
                    
                    34,048,774
                    
                    
                    
                    23,880,690
                    
                    
                    
                    104,215,483
                    
                    
                    
                    60,524,450COST
      OF SALESCost
      of sales of properties
                    
                    
                    22,568,245
                    
                    
                    
                    15,991,559
                    
                    
                    
                    74,821,470
                    
                    
                    
                    40,130,502Cost
      of other income
                    
                    
                    571,224
                    
                    
                    
                    469,656
                    
                    
                    
                    1,684,851
                    
                    
                    
                    1,420,556Total
      cost of sales
                    
                    
                    23,139,469
                    
                    
                    
                    16,461,215
                    
                    
                    
                    76,506,321
                    
                    
                    
                    41,551,058Gross
      margin
                    
                    
                    10,909,305
                    
                    
                    
                    7,419,475
                    
                    
                    
                    27,709,162
                    
                    
                    
                    18,973,392OPERATING
      EXPENSESSelling,
      general, and administrative expenses
                    
                    
                    2,873,590
                    
                    
                    
                    2,501,688
                    
                    
                    
                    9,170,039
                    
                    
                    
                    5,853,458Security
      registration expenses
                    
                    
                    -
                    
                    
                    
                    579,775
                    
                    
                    
                    -
                    
                    
                    
                    1,786,517Stock
      based compensation
                    
                    
                    -
                    
                    
                    
                    87,777
                    
                    
                    
                    -
                    
                    
                    
                    87,777Other
      expenses
                    
                    
                    232,493
                    
                    
                    
                    284,044
                    
                    
                    
                    420,525
                    
                    
                    
                    474,167Interest
      expense
                    
                    
                    433,666
                    
                    
                    
                    417,809
                    
                    
                    
                    1,388,166
                    
                    
                    
                    1,202,786Accretion
      expense on convertible debt
                    
                    
                    363,624
                    
                    
                    
                    311,319
                    
                    
                    
                    1,038,732
                    
                    
                    
                    889,305Total
      operating expenses
                    
                    
                    3,903,373
                    
                    
                    
                    4,182,412
                    
                    
                    
                    12,017,462
                    
                    
                    
                    10,294,010NET
      INCOME FROM BUSINESS OPERATION
                    
                    
                    7,005,932
                    
                    
                    
                    3,237,063
                    
                    
                    
                    15,691,700
                    
                    
                    
                    8,679,382CHANGE
      IN FAIR VALUE OF DERIVATIVESLoss
      on extinguishment of debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,180,492
                    
                    
                    
                    -Change
      in fair value of embedded derivatives
                    
                    
                    (958,688)
                    
                    
                    
                    (2,695,306)
                    
                    
                    
                    (2,832,023)
                    
                    
                    
                    3,017,272Change
      in fair value of warrants
                    
                    
                    (405,821)
                    
                    
                    
                    (3,042,752)
                    
                    
                    
                    (3,203,085)
                    
                    
                    
                    4,012,736Total
      change in fair value of derivatives
                    
                    
                    (1,364,509)
                    
                    
                    
                    (5,738,058)
                    
                    
                    
                    (3,854,616)
                    
                    
                    
                    7,030,008Income
      before provision for income taxes
                      and
      noncontrolling interest
                    
                    
                    8,370,441
                    
                    
                    
                    8,975,121
                    
                    
                    
                    19,546,316
                    
                    
                    
                    1,649,374Provision
      for income taxes
                    
                    
                    1,926,345
                    
                    
                    
                    (3,652,886)
                    
                    
                    
                    4,467,337
                    
                    
                    
                    (1,591,331)Recovery
      of deferred income taxes
                    
                    
                    (31,370)
                    
                    
                    
                    -
                    
                    
                    
                    (82,367)
                    
                    
                    
                    -NET
      INCOME
                    
                    
                    6,475,466
                    
                    
                    
                    12,628,007
                    
                    
                    
                    15,161,346
                    
                    
                    
                    3,240,705Charge
      to noncontrolling interest
                    
                    
                    -
                    
                    
                    
                    86,121
                    
                    
                    
                    (14,229,043)
                    
                    
                    
                    279,155NET
      INCOME ATTRIBUTABLE TO
                      CHINA
      HOUSING & LAND DEVELOPMENT, INC.
                    
                    $
                    6,475,466
                    
                    
                    $
                    12,714,128
                    
                    
                    $
                    932,303
                    
                    
                    $
                    3,519,860WEIGHTED
      AVERAGE SHARES OUTSTANDINGBasic
                    
                    
                    33,082,573
                    
                    
                    
                    31,134,137
                    
                    
                    
                    32,911,414
                    
                    
                    
                    30,987,760Diluted
                    
                    
                    37,374,784
                    
                    
                    
                    32,972,253
                    
                    
                    
                    35,636,354
                    
                    
                    
                    30,996,953NET
      INCOME (LOSS) PER SHAREBasic
                    
                    
                    0.20
                    
                    
                    
                    0.41
                    
                    
                    
                    0.03
                    
                    
                    
                    0.11Diluted
                    
                    
                    0.15
                    
                    
                    
                    0.24
                    
                    
                    
                    (0.05)
                    
                    
                    
                    0.11




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




- 2
-




CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES




Interim
Condensed Consolidated Statements of Comprehensive Income (Loss)


For The
Three and Nine Months Ended September 30, 2010 and 2009




(Unaudited)




3
      Months
                                        
                                        
                                        3
      Months
                                        
                                        
                                        9
      Months
                                        
                                        
                                        9
      MonthsSeptember
      30,
                                        
                                        
                                        September
      30,
                                        
                                        
                                        September
      30,
                                        
                                        
                                        September
      30,2010
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2009NET
      INCOME
                                        
                                        $
                                        6,475,466
                                        
                                        
                                        $
                                        12,628,007
                                        
                                        
                                        $
                                        15,161,346
                                        
                                        
                                        $
                                        3,240,705OTHER
      COMPREHENSIVE INCOME (LOSS)Gain
      (loss) in foreign exchange
                                        
                                        
                                        1,561,913
                                        
                                        
                                        
                                        69,244
                                        
                                        
                                        
                                        2,368,760
                                        
                                        
                                        
                                        (242,176
                                        )COMPREHENSIVE
      INCOME
                                        
                                        
                                        8,037,379
                                        
                                        
                                        
                                        12,697,251
                                        
                                        
                                        
                                        17,530,106
                                        
                                        
                                        
                                        2,998,529Charge
      to noncontrolling interest
                                        
                                        
                                        -
                                        
                                        
                                        
                                        86,121
                                        
                                        
                                        
                                        (14,229,043
                                        )
                                        
                                        
                                        279,155Comprehensive
      income attributable to China Housing & Land Development,
      Inc.
                                        
                                        $
                                        8,037,379
                                        
                                        
                                        $
                                        12,783,372
                                        
                                        
                                        $
                                        3,301,063
                                        
                                        
                                        $
                                        3,277,684




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 Cash Flows


For The
Nine Months Ended September 30, 2010 and 2009


(Unaudited)




September
      30,
                        
                        
                        September
      30,2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                        
                        $
                        15,161,346
                        
                        
                        $
                        3,240,705Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Bad
      debt recovery
                        
                        
                        -
                        
                        
                        
                        80,713Depreciation
                        
                        
                        901,085
                        
                        
                        
                        471,788(Gain)
      loss on disposal of fixed assets
                        
                        
                        (287,460)
                        
                        
                        
                        50,501Gain
      on disposal of assets held for sale
                        
                        
                        (1,134,675)
                        
                        
                        
                        -Amortization
      of deferred financing costs
                        
                        
                        115,873
                        
                        
                        
                        115,873Recovery
      of future income taxes
                        
                        
                        (82,367)
                        
                        
                        
                        -Loss
      on extinguishment of debt
                        
                        
                        2,180,492
                        
                        
                        
                        -Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        87,777Security
      registration expenses settled with common stocks
                        
                        
                        -
                        
                        
                        
                        1,786,517Change
      in fair value of embedded derivatives
                        
                        
                        (2,832,023)
                        
                        
                        
                        4,012,736Change
      in fair value of warrants
                        
                        
                        (3,203,085)
                        
                        
                        
                        3,017,272Accretion
      expense on convertible debt
                        
                        
                        1,038,732
                        
                        
                        
                        889,305Non-cash
      proceeds from sales
                        
                        
                        -
                        
                        
                        
                        (31,673)(Increase)
      decrease in assets:Accounts
      receivable
                        
                        
                        (1,986,986)
                        
                        
                        
                        (4,702,750)Other
      receivable and prepaid expense
                        
                        
                        (3,218,104)
                        
                        
                        
                        (568,727)Real
      estate held for development or sale
                        
                        
                        2,340,492
                        
                        
                        
                        (35,859,057)Advances
      to suppliers
                        
                        
                        5,631,869
                        
                        
                        
                        (159,660)(Deposit)
      refund on land use rights
                        
                        
                        (29,559,410)
                        
                        
                        
                        11,534,025Deferred
      selling costs
                        
                        
                        -
                        
                        
                        
                        (344,134)Deferred
      financing costs
                        
                        
                        (140,684)
                        
                        
                        
                        -Increase
      (decrease) in liabilities:Accounts
      payable
                        
                        
                        (1,470,626)
                        
                        
                        
                        8,103,243Advance
      from customers
                        
                        
                        23,391,607
                        
                        
                        
                        (135,544)Accrued
      expense
                        
                        
                        10,609,030
                        
                        
                        
                        1,165,695Other
      payables
                        
                        
                        515,184
                        
                        
                        
                        (1,941,379)Income
      and other taxes payable
                        
                        
                        5,388,733
                        
                        
                        
                        (1,621,435)Net
      cash provided by (used in) operating activities
                        
                        
                        23,359,023
                        
                        
                        
                        (10,808,209)CASH
      FLOWS FROM INVESTING ACTIVITIES:Change
      in restricted cash
                        
                        
                        (74,047)
                        
                        
                        
                        110,130Purchase
      of property and equipment
                        
                        
                        (1,123,185)
                        
                        
                        
                        (587,595)Notes
      receivable collected
                        
                        
                        -
                        
                        
                        
                        212,140Cash
      acquired from acquisition
                        
                        
                        2,179
                        
                        
                        
                        519,309Proceed
      from sale of property and equipment
                        
                        
                        864,518
                        
                        
                        
                        194,006Proceeds
      from sale of assets held for sale
                        
                        
                        412,252
                        
                        
                        
