UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q/A


AMENDMENT
NO. 1


(Mark
One)





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





For the
quarterly period ended March 31, 2009





p  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)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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. Yesx  No ̈





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





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




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




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





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of May 7, 2009, 30,893,757 shares of
common stock.





EXPLANATORY
NOTE





This
Amendment No. 1 to our Quarterly Report on Form 10-Q initially filed with the
Securities and Exchange Commission (the “Commission”) on May 7, 2009 is being
filed in response to the Commission’s comment letter dated August 18, 2009. In
addition, this Amendment No. 1 to our Quarterly Report on Form 10-Q is being
filed to correct certain financial data and disclosure including Management's
Discussion and Analysis of Financial Condition and Results of Operations and to
restore our concolidated financial statements.







CHINA
HOUSING & LAND DEVELOPMENT, INC.


Index





.
                
                
                
                Page
                  NumberPART
      I
                
                FINANCIAL
      INFORMATION
                
                1Item
      1.
                
                Financial
      Statements
                
                1Consolidated
      Balance Sheets as of March 31, 2009 (unaudited) and December 31,
      2008
                
                1Consolidated
      Statements of Income and Other Comprehensive Income for the three months
      ended March 31, 2009 and 2008 (unaudited)
                
                2Consolidated
      Statements of Cash Flows for three months ended March 31, 2009 and
      2008 (unaudited)
                
                3Notes
      to Consolidated Financial Statements (unaudited)
                
                5Item
      2.
                
                Management's
      Discussion and Analysis or Plan of Operations
                
                17Item
      3.
                
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                32Item
      4T.
                
                Controls
      and Procedures
                
                33PART
      II.
                
                OTHER
      INFORMATION
                
                33Item
      1.
                
                Legal
      Proceedings
                
                33Item
      1A.
                
                Risk
      Factors
                
                33Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                41Item
      3.
                
                Defaults
      Upon Senior Securities
                
                41Item
      4.
                
                Submission
      of Matters to a Vote of Security Holders
                
                41Item
      5.
                
                Other
      Information
                
                41Item
      6.
                
                Exhibits
                
                42SIGNATURES
                
                
                
                43EX-31.1
                
                (Certifications
      required under Section 302 of the Sarbanes-Oxley Act of
    2002)EX-31.2
                
                (Certifications
      required under Section 302 of the Sarbanes-Oxley Act of
    2002)EX-32.1
                
                (Certifications
      required under Section 906 of the Sarbanes-Oxley Act of
    2002)EX-32.2
                
                (Certifications
      required under Section 906 of the Sarbanes-Oxley Act of
    2002)









PART I.
FINANCIAL INFORMATION





CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES





Condensed
Consolidated Balance Sheets


As of
March 31, 2009 and December 31, 2008


(Unaudited)





March 31,
                                                  
                                                  
                                                  December 31,2009
                                                  
                                                  
                                                  2008(Restated - Note2)
                                                  
                                                  
                                                  (Restated - Note 2)ASSETSCash
                                                  
                                                  $
                                                  10,598,200
                                                  
                                                  
                                                  $
                                                  37,425,340Cash
      - restricted
                                                  
                                                  
                                                  750,761
                                                  
                                                  
                                                  
                                                  805,012Accounts
      receivable, net of allowance for doubtful accounts of $1,276,211 and
      $1,278,156, respectively
                                                  
                                                  
                                                  4,001,440
                                                  
                                                  
                                                  
                                                  813,122Other
      receivables and prepaid expenses, net
                                                  
                                                  
                                                  1,108,985
                                                  
                                                  
                                                  
                                                  446,497Notes
      receivable, net
                                                  
                                                  
                                                  714,515
                                                  
                                                  
                                                  
                                                  811,695Real
      estate held for development or sale
                                                  
                                                  
                                                  108,706,852
                                                  
                                                  
                                                  
                                                  60,650,011Property
      and equipment, net
                                                  
                                                  
                                                  12,717,369
                                                  
                                                  
                                                  
                                                  12,391,501Assets
      held for sale
                                                  
                                                  
                                                  14,286,913
                                                  
                                                  
                                                  
                                                  14,308,691Advances
      to suppliers
                                                  
                                                  
                                                  476,098
                                                  
                                                  
                                                  
                                                  704,275Deposits
      for land use rights
                                                  
                                                  
                                                  28,566,252
                                                  
                                                  
                                                  
                                                  47,333,287Intangible
      assets, net
                                                  
                                                  
                                                  41,613,577
                                                  
                                                  
                                                  
                                                  46,043,660Goodwill
                                                  
                                                  
                                                  815,633
                                                  
                                                  
                                                  
                                                  -Deferred
      financing costs
                                                  
                                                  
                                                  583,636
                                                  
                                                  
                                                  
                                                  622,118Total
      assets
                                                  
                                                  
                                                  224,940,231
                                                  
                                                  
                                                  
                                                  222,355,209LIABILITIESAccounts
      payable
                                                  
                                                  $
                                                  9,627,775
                                                  
                                                  
                                                  $
                                                  10,525,158Advances
      from customers
                                                  
                                                  
                                                  10,561,379
                                                  
                                                  
                                                  
                                                  9,264,385Accrued
      expenses
                                                  
                                                  
                                                  3,869,126
                                                  
                                                  
                                                  
                                                  3,539,842Accrued
      security registration expenses
                                                  
                                                  
                                                  1,213,483
                                                  
                                                  
                                                  
                                                  613,483Payables
      for acquisition of businesses
                                                  
                                                  
                                                  9,428,054
                                                  
                                                  
                                                  
                                                  8,429,889Income
      and other taxes payable
                                                  
                                                  
                                                  8,821,074
                                                  
                                                  
                                                  
                                                  7,532,730Other
      payables
                                                  
                                                  
                                                  4,208,434
                                                  
                                                  
                                                  
                                                  5,183,251Loans
      from employees
                                                  
                                                  
                                                  1,666,203
                                                  
                                                  
                                                  
                                                  1,517,039Loans
      payable
                                                  
                                                  
                                                  34,392,425
                                                  
                                                  
                                                  
                                                  35,617,442Deferred
      tax liability
                                                  
                                                  
                                                  11,493,395
                                                  
                                                  
                                                  
                                                  11,510,915Warrants
      liability
                                                  
                                                  
                                                  949,904
                                                  
                                                  
                                                  
                                                  1,117,143Fair
      value of embedded derivatives
                                                  
                                                  
                                                  636,360
                                                  
                                                  
                                                  
                                                  760,398Convertible
      debt
                                                  
                                                  
                                                  13,903,756
                                                  
                                                  
                                                  
                                                  13,621,934Total
      liabilities
                                                  
                                                  
                                                  110,771,368
                                                  
                                                  
                                                  
                                                  109,233,609SHAREHOLDERS'
      EQUITYCommon
      stock: $.001 par value, authorized 100,000,000 shares issued and
      outstanding 30,893,757 and 30,893,757, respectively
                                                  
                                                  
                                                  30,894
                                                  
                                                  
                                                  
                                                  30,894Additional
      paid-in capital
                                                  
                                                  
                                                  31,390,750
                                                  
                                                  
                                                  
                                                  31,390,750Statutory
      reserves
                                                  
                                                  
                                                  3,696,038
                                                  
                                                  
                                                  
                                                  3,541,226Retained
      earnings
                                                  
                                                  
                                                  39,594,298
                                                  
                                                  
                                                  
                                                  38,651,579Accumulated
      other comprehensive income
                                                  
                                                  
                                                  10,034,668
                                                  
                                                  
                                                  
                                                  10,397,801Total
      China Housing & Land Development, Inc. shareholders’
      equity
                                                  
                                                  
                                                  85,106,648
                                                  
                                                  
                                                  
                                                  84,012,250Non-controlling
      interest
                                                  
                                                  
                                                  29,062,215
                                                  
                                                  
                                                  
                                                  29,109,350Total
      shareholders' equity
                                                  
                                                  
                                                  114,168,863
                                                  
                                                  
                                                  
                                                  113,121,600Total
      liabilities and shareholders' equity
                                                  
                                                  $
                                                  224,940,231
                                                  
                                                  
                                                  $
                                                  222,355,209





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




1




CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES





Condensed
Consolidated Statements of Income and Other Comprehensive Income


For The
Three Months Ended March 31, 2009 and 2008


(Unaudited)





3 Months,
                                            
                                            
                                            3 Months,March 31,
                                            
                                            
                                            March 31,2009
                                            
                                            
                                            2008(Restated - Note 2)REVENUESSale
      of properties
                                            
                                            $
                                            12,925,869
                                            
                                            
                                            $
                                            4,182,149Other
      income
                                            
                                            
                                            918,814
                                            
                                            
                                            
                                            564,488Total
      revenues
                                            
                                            
                                            13,844,683
                                            
                                            
                                            
                                            4,746,637COSTS
      AND EXPENSESCost
      of properties and land
                                            
                                            
                                            9,498,215
                                            
                                            
                                            
                                            2,367,112Selling,
      general, and administrative expenses
                                            
                                            
                                            1,408,824
                                            
                                            
                                            
                                            1,148,601Security
      registration expenses
                                            
                                            
                                            600,000
                                            
                                            
                                            
                                            -Other
      expenses
                                            
                                            
                                            39,796
                                            
                                            
                                            
                                            15,910Interest
      expense
                                            
                                            
                                            338,078
                                            
                                            
                                            
                                            439,673Accretion
      expense on convertible debt
                                            
                                            
                                            281,822
                                            
                                            
                                            
                                            171,683Change
      in fair value of embedded derivatives
                                            
                                            
                                            (124,038
                                            )
                                            
                                            
                                            284,511Change
      in fair value of warrants
                                            
                                            
                                            (167,239
                                            )
                                            
                                            
                                            (9,489
                                            )Total
      costs and expenses
                                            