                        -Net
      cash provided by investing activities
                        
                        
                        81,717
                        
                        
                        
                        447,990CASH
      FLOWS FROM FINANCING ACTIVITIES:Loans
      from banks
                        
                        
                        34,151,372
                        
                        
                        
                        12,444,063Repayments
      of bank loans
                        
                        
                        (19,077,303)
                        
                        
                        
                        (18,447,426)Loans
      from or repayment to employees, net
                        
                        
                        2,414,989
                        
                        
                        
                        678,545Repayments
      of loans payable
                        
                        
                        (7,536,715)
                        
                        
                        
                        (3,841,072)Proceeds
      from exercise of warrants
                        
                        
                        -
                        
                        
                        
                        1,184,662Net
      cash provided by (used in) financing activities
                        
                        
                        9,952,343
                        
                        
                        
                        (7,981,228)INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        33,393,083
                        
                        
                        
                        (18,341,447)Effects
      of foreign currency exchange
                        
                        
                        1,354,510
                        
                        
                        
                        5,237CASH
      AND CASH EQUIVALENTS, beginning of period
                        
                        
                        36,863,216
                        
                        
                        
                        37,425,340CASH
      AND CASH EQUIVALENTS, end of period
                        
                        $
                        71,610,809
                        
                        
                        $
                        19,089,130




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 Shareholders' Equity


As of
September 30, 2010 and December 31, 2009


(Unaudited)





Common
      Stock
                          
                          
                          Common
      stock
                          
                          
                          Additional
      paid
                          
                          
                          Statutory
                          
                          
                          Retained
                          
                          
                          Comprehensive
                          
                          
                          NoncontrollingShares
                          
                          
                          Par
      Value
                          
                          
                          subscribed
                          
                          
                          in
      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 tomandatorily
      redeemable
                            preferred
      stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (28,371,468
                          )
                          
                          
                          (28,371,468
                          )Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          3,117,934
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          3,117,934Charge
      to noncontrolling 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
                          
                          
                          
                          -
                          
                          
                          
                          91,023,116Common
      stock issued for warrants
                            exercised
                          
                          
                          17,968
                          
                          
                          
                          18
                          
                          
                          
                          -
                          
                          
                          
                          41,326
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          41,344Common stock to be
      returned
                            (note
      2)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,791,104
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,791,104
                          )Net
      Income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          6,475,466
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          6,475,466Foreign
      currency
                            translation
      adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,561,913
                          
                          
                          
                          -
                          
                          
                          
                          1,561,913BALANCE,
      September 30, 2010
                          
                          
                          33,083,354
                          
                          
                          $
                          33,083
                          
                          
                          $
                          -
                          
                          
                          $
                          38,995,679
                          
                          
                          $
                          4,922,248
                          
                          
                          $
                          40,827,482
                          
                          
                          $
                          12,532,243
                          
                          
                          $
                          -
                          
                          
                          $
                          97,310,735





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





- 5
-





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”), 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 presentation of the
Company's consolidated financial position as at September 30, 2010 and results
of operations and cash flows for the periods ended September 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
requires companies to more frequently reassess whether they must consolidate
variable interest entities. The changes also replace the previously required
quantitative approach to determining the primary beneficiary of a variable
interest entity with a requirement for an enterprise to perform a qualitative
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. The
adoption on January 1, 2010 of this standard did not have a material effect on
the Company’s 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 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
interim periods ending after March 31, 2010.  The adoption did not
have a material effect on the Company’s consolidated financial
statements.





- 6
-




Note
1 – Organization and Basis of Presentation (continued)





Accounting
Principles Recently Adopted (continued)





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 was effective for
the Company on July 1, 2010. The adoption did not have material impact on the
Company’s consolidated financial statements.





New
Accounting Pronouncement Not Yet Adopted





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 provisions of ASU
2010-13 are 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:




September
      30,
                  2010
                
                
                December
      31,
                  2009
                
                
                September
      30,
                  2009Period end
      RMB/U.S. Dollar exchange rate
                
                
                6.6905
                
                
                
                6.8259
                
                
                
                6.8262Average
      RMB/U.S. Dollar exchange rate
                
                
                6.7677
                
                
                
                6.8307
                
                
                
                6.8306





Reclassifications





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
original shareholders of Suodi and acquired 100% ownership of Suodi. Suodi is
engaged in land development in Xian’s rural area and Suodi’s only significant
asset is a land use right to a tract of land located in the rural area of Xian.
The Company intends to develop the land held by Suodi.





The
purchase was closed with cash payments and Company’s own shares.





The cash
payments consisted of (1) an initial cash payment of $0.73 million (RMB 5
million) payable on January 20, 2010; (2) an additional cash payment of
$0.73 million (RMB 5 million) payable on March 30, 2010; and (3) a final
cash payment of $1.48 million (RMB 10 million) payable on June 30,
2010. The Company has paid the entire amount as of September 30, 2010
according to the payment schedule.





During
the first quarter of fiscal 2010, the Company initially issued 1,118,403 shares
to the original shareholders of Suodi. As an ongoing negotiation effort, the
Company and the original shareholders of Suodi finalized the number of shares to
be 720,380 on August 10, 2010. The difference of 398,023 common stock were
returned to the Company on October 1, 2010.





The
measurement date of the Suodi acquisition was determined to be January 15, 2010,
the date the equity purchase agreement was signed. The fair value of the
purchase price was determined by adding $2,937,180 cash (RMB 20 million)
payments and $3,241,710, the fair value of the 720,380 shares issued 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 measurement date of the
acquisition.




- 7
-




Note
2 – Acquisition (continued)





Since the
only significant asset acquired is the land use right for a tract 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
                  
                  $
                  6,178,890Value
      assigned to assets and liabilities:Assets:Cash
                  
                  $
                  2,176Land
      use right
                  
                  
                  7,865,482Liabilities:Due
      to original shareholders
                  
                  
                  103,083Deferred
      tax liability related to the land use right acquired
                  
                  
                  1,585,685Total
      net assets
                  
                  $
                  6,178,890








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 1,000 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. Effective January 1, 2010, the Company
agreed with Prax to redeem all Prax’s Class A Shares within three years by
December 31, 2012 for consideration of the USD equivalent of $86.09 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 three and nine
months ended September 30, 2010 were $5,044,349 and $13,752,833, 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 September 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
                  
                  
                  13,752,833Difference
      in foreign exchange translation
                  
                  
                  1,021,489Mandatorily
      redeemable noncontrolling interests in subsidiaries at September 30,
      2010
                  
                  $
                  57,374,833





The
mandatory redemption schedules are as follow:





DateDecember
      31, 2010
                  
                  $
                  29,893,132December
      31, 2011
                  
                  
                  29,893,132December
      25, 2012
                  
                  
                  26,305,956Total
                  
                  $
                  86,092,220




- 8
-




Note
4 – Supplemental Disclosure of Cash Flow Information





Income
taxes paid for the nine months ended September 30, 2010 and 2009 amounted to
$320,530 and $42,135, respectively. Interest paid for the nine months ended
September 30, 2010 and 2009 amounted to $7,389,232 and $2,223,011,
respectively.





The
following non-cash investing and financing activities are included in the
interim condensed consolidated financial statements:





(1)
            The
      Company issued 1,118,403 shares of common stock, which was valued at
      $5,032,813 in connection with the acquisition of Suodi during the first
      quarter of fiscal 2010. Of these common stock, 398,023 shares of
      common stock valued at $1,791,103 was returned to the Company on
      October 1, 2010 (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, Prepaid Expenses and Deposits





Other
receivables and prepaid expenses consisted of the following at September 30,
2010 and December 31, 2009:





September
      30,
                    2010
                  
                  
                  December
      31,
                    2009Other
      receivable
                  
                  $
                  1,941,576
                  
                  
                  $
                  1,222,028Allowance
      for bad debts
                  
                  
                  (210,725)
                  
                  
                  
                  (206,545)Prepaid
      expenses
                  
                  
                  266,143
                  
                  
                  
                  261,836Prepaid
      other tax expenses
                  
                  
                  1,514,896
                  
                  
                  
                  1,206,902Deposit
      for acquisition (note
      19)
                  
                  
                  2,241,985
                  
                  
                  
                  -Other
      receivables and prepaid expenses
                  
                  $
                  5,753,875
                  
                  
                  $
                  2,484,221





Note
6 – Real Estate Held for Development or Sale





The
following summarizes the components of real estate inventories at September 30,
2010 and December 31, 2009:





September
      30,
                        2010
                      
                      December
      31,
                        2009Completed
      projects
                      
                      $
                      11,053,744
                      
                      
                      $
                      20,417,820Construction
      in progress
                      
                      
                      99,662,509
                      
                      
                      
                      82,585,709Total
      real estate held for development or sale
                      
                      $
                      110,716,253
                      
                      
                      $
                      103,003,529





Interest
on debts and accretion costs on mandatorily redeemable noncontrolling interest
in subsidiaries incurred by the Company for the three and nine months ended
September 30, 2010 was $6,420,373 and $18,523,786, respectively (September 30,
2009 - $1,057,898 and $3,450,234). The Company capitalized $6,025,188 in
construction in progress during the three months ended September 30, 2010
(September 30, 2009 - $640,089), and the Company capitalized $17,251,537 in
construction in progress during the nine months ended September 30, 2010
(September 30, 2009 - $2,251,580).




- 9
-




Note
7 – Property and Equipment





Property
and equipment consisted of the following at September 30, 2010 and
December 31, 2009:




September
      30,
                    2010
                  
                  
                  December
      31,
                    2009Buildings
      and improvements
                  
                  $
                  6,363,940
                  
                  
                  $
                  5,286,461Income
      producing properties and improvements
                  
                  
                  7,620,423
                  
                  
                  
                  11,095,868Electronic
      equipment
                  
                  
                  399,488
                  
                  
                  
                  330,218Vehicles
                  
                  
                  459,859
                  
                  
                  
                  425,099Office
      furniture
                  
                  
                  140,649
                  
                  
                  
                  182,309Computer
      software
                  
                  
                  174,321
                  
                  
                  
                  174,995Total
                  
                  
                  15,158,680
                  
                  
                  
                  17,494,950Accumulated
      depreciation
                  
                  
                  (2,077,798)
                  
                  
                  
                  (2,187,472)Property
      and equipment, net
                  
                  $
                  13,080,882
                  
                  
                  $
                  15,307,478





Depreciation
expense for the three months ended September 30, 2010 and 2009 amounted to
$307,588 and $156,762, respectively. Depreciation expense for the
nine months ended September 30, 2010 and 2009 amounted to $901,085 and
$471,788, respectively. The depreciation expense was included in the
selling, general and administrative expenses.