                                            
                                            11,875,458
                                            
                                            
                                            
                                            4,418,001Income
      before provision for income taxes
                                            
                                            
                                            1,969,225
                                            
                                            
                                            
                                            328,636Provision
      for income taxes
                                            
                                            
                                            713,641
                                            
                                            
                                            
                                            280,951NET
      INCOME
                                            
                                            
                                            1,255,584
                                            
                                            
                                            
                                            47,685Net
      loss in subsidiaries attributable to noncontrolling
    interest
                                            
                                            
                                            47,135
                                            
                                            
                                            
                                            -Net
      income attributable to China Housing & Land Development,
      Inc.
                                            
                                            
                                            1,302,719
                                            
                                            
                                            
                                            47,685(Loss)
      gain on foreign exchange
                                            
                                            
                                            (363,133
                                            )
                                            
                                            
                                            3,047,864COMPREHENSIVE
      INCOME
                                            
                                            $
                                            939,586
                                            
                                            
                                            $
                                            3,095,549NET
      INCOME (LOSS) PER SHAREBasic
                                            
                                            $
                                            0.04
                                            
                                            
                                            $
                                            0.00Diluted
                                            
                                            $
                                            0.04
                                            
                                            
                                            $
                                            (0.01
                                            )WEIGHTED
      AVERAGE SHARES OUTSTANDINGBasic
                                            
                                            
                                            30,893,757
                                            
                                            
                                            
                                            30,142,565Diluted
                                            
                                            
                                            30,893,757
                                            
                                            
                                            
                                            30,298,090





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


2




CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES





Condensed
Consolidated Statements of Cash Flows


For The
Three Months Ended March 31, 2009 and 2008


(Unaudited)





March 31,
                
                
                March 31,2009
                
                
                2008(Restated - Note 2)CASH FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                1,255,584
                
                
                $
                47,685Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Depreciation
                
                
                154,088
                
                
                
                93,821(Gain)
      loss on disposal of fixed assets and inventory
                
                
                (16,945
                )
                
                
                86Amortization
      of deferred financing costs
                
                
                38,482
                
                
                
                28,458Change
      in fair value of warrants
                
                
                (167,239
                )
                
                
                (9,489
                )Change
      in fair value of embedded derivatives
                
                
                (124,038
                )
                
                
                284,511Accretion
      expense on convertible debt
                
                
                281,822
                
                
                
                171,683Non-cash
      proceeds from sale of properties
                
                
                (15,835
                )
                
                
                (2,851,908
                )(Increase)
      decrease in assets:Accounts
      receivable
                
                
                (3,107,443
                )
                
                
                (141,670
                )Real
      estate held for development or sale
                
                
                (36,452,495
                )
                
                
                (670,715
                )Advances
      to suppliers
                
                
                227,051
                
                
                
                (298,253
                )Refund
      (deposit) for land use rights
                
                
                11,372,462
                
                
                
                (1,147,224
                )Other
      receivables and prepaid expenses
                
                
                643,186
                
                
                
                (12,024
                )Increase
      (decrease) in liabilities:Accounts
      payable
                
                
                (892,860
                )
                
                
                (503,618
                )Advances
      from customers
                
                
                1,182,958
                
                
                
                444,062Accrued
      expenses
                
                
                198,281
                
                
                
                337,253Other
      payables
                
                
                (2,127,062
                )
                
                
                239,699Income
      and other taxes payable
                
                
                1,148,392
                
                
                
                459,799Accrued
      security registration expenses
                
                
                600,000
                
                
                
                -Net
      cash used in operating activities
                
                
                (25,801,611
                )
                
                
                (3,527,844
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Change
      in restricted cash
                
                
                53,002
                
                
                
                (188
                )Purchase
      of property and equipment
                
                
                (63,224
                )
                
                
                (313,056
                )Notes
      receivable collected
                
                
                111,737
                
                
                
                67,613Cash
      acquired in business combination
                
                
                519,309
                
                
                
                -Proceed
      from sale of property and equipment
                
                
                193,098
                
                
                
                14Net
      cash provided by (used in) investing activities
                
                
                813,922
                
                
                
                (245,617
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of convertible debt
                
                
                -
                
                
                
                19,230,370Loans
      payable
                
                
                (1,170,292
                )
                
                
                -Payments
      on loans payable
                
                
                -
                
                
                
                -Loans
      to or repayments from employees, net
                
                
                151,407
                
                
                
                (316,093
                )Repayment
      of payables for acquisition of businesses
                
                
                (753,416
                )
                
                
                (2,961,307
                )Proceeds
      from issuance of common stock and warrants
                
                
                -
                
                
                
                8,415Net
      cash (used in) provided by financing activities
                
                
                (1,772,301
                )
                
                
                15,961,385(DECREASE)/INCREASE
      IN CASH
                
                
                (26,759,990
                )
                
                
                12,187,924Effects
      on foreign currency exchange
                
                
                (67,150
                )
                
                
                (35,750
                )CASH,
      beginning of period
                
                
                37,425,340
                
                
                
                379,633CASH,
      end of period
                
                $
                10,598,200
                
                
                $
                2,351,015





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




3




CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES





Condensed
Consolidated Statements of Shareholders' Equity


As of
March 31, 2009 and December 31, 2008


(Unaudited)




AccumulatedAdditional
                    
                    
                    
                    
                    
                    
                    
                    
                    otherCommon Stock
                    
                    
                    paid-in
                    
                    
                    Statutory
                    
                    
                    Retained
                    
                    
                    comprehensive
                    
                    
                    NoncontrollingShares
                    
                    
                    Par Value
                    
                    
                    capital
                    
                    
                    reserves
                    
                    
                    earnings
                    
                    
                    income
                    
                    
                    Interest
                    
                    
                    Totals(Restated - Note
      2)
                    
                    
                    
                    
                    
                    
                    
                    
                    (Restated - Note
      2)BALANCE,
      December 31, 2008
                    
                    
                    30,893,757
                    
                    
                    $
                    30,894
                    
                    
                    $
                    31,390,750
                    
                    
                    $
                    3,541,226
                    
                    
                    $
                    38,651,579
                    
                    
                    $
                    10,397,801
                    
                    
                    $
                    29,109,350
                    
                    
                    $
                    113,121,600Net
      Income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,302,719
                    
                    
                    
                    
                    
                    
                    
                    (47,135
                    )
                    
                    
                    1,255,584Adjustment
      to statutory reserve
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    154,812
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    154,812Foreign
      currency translation adjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (363,133
                    )
                    
                    
                    
                    
                    
                    
                    (363,133
                    )BALANCE,
      March 31, 2009
                    
                    
                    30,893,757
                    
                    
                    $
                    30,894
                    
                    
                    $
                    31,390,750
                    
                    
                    $
                    3,696,038
                    
                    
                    $
                    39,954,298
                    
                    
                    $
                    10,034,668
                    
                    
                    $
                    29,062,215
                    
                    
                    $
                    114,168,863




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




4




CHINA
HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES


Notes
To Condensed Consolidated Financial Statements


(Unaudited)





Note
1 — Organization and Basis of Presentation





China
Housing & Land Development, Inc. (the “Company”) is a Nevada corporation,
incorporated on July 6, 2004 under the name Pacific Northwest Productions Inc.
(“Pacific”). On May 6, 2006, the Company changed its name to China Housing &
Land Development, Inc.





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





In the
opinion of management, the unaudited interim condensed consolidated financial
statements reflect all adjustments necessary for a fair statement of the
Company's consolidated financial position as at March 31, 2009, results of
operations and cash flows for the periods ended March 31, 2009 and 2008. These
adjustments consist of normal recurring items. The results of operations for any
interim period are not necessarily indicative of results for the full
year.





The
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, 2008 (“2008 Annual Report”); except as disclosed below and do not include
certain footnote disclosures and financial information normally included in
annual consolidated financial statements prepared in accordance with GAAP and,
therefore, should be read in conjunction with the audited consolidated financial
statements and notes included in the Company's 2008 Annual Report.





Accounting
principles recently adopted





In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS
No. 141(R)") which revised SFAS No. 141, "Business Combinations." SFAS No.
141(R) establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquirer and the
goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements
which will enable users to evaluate the nature and financial effects of the
business combination. The adoption on January 1, 2009 of this standard did not
have a material impact on the Company’s consolidated financial
statements.




In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements." (“SFAS No.160”). SFAS No. 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes
reporting requirements that provide sufficient disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the
noncontrolling owners. The adoption on January 1, 2009 of this standard resulted
in changes to our presentation for noncontrolling interests and did not have a
material impact on the Company’s results of operations and financial
condition.




5





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS No. 161 amends and expands the
disclosure requirements of FASB Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") to require qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit risk-related contingent features in
derivative agreements. The adoption on January 1, 2009 of this standard did not
have a material impact on the Company’s consolidated financial
statements.





In April
2008, the FASB issued SFAS No. 142-3 "Determination of the Useful Life of
Intangible Assets" ("SFAS No. 142-3"). This guidance is intended to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), and the period
of expected cash flows used to measure the fair value of the asset under SFAS
No. 141(R) when the underlying arrangement includes renewal or extension of
terms that would require substantial costs or result in a material modification
to the asset upon renewal or extension. Companies estimating the useful life of
a recognized intangible asset must now consider their historical experience in
renewing or extending similar arrangements or, in the absence of historical
experience, must consider assumptions that market participants would use about
renewal or extension as adjusted for SFAS No. 142's entity-specific factors. The
adoption on January 1, 2009 of this standard did not have a material impact on
the Company’s consolidated financial statements.





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





In May
2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)." (“FSP APB 14-1)”. FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer's
non-convertible debt borrowing rate. Such separate accounting also requires
accretion of the resulting discount on the liability component of the debt to
result in interest expense equal to an issuer’s nonconvertible debt borrowing
rate. In addition, the FSP provides for certain changes related to the
measurement and accounting related to derecognition, modification, or exchange.
The adoption on January 1, 2009 of this standard did not have a material impact
on the Company’s consolidated financial statements.





In
September 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities." (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in
computing income per share under the two-class method pursuant to SFAS No. 128,
"Earnings per Share." This guidance establishes that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method. The adoption on January 1, 2009 of this standard did not have a material
impact on the Company’s consolidated financial statements.


6


Recent
accounting pronouncements





In April
2009, the FASB issued SFAS No. 107-1 and APB 28-1, “Interim Disclosure about
Fair Value of Financial Instruments” (“SFAS No. 107-1and APB 28-1”). SFAS No.
107-1 and APB 28-1 requires interim disclosures regarding the fair values of
financial instruments that are within the scope of SFAS No. 107, “Disclosures
about the Fair Value of Financial Instruments.” (“SFAS No. 107”). Additionally,
SFAS No. 107-1 and APB 28-1 requires disclosure of the methods and significant
assumptions used to estimate the fair value of financial instruments on an
interim basis as well as changes of the methods and significant assumptions from
prior periods. SFAS No. 107-1 and APB 28-1 does not change the accounting
treatment for these financial instruments and is effective for the Company
beginning in the second quarter of the year 2009. The Company is currently
evaluating the impact of the adoption of SFAS No. 107-1 and APB
28-1.





In April
2009, the FASB issued SFAS No. 115-2 and SFAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments,” (“SFAS No.152-2 and SFAS
No.124-2”) which provides operational guidance for determining
other-than-temporary impairments (“OTTI”) for debt securities. SFAS No.152-2 and
SFAS No.124-2 are effective for interim and annual periods ending after June 15,
2009 and will be adopted by the Company beginning in the third quarter of 2009.
The Company is currently evaluating the impact of the adoption of SFAS No.152-2
and SFAS No.124-2.





In April
2009, the FASB issued SFAS No. 157-4, “Determining Fair Value when Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly” (“SFAS No. 157-4”). SFAS No.
157-4 provides guidance on how to determine the fair value of assets and
liabilities when the volume and level of activity for the asset/liability has
significantly decreased. SFAS No. 157-4 also provides guidance on identifying
circumstances that indicate a transaction is not orderly. In addition, SFAS No.
157-4 requires disclosure in interim and annual periods of the inputs and
valuation techniques used to measure fair value and a discussion of changes in
valuation techniques. SFAS No. 157-4 is effective for us beginning in the second
quarter of the year 2009. The Company is currently evaluating the impact of the
adoption of SFAS No. 157-4.





Foreign
exchange rates used





March 31,
                  2009
                
                
                December 31,
                  2008
                
                
                March 31,
                  2008Period end
      RMB/U.S. Dollar exchange rate
                
                
                6.8329
                
                
                
                6.8225
                
                
                
                7.1590Average
      RMB/U.S. Dollar exchange rate
                
                
                6.8359
                
                
                
                6.9483
                
                
                
                7.0120





New
accounting policies related to acquisition





On
January 1, 2009, the Company acquired Xinxing Property (See Note 3). Xinxing
property provides property management services. The revenues of the property
management services are recognized when the services are provided.





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





Reclassification





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


7





Note
2 —
Restatement of Security Registration Expenses




Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible Debt
(Note 13), the Company was required to pay the investors certain late
registration payments (“Late Payments”) if the Company failed to file a
Registration Statement within 60 days after the closing date of the 5% Senior
Secured Convertible Debt. The Company commenced negotiations with the holders of
the 5% Senior Secured Convertible Debt to waive the Late Payments in December
2008, as both parties believed that the registration statement would become
effective within a short period of time. However, as the registration statement
has not become effective as of September 2009, the investors of the 5% Senior
Secured Convertible Debt have decided to claim the Late Payments. Because the
Company failed to accrue the Late Payments, the Company has restated the 2008
year end, 2009 quarter one and 2009 quarter two consolidated financial
statements to accrue the corresponding expenses.




The
restatement had the following impact on the Company’s previously reported
results of operations for the three months ended March 31, 2009:




Three
      MonthsEnded31-Mar2009Security
      registration expenses as previously reported
                              
                              $
                              -Adjustment
      to accrue security registration expenses
                              
                              
                              600,000Security
      registration expenses as restated
                              
                              $
                              600,000Net
      income as previously reported
                              
                              $
                              1,855,584Adjustment
      to accrue security registration expenses
                              
                              
                              (600,000
                              )Net
      income as restated
                              
                              $
                              1,255,584Basic
      and diluted earnings per shareAs
      previously reported
                              
                              $
                              0.06As
      restated
                              
                              $
                              0.04









March
      31,
                        
                        
                        December
      31,2009
                        
                        
                        2008Accrued
      security registration expenses as previously reported
                        
                        $
                        -
                        
                        
                        $
                        -Adjustment
      to accrue security registration expenses
                        
                        
                        1,213,483
                        
                        
                        
                        613,483Accrued
      security registration expenses as restated
                        
                        $
                        1,213,483
                        
                        
                        $
                        613,483Retained
      earnings as previously reported
                        
                        
                        
                        
                        
                        $
                        39,265,062Cumulative
      effect of the adjustment to accrue security registration
      expenses
                        
                        
                        
                        
                        
                        
                        (613,483
                        )Retained
      earnings as restated
                        
                        
                        
                        
                        
                        $
                        38,651,579




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




Note
3 — Acquisition




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




According
to the purchase agreement, the operational control of Xinxing Property passed to
the Company effective January 1, 2009, and, accordingly, the results of Xinxing
Property’s operation have been included in the Company’s Consolidated Statement
of Income and Other Comprehensive Income from that date. This acquisition is not
considered material to the Company, and therefore, pro-forma information for the
comparative period has not been presented.





The total
purchase price included (1) an initial cash payment of RMB 2.0 million
(approximately $0.3 million), payable upon signing of the purchase agreement,
(2) cash payment of RMB 3.6 million,(approximately $0.5 million), on March 30,
2009, (3) an additional cash payment of RMB 3.6 million,(approximately $0.5
million), on June 30, 2009 and (4) a final cash payment of RMB 2.8
million,(approximately $0.4 million), on September 30, 2009. If the Company does
not make payments after 45 days of signing the agreement, a 1% penalty per month
will be calculated based on the payable amount. If the payment is delayed for
more than 3 months, the original shareholders of Xinxing Property have the right
to cancel the deal. As of March 31, 2009, the remaining balance under the
agreement amounted to $1,756,209 (see note 9).





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





Purchase
      Price
                  
                  $
                  1,758,886Value
      assigned to assets and liabilities:Assets:Cash
                  
                  $
                  519,309Accounts
      receivable
                  
                  
                  81,769Other
      Receivable/Prepaid expenses and other assets
                  
                  
                  1,313,754Property
      and equipment, net
                  
                  
                  612,796Liabilities:Accounts
      payable
                  
                  
                  11,907Advance
      from customers
                  
                  
                  2,381Accrued
      expenses
                  
                  
                  120,188Income
      tax and other taxes payable
                  
                  
                  151,143Other
      payables
                  
                  
                  1,299,999Total
      net assets
                  
                  
                  942,010Goodwill
      as at January 1, 2009
                  
                  $
                  816,876Foreign
      exchange translation adjustment
                  
                  $
                  (1,243
                  )Goodwill
      as at March 31, 2009
                  
                  $
                  815,633





Note
4 — Supplemental Disclosure of Cash Flow Information





Income
taxes paid amounted to $0 for both three months ended March 31, 2009
and 2008. Interest paid for three months ended March 31, 2009 and 2008 amounted
to $1,091,235 and $377,145 respectively.


8





Note
5 — Other Receivables and Prepaid Expenses





Other
receivables and prepaid expenses of the following at March 31, 2009 and
December 31, 2008:





March 31,
                  2009
                
                
                December 31,
                  2008Other
      receivables
                
                $
                1,323,875
                
                
                $
                916,886Allowance
      for bad debts
                
                
                (328,416
                )
                
                
                (473,058
                )Prepaid
      expenses
                
                
                113,526
                
                
                
                2,669Total
                
                $
                1,108,985
                
                
                $
                446,497





Note
6 – Real Estate Held for Development or Sale





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





March 31,
                  2009
                
                
                December 31,
                  2008Finished
      projects
                
                $
                9,199,897
                
                
                $
                10,181,827Construction
      in progress
                
                
                99,506,955
                
                
                
                50,468,184Total
                
                $
                108,706,852
                
                
                $
                60,650,011





Interest
on debt incurred by the Company for the three months ended March 31, 2009 was
$1,197,857 (March 31, 2008 - $803,031). Of this interest, the Company
capitalized $859,779 in construction in progress during the three months ended
March 31, 2009 (2008 - $370,975).


9





Note
7 — Property and Equipment





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





March 31,
                  2009
                
                
                December 31,
                  2008Head
      office buildings and improvements
                
                $
                3,229,705
                
                
                $
                3,234,628Income
      producing properties and improvements
                
                
                10,543,012
                
                
                
                10,055,310Electronic
      equipment
                
                
                406,122
                
                
                
                228,422Vehicles
                
                
                72,173
                
                
                
                71,140Office
      furniture
                
                
                284,176
                
                
                
                183,399Computer
      software
                
                
                120,988
                
                
                
                91,272Total
                
                
                14,656,176
                
                
                
                13,874,711Accumulated
      depreciation
                
                
                (1,938,807
                )
                
                
                (1,483,210
                )Property
      and equipment, net
                
                $
                12,717,369
                
                
                $
                12,391,501





Depreciation
expense for the three months ended March 31, 2009 and 2008 amounted to $154,088
and $93,821. The depreciation expense was included in the selling, general, and
administrative expenses and other income.