Note
8 – Intangible Asset





The
intangible asset consists of the following at September 30, 2010 and
December 31, 2009:





September
      30,
                  2010
                
                
                December
      31,
                  2009Intangible
      acquired
                
                $
                48,268,223
                
                
                $
                47,310,765Accumulated
      amortization
                
                
                (6,076,159)
                
                
                
                (5,955,631)Intangible
      asset, net
                
                $
                42,192,065
                
                
                $
                41,355,134





Amortization
expense for the three and nine months ended September 30, 2010 amounted to
$Nil and $Nil, respectively (September 30, 2009 - $Nil and $4,360,003). The
amortization expense was capitalized in the real estate construction in
progress.





Note
9 – Accrued Expenses





September
      30,
                  2010
                
                
                December
      31,
                  2009Accrued
      expenses
                
                $
                1,756,089
                
                
                $
                2,252,903Accrued
      interest on loans
                
                
                726,008
                
                
                
                3,334,934Total
                
                $
                2,482,097
                
                
                $
                5,587,837





Note
10 – Loans payable




September
      30, 2010
                  
                  
                  December
      31,
                    2009Payable
      to original shareholders of New Land (i)
                  
                  $
                  1,077,058
                  
                  
                  $
                  5,916,354Payable
      to original shareholders of Suodi (ii)
                  
                  
                  89,432
                  
                  
                  
                  -Total
                  
                  $
                  1,166,490
                  
                  
                  $
                  5,916,354





(i)
            The
      balance as of December 31, 2009 included $4,860,661 unsecured loans
      payable to previous shareholders of New Land. The Company has paid off
      this balance as of September 30, 2010.
              The
      remaining balance of $1,077,059 as of September 30, 2010 (December 31,
      2010 - $1,055,693) represents additional loans made by these shareholders,
      which were 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
      (note 2). The
      payable to original shareholders of Suodi represents the remaining
      balance due to the original shareholders of Suodi assumed by the
      Company when acquiring Suodi.




- 10
-




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 $672,595 (December 31, 2009 - $Nil) and $1,055,228
(December 31, 2009 - $854,100), respectively.





Note
12 – Bank loans





Bank
loans represent amounts due to various banks. These loans generally can be
renewed with the banks when they expire. Bank loans as of September 30,
2010 and December 31, 2009 consisted of
the following:





September
      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
                
                $
                -
                
                
                $
                2,930,017Due
      July 2, 2011, annual interest is at 8.614 percent, secured by the
      Company's
                  Jun
      Jing Yuan I, Han Yuan and Xin Xing Tower projects
                
                
                2,690,382
                
                
                
                -China
      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
                
                
                22,419,849
                
                
                
                -Commercial
      Bank Weilai BranchDue
      August 29, 2010, annual interest is at 10.21 percent, secured by the
      Company's
                  Jun
      Jing Yuan I and XinXing Tower projects
                
                
                -
                
                
                
                5,127,528Annual
      interest is at 7.29 percent, secured by the Company's Jun Jing Yuan I and
      XinXing
                  Tower
      projects and guaranteed by Tsining. $747,328 is payable on December 20,
      2010;
                  $747,328
      is payable on March 20, 2011; $1,494,657 is payable on June 20, 2011,
      and
                  $1,793,588
      is payable on August 29, 2011
                
                
                4,782,901
                
                
                
                -Bank
      of Beijing, Xi’an BranchDue
      December 10, 2012, annual interest is at the prime rate of People’s
      Bank of China,
                  secured
      by the PuHua project with a minimum repayment of $7.47 million required
      by
                  December
      31, 2011.
                
                
                22,419,849
                
                
                
                12,452,571Total
                
                $
                52,312,981
                
                
                $
                36,185,705





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





On June
28, 2008, the Company signed a strategic partnership Memorandum of Understanding
(“MOU”) with China Construction Bank Xi’an Branch that established a RMB 1
billion (approximately US$149 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 September 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 to only include the financial information of Tsining and New Land.
As of September 30, 2010, the current ratio was
approximately 112.6%, and the liabilities to assets ratio was
approximately 58.1%.





The bank
loans balances were secured by certain of the Company’s real estate held for
development or sales with a carrying value of $13,987,502 (December 31, 2009 -
$91,657,685) and certain buildings and income producing properties and
improvements with a carrying value of $9,747,369 at September 30, 2010 (December
31, 2009 - $9,738,804). The weighted average interest rate on bank loans as at
September 30, 2010 was 11.70% (December 31, 2009 – 6.6%).




- 11
-




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, September 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
                
                $
                -
                
                
                $
                2,090,720
                
                
                $
                -
                
                
                $
                2,090,720Fair
      value of embedded derivatives
                
                
                -
                
                
                
                3,078,576
                
                
                
                -
                
                
                
                3,078,576Total
                
                $
                -
                
                
                $
                5,169,296
                
                
                $
                -
                
                
                $
                5,169,296





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 September 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.





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 at an conversion price of $5.57.
The rights expire 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.




- 12
-




Note
14 – Convertible Debt (continued)





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.





During
the three and nine months period ended September 30, 2010, the Company recorded
a loss on extinguishment of debt of $Nil and $2,180,492 (2009 -$Nil and $Nil),
respectively, which consist of:





Immediately
      before the
                                                  Amendment
      date of
                                                  June
      10, 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 was not material.





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





Both the
warrant and embedded conversion option associated with the Convertible Debt meet
the definition of a derivative instrument according to the standard, “Accounting
for Derivative Instruments and Hedging Activities”.  Because the
warrant and the convertible debt are denominated in U.S. dollars but the
Company’s functional currency is the Chinese RMB, the exemption from
derivative instrument accounting provided by the standard is not available and
therefore the warrant and embedded conversion option are recorded as a
derivative instrument liability and periodically marked-to-market. The fair
value of the warrants and embedded conversion option at September 30, 2010 were
determined to be $1,401,531 and $3,078,576, respectively (December 31, 2009
- $3,507,000 and $3,991,047), using the CRR Model with the following
assumptions:





September30,
      2010
                  
                  
                  December 31, 2009Expected
      life
                  
                  2.33
      - 2.42 years
                  
                  
                  3.08
      – 3.16 yearsExpected
      volatility
                  
                  
                  105
                  %
                  
                  
                  105
                  %Risk-free
      interest rate
                  
                  
                  0.49
      - 0.51
                  %
                  
                  
                  1.74%
      - 1.78
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %





For
the three months ended September 30, 2010, the Company recorded a decrease
in fair value for the warrants and embedded derivatives of $224,605 and
$958,688, respectively (September 30, 2009 – decrease of $662,080
and $2,695,306). For the nine months ended September 30, 2010, the Company
recorded a decrease in fair value for the warrants and embedded derivatives of
$2,064,143 and $2,832,023 respectively (September
30, 2009 – increase of $3,604,502 and $3,017,273), 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 September 30, 2010 was $15,873,701 (December 31, 2009 - $14,834,987).
Related interest expense and accretion expense for the three months ended
September 30, 2010 was $264,859 and $363,624, respectively (September 30, 2009 -
$269,221 and $311,319), and for the nine months ended September 30, 2010 was
$791,958 and $1,038,732 respectively (September 30, 2009 - $798,894 and
$889,305).




- 13
-




Note
15 – Shareholders' Equity





Common
stock





1.
            As
      at December 31, 2009, the Company had accrued $252,118 of stock-based
      compensation to the former CFO and directors as common stock subscribed. A
      total of 62,014 shares of common stock were issued on January 19,
      2010.





2.
            The Company
      initially issued 1,118,403 shares of common stock for the acquisition
      of Suodi (note
      2). The shares were valued at $5,031,695 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
  closed.





3.
            35,936
      warrants issued in 2008 were exercised on a cashless basis and 17,968
      shares of common stock were issued. The 35,936 warrants were valued at
      $41,344 upon exercise and were recorded as additional paid in
      capital.





4.
            The
      original shareholders of Suodi will return 398,023 shares of common stock
      to the Company (note
      2). The common stock was valued at
  $1,791,104.





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 $689,090 at September 30,
2010 (December 31, 2009 - $1,567,191) using the CRR Binomial Lattice Model
with the following assumptions:





September 30, 2010
                          
                          
                          December 31, 2009Expected
      life
                          
                          1.61
      years
                          
                          
                          2.36
      yearsExpected
      volatility
                          
                          105%
                          
                          
                          105%Risk-free
      interest rate
                          
                          0.36%
                          
                          
                          1.33%Dividend
      yield
                          
                          0%
                          
                          
                          0%





The gain
from the change in fair value of warrants for the three months ended September
30, 2010 was $181,216 (September 30, 2009 – loss of
$662,080), and the gain for the nine months ended September 30, 2010
were $878,002 (September 30, 2009 – loss of $1,353,688).





Including
the fair value of warrants associated with the convertible debt (note 14), the total warrant
liability as at September 30, 2010 was $2,090,720 (December 31, 2009 -
$5,074,191). The total gain from the change in fair value of warrants for the
three months ended September 30, 2010 was $405,821 (September 30, 2009
– gain of $3,042,752). The total gain from the change in fair value of
warrants for the nine months ended September 30, 2010 was $3,203,085 (September
30, 2009 – loss of $4,012,736).