Note
8 — Intangible Asset





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





March 31,
                  2009
                
                
                December 31,
                  2008Intangible
      asset held
                
                $
                47,262,297
                
                
                $
                47,334,342Accumulated
      amortization
                
                
                (5,648,720
                )
                
                
                (1,290,682
                )Intangible
      asset held, net
                
                $
                41,613,577
                
                
                $
                46,043,660





Amortization
for the three months ended March 31, 2009 and 2008 amounted to $4, 360,003 and
$0, respectively. Amortization was capitalized in the real estate construction
in progress.





Note
9 — Accrued Expenses





March 31,
                  2009
                
                
                December 31,
                  2008Accrued
      expenses
                
                $
                964,654
                
                
                $
                855,270Accrued
      interest
                
                
                2,904,472
                
                
                
                2,684,572Total
                
                $
                3,869,126
                
                
                $
                3,539,842


10




Note
10 – Payables for Acquisition of Businesses





March 31,
                    2009
                  
                  
                  December 31,
                    2008Payable
      to original shareholders of New Land
                  (i)
                  
                  $
                  7,671,845
                  
                  
                  $
                  8,429,889Payable
      to original shareholders of Xinxing Property
                  (ii)
                  
                  
                  1,756,209
                  
                  
                  
                  -Total
                  
                  
                  $
                  9,428,054
                  
                  
                  $
                  8,429,889




(i)
            The
      payable to the original shareholders of New Land bears10% interest had an
      original maturity of January 30, 2009. New Land’s original shareholders
      have agreed to extend the loan to December 31,
  2009.





(ii)
            On
      January 20, 2009, the Company completed the acquisition of Xinxing
      Property (See Note 3). The total purchase price for the acquisition was
      RMB 12 million, (approximately $1.76 million). The total purchase price
      included 1) an initial cash payment of RMB 2.0 million,(approximately $0.3
      million), payable upon signing of the purchase agreement, 2) an additional
      cash payment of RMB 3.6 million (approximately $0.5 million), on March 30,
      2009, 3) an additional cash payment of RMB 3.6 million (approximately $0.5
      million), on June 30, 2009, and 4) a final cash payment of RMB 2.8 million
      (approximately $0.4 million), on September 30, 2009. If the Company does
      not make payments after 45 days of signing the agreement, a 1% penalty per
      month will be calculated based on the payable amount. If the payment is
      delayed for more than 3 months, the original shareholders of Xinxing
      Property have the right to cancel the deal. As of March 31, 2009, the
      remaining balance under the agreement amounted to
    $1,756,209.





Note
11 — Loans Payable





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





March 31,
                            2009
                          
                          
                          December 31,
                            2008Commercial
      Bank Weilai BranchDue
      December 25, 2009, annual interest is at 7.5%, secured by the Company's
      24G project
                          
                          $
                          4,390,522
                          
                          
                          $
                          5,130,084Commercial
      Bank Weilai BranchDue
      August 29, 2010, annual interest is at 10.21%, guaranteed by Tsining and
      secured by the Company's Tsining building and partial of the Junjing II
      properties
                          
                          
                          5,122,276
                          
                          
                          
                          5,130,084Xi'an
      Rural Credit Union Zao Yuan Rd. BranchDue
      September 14, 2009, annual interest is at 11.8%, secured by the Company's
      JunJing Yuan I, Yuan I, Han Yuan, and Xin Xing Tower
    projects
                          
                          
                          3,366,067
                          
                          
                          
                          3,371,198China
      Construction Bank, Xi'an BranchDue
      August 27, 2011, annual interest is at floating interest rate based on
      110% of People’s Bank of China rate, secured by the Company's JunJing Yuan
      II
                          
                          
                          21,513,560
                          
                          
                          
                          21,986,076Total
                          
                          $
                          34,392,425
                          
                          
                          $
                          35,617,442


11




All loans
were borrowed for construction projects. All interest paid was capitalized and
allocated to various construction projects.





On June
28, 2008, the Company signed a strategic partnership Memorandum of Understanding
(“MOU”) with China Construction Bank Xi’an Branch that established a RMB 1
billion (approximately US$147 million) credit line for real estate development
by the Company and its subsidiaries. Under the MOU, the company and its
subsidiaries are required to set up a basic deposit account with China
Construction Bank, to maintain a current ratio of not less than 90% and to
maintain liabilities to assets ratio of not greater than 65%. On August 28,
2008, the Company entered a loan agreement with China Construction Bank Xi’an
Branch to draw down the first RMB 150 million loan, which will mature on August
27, 2011. $21,986,075 (RMB 150 million) was received by the Company on December
31, 2008. As of March 31, 2009, our current ratio was approximately 178.4%, and
our liabilities to assets ratio was approximately 49.2%. The Company will be
able to draw down approximately another $101 million before we reach the maximum
liabilities to assets ratio of 65%. If we are unable to meet all above
covenants, we may not be able to draw down new loans from China Construction
Bank and this will cause the delay of our projects under
construction.





Note
12 – Fair Value of Financial Instruments





On
January 1, 2008 the Company adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”), for financial assets and liabilities. This statement provides
a framework for measuring fair value and requires expanded disclosures regarding
fair value measurements. SFAS No. 157 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, which for the
first quarter of the year 2009 is March 31, 2009.





The
fair-value hierarchy established in SFAS No. 157 prioritizes the inputs used in
valuation techniques into three levels as follows:





Level-1 –
            Observable
      inputs – quoted prices in active markets for identical assets and
      liabilities;





Level-2 –
            Observable
      inputs other than the quoted prices in active markets for identical assets
      and liabilities – such as quoted prices for similar instruments,
      quoted prices for identical or similar instruments in inactive markets, or
      other inputs that are observable or can be corroborated by observable
      market data;





Level-3
      –
            Unobservable
      inputs – includes amounts derived from valuation models where one or more
      significant inputs are unobservable and require the Company to develop
      relevant assumptions.





The
following table summarizes the financial assets and liabilities measured at fair
value on a recurring basis as of the measurement date, March 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 ValueWarrants
      liabilities
                  
                  
                  -
                  
                  
                  $
                  949,904
                  
                  
                  
                  -
                  
                  
                  $
                  949,904Derivative
      liabilities
                  
                  
                  -
                  
                  
                  $
                  636,360
                  
                  
                  
                  -
                  
                  
                  $
                  636,360Total
                  
                  
                  -
                  
                  
                  $
                  1,586,264
                  
                  
                  
                  -
                  
                  
                  $
                  1,586,264





Note
13 - Convertible Debt





On
January 28, 2008, the Company issued Senior Secured Convertible Debt due in 2013
(the "Convertible Debt") and warrants to subscribe for common shares for an
aggregate purchase price of US$20 million. The Convertible Debt bears interest
at 5% per annum (computed based on the actual days elapsed in a period of 360
days) of the RMB notional principle amount, payable quarterly in arrears in U.S.
Dollars on the first business day of each calendar quarter and on the maturity
date. In addition, 1,437,467 five-year warrants were granted with a strike price
of $6.07 per common share, which are callable if certain stock price thresholds
are met. Approximately 215,620 warrants are also available as a management
incentive if certain milestones are met. If the aggregate principal amount of
the Convertible Debt is reduced to US$10 million or less as a result of
repayment by the Company pursuant to the Convertible Debt 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 pursuant to the Convertible Debt 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 October 28, 2009, the Company did not repay any principle of
Convertible Debt and the Investors did not deliver any optional conversion
request 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 $11 million of Convertible Debt at 100% of the principle
amount, plus any accrued and unpaid interest. The warrants associated with the
Convertible Debt grant the Investors the right to acquire shares of common stock
at $6.07 per share, subject to customary anti-dilution adjustments. The warrants
may be exercised to purchase common stock at any time up to and including
February 28, 2013.





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





Both the
warrants and the embedded derivative associated with Convertible Debt meet the
definition of a derivative instrument according to FASB No. 133, “Accounting for
Derivative Instruments and Hedging Activities”. Because the warrant and the
convertible debt are denominated in U.S. dollars but the company’s functional
currency is the Chinese Renminbi, the exemption from derivative instrument
accounting provided by FASB No. 133, paragraph 11(a)(1) is not available and
therefore the warrant and embedded conversion option are recorded as derivative
instrument liabilities and periodically marked-to-market. The fair value of the
warrants and the embedded derivative on inception were determined to be
$3,419,653 and $3,927,375, respectively, using the Cox-Rubinstein-Ross Binomial
Lattice Model (the “CRR Model”) with the following assumption: expected life
4.32 years, expected volatility - 75%, risk free interest rate - 2.46% and
dividend rate - 0%. The fair value of the warrants and embedded derivative at
March 31, 2009 were determined to be $553,941 (December 31, 2008 - $658,682) and
$636,360 (December 31, 2008 – 760,398) respectively, using the
Cox-Rubinstein-Ross Binomial Lattice Model with the following assumption:
expected life 3.83 - 3.91 years, expected volatility 90%, risk free interest
rate 1.37-1.39% and dividend rate - 0%. For three months ended March 31, 2009
and 2008, the Company recorded a change in fair value for warrants and embedded
derivative of $(104,740) (2008 - $243,756) and $(124,038) (2008 - $248,511)
respectively in the condensed consolidated statements of income and
comprehensive income.




12




After
allocating the gross proceeds to the fair value of the warrants and the embedded
derivative instrument, the remaining proceeds were allocated as the initial
carrying value of the Convertible Debt. The initial carrying value of the
Convertible Debt is accreted to its stated amount on maturity using
the effective interest method. The effective interest rate was determined to be
15.42%. The carrying value of Convertible Debt at March 31, 2009 was $13,903,756
(December 31, 2008 - $13,621,934). Related interest expense and accretion
expense for the three months ended March 31, 2009 were $263,363 (2008 -
$177,777) and $281,822 (2008 - $171,683) respectively.