The
following is a summary of the warrant activity:





Number of
                  Warrants
                  Outstanding
                
                
                Weighted Average
                  Exercise
                  PriceDecember
      31, 2009
                
                
                3,976,883
                
                
                $
                5.07Exercised
                
                
                35,936
                
                
                
                6.07Expired
                
                
                -
                
                
                
                -September
      30, 2010
                
                
                3,940,947
                
                
                $
                5.06





The
following summarizes the weighted-average information about the outstanding
warrants as at September 30, 2010:




Outstanding WarrantsExercise
                              Price
                            
                            Number
                            
                            Average Remaining
                              Contractual Life$
                            4.50
                            
                            2,539,416
                            
                            1.61
      years$
                            6.07
                            
                            1,401,531
                            
                            2.42
      years$
                            5.06
                            
                            3,940,947
                            
                            1.90
      years




- 14
-




Note
16 – Other Income


For
      the three months ended
                                  
                                  
                                  For
      the nine months endedSeptember
      30,2010
                                  
                                  
                                  September
      30,2009
                                  
                                  
                                  September
      30,2010
                                  
                                  
                                  September
      30,2009Interest
      income
                                  
                                  $
                                  57,484
                                  
                                  
                                  $
                                  87,650
                                  
                                  
                                  $
                                  235,576
                                  
                                  
                                  $
                                  128,528Government
      reimbursement of infrastructure costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  259,837
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,213,127Rental
      income
                                  
                                  
                                  201,778
                                  
                                  
                                  
                                  643,861
                                  
                                  
                                  
                                  1,042,715
                                  
                                  
                                  
                                  1,812,814Income
      from property management services
                                  
                                  
                                  788,456
                                  
                                  
                                  
                                  116,710
                                  
                                  
                                  
                                  2,264,897
                                  
                                  
                                  
                                  322,313Gain
      on disposal of fixed assets
                                  
                                  
                                  265,812
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  287,460
                                  
                                  
                                  
                                  16,945Gain
      on disposal of asset held for sale
                                  
                                  
                                  1,134,675
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,134,675
                                  
                                  
                                  
                                  -Miscellaneous
      income
                                  
                                  
                                  144,648
                                  
                                  
                                  
                                  44,350
                                  
                                  
                                  
                                  182,792
                                  
                                  
                                  
                                  195,632$
                                  2,592,853
                                  
                                  
                                  $
                                  1,152,408
                                  
                                  
                                  $
                                  5,148,115
                                  
                                  
                                  $
                                  3,689,359





Note
17 – Earnings (Loss) per Share




Earnings
per share for the three and nine months ended September 30, 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
                  
                  
                  9
      months
                  
                  
                  9
      monthsSeptember
      30, 2010
                  
                  
                  September
      30, 2009
                  
                  
                  September
      30, 2010
                  
                  
                  September
      30, 2009NumeratorNet
      income attributable to
                    China
      Housing & Land Development, Inc. – basic
                  
                  $
                  6,475,466
                  
                  
                  $
                  12,714,128
                  
                  
                  $
                  932,303
                  
                  
                  $
                  3,519,860Effect
      of dilutive securitiesWarrants –
      change in fair value
                  
                  
                  (405,821
                  )
                  
                  
                  (2,380,672
                  )
                  
                  
                  (369,884
                  )
                  
                  
                  -Convertible
      debt
                    –
      change in fair value and interest expense
                  
                  
                  (595,064
                  )
                  
                  
                  (2,555,212
                  )
                  
                  
                  (2,319,064
                  )
                  
                  
                  -Income
      (loss) attributable to
                    China
      Housing & Land Development, Inc. – diluted
                  
                  $
                  5,474,581
                  
                  
                  $
                  7,778,244
                  
                  
                  $
                  (1,756,645
                  )
                  
                  $
                  3,519,860DenominatorWeighted
      average shares outstanding – basic
                  
                  
                  33,082,573
                  
                  
                  
                  31,134,137
                  
                  
                  
                  32,911,414
                  
                  
                  
                  30,987,760Effect
      of dilutive securities
                    Common
      Stock subscribed
                  
                  
                  -
                  
                  
                  
                  27,278
                  
                  
                  
                  -
                  
                  
                  
                  9,193Warrants
                  
                  
                  701,547
                  
                  
                  
                  195,039
                  
                  
                  
                  291,706Convertible
      debt
                  
                  
                  3,590,664
                  
                  
                  
                  1,615,799
                  
                  
                  
                  2,433,234
                  
                  
                  
                  -Weighted
      average shares outstanding – diluted
                  
                  
                  37,374,784
                  
                  
                  
                  32,972,253
                  
                  
                  
                  35,636,354
                  
                  
                  
                  30,996,953Earnings
      per shareBasic
      earnings per share
                  
                  $
                  0.20
                  
                  
                  $
                  0.41
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.11Diluted
      earnings (loss) per share
                  
                  $
                  0.15
                  
                  
                  $
                  0.24
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.11





Note
18 – Commitments and Contingencies





The
Company leases part of its office and hotel space under various operating lease
agreements with expiry dates between the years 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 has 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.





The
Company entered into an acquisition agreement with Shaanxi Xinxing Construction
Co. Ltd. (“Xinxing Construction”) on September 30, 2010 (note 19)for $6,725,955 (RMB 45
million). The Company has paid $2,241,985 (RMB 15 million) (note 5) as a deposit
and will pay the remaining balance of $4,483,970 (RMB 30 million) within one
year.





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
      leases
                      
                      $
                      806,405
                      
                      
                      $
                      171,731
                      
                      
                      $
                      100,739
                      
                      
                      $
                      78,137
                      
                      
                      $
                      78,137
                      
                      
                      $
                      78,137
                      
                      
                      $
                      299,524Consulting
      contract
                      
                      
                      280,248
                      
                      
                      
                      280,248
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Land
      use rights
                      
                      
                      3,587,176
                      
                      
                      
                      941,634
                      
                      
                      
                      2,645,542
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Acquisition
      of Xinxing Construction
                      
                      
                      4,483,970
                      
                      
                      
                      4,483,970
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      9,157,799
                      
                      
                      $
                      5,877,583
                      
                      
                      $
                      2,746,281
                      
                      
                      $
                      78,137
                      
                      
                      $
                      78,137
                      
                      
                      $
                      78,137
                      
                      
                      $
                      299,524




- 15
-




Note
19 – Subsequent Events





The
Company signed an Equity Transfer Agreement on September 30, 2010 with the
shareholders of Shaanxi Xinxing Construction Co., Limited (“Xinxing
Construction”) to acquire all outstanding common shares of Xinxing Construction.
Xinxing Construction is one of the Company’s construction contractors. One of
the Company’s executive officers’ spouse owns 37.83% of common stock of Xinxing
Construction.  The Company expects to achieve better construction
quality control and cost reduction through the acquisition of Xinxing
Construction.





The total
purchase price is approximately $6.73 million (RMB 45 million). The Company has
made a $2,241,985 (RMB 15 million) deposit (note 5). The remaining
balance will be paid by (1) a cash payment of $1,494,657 (RMB 10 million)
payable on October 7, 2010, (2) an additional cash payment of $1,494,657
(RMB 10 million) payable on November 30, 2010 and (3) a final cash payment of
$1,494,657 (RMB 10 million) payable on February 28, 2011.





If the
Company does not make the scheduled payments within 45 days of the
scheduled payment dates, there will be a 1% per month penalty on the scheduled
payment amounts if the Company does not make the payments.





Based on
the nature of the agreement and mutual understanding between the Company and the
shareholders of Xinxing Construction, the original shareholders and management
of Xinxing Construction transferred the control and operations of Xingxing
Construction to the Company on October 1, 2010.





The
acquisition will be treated as business combination. The effective control date
is October 1, 2010 and the balance sheet and the operations of Xinxing
Construction will be consolidated into the consolidated financial statements of
the Corporation effective on the same day.





During
the three and nine months ended September 30, 2010, the Company has incurred
$3,524,880 and $13,348,295      construction
costs, respectively, to Xinxing Construction (September 30, 2009 - $6,539,492
and $13,838,016). The construction costs were recorded as construction in
progress and expensed as cost of sales of properties when revenues were
recognized.





The
Company also had $6,793,121 payable and $3,437,830 prepayments to suppliers to
Xinxing Construction as of September 30, 2010 (December 31, 2009 - $8,211,171
and $9,266,910).




- 16
-





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





FORWARD-LOOKING
STATEMENTS




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





All
written and oral forward-looking statements made in connection with this Form
10-Q that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.





Critical
Accounting Policies and Estimates





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





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




The
unaudited interim condensed consolidated financial statements are based on
accounting principles that are consistent in all material respects with those
applied in the Company’s Annual Report on Form 10-K for the year ended December
31, 2009 (“2009 Annual Report”). 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
September 30, 2010, the Company has approximately $2.1 million of warrants
liability and $3.1 million of fair value of embedded derivatives on the balance
sheet, representing approximately 0.9% and 1.3% 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. We do not expect any significant
changes to the 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 September 30, 2010, our common stock price experienced
fluctuations with the price decreasing from $2.26 on July 1, 2010 to $2.00 on
September 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 $0.41 million as a change in fair value of warrants and $0.96
million as a change in fair value of embedded derivatives, which are all
non-cash gains.





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





September
      30,
                    2010
                  
                  
                  December
      31,
                    2009Fair
      value of warrants liability
                  
                  $
                  2,090,720
                  
                  
                  $
                  5,074,191Fair
      value of embedded derivatives
                  
                  $
                  3,078,576
                  
                  
                  $
                  3,991,047




- 17
-




The
following tables summarize all the warrants and conversion option outstanding
and the assumptions used for their valuations as of September 30, 2010 and
December 31, 2009.





Investor
      Warrants:
                  
                  9/30/2010
                  
                  
                  12/31/2009Strike
      price
                  
                  
                  6.07
                  
                  
                  
                  6.07Market
      price
                  
                  
                  2.00
                  
                  
                  
                  4.13Valuation
      date
                  
                  9/30/2010
                  
                  
                  12/31/2009Expiry
      date
                  
                  2/28/2013
                  
                  
                  2/28/2013Volatility
                  
                  
                  105.00
                  %
                  
                  
                  105.00
                  %Risk
      free rate
                  
                  
                  0.51
                  %
                  
                  
                  1.78
                  %Option
      value
                  
                  
                  0.70453
                  
                  
                  
                  2.43971#
      of warrants
                  
                  
                  1,401,531
                  
                  
                  
                  1,437,467Value
                  
                  
                  1,401,531
                  
                  
                  
                  3,507,000





Investor Warrants: 5-7-2007
                
                9/30/2010
                
                
                12/31/2009Strike
      price
                
                
                4.50
                
                
                
                4.50Market
      price
                
                
                2.00
                
                
                
                4.13Valuation
      date
                
                9/30/2010
                
                
                12/31/2009Expiry
      date
                
                5/9/2012
                
                
                5/9/2012Vlolatility
                
                
                105.00
                %
                
                
                105.00
                %Risk
      free rate
                
                
                0.36
                %
                
                
                1.33
                %Option
      value
                
                
                0.27136
                
                
                
                0.61711#
      of warrants
                
                
                2,539,416
                
                
                
                2,539,416Value
                
                
                689,189
                
                
                
                1,567,191





Conversion
      Option Valuation:
                
                9/30/2010
                
                
                12/31/2009Strike
      price
                
                
                5.57
                
                
                
                5.57Market
      price
                
                
                2.00
                
                
                
                4.13Valuation
      date
                
                9/30/2010
                
                
                12/31/2009Expiry
      date
                
                1/28/2013
                
                
                1/28/2013Volatility
                
                
                105.00
                %
                
                
                105.00
                %Risk
      free rate
                
                
                0.49
                %
                
                
                1.74
                %Option
      value
                
                
                0.85738
                
                
                
                2.47002Host
      Value – principal
                
                
                20,000,000
                
                
                
                9,000,000Host
      Value – interest
                
                
                0
                
                
                
                0Shares
      issuable on conversion (1)
                
                
                3,590,664
                
                
                
                1,615,799Option
      value – principal
                
                
                3,078,576
                
                
                
                3,991,048Derivative
      value
                
                
                3,078,576
                
                
                
                3,991,048




(1)  The
increase of shares issuable on conversion is due to the Amendment entered into
by the Company and the Investors, 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.




- 18
-




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





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





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





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




When real
estate costs are determined to be impaired, they are written down to their
estimated net realizable value. The Company evaluates the carrying value for
impairment based on the undiscounted future cash flows of the assets.
Write-downs of real estate costs deemed impaired are recorded as adjustments to
the cost basis. There has been no impairment on real estate inventories and no
impairment loss has been recorded for the three and nine months ended September
30, 2010 and 2009.




The
following summarizes the components of real estate inventories as at September
30, 2010 and December 31, 2009:





September
      30, 2010
                
                
                December
      31, 2009Finished
      projects
                
                $
                11,053,744
                
                
                $
                20,417,820Construction
      in progress
                
                
                99,662,509
                
                
                
                82,585,709Total
      real estate held for development or sale
                
                $
                110,716,253
                
                
                $
                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 $42.2
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
September 30, 2010 and December 31, 2009, intangible asset consists of the
following:





September
      30, 2010
                
                
                December
      31, 2009Intangible
      acquired
                
                $
                48,268,223
                
                
                $
                47,310,765Accumulated
      amortization
                
                
                (6,076,159)
                
                
                
                (5,955,631
                )Intangible
      assets, net
                
                $
                42,192,065
                
                
                $
                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 and nine months ended September 30,
2010 and 2009, the Company did not record any impairment loss.




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 September 30, 2010 and 2009 amounted to $0 and $0,
respectively. Amortization for the nine months ended September 30, 2010 and 2009
amounted to $0 and $4,360,003, respectively. The amortization for the nine
months ended September 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.




- 19
-




Deposits
on land use rights




September
      30, 2010
                
                
                December
      31, 2009Deposits
      on land use rights
                
                
                58,771,753
                
                
                
                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 between December 31, 2009 and September 30, 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 September 30, 2010. The average sale price increased to
6,560 RMB per square meter (approximately US$ 969 per
square meter) from 5,862 RMB per square meter (approximately
US$ 859 per square meter) in the second quarter 2010, representing
about an 11.9% increase 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
2.4% in the third quarter of 2010 compared to the same period of 2009. All our
projects are currently in Xi’an city. During the third quarter of 2010, our
revenue generated from the sale of properties increased approximately 38.4% 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
September 30, 2010, we had $71,610,809 of cash and cash equivalents, compared to
$36,863,216 as of December 31, 2009, representing an increase of
$34,747,593.





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.




- 20
-




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 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 in the development
of medium sized residential and commercial real estate projects in greater
Xi'an.





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





Our
Property Projects





We
provide three fundamental types of real estate development
products:





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





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





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





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





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





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





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





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




- 21
-




Projects under
construction


Project name
              
              Type of
                Projects
              
              Actual or
                Estimated
                Construction
                Period
              
              Actual or
                Estimated
                Pre-sale
                Commencement
                Date
              
              
              Total Site
                Area
                (m2)
              
              
              Total GFA
                (m2)
              
              
              Sold GFA by
                September
      30, 2010
                (m2)JunJing
      II
                Phase
      Two
              
              Multi-Family
                residential
      &
                Commercial
              
              Q2/2009
                -
      Q2/2011
              
              
              Q3/2009
              
              
              
              29,800
              
              
              
              122,136
              
              
              
              114,878Puhua
      Phase One
              
              Multi-Family
                residential
      &
                Commercial
              
              Q2/2009
                -
      Q3/2011
              
              
              Q4/2009
              
              
              
              47,600
              
              
              
              139,730
              
              
              
              71,125Puhua
      Phase Two
              
              Multi-Family
                residential
      &
                Commercial
              
              Q2/2010
                -Q3/2012
              
              
              Q2/2010
              
              
              
              47.300
              
              
              
              218,635
              
              
              
              39,516  Project name
                
                Total
                  Number of
                  Units
                
                
                Number of
                  Units sold by
                  September
      30, 2010
                
                Percentage
      of Completion by September 30, 2010
                Estimated
                  Revenue
                  ($ million)
                
                Contract
                  Revenue by
                  September
      30, 2010
                  ($ million)
                
                
                Recognized
                  Revenue by
                  September
      30,
                  2010
       ($ million)JunJing
      II
                  Phase
      Two
                
                
                1,015
                
                
                
                985
                
                86.8%
                93.4
                
                
                88.9
                
                
                
                77.9Puhua
      Phase One
                
                
                840
                
                
                
                597
                
                49.7%
                98.3
                
                
                41.5
                
                
                
                29.8Puhua
      Phase Two
                
                
                1,284
                
                
                
                138
                
                26.6%
                177.0
                
                
                12.6
                
                
                
                3.6





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 third 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 September 30, 2010, the contract revenue
for Phase Two was $88.9 million, of which we have recognized $77.9 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 third 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 September 30, 2010, the contract revenue for Puhua project is
$69.3 million, of which we have recognized $33.5 million.





Projects
under planning and in progress




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
              
              
              
              Q4/2010
              
              
              
              7,510
              
              
              
              47,153
              
              
              
              434Park
      Plaza
              
              Multi-Family
                residential
      &
                Commercial
              
              Q4/2010
                - Q4/2014
              
              
              
              Q1/2011
              
              
              
              44,250
              
              
              
              180,000
              
              
              
              2,000Golden
      Bay
              
              Multi-Family
                residential
      &
                Commercial
              
              Q4/2010
                - Q4/2014
              
              
              
              Q2/2011
              
              
              
              146,099
              
              
              
              378,887
              
              
              
              N/A





- 22
-




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





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





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











Through
its New Land subsidiary, the Company sold approximately 18.4 acres to
another developer in 2007 and generated approximately $24.41 million in
revenue.




In 2008,
we initiated a joint venture with Prax Capital Real Estate Holdings Limited
(Prax Capital) to develop 79 acres within the Baqiao project, which represents
the first phase of the Baqiao project’s development. Prax Capital invested $29.3
million in cash in the joint venture. The project is further described in the
Puhua section.




After
selling 18.4 acres and placing 79 acres in the joint venture, about 389 acres
remained available for the Company to develop in the Baqiao
project.





JunJing III: JunJing III is
near our JunJing II project and the city expressway. It has an expected
total gross floor area of approximately 7,501 square meters. The project
will consist of 3 high rise buildings, each 28 to 30 stories high. The project
is targeting middle to high income customers who require a high quality living
environment with convenient transportation to the city center. We started
construction during the third quarter of 2010 and expect pre-sales to begin
during the fourth quarter of 2010. The total estimated revenues from this
project are approximately $46 million. JunJing III project was delayed
for one quarter due to changes in relevant government procedure on land
acquisition. We do not expect further changes on such procedures.





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 first quarter of
2011, 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. The Park Plaza project was delayed for one
quarter due to changes in relevant government procedure on land acquisition. We
do not expect further changes on such procedures.





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 third quarter of 2011.





Completed Projects with
units available for sale





Project name
              
              Type of
                Projects
              
              Completion
                Date
              
              
              Total Site
                Area
                (m2)
              
              
              Total GFA
                (m2)
              
              
              Total
                Number of
                Units
              
              
              Number of
                Units sold by
                September
      30, 2010JunJing
      II Phase One
              
              Multi-Family
                residential
      &
                Commercial
              
              
              Q4/2009
              
              
              
              39,524
              
              
              
              141,601
              
              
              
              1,193
              
              
              
              1,186Tsining
      Home IN
              
              Multi-Family
                residential
      &
                Commercial
              
              
              Q4/2003
              
              
              
              8,483
              
              
              
              30,072
              
              
              
              215
              
              
              
              213Tsining-24G
              
              Hotel,
                Commercial
              
              
              Q2/2006
              
              
              
              8,227
              
              
              
              43,563
              
              
              
              773
              
              
              
              766JunJing
      I
              
              Multi-Family
                residential
      &
                Commercial
              
              
              Q3/2006
              
              
              
              55,588
              
              
              
              167,931
              
              
              
              1,671
              
              
              
              1,644




- 23
-




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 September 30, 2010, JunJing II Phase One has contributed
approximately $80 million in revenues. By September 30, 2010, we had sold
1,186 units in the project, which accounts for about 99.4% of all available
units totaling approximately 133,428 square meters and about 98.0% 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 September 30, 2010 Compared With Three Months Ended September 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
third quarter of 2010, most of our revenues came from Tsining JunJing II Phases
Two and Puhua Phase One Project. JunJing II Phase Two consists of 12 buildings,
mainly middle and high rises, and began to accept pre-sale contracts in the
third quarter of 2009. Puhua Phase One consists of 7 garden houses, 2 mid-rises
and 4 high-rises buildings with total expected revenues of approximately $118.6
million. We officially started the pre-sales in the fourth quarter of 2009 and
we recognized approximately $10.1 million in the third quarter of
2010.





Three months
                
                
                Three monthsended
                
                
                endedRevenues by project:
                
                September
      30, 2010
                
                
                September
      30, 2009US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One (Under construction on September 30,
      2009)
                
                $
                -
                
                
                $
                12,130,788Tsining
      JunJing II Phase Two
                
                
                15,022,903
                
                
                
                8,804,441Puhua
      Phase One
                
                
                10,104,983
                
                
                
                -Puhua
      Phase Two
                
                
                2,977,388
                
                
                
                --
                
                
                
                -Projects
      CompletedTsining
      JunJing II Phase One
                
                
                1,200,153Tsining
      JunJing I
                
                
                506,270
                
                
                
                (88,081)Tsining-24G
                
                
                1,565,565
                
                
                
                1,588,845Additional
      Project
                
                
                78,659
                
                
                
                292,289$
                31,455,921
                
                
                $
                22,728,282




- 24
-




Revenues
from the sale of properties




The
revenues from the sale of properties in the three months ended September 30,
2010increased 38.4
percent to $31,455,921 from $22,728,282 in the same period of 2009. The increase
was primarily due to the increased revenue from Tsining JunJing II Phase
Two and Puhua Project. The presale of Puhua Phase One and Phase Two started
in the fourth quarter of 2009 and the third quarter of 2010, respectively. Puhua
Project has four phases, which are expected to be completed in
2014.