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





The
Company commenced negotiations with the Investors in December 2008 for a waiver
for the Late Payments, as the Company and the Investors believed that the
registration would become effective within a short period of time. However, as
the registration has not become effective as of September 2009, the Company has
accrued for the Late Payments (see Note 2). On September 28, 2009, the Company
reached a First Amendment (the “Amendment”) with the Investors to settle the
Late Payments, in the amount of $2,400,000, by the issuance of 614,290 common
stock. The 614,290 common stock was determined by dividing $2,400,000, the total
Late Payments up to September 28, 2009, by 95% of the historical volume weighted
average price (“VWAP”) of the common stock , as determined by using Bloomberg
function VWAP, for the immediate preceding 30 days period. In accordance with
the Amendment, the Investors waived any further Late Payments against the
Company under the Registration Rights Agreement.





Note
14 — Noncontrolling Interest





Noncontrolling
interest consists of the interest of noncontrolling shareholders in the
subsidiaries of the Company. As of March 31, 2009 noncontrolling interest
amounted to $29,062,215 (December 31, 2008 - $29,109,350).




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




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




13





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





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





Noncontrolling
      interestNoncontrolling
      Interest at December 31, 2008
                  
                  
                  29,109,350Noncontrolling
      interests’ share of loss for the three months ended March 31,
      2009
                  
                  
                  (47,135
                  )Noncontrolling
      Interest at March 31, 2009
                  
                  $
                  29,062,215





Note
15 — Shareholders' Equity





Pursuant
to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settle in, a Company's Own Stock," the warrants issued contain a
provision permitting the holder to demand payment based on a Black Scholes
valuation in certain circumstances. Therefore, under EITF 00-19 and SFAS No.
133, the Company recorded the warrants as a liability at their fair value on the
date of grant and then marked them to $395,963 at March 31, 2009 (2008 -
$458,461) using the CRR Binomial Lattice Model with the following assumptions:
expected life ranges from 0.22 to 3.09 years, expected volatility 90%, risk fee
interest rate ranges from 0.21% to 1.18%, and dividend rate - 0%. The change in
fair value of warrants for the three months ended March 31, 2009 was $(62,499)
(2008 - $(253,245)).





Including
the fair value of warrants associated with the convertible debenture (See Note
12), the total warrant liability as at March 31, 2009 was $949,904 (2008 -
$1,117,143). The total change in fair value of warrants for the period ended
March 31, 2009 was $(167,239) (2008 - $(9,489)).





As of
December 31, 2008, the Company accrued as a liability $78,600 in stock-based
compensation expense for 54,583 shares of common stock granted by the Company to
various directors and executive in 2009. As of March 31, 2009, none of the above
shares were issued.





Warrants





Following
is a summary of the warrant activity:




Number of
                        Warrants
                        Outstanding
                      
                      
                      Weighted Average
                        Exercise
                        PriceDecember
      31, 2008
                      
                      
                      4,381,980
                      
                      
                      $
                      4.96Granted
                      
                      
                      0
                      
                      
                      
                      0Exercised
                      
                      
                      0
                      
                      
                      
                      0March
      31, 2009
                      
                      
                      4,381,980
                      
                      
                      $
                      4.96




14





Following
is a summary of the status of warrants outstanding at March 31,
2009:





Outstanding
      WarrantsExercise
                        Price
                      
                      Number
                      
                      Average Remaining
                        Contractual
      Life$3.31
                      
                      
                      213,131
                      
                      0.29
      years$4.50
                      
                      
                      2,731,382
                      
                      3.09
      years$6.07
                      
                      
                      1,437,467
                      
                      3.91
      years





Note
16 — Statutory Reserves





In
accordance with the laws and regulations of the People’s Republic of China, the
income of a wholly-owned Foreign Invested Enterprises, after the payment of the
PRC income taxes, shall be allocated to the statutory surplus reserves. The
proportion of allocation for reserve funds is no less than 10 percent of the
profit after tax until the accumulated amount of allocation for statutory
surplus reserve funds reaches 50 percent of the registered capital. Statutory
reserves represent restricted retained earnings.





Statutory
surplus reserves are to be utilized to offset prior years' losses, or to
increase its share capital. When a limited liability company converts its
surplus reserves to capital in accordance with a shareholders' resolution, the
Company will either distribute new shares in proportion to the number of shares
held by each shareholder, or increase the par value of each share. Except
for the reduction of losses incurred, any other usage should not result in this
reserve balance falling below 25% of the registered capital. Registered capital
at March 31, 2009 is approximately $82.6 million (December 31, 2008 - $81.8
million).





Pursuant
to the board of directors' resolution, Tsining transferred 10% of its net
income, as determined in accordance with the PRC accounting rules and
regulations, to a statutory surplus reserve fund, and will do so until such
reserve balance reaches 50% of the Company's registered capital.





The
transfer to this reserve must be made before any distributions of any dividends
are distribution to shareholders. For the three months ended March 31, 2009, the
Company appropriated $0 (March 31, 2008 - $0) to this surplus reserve. In
connection with the Xinxing Property acquisition, the statutory
reserve increased by $154,812.





Note
17 — Earnings Per Share





Earnings
per share for three months ended March 31, 2009 and 2008 were determined by
dividing net income for the periods by the weighted average number of both basic
and diluted shares of common stock and common stock equivalents
outstanding.





March 31,
                  2009
                
                
                March 31,
                  2008NumeratorIncome
      attributable to common shareholders - basic
                
                $
                1,302,719
                
                
                $
                47,685Effect
      of dilutive securitiesWarrants
                
                
                0
                
                
                
                (253,245
                )Income
      attributable to common shareholders - diluted
                
                $
                1,302,719
                
                
                $
                (205,560
                )DenominatorWeighted
      average shares outstanding - basic
                
                
                30,893,757
                
                
                
                30,142,565Effect
      of dilutive securitiesWarrants
                
                
                0
                
                
                
                155,525Shares
      to be issued to directors
                
                
                28,504
                
                
                
                0Weighted
      average shares outstanding - diluted
                
                
                30,922,261
                
                
                
                30,298,090Net
      Income / (Loss) per shareBasic
                
                $
                0.04
                
                
                $
                0.00Diluted
                
                $
                0.04
                
                
                $
                (0.01
                )




15





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





Note
18 — Commitments and Contingencies





The
Company leases part of its office and hotel space under operating lease
agreements. The future minimum rental payments required under the operating
lease agreements are summarized below.





The
Company entered into a contract with Xi’an Baqiao local government for a rubber
river dam construction project. The Company is committed to expend approximately
$1,024,455 for this project.





As of
March 31, 2009, the Company had one land use right with an unpaid balance of
approximately $2.6 million. The balance is not due until the vendor removes the
existing building on the land and changes the zoning status on the land use
right certificate.





Payment due by periodCommitments and
                      Contingencies
                    
                    Total
                    
                    
                    Less than
                      1 year
                    
                    
                    1-3 years
                    
                    
                    3-5 years
                    
                    
                    Over 5
                      yearsRental
      lease
                    
                    $
                    420,907
                    
                    
                    $
                    152,012
                    
                    
                    $
                    58,140
                    
                    
                    $
                    52,754
                    
                    
                    $
                    158,001Rubber
      dam construction
                    
                    
                    1,024,455
                    
                    
                    
                    1,024,455
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Land
      use right
                    
                    
                    2,590,408
                    
                    
                    
                    -
                    
                    
                    
                    2,590,408
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    4,035,770
                    
                    
                    $
                    1,176,467
                    
                    
                    $
                    2,648,548
                    
                    
                    $
                    52,754
                    
                    
                    $
                    158,001




16




ITEM 2.
Management's Discussion and Analysis





FORWARD-LOOKING
STATEMENTS




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





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





17




Critical
Accounting Policies and Estimates





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





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




Restatement
of Financial Statements





On
October 21, 2009, we determined that the Company will restate its financial
statements for the quarter ended March 31, 2009 as reported on Form 10-Q filed
May 7, 2009. Pursuant to a registration rights agreement entered into in
connection with the Company’s issuance of its 5.0% Senior Secured Convertible
Debt, the Company is required to pay the investors of the debt certain late
registration payments (“Late Payments”) if the Company failed to file a
registration statement within 60 days after the closing date of the transaction
or if such registration statement failed to become effective by 90 calendar
days, or 120 days if the registration statement is subject to a full review by
the U.S. Securities and Exchange Commission. The Company commenced negotiations
with the investors of the 5.0% Senior Secured Convertible Debt to waive the Late
Payments in December 2008. The investors of the 5.0% Senior Secured Convertible
Debt have thereafter decided to claim the Late Payments. Because the Company
failed to accrue the Late Payments, the Company has decided to restate its
financial statements for the quarter ended March31, 2009 as reported on Form
10-Q to accrue the corresponding expenses. Prior to the restatement, the Company
did not accrue the Late Payments. After the restatement, the Company will
present the Late Payments as security registration expense.





Warrants
and derivative liability





As of
March 31, 2009, the Company has approximately $0.9 million of warrants liability
and $0.6 million of fair value of embedded derivatives on the balance sheet,
which is approximately 0.86% and 0.57% of the total liabilities,
respectively.