The
following table summarizes details of our most significant
projects:





3 Months Ended
                              
                              
                              3 Months EndedRevenues by project:
                              
                              September
      30, 2010
                              
                              
                              September
      30, 2009US$Project
      Under Construction
                              
                              
                              
                              
                              
                              -Puhua
      Phase One Project contract sale
                              
                              $
                              12,108,057
                              
                              
                              
                              -Revenue
                              
                              $
                              10,104,983
                              
                              
                              
                              -Total
      gross floor area (GFA) available for sale
                              
                              
                              139,730
                              
                              
                              
                              -GFA
      sold during the period
                              
                              
                              14,145
                              
                              
                              
                              -Remaining
      GFA available for sale
                              
                              
                              68,605
                              
                              
                              
                              -Phase
      one percentage of completion
                              
                              
                              49.7
                              %
                              
                              
                              -Percentage
      GFA sold during the period
                              
                              
                              10.1
                              %
                              
                              
                              -Percentage
      GFA sold to date
                              
                              
                              45.4
                              %
                              
                              
                              -Average
      sales price per GFA
                              
                              
                              850Puhua
      Phase Two Project contract sale
                              
                              $
                              9,538,222Revenue
                              
                              $
                              2,977,388Total
      gross floor area (GFA) available for sale
                              
                              
                              218,635GFA
      sold during the period
                              
                              
                              12,768Remaining
      GFA available for sale
                              
                              
                              179,119Phase
      two percentage of completion
                              
                              
                              26.6
                              %Percentage
      GFA sold during the period
                              
                              
                              5.8
                              %Percentage
      GFA sold to date
                              
                              
                              8.7
                              %Average
      sales price per GFA
                              
                              
                              747Tsining
      JunJing II Phase Two contract sales
                              
                              
                              8,515,737
                              
                              
                              $
                              17,130,432Revenue
                              
                              $
                              15,022,403
                              
                              
                              $
                              8,804,441Total
      gross floor area (GFA) available for sale
                              
                              
                              122,136
                              
                              
                              
                              112,556GFA
      sold during the period
                              
                              
                              9,931
                              
                              
                              
                              23,606Remaining
      GFA available for sale
                              
                              
                              7,258
                              
                              
                              
                              86,494Percentage
      of completion
                              
                              
                              86.8
                              %
                              
                              
                              47.2
                              %Percentage
      GFA sold during the period
                              
                              
                              8.1
                              %
                              
                              
                              21.0
                              %Percentage
      GFA sold to date
                              
                              
                              94.1
                              %
                              
                              
                              23.2
                              %Average
      sales price per GFA
                              
                              $
                              857
                              
                              
                              $
                              726Tsining
      JunJing II Phase One contract sales (Revenues from the project was
      recorded under project under construction in 2009 and recorded under
      completed project in 2010)
                              
                              $
                              1,200,153
                              
                              
                              $
                              4,824,465Revenue
                              
                              $
                              1,200,153
                              
                              
                              $
                              12,130,788Total
      gross floor area (GFA) available for sale
                              
                              
                              141,601
                              
                              
                              
                              136,012GFA
      sold during the period
                              
                              
                              1,409
                              
                              
                              
                              6,801Remaining
      GFA available for sale
                              
                              
                              -
                              
                              
                              
                              24,549Percentage
      of completion
                              
                              
                              100
                              %
                              
                              
                              94.4
                              %Percentage
      GFA sold during the period
                              
                              
                              1
                              %
                              
                              
                              5.0
                              %Percentage
      GFA sold to date
                              
                              
                              100
                              %
                              
                              
                              82.0
                              %Average
      sales price per GFA
                              
                              $
                              851
                              
                              
                              $
                              709




- 25
-





Revenues
from projects under construction





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 $118.6 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 third
quarter of 2010. During the third quarter of 2010, for Puhua Phase One and Phase
Two projects, we were able to secure $12.1million and $9.6 million in contract
sales respectively, and we recognized revenue of approximately $10.1 million and
$3.0 million, respectively.





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 $95.1 million. We started the pre-sales
for JunJing II Phase Two in the third quarter of 2009. During the three months
ended September 30, 2010, our contract sales totaled $ 8.5 million sales
for 76 units and we were able to recognized revenue of approximately $15.0
million using the percentage of completion method.





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 determined under this method. The percentages of completion of
the construction for each building as at September 30, 2010 are shown
below:




Tsining JunJing II Phase two Buildings
                
                Percentage of Completion10#
                
                
                92.90
                %11#
                
                
                97.20
                %12#
                
                
                82.50
                %13#
                
                
                93.91
                %16#
                
                
                92.18
                %17#
                
                
                94.96
                %18#
                
                
                86.36
                %19#
                
                
                94.94
                %22#
                
                
                88.65
                %23#
                
                
                88.72
                %24#
                
                
                84.73
                %25#
                
                
                80.89
                %








Puhua Phase one
                      
                      Percentage of Completion1#
                      
                      
                      61.97
                      %2#
                      
                      
                      86.51
                      %3#
                      
                      
                      35.98
                      %4#
                      
                      
                      71.15
                      %5#
                      
                      
                      39.49
                      %6#
                      
                      
                      61.34
                      %7#
                      
                      
                      31.42
                      %8#
                      
                      
                      57.10
                      %9#
                      
                      
                      56.02
                      %10#
                      
                      
                      56.16
                      %11#
                      
                      
                      32.71
                      %12#
                      
                      
                      51.64
                      %13#
                      
                      
                      48.15
                      %








Puhua Phase two
                  
                  Percentage of Completion14#
                  
                  
                  26.34
                  %15#
                  
                  
                  25.12
                  %16#
                  
                  
                  30.37
                  %17#
                  
                  
                  33.11
                  %18#
                  
                  
                  25.74
                  %19#
                  
                  
                  29.00
                  %20#
                  
                  
                  29.12
                  %21#
                  
                  
                  28.47
                  %22#
                  
                  
                  25.37
                  %23#
                  
                  
                  30.83
                  %24#
                  
                  
                  25.12
                  %





The above
represent all of the buildings under construction in JunJing II Phase Two,
Puhua Phase One, and Puhua Phase Two.




- 26
-




Revenues
from projects completed





The
revenue from completed projects totaled $3,350,647 for the three months
ended September 30, 2010, compared to $1,793,053 during the same period of
2009. The increase was mainly due to the completion of JunJing II Phase One
which was reclassified to completed projects during the fourth quarter of fiscal
2009, and also the increased revenue from sales of JunJing I commercial
space.





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 $2,592,853 in other income
for the three months ended September 30, 2010 compared with $1,152,408 in the
same period of 2009. The 125 percent increase can be explained by the following
table which summarizes the breakdown of the other income and their changes
during the three months ended September30, 2010 and 2009:





For
      the three months endedSeptember
      30,
                  
                  
                  September
      30,2010
                  
                  
                  2009Interest
      income
                  
                  $
                  57,484
                  
                  
                  $
                  87,650Government
      reimbursement of infrastructure costs (1)
                  
                  
                  -
                  
                  
                  
                  259,837Rental
      income (2)
                  
                  
                  201,778
                  
                  
                  
                  643,861Income
      from property management services (3)
                  
                  
                  788,456
                  
                  
                  
                  116,710Gain
      on disposal of fixed assets
                  
                  
                  265,812Gain
      on disposal of asset held for sale (4)
                  
                  
                  1,134,675
                  
                  
                  
                  -Miscellaneous
      income
                  
                  
                  144,648
                  
                  
                  
                  44,350$
                  2,592,853
                  
                  
                  $
                  1,152,408





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





(2)
            The
      decrease in rental income is due to sale of certain rental
      properties.





(3)
            The
      increase is due to additional projects, especially JunJing II Phase
      I.





(4)
            This
      item represents the disposal of a portion of JunJing II shopping mall
      area.





Cost
of sales of properties





The cost
of sales of properties and land in the three months ended September 30, 2010
increased 41.13 percent to $22,568,245 compared with $15,991,559 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, Puhua Phase One
and Phase Two projects. As JunJing II Phase Two project is approaching its
ending phase, i.e. the project has a high percentage of completion, we were able
to recognize additional cost of properties and land in accordance with
additional recognized revenue.





Gross
profit and profit margin





Gross
profit for the three months ended September 30, 2010 was $10,909,305,
representing an increase of 47.3 percent from $7,419,475 in the same period of
2009. The gross profit margin for the three months ended September 30, 2010 was
32.0 percent, compared to 31.0 percent in the same period of 2009. Gross profit
and gross profit margin increased sequentially due to increased sales and
average selling prices of Jun Jing II Phase Two and Puhua projects as well as
from the sale of commercial space at certain existing projects which typically
carry a higher gross margin than residential apartment sales.




- 27
-




Selling,
general and administrative expenses





Selling,
general and administrative expenses (SG&A) for the three months ended
September 30, 2010 increased 14.9 percent to $2,873,590 from $2,501,688 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. SG&A as
a percentage of total revenue decreased to 8.4% in the third quarter of 2010
from 10.5% in the third quarter of 2009.





Stock-based
compensation





We had no
stock-based compensation incurred during the third quarter of 2010 compared to
stock-based compensation of $87,777 during the same period of 2009 to our former
CFO.





Other
expenses





Other
expenses consist mainly of late delivery settlements and maintenance
costs. Other expenses in the three months ended September 30, 2010
decreased 18.1 percent to $232,493, compared with $284,044 in the same period of
2009.





Net
income from business operation and operating profit margin





Net
income from business operation in the three months ended September 30, 2010 was
$7,005,932 compared with $3,237,063 in the same period of 2009, primarily due to
the higher revenues generated by Tsining JunJing II Phase Two and Puhua Phase
One and Phase Two projects. As a result, the operating profit margin was 20.1
percent for the third quarter of 2010 compared with 13.6 percent for the same
period of 2009 which was in line with our business model. The increase of
operating profit and operating profit margin is mainly due to increased sales
and increased gross margin.





Interest
expense





Interest
expense in the three months ended September 30, 2010 increased 3.8 percent to
$433,666 from $417,809 in the same period of 2009. This is primarily due to
the increase in 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 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 also amended 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 of 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 this provision
lapses and this portion of notes becomes non-convertible and revert back to the
terms as if the Amendment did not occur.