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





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




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





2008
                                
                                
                                20093rd
      Quarter
                                
                                
                                4th
      Quarter
                                
                                
                                1st
      QuarterWarrants
      Liability
                                
                                $
                                2.2
                                
                                
                                $
                                1.1
                                
                                
                                $
                                0.9Fair
      value of embedded derivatives
                                
                                $
                                1.4
                                
                                
                                $
                                0.8
                                
                                
                                $
                                0.6




18




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




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





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





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





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




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




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





March
      31, 2009
                
                
                December
      31, 2008Finished
      projects
                
                $
                9,199,897
                
                
                $
                10,181,827Construction
      in progress
                
                
                99,506,955
                
                
                
                50,468,184Total
      real estate held for development or sale
                
                $
                108,706,852
                
                
                $
                60,650,011




According
to the agreement with Baqiao District Government, at the beginning of each year,
the Company will prepare the annual work plan and have it approved by Baqiao
District Government. The annual work plan will include the detailed projects
that will be started during that year and the Baqiao District Government is
responsible for the land clearance. Due to the delay of land clearance progress,
certain scheduled projects have been postponed. The Baqiao District Government
acknowledged the delay and informed us of their intention to extend the
agreement. Currently, we still have 348 acres land undeveloped and $41.6 million
in intangible assets. If the Baqiao District Government does not extend the
agreement, we will write off the intangible assets from our balance sheet,
which will affect our income statement in 2011.





Intangible
asset




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





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





March
      31, 2009
                
                
                December
      31, 2008Intangible
      acquired
                
                $
                47,262,297
                
                
                $
                47,334,342Accumulated
      amortization
                
                
                (5,648,720
                )
                
                
                (1,290,682)Intangible
      assets, net
                
                $
                41,613,577
                
                
                $
                46,043,660




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




19




The
Company amortized the intangible asset based on the percentage of the profit
margin realized over the total expected profit margin to be realized from 487
acre land in the Baqiao project. During fiscal 2007, the Company sold 18.5 acre
land and the related profit margin realized on that sale represents 2.4% of
total estimated profit margin on the whole 487 acre project, therefore the
Company amortized $1,157,758 (2.4% ) of total intangible asset during fiscal
2007. This method is intended to match the pattern of amortization with the
income-generating capacity of the intangible asset. For the year ended December
31, 2008, the Company has recorded $0 (2007 -$1,157,758) of amortization on the
intangible asset. Amortization expense for the three months ended March 31, 2009
and 2008 amounted to $4,360,003 and $0 respectively. The amortization expense
was capitalized in the real estate construction in progress.




Management
re-evaluated the expected profit margin from the 487 acre land as at March 31,
2009 and recalculated the intangible amortization related to the 2008 land sales
based on the new estimate. As a result, management found the difference resulted
from change of estimate was not material. Therefore there was no adjustment made
in the three months ended March 31, 2009 due to the change of accounting
estimate of total profit margin in 487 acres land.




Deposits
on land use rights





March
      31, 2009
                
                
                December
      31, 2008Deposits
      on land use rights
                
                
                28,566,252
                
                
                
                47,333,287





The
Company conducts regular reviews of the deposits on land use right. After review
and assessment, the Company concluded that there was no significant
decrease in the market price and therefore no impairment write-down was
required.




Material
trends and uncertainties that may impact our continuing operations




Changes
in national and regional economic conditions, as well as local economic
conditions where we conduct our operations and where prospective purchasers of
our homes live, may result in more caution on the part of homebuyers and
consequently fewer home purchases. According to the data from Xi’an Bureau of
Statistics, Xi’an city’s real estate transaction volume (in terms of sq. meter
signed) decreased about 30% in 2008 compared to 2007. As currently all our
projects are in Xi’an city, the downturn of the real estate market in Xi’an
caused the decline of our operating revenues in 2008. Since 2009, we see the
market sentiment has improved and the transaction volume has increased compared
to same period of 2008. During the second quarter of 2009, our revenue increased
approximately 70.7% over same period 2008.





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




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




20




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





As of
March 31, 2009, we had $10,598,200 of cash and cash equivalents, a decrease of
$26,827,140, compared with $37,425,340 of cash and cash equivalents as of
December 31, 2008.





The
Company believes that the combination of present capital resources, internally
generated funds, and unused financing sources are more than adequate to meet
cash requirements for the year 2009. We intend to meet our liquidity
requirements, including capital expenditures related to the purchase of land for
the development of our future projects, through cash flow provided by operations
and additional funds raised by future financings. Upon acquiring land for future
development, we intend to raise funds to develop our projects by obtaining
mortgage financing mainly from local banking institutions with which we have
done business in the past. We believe that our relationships with these banks
are in good standing and that our real estate will secure the loans needed. We
believe that adequate cash flow will be available to fund our
operations.





BUSINESS




China
Housing & Land Development, Inc., 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, China Housing has been
engaged in the acquisition, development, management, and sales of residential
and commercial real estate properties and land through its subsidiaries in
China.




China
Housing & Land Development is the first and only Chinese real estate
development company traded on NASDAQ.




By
leveraging its strong background and capabilities, China Housing & Land
Development has been able to capitalize on the supply of available land and
develop residential and commercial properties, further increase China Housing's
brand recognition, and outperform its competitors in the development of medium
size residential and commercial real estate projects in greater
Xi'an.





China
Housing & Land Development 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 12 to 28 stories high, usually of
      steel-reinforced concrete, that are completed within approximately 24
      months of securing all required
permits.





▪
            Mid-rise
      apartment buildings, typically 7 to 11 stories high, usually of
      steel-reinforced concrete, that are completed within 12 to 18 months of
      securing all required permits.




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





21





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





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





▪
            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
      progressing;





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





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





Projects
under construction





Project name
                                  
                                  Type of
                                    Projects
                                  
                                  Actual or
                                    Estimated
                                    Construction
                                    Period
                                  
                                  Actual or
                                    Estimated
                                    Pre-sale
                                    Commencement
                                    Date
                                  
                                  
                                  Total Site
                                    Area
                                    (m2)
                                  
                                  
                                  Total GFA
                                    (m2)
                                  
                                  
                                  Sold GFA by
                                    March
      31,
                                    2009
                                    (m2)JunJing
      II
                                    Phase
      One
                                  
                                  Multi-Family
                                    residential
      &
                                    Commercial
                                  
                                  Q3/2007
                                    - Q3/2009
                                  
                                  
                                  Q2/2008
                                  
                                  
                                  
                                  39,524
                                  
                                  
                                  
                                  136,012
                                  
                                  
                                  
                                  76,295JunJing
      II
                                    Phase
      Two
                                  
                                  Multi-Family
                                    residential
      &
                                    Commercial
                                  
                                  Q2/2009
                                    -
      Q2/2011
                                  
                                  
                                  Q3/2009
                                  
                                  
                                  
                                  29,800
                                  
                                  
                                  
                                  112,556
                                  
                                  
                                  
                                  -





Project name
                      
                      Total
                        Number of
                        Units
                      
                      
                      Number of
                        Units sold
                      
                      
                      Estimated
                        Revenue
                        ($ millions)
                      
                      
                      Contracted
                        Revenue by
                        March 31,
                        2009
                        ($ millions)
                      
                      
                      Recognized
                        Revenue by
                        March 31,
                        2009
                        ($
      millions))JunJing
      II
                        Phase
      One
                      
                      
                      1,182
                      
                      
                      
                      745
                      
                      
                      
                      95.6
                      
                      
                      
                      45.6
                      
                      
                      
                      34.3JunJing
      II
                        Phase
      Two
                      
                      
                      1,015
                      
                      
                      
                      -
                      
                      
                      
                      94.1
                      
                      
                      
                      -
                      
                      
                      
                      -




JunJing II: JunJing II is
located at 38 East Hujiamiao, Xi’an, with total GFA about 248,568 square meters.
It is the first Canadian style residential community with “green and
energy-saving” characteristics, and won the “National Energy Saving Project.”
The project is divided into 2 phases, namely JunJing II Phase One and JunJing II
Phase Two. We started the construction of JunJing II Phase One in the third
quarter of 2007 and started the presale campaign in the second quarter of
2007.




22




As of
March 31, 2009, our customers have signed pre-sales purchase agreements for
apartments with purchase prices totaling $45.6 million, of which we have
recognized $34.3 million in revenues, based on the percentage of completion
method of accounting. About $10.4 million of those pre-sales payments were
booked as advances from customers and will be recognized as revenues as
construction advances.




We will
start the construction work for Phase Two in the second quarter 2009 and will
begin accepting pre-sale purchase agreements during the third quarter 2009.
Revenue from pre-sales in Phase Two will begin to be recognized when the
construction starts above the ground level.




Projects
under planning and in process




Project
                                  name
                                
                                Type of
                                  Projects
                                
                                Estimated
                                  Construction
                                  Period
                                
                                Estimated
                                  Pre-sale
                                  Commencement
                                  Date
                                
                                
                                Total Site
                                  Area
                                  (m2)
                                
                                
                                Total GFA
                                  (m2)
                                
                                
                                Total
                                  Number of
                                  UnitsBaqiao
      New
                                  Development
                                  Zone
                                
                                Land
                                  Development
                                
                                2009
      - 2020
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                
                                N/A
                                
                                
                                
                                N/APuhua
                                
                                Multi-Family
                                  residential
      &
                                  Commercial
                                
                                Q3/2009
                                  - Q3/2014
                                
                                
                                Q4/2009
                                
                                
                                
                                192,582
                                
                                
                                
                                610,000
                                
                                
                                
                                5,000JunJing
      III
                                
                                Multi-Family
                                  residential
      &
                                  Commercial
                                
                                Q3/2009
                                  - Q3/2011
                                
                                
                                Q3/2009
                                
                                
                                
                                8,094
                                
                                
                                
                                51,470
                                
                                
                                
                                570




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. We believe this represents a major growth
opportunity for the Company.




Xi’an has
designated the Baqiao District as a major resettlement zone where the city
expects 900,000 middle to upper income people to settle. The Xi’an government
intends to generate a success similar to that created by Pudong for 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 in the Baqiao New Development Zone. The construction of a
large-scale public wetland park is well underway; it will embellish the natural
environment adjacent to China Housing’s Baqiao project.