- 28
-




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.





During
the second quarter of fiscal 2010, the Company recorded a loss on extinguishment
of debt of $2,180,492, which consists of:








Immediately
      before the Amendment date of
                                                  June
      10, 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 nine months ended September 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.





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 third quarter
of 2010, our common stock price experienced large fluctuations with the price
decreasing from $2.26 on July 1, 2010 to $2.00 on September 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 a gain of $958,688 in the change in fair value of
embedded derivatives in the three months ended September 30, 2010 compared with
a gain of $2,695,306 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 resulted in a gain of $405,821 in the
three months ended September 30, 2010, compared to a gain of $3,042,752 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 are 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 third quarter
of 2010, our common stock price experienced large fluctuations with the price
decreasing from $2.26 on July 1, 2010 to $2.00 on September 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. During the third quarter of 2009, our common stock price
experienced large fluctuations with the price decreasing from $5.58 on July 1,
2009 to $3.85 on September 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.




- 29
-




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 of 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
did not become effective as of September 2009, the investors of the 5% Senior
Secured Convertible Debt had decided to claim the Late
Payments.





The
security registration expenses were $0 for the three months ended September 30,
2010 because the Company has settled the Late Payments in fiscal 2009, compared
with $579,775 in the same period of 2009.





Provision
of current income taxes




The
current income taxes provision for the three months ended September 30, 2010 was
$1,926,345 compared with $3,652,886 recovery of income tax. The
recovery of income taxes for the three months ended September 30, 2009 was due
to the tax settlement between Hao Tai and the local tax bureau. Due to the
settlement the Company recovered around $4.86 million in the third
quarter of 2009.





Net
income





Net
income for the three months ended September 30, 2010
decreased 48.7 percent to $6,475,466 compared
to $12,714,128 in the same period of 2009.




The decline in net income was a result
of multiple factors. We recorded $5.7 million gain in change in four value of
derivatives in the third quarter of 2009; the gain in change in fair value of
derivatives for the third quarter of 2010 was only $1.4 million. We also had
$4.86 million gain in recovery of income taxes in the third quarter of 2009
compared with $0.03 million in the third quarter of 2010.





Basic
and diluted earnings per share




Basic
earnings per share was $0.20 in the three months ended September 30, 2010,
compared to $0.41 in the same period of 2009. Diluted earnings per share
was $0.15 in the three months ended September 30, 2010, compared to
$0.24 in the same period of 2009. The number of shares outstanding
doesn’t change significantly from year to year. Earnings available to distribute
decreased to $6,475,466 in third quarter of 2010 from $12,714,128 in
the third 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 33,082,573 shares in the three months ended September 30, 2010 and
31,134,137 shares in the same period of 2009. The weighted average shares
outstanding used to calculate the diluted earnings per share
was 37,374,784 shares in the three months ended September 30, 2010 and
32,972,253 shares in the same period of 2009. The dilution is related to
warrants and convertible notes which had a 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 accrued gain (loss) on foreign exchange results from the
fluctuation of exchange rates which are applied when translating the operating
results. The gain on foreign exchange in the three months ended September
30, 2010 was $1,561,913, compared with a gain of $69,244 in the same period of
2009. The increase in gain on foreign exchange was due to foreign exchange
fluctuations during the period.





Nine
months Ended September 30, 2010 Compared With Nine Months Ended September 30,
2009





Revenues








In the
nine months ended September 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 third quarter of 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 recognized approximately $33.4 million from Puhua
Phase One and Puhua Phase Two for the nine months ended as of September 30,
2010.




- 30
-




Nine months
                    
                    
                    Nine monthsended
                    
                    
                    endedRevenues by project:
                    
                    September
      30, 2010
                    
                    
                    September
      30, 2009US
      dollarsProject
      Under ConstructionTsining
      JunJing II Phase One (Under construction on September 30,
      2009)
                    
                    $
                    -
                    
                    
                    $
                    45,457,017Tsining
      JunJing II Phase Two
                    
                    
                    56,135,716
                    
                    
                    
                    9,764,537Puhua
      Phase One
                    
                    
                    29,822,986
                    
                    
                    
                    -Puhua
      Phase Two
                    
                    
                    3,601,898
                    
                    
                    
                    --
                    
                    
                    
                    -Projects
      CompletedTsining
      JunJing II Phase One
                    
                    
                    4,335,534Tsining
      JunJing I
                    
                    
                    2,880,109
                    
                    
                    
                    473,878Tsining-24G
                    
                    
                    1,692,425
                    
                    
                    
                    3,469,461Additional
      Project
                    
                    
                    598,700
                    
                    
                    
                    670,198$
                    99,067,368
                    
                    
                    $
                    56,835,091





Revenues
from the sale of properties





The
revenues from the sale of properties in the nine months ended September 30,
2010increased 74.3
percent to $99,067,368 from $56,835,091 in the same period of 2009. The increase
was primarily due to the increased revenue from Tsining JunJing II Phase Two,
and Puhua Project. The pre-sale of Phase One began in the fourth
quarter of 2009 while the pre-sale of Phase Two started in the third quarter of
2010.





The
following table summarizes details of our most significant
projects:




Tsining JunJing II Phase two Buildings
                  
                  Percentage of Completion10#
                  
                  
                  92.90
                  %11#
                  
                  
                  97.20
                  %12#
                  
                  
                  82.50
                  %13#
                  
                  
                  93.91
                  %16#
                  
                  
                  92.18
                  %17#
                  
                  
                  94.96
                  %18#
                  
                  
                  86.36
                  %19#
                  
                  
                  94.94
                  %22#
                  
                  
                  88.65
                  %23#
                  
                  
                  88.72
                  %24#
                  
                  
                  84.73
                  %25#
                  
                  
                  80.89
                  %








Puhua Phase one
                  
                  Percentage of Completion1#
                  
                  
                  61.97
                  %2#
                  
                  
                  86.51
                  %3#
                  
                  
                  35.98
                  %4#
                  
                  
                  71.15
                  %5#
                  
                  
                  39.49
                  %6#
                  
                  
                  61.34
                  %7#
                  
                  
                  31.42
                  %8#
                  
                  
                  57.10
                  %9#
                  
                  
                  56.02
                  %10#
                  
                  
                  56.16
                  %11#
                  
                  
                  32.71
                  %12#
                  
                  
                  51.64
                  %13#
                  
                  
                  48.15
                  %








Puhua Phase two
                
                Percentage of Completion14#
                
                
                26.34
                %15#
                
                
                25.12
                %16#
                
                
                30.37
                %17#
                
                
                33.11
                %18#
                
                
                25.74
                %19#
                
                
                29.00
                %20#
                
                
                29.12
                %21#
                
                
                28.47
                %22#
                
                
                25.37
                %23#
                
                
                30.83
                %24#
                
                
                25.12
                %




- 31
-




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 third quarter of 2009 and were able to secure $48.4 million
in contract sales for 468 units of which we recognized approximately
$56 million for the 9 months ended September 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 $68.4 million in contract
sales for the 9 months ended September 30, 2010 of which we recognized
approximately $33.4 million for the 9 months ended September
30.





Revenues
from projects completed





The
revenue from completed projects totaled $9,506,768 for the nine months
ended September 30, 2010, compared to $4,613,537 during the same period of
2009. The increase was mainly due to JunJing II Phase One which was
completed and reclassified to completed projects during the fourth quarter of
fiscal 2009, and increased sales of commercial space at JunJing I
project.





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 $5,148,115 in other income
for the nine months ended September 30, 2010 compared with $3,689,359 in the
same period of 2009. The 39.5 percent increase can be explained by the
following table which summarizes the breakdown of the other income and their
changes during the nine months ended September 30, 2010 and 2009:





For
      the nine months endedSeptember
      30,
                  
                  
                  September
      30,2010
                  
                  
                  2009Interest
      income
                  
                  $
                  235,576
                  
                  
                  $
                  128,528Government
      reimbursement of infrastructure costs (1)
                  
                  
                  -
                  
                  
                  
                  1,213,127Rental
      income  (2)
                  
                  
                  1,042,715
                  
                  
                  
                  1,812,814Income
      from property management services (3)
                  
                  
                  2,264,897
                  
                  
                  
                  322,313Gain
      on disposal of fixed assets
                  
                  
                  289,105
                  
                  
                  
                  16,945Gain
      on disposal of asset held for sale (4)
                  
                  
                  1,134,675
                  
                  
                  
                  -Miscellaneous
      income
                  
                  
                  181,147
                  
                  
                  
                  195,631$
                  5,148,115
                  
                  
                  $
                  3,689,358





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





(2)
            The
      decrease of rental income is due to sale of certain rental
      properties.





(3)
            The
      increase is due to additional projects, especially JunJing II Phase
      I.





(4)
            This
      item represents the disposal of a portion of JunJing II shopping mall
      area.





Cost
of sales of properties





The cost
of sales of properties in the nine months ended September 30, 2010 increased
86.4 percent to $74,821,470 compared with $40,130,502 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, Puhua Phase One and Phase Two
projects.





Gross
profit and profit margin





Gross
profit for the nine months ended September 30, 2010 was $27,709,162,
representing an increase of 46.0 percent from $18,973,392 in the same period of
2009. The gross profit margin for the nine months ended September 30, 2010 was
26.6 percent compared with 31.3 percent in the same period of 2009. Gross profit
and gross profit margin increased sequentially due to increased sales and
average selling prices of Jun Jing II Phase Two and Puhua projects as well as
from the sale of commercial space at some existing projects in the third quarter
of 2010 which typically carry a higher gross margin than residential apartment
sales.





Selling,
general and administrative expenses





Selling,
general and administrative expenses (SG&A) for the nine months ended
September 30, 2010 increased 56.7 percent to $9,170,039 from $5,853,458 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. This
quarter’s SG&A mainly include marketing 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 for 8.8 percent of total revenue for the nine
months ended September 30, 2010 compared to 9.7 percent for the same
period in 2009.




- 32
-




Stock-based
compensation





We
incurred no stock-based compensation for the nine months ended September 30,
2010 compared to the 87,777 compensation to the former CFO of the
Company.





Other
expenses





Other
expenses consist mainly of late delivery settlements and maintenance
costs. Other expenses in the nine months ended September 30, 2010 decreased
11.3 percent to $420,525 compared with $474,167 in the same period of
2009.