Through
its New Land subsidiary, China Housing sold 18.4 acres to another developer in
2007 and generated about $24.41 million in revenue.




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




After
selling 18.4 acres and placing 79 acres in the joint venture, about 390 acres
remained available for the Company to develop in the Baqiao
project.




23




Puhua:   The
      Puhua project, the Company’s 79 acre joint venture located in Baqiao
      project, has a total land area of 192,582 square meters and an
      expected gross floor area of about 610,000 square meters. In November
      2008, the Company entered into an agreement with Prax Capital China Real
      Estate Fund I, Ltd., to form the joint venture. The joint venture was
      formed in late 2008, subject to certain conditions and approvals,
      which were satisfied, Prax Capital Real Estate Holdings Limited
      invested US$29.3 million cash in the joint venture, the joint venture
      acquired the land use rights early in the first quarter 2009, and the
      joint venture is proceeding with the project.
                    
                    JunJing III: JunJing
      III is near our JunJing II project and the city expressway. It has an
      expected total gross floor area of about 51,470 square meters. The project
      will consist of 3 high rise buildings, each 28 to 30 stories high. The
      project is targeting middle to high income customers who require a high
      quality living environment and convenient transportation to the city
      center. We plan to start construction during the third quarter 2009 and
      the pre-sales during the same quarter. The total estimated revenue from
      this project is about $46.0 million.




Completed
Projects




Project name
                      
                      Type of
                        Projects
                      
                      Completion
                        Date
                      
                      
                      Total Site
                        Area
                        (m2)
                      
                      
                      Total GFA
                        (m2)
                      
                      
                      Total
                        Number of
                        Units
                      
                      
                      Number of
                        Units sold by
                        March
      31,
                        2009Tsining
                        Mingyuan
                      
                      Multi-Family
                        residential
      &
                        Commercial
                      
                      
                      Q2/2000
                      
                      
                      
                      17,526
                      
                      
                      
                      53,055
                      
                      
                      
                      303
                      
                      
                      
                      303Lidu
                        Mingyuan
                      
                      Multi-Family
                        residential
      &
                        Commercial
                      
                      
                      Q4/2001
                      
                      
                      
                      5,289
                      
                      
                      
                      8,284
                      
                      
                      
                      56
                      
                      
                      
                      56Tsining
                        Hanyuan
                      
                      Multi-Family
                        residential
      &
                        Commercial
                      
                      
                      Q4/2003
                      
                      
                      
                      3,026
                      
                      
                      
                      32,229
                      
                      
                      
                      238
                      
                      
                      
                      238Tsining
      Home
                        IN
                      
                      Multi-Family
                        residential
      &
                        Commercial
                      
                      
                      Q4/2003
                      
                      
                      
                      8,483
                      
                      
                      
                      30,072
                      
                      
                      
                      215
                      
                      
                      
                      213Tsining
                        Gangwan
                      
                      Multi-Family
                        residential
      &
                        Commercial
                      
                      
                      Q4/2004
                      
                      
                      
                      12,184
                      
                      
                      
                      41,803
                      
                      
                      
                      466
                      
                      
                      
                      466Tsining-24G
                      
                      Hotel,
                        Commercial
                      
                      
                      Q2/2006
                      
                      
                      
                      8,227
                      
                      
                      
                      43,563
                      
                      
                      
                      773
                      
                      
                      
                      685JunJing
      I
                      
                      Multi-Family
                        residential
      &
                        Commercial
                      
                      
                      Q3/2006
                      
                      
                      
                      55,588
                      
                      
                      
                      167,931
                      
                      
                      
                      1,671
                      
                      
                      
                      1,567




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





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





24





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




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




Tsining GangWan: 123 Laodong
Road, Xi’an. Less than one mile from the western hi-tech industrial zone,
GangWan spans three acres and is comprised of eight buildings with a total
construction area of 41,803 square meters. The project began in April 2003 and
was completed in December 2004. GangWan has 466 apartments ranging from one
to three bedrooms. Total sales were US$ 18.44 million.




Tsining-24G: 133 Changle
Road, Xi’an. 24G is a redevelopment of an existing 26 floor building, located in
the center of the most mature and developed commercial belt of the city. This
upscale development includes secured parking, cable TV, hot water, air
conditioning, natural gas access, internet connection, and exercise facilities.
This project was awarded “The Most Investment Potential Award in Xi’an
city” in 2006. Target Customers were white-collar workers, small business
owners and traders as well as entrepreneurs. Total area available for
residential use was 43,563 square meters, covering 372 one to three bedroom
serviced apartments. The project started construction in June 2005 and was
completed in June 2006 with total sales of $39.08 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 Customer is local middle income families. The project has 15
residential apartment buildings consisting of 1,230 one to five bedroom
apartments. The Garden features secured parking, cable TV, hot water, heating
systems, and access to natural gas. Total GFA available was 167,931 square
meters. JunJing Garden I was also a commercial venture that houses small
businesses serving the needs of JunJing Garden I residents and surrounding
residential communities. The project was completed in September 2006 and
generated total revenue of $50.46 million.




25





CONSOLIDATED
OPERATING RESULTS





Three
Months Ended March 31, 2009 Compared With Three Months Ended March 31,
2008





Revenues





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





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




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




3 months
                      
                      
                      3 monthsended
                      
                      
                      endedRevenues by project:
                      
                      March 31,
                        2009
                      
                      
                      March 31,
                        2008US dollarsProject
      Under ConstructionTsining
      JunJing II Phase One
                      
                      $
                      10,305,262
                      
                      
                      $
                      -Projects
      CompletedTsining
      JunJing I
                      
                      
                      1,580,565
                      
                      
                      
                      4,347,648Tsining-24G
                      
                      
                      862,593
                      
                      
                      
                      -286,622Tsining
      Gangwan
                      
                      
                      158,724
                      
                      
                      
                      23,336Tsining
      Hanyuan
                      
                      
                      -
                      
                      
                      
                      -Tsining
      Home In
                      
                      
                      18,725
                      
                      
                      
                      53,220Tsining
      Mingyuan
                      
                      
                      -
                      
                      
                      
                      44,567Lidu
      Mingyuan
                      
                      
                      -
                      
                      
                      
                      -Infrastructure
      ProjectBaqiao
      infrastructure construction
                      
                      
                      -
                      
                      
                      
                      -Project
      In ProcessBaqiao
                      
                      
                      -
                      
                      
                      
                      -Revenues
      from the sales of properties
                      
                      $
                      12,925,869
                      
                      
                      $
                      4,182,149




The
revenues from the sale of properties in the three months ended March 31, 2009
increased 209% to $12,925,869 from $4,182,149 in the same period 2008. The
increase was primarily due to the increased revenue from Tsining JunJing II
Phase One, our current project under construction.




26




The revenue from completed projects
totaled $2,620,607 in the three months ended March 31, 2009 compared with
$4,182,149 in the same period of 2008. The 37.3% decrease was due mainly to the
absence of revenues from Tsining-24G and JunJing I as both projects had been
completed.
  As a result of the utilization of the
full accrual method of accounting for infrastructure projects, we have not
recognized revenues from the infrastructure project in the Baqiao area. We
expect to finish the river dam in second quarter 2009 and recognize the revenues
when the project is delivered to the local government.
 
 Our Project in Process is the Baqiao
project where we have the exclusive right to develop 487 acres. In 2007, we
acquired the development rights and recognized $24,405,717 in revenue as a result of a
18.4 acre land sale to an unrelated developer. Near the end of 2008, we
established a joint venture with Prax Capital Real Estate Holdings Limited (Prax
Capital) to co-develop 79 acres within the Baqiao project. Prax Capital invested $29.3 million cash in the
joint venture. About 390 acres remain available for development in the Baqiao
project.
 .Revenues by
      project:
              
              
              2009 Q1
              
              
              
              2008 Q1US$Project Under
      ConstructionTsining JunJing II Phase one
      contract sales
              
              
              12,011,390
              
              
              
              -Revenue
              
              $
              10,305,262
              
              
              $
              -Total gross floor area (GFA)
      available for
      sale
              
              
              136,012
              
              
              
              -GFA sold during the
      period
              
              
              19,289
              
              
              
              -Remaining GFA available for
      sale
              
              
              59,717
              
              
              
              -Percentage of
      completion
              
              
              70.49
              %
              
              
              -Percentage GFA sold
      during the
      period
              
              
              14.18
              %
              
              
              -Percentage GFA sold to
      date
              
              
              56.09
              %
              
              
              -Average sales price per
      GFA
              
              
              623
              
              
              
              -Projects
      CompletedTsining JunJing
      I
              
              $
              1,580,565
              
              
              $
              4,347,648Total gross floor area (GFA) available for
      sale
              
              
              167,931
              
              
              
              167,931GFA sold during the
      period
              
              
              638
              
              
              
              5,332Remaining GFA available for
      sale
              
              
              8,867
              
              
              
              11,142Percentage of
      completion
              
              
              100
              %
              
              
              100
              %Percentage GFA sold during the
      period
              
              
              0.38
              %
              
              
              3.18
              %Percentage GFA sold to
      date
              
              
              94.72
              %
              
              
              93.36
              %Average sales price per
      GFA
              
              
              2,477
              
              
              
              815Tsining-24G
              
              $
              862,593
              
              
              $
              -286,622Total gross floor area(GFA) available for
      sale
              
              
              43,563
              
              
              
              43,563GFA sold during the
      period
              
              
              749
              
              
              
              -175Remaining GFA available for
      sale
              
              
              5,310
              
              
              
              5,854Percentage of
      completion
              
              
              100
              %
              
              
              100
              %PercentageGFA sold during the
      period
              
              
              1.72
              %
              
              
              -0.40
              %Percentage GFA sold to
      date
              
              
              87.81
              %
              
              
              86.56
              %Average sales price per
      GFA
              
              
              1,151
              
              
              