Net
income from business operation and operating profit margin





Net
income from business operation in the nine months ended September 30, 2010 was
$15,691,700 compared with $8,679,382 in the same period of 2009, primarily due
to the higher revenues generated by Tsining JunJing II Phase Two and Puhua Phase
One and Phase Two projects. The operating profit margin was 15.1 percent
for the nine months ended September 30, 2010 compared with 14.3 percent for
the same period of 2009. The decline in operating profit margin was
primarily due to the sales of the commercial building which had higher gross
margin.





Interest
expense





Interest
expense in the nine months ended September 30, 2010 increased 15.4 percent to
$1,388,166 from $1,202,786 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 September 30, 2010 section
above.





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 nine
months of 2010, our common stock price experienced large fluctuations with the
price decreasing from $4.13 on January 1, 2010 to $2.00 on September 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 a gain of $2,832,023 from the change in fair
value of embedded derivatives for the nine months ended September 30, 2010
compared with a loss of $3,017,272 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.




- 33
-




The
change in fair value of warrants was a reduction of value of $3,203,085 in the
nine months ended September 30, 2010, compared to an increase in value of
$4,012,736 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 nine months of 2010, our common stock price experienced large fluctuations
with the price decreasing from $4.13 on 1 January, 2010 to $2.00 on September
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.





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 of 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
did not become effective as of September 2009, the investors of the 5% Senior
Secured Convertible Debt decided to claim the Late Payments.





The
security registration expenses were $0 for the nine months ended September 30,
2010 because the Company has settled the Late Payments in fiscal 2009, compared
with $1,786,517 in the same period of 2009.





Provision
of current income taxes




The
provision for current income taxes for the nine months ended September 30,
2010 was $4,467,337 compared with $1,591,331 recovery of income
tax. The recovery of income taxes for the three months ended September 30, 2009
was due to the tax settlement between Hao Tai and the local tax bureau. Due
to the settlement the Company recovered around $4.86 million in the third
quarter of 2009.





Net
income





Net
income for the nine months ended September 30, 2010
increased 367.8 percent to $15,161,346 compared to $3,240,705 in
the same period of 2009.





We
believe that the increase in net income was a result of multiple factors.
During the nine months ended September 30, 2010, we had more projects generating
revenues, compared with the same period in 2009. We also spent more on marketing
to enhance sales in light of tightened government policies. Our net income
margin, due to the decrease of parking lots sales recovered to 14.5 percent in
the third quarter of 2010 from 5.4 percent in the third quarter of
2010.





With the
introduction of Puhua, we also expect the gross margin to improve
slightly in the future, primarily because of its better quality and higher
average price in Puhua. The average selling price increased to RMB
5,084.5 (approximately US$751) per square meter during the third quarter of
2010, compared with RMB4,249 (approximately US$622) per square meter when the
company started pre-sales in October 2009.





The
periodic revaluation of derivatives and warrants also contributed approximately
$1.4 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 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 $86.09 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.




- 34
-




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 the 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 an
effective interest rate of 45%. The related accretion cost incurred for the
three and nine months ended September 30, 2010 was $5,044,349 and
$13,752,833, respectively (2009 - $Nil and $Nil) and was capitalized in real
estate construction in progress.





Basic
and diluted earnings per share




Basic
earnings per share was $0.03 in the nine months ended September 30, 2010,
compared to $0.11 in the same period of 2009. Diluted earnings per
share was ($0.05) in the nine months ended September 30, 2010, compared to
$0.11 in the same period of 2009. The number of shares outstanding
doesn’t change significantly from year to year. Earnings available to distribute
decreased from $3,519,860 for the nine months ended September 30, 2009
to $932,303 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 32,911,414 shares in the nine months ended September 30, 2010 and
30,987,760 shares in the same period of 2009. The weighted average shares
outstanding used to calculate the diluted earnings per share was
35,636,354 shares in the nine months ended September 30, 2010 and
30,996,953 shares in the same period of 2009. The dilution is related to
warrants and convertible notes which have a dilutive effect.





Foreign
exchange





The
company operates in China and the functional currency is Chinese Renminbi (RMB)
but the reporting currency is U.S. dollars, based on the exchange rate of the
two currencies. The fluctuation of exchange rates during the nine months ended
September 30, 2010 and the same period of 2009, when translating the operating
results and financial positions at different exchange rates, created the
accrued gain on foreign exchange. The gain on foreign exchange in the nine
months ended September 30, 2010 was $2,368,760, compared with the loss of
$242,176 in the same period of 2009. The gain was due to significant
appreciation of RMB.





Cash
flow discussion





There is
net cash inflow of $33,393,083 during the nine months ended September 30,
2010 compared with an $18,341,447 cash outflow during the same period of
2009.




The
operating activity cash inflow was $23,359,023 in the nine months ended
September 30, 2010 while its cash outflow of $10,808,209 in the same period
of 2009. The increase is due to the increase of advances from customers
amounting to 23,391,607.





A cash
outflow of $81,717 in investing activities for the nine months ended
September 30, 2010, compared with the cash inflow of $447,990 for the same
period of 2009. The decrease is due to that the Company purchases more
property and equipment during the nine months ended September 30,
2010.





There was
a cash inflow of $9,952,343 for financing activities for the nine months
ended September 30, 2010 compared with $7,981,228 of outflow in 2009 due to
the additional bank loans drawn.





Debt
leverage





Total
debt consists of Loans payable, Loans from employees, Bank loans, Convertible
Debt and mandatorily redeemable noncontrolling interests in
Subsidiaries.





Total
debt outstanding as of September 30, 2010 was $132,111,011 compared with
$59,801,870 on December 31, 2009. Net debt outstanding (total debt
less cash) as of September 30, 2010 was $60,500,202 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 38.3 percent on
September30, 2010 and 20.2 percent on December 31, 2009, due to the
addition of the mandatorily redeemable noncontrolling interests in
Puhua.




- 35
-




Liquidity
and capital resources





Our
principal liquidity demands are based on the development of new properties,
property acquisitions, and general corporate purposes. As of September 30,
2010, we had $71,610,809 of cash and cash equivalents, compared to $36,863,216
as of December 31, 2009, an increase of $34,747,593. Along with progress in
projects, we can use the internally generated cash flow to fund daily
operation.





The
Company leases part of its office and hotel space under various operating lease
agreements with expiring dates between 2010 and 2019.





The
Company entered into a consulting service contract with a third party, which has
a set payment schedule and 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 estimated
that the balances will be paid in two years.





The
Company entered into an acquisition agreement with Shaanxi Xinxing Construction
Co. Ltd. (“Xinxing Construction”) on September 30, 2010 (note 19)for $6,725,955 (RMB 45
million). The Company has paid $2,241,985 (RMB 15 million) as a deposit and will
pay the remaining balance of $4,483,970 (RMB 30 million) within one
year.





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
      leases
                
                $
                806,405
                
                
                $
                171,731
                
                
                $
                100,739
                
                
                $
                78,137
                
                
                $
                78,137
                
                
                $
                78,137
                
                
                $
                299,524Consulting
      contract
                
                
                280,248
                
                
                
                280,248
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Land
      use rights
                
                
                3,587,176
                
                
                
                941,634
                
                
                
                2,645,542
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Acquisition
      of Xinxing Construction
                
                
                4,483,970
                
                
                
                4,483,970
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                $
                9,157,799
                
                
                $
                5,877,583
                
                
                $
                2,746,281.1
                
                
                $
                78,137.2
                
                
                $
                78,137
                
                
                $
                78,137
                
                
                $
                299,524








Financial
obligations





As of
September 30, 2010 we had total bank loans of $52,312,981 with a weighted
average interest rate of 11.7 percent. Mortgage debt (total bank loans) is
secured by the assets of the company.





Bank
loans





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





On June
28, 2008, the Company signed a strategic partnership Memorandum of Understanding
(“MOU”) with China Construction Bank Xi’an Branch that established a RMB 1
billion (approximately US$149 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 September 30, 2010.




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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 September 30, 2010, the current ratio was approximately 112.6%, and
the liabilities to assets ratio was approximately 58.1%.





The bank
loans balances were secured by certain of the Company’s real estate held for
development or sales with a carrying value of $13,987,502 compared to
$91,657,685 as of December 31, 2009 and certain buildings and income
producing properties and improvements with a carrying value of $9,747,369 at
September 30, 2010 compared to $9,738,804 as of December 31, 2009. The
weighted average interest rate on bank loans as at September 30, 2010 was 11.7%
compare to 6.6% as of December 31, 2009.


Bank
loans represent amounts due to various banks. These loans generally can be
renewed with the banks when they expire. Bank loans as of September 30,
2010 and December 31, 2009 consisted of
the following:





September
      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
                
                $
                -
                
                
                $
                2,930,017Due
      July 2, 2011, annual interest is at 8.614 percent, secured by the
      Company's Jun Jing Yuan I, Han Yuan and Xin Xing Tower
      projects
                
                
                2,690,382
                
                
                
                -China
      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
                
                
                22,419,849
                
                
                
                -Commercial
      Bank Weilai BranchDue
      August 29, 2010, annual interest is at 10.21 percent, secured by the
      Company's Jun Jing Yuan I and XinXing Tower projects
                
                
                -
                
                
                
                5,127,528Annual
      interest is at 7.29 percent, secured by the Company's Jun Jing Yuan I and
      XinXing Tower projects and guaranteed by Tsining. $747,328 is payable on
      December 20, 2010; $747,328 is payable on March 20, 2011; $1,494,657 is
      payable on June 20, 2011; $1,793,588 is payable on August 29,
      2011
                
                
                4,782,901
                
                
                
                -Bank
      of Beijing, Xi’an BranchDue
      December 10, 2012, annual interest is at the prime rate of People’s
      Bank of China, secured by the PuHua project with a minimum repayment of
      $7.47 million required by December 31, 2011.
                
                
                22,419,849
                
                
                
                12,452,571Total
                
                $
                52,312,981
                
                
                $
                36,185,705





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





Liquidity
expectation





The
Company believes that the combination of present capital resources, internally
generated funds, and unused financing sources are more than adequate to meet
cash requirements for the year 2010.





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








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.




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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 $110.7 million
at the end of September 2010, may change due to market fluctuations.
Currently, it is valued at our cost which is significantly below the market
value.





Risk
Relating to Property Sales





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





Foreign
Currency Exchange Rate Risk





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





Item
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 September 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.




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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
June 30, 2010.





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





None.




Item
3. Defaults Upon Senior Securities





None.





Item
4. (Removed and Reserved)




Item
5. Other Information





None.





Item
6. Exhibits





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