              1,634Tsining
    Gangwan
              
              $
              158,724
              
              
              $
              23,336Total gross floor area (GFA) available for
      sale
              
              
              41,803
              
              
              
              41,803GFA sold during the
      period
              
              
              222
              
              
              
              38Remaining GFA available for
      sale
              
              
              1,162
              
              
              
              1,447Percentage of
      completion
              
              
              100
              %
              
              
              100
              %Percentage GFA sold during the
      period
              
              
              0.53
              %
              
              
              0.09
              %Percentage GFA sold to
      date
              
              
              97.22
              %
              
              
              96.54
              %Average sales price per
      GFA
              
              
              716
              
              
              
              622Tsining
    Hanyuan
              
              $
              -
              
              
              $
              -Total gross floor area (GFA)
      available for sale
              
              
              32,229
              
              
              
              32,229GFA sold during the
      period
              
              
              -
              
              
              
              -Remaining GFA available for
      sale
              
              
              -
              
              
              
              -Percentage of
      completion
              
              
              100
              %
              
              
              100
              %Percentage GFA sold during the
      period
              
              
              0
              %
              
              
              0
              %Percentage GFA sold to
      date
              
              
              100
              %
              
              
              100
              %Average sales price per
      GFA
              
              
              N/A
              
              
              
              N/ATsining Home
    In
              
              $
              18,727
              
              
              $
              53,220Total gross floor area (GFA) available for
      sale
              
              
              30,072
              
              
              
              30,072GFA sold during the
      period
              
              
              48
              
              
              
              148Remaining GFA available for
      sale
              
              
              2,803
              
              
              
              3,048Percentage of
      completion
              
              
              100
              %
              
              
              100
              %Percentage GFA sold during the
      period
              
              
              0.16
              %
              
              
              0.49
              %Percentage GFA sold to
      date
              
              
              90.68
              %
              
              
              89.87
              %Average sales price per
      GFA
              
              
              389
              
              
              
              361Tsining
      Mingyuan
              
              $
              -
              
              
              $
              44,567Total gross floor area (GFA)
      available for sale
              
              
              53,055
              
              
              
              53,055GFA sold during the
      period
              
              
              -
              
              
              
              78Remaining GFA available for
      sale
              
              
              -
              
              
              
              -Percentage of
      completion
              
              
              100
              %
              
              
              100
              %Percentage GFA sold during the
      period
              
              
              0
              %
              
              
              0.15
              %Percentage GFA sold to
      date
              
              
              100
              %
              
              
              100
              %Average sales price per
      GFA
              
              
              N/A
              
              
              
              570Lidu
    Mingyuan
              
              $
              -
              
              
              $
              -Total gross floor area (GFA)
      available for sale
              
              
              8,284
              
              
              
              8,284GFA sold during the
      period
              
              
              -
              
              
              
              -Remaining GFA available for
      sale
              
              
              -
              
              
              
              -Percentage of
      completion
              
              
              100
              %
              
              
              100
              %Percentage GFA sold during the
      period
              
              
              0
              %
              
              
              0
              %Percentage GFA sold to
      date
              
              
              100
              %
              
              
              100
              %Average sales price per
      GFA
              
              
              N/A
              
              
              
              N/AInfrastructure
      ProjectBaqiao infrastructure
      construction
              
              $
              -
              
              
              $
              -Project In
      ProcessBaqiao
              
              $
              -
              
              
              $
              -Revenues from the sales of
      properties
              
              $
              12,925,869
              
              
              $
              4,182,149
 
 Revenues from projects under
construction
  Tsining JunJing II Phase
One
 
 Tsining JunJingII Phase One was our major revenue
generating construction project in the three months ended March 31, 2009,
contributing $10,305,262 in revenues. By March 31, 2009, we had pre-sold about
745 units in the project, totaling approximately 76,295 square meters.
 
 JunJing II Phase One consists of 13
middle-rise and high-rise residential buildings and 3 auxiliary buildings,
including a kindergarten, with a gross floor area of about 136,012 square
meters. Estimated total revenues for  Phase One are approximately$95.6 million. The company
expects to complete the construction of Phase One in the third quarter of
2009.
 
 Please note that the method of
percentage of completion has being utilized to recognize revenue from Jan. 1,
2008. Therefore, only revenue recognition of Tsining JunJing II is under this
method. The percentages of completion of the construction for each building as
at March 31, 2009 are shown below:
  Tsining JunJing II Phase one
      Building
              
              Percentage of Completion#1
              
              
              71.34
              %#2
              
              
              77.85
              %#3
              
              
              77.59
              %#4
              
              
              71.88
              %#5
              
              
              95.10
              %#7
              
              
              88.93
              %#8
              
              
              69.92
              %#9
              
              
              71.72
              %#14
              
              
              72.45
              %#15
              
              
              74.41
              %#21
              
              
              65.52
              %
 
 The above
are all the buildings under pre-sale in JunJing II Phase One.
 
 Phase Two ofJunJing II consists of 12 middle-rise
and high-rise buildings and will begin contributing revenue from second quarter
of 2009. The total revenues from Phase Two are expected to be about $94.1
million.
  Revenues from projects
completed
  Revenues in threemonths ended March 31, 2009 for
completed projects decreased 37.3 percent to $2,620,607 compared with $4,182,149
in the same period 2008. The decrease in revenues for the three months ended
March 31, 2009 was primarily due to the absence of revenue fromTsining -24G and JunJing I because both
projects had been completed.
  Other income
  Other income includes property
management fees, rental income, revenues from disposal of fixed assets as well
as government’s allowance for the equivalent cost of
intereston 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 $918,814 in
other income in the three months ended March31, 2009 compared with $564,488 in the
same period of 2008. The 62.8% increase is mainly due to the acquisition of
Xinxing Property Management during the first quarter of 2009, which contributed
approximately $548,945 to our consolidated revenues.
  Cost ofproperties and land
  The cost of properties and land in the
three months ended March 31, 2009 increased 310.3% percent to $9,498,215
compared with $2,367,112 in the same period of 2008. The increase was primarily
as a result of the increase sales volumein our JunJing II Phase One
project.


27





The
percentage of completion method of accounting is based on estimated costs
incurred, and is preferable as it accurately reflects the business activity of
the company and matches revenues with the costs incurred in the pursuit of such
revenue. The company has determined that retrospective application to periods
prior to January 1, 2008 is not practical as the necessary information needed to
restate prior periods is not available. Therefore, the company began to apply
the percentage completion method on a prospective basis beginning January 1,
2008.





Gross
profit and profit margin





Gross
profit for the three months ended March 31, 2009 was $4,346,468, up 82.66
percent from $2,379,525 in the same period of 2008. The gross profit
margin for the three months ended March 31, 2009 was 31.39 percent compared
with 50.13 percent in the same period of 2008. The decrease in the gross profit
margin was mainly due to the different product mix. The residential units we
sold during the three months ended March 31, 2009 generally had lower
profit margins than the premium-priced retail units sold in the same period of
2008.





Selling,
general, and administrative expenses




Selling,
general, and administrative expenses for the three months ended March 31, 2009
increased 22.66 percent to $1,408,824 from $1,148,601 in the same
period of 2008. The increase in selling, general, and administrative expenses
was due primarily to the marketing expenses associated with Tsining JunJing
II Phase One project and the administrative expenses related to the Puhua
formation.




Stock-based
compensation




We did
not incur stock-based compensation expenses in the three months ended March 31,
2009 or during the same period of 2008.




Other
expenses





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





Other
expenses in the three months ended March 31, 2009 increased 150.1 percent to
$39,795 compared with $15,910 in the same period of 2008.





Operating
profit and operating profit margin





Operating
profit is defined as gross profit minus selling, general, and administrative
expenses, stock-based compensation, and other expenses.




Operating
profit in the three months ended March 31, 2009 was
$2,897,848 compared with $1,215,014 in the same period of 2008,
up 139.0 percent, primarily due to the higher revenue generated by Tsining
JunJing II Phase One and, partially offset by higher selling, general,
and administrative expenses in the first quarter of 2009. As a result, the
operating profit margin was 20.9 percent for the first quarter of 2009 compared
with 25.6 percent for the same period of 2008.




Interest
expense




Interest
expense in the three months ended March 31, 2009 decreased 23.1 percent to
$338,078 from $439,673 in the same period of 2008, due primarily to
capitalization and repayment of an 8 million RMB bank loan in Xi’an Tsining
Housing Development Co., Ltd. In mid-2008, the company signed a RMB 1 billion
(about $147 million) construction credit line agreement with China Construction
Bank. During 2008, we drew down about $22 million of the credit line, of
which the company repaid $0.44 million during three months ended March 31, 2009.
The loan from China Construction Bank has an interest rate that floats at 110
percent of the People’s Bank of China reference rate.




28




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. The company booked $(124,038) in the three months ended March
31, 2009 compared with $284,511 increase in the fair value of embedded
derivative in the same period of 2008.





Change
in fair value of warrants





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





In the
three months ended March 31, 2008, shareholders exercised a total of 1,870
warrants to buy a total of 1,870 common shares. A shareholder typically only
exercises a warrant to buy common shares when the stock price is higher than the
warrant exercise price. The shareholder pays the exercise price and the company
covers the difference between the warrant exercise price and the share price at
the time of conversion.




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




The
change in fair value of warrants was $(167,239) in the three months ended March
31, 2009, compared to $(9,489) during the same period of 2008, which consisted
of the periodic adjustment to the estimated cost to the company to provide the
common shares, assuming that all the warrants will be exercised sometime in
the future. The basis for estimating the cost to provide those common shares was
provided by the valuation model.





Security
registration expenses





Pursuant
to the agreement with the investors of the 5% Senior Secured Convertible
Debt (Note 13), the Company was required to pay the investors certain late
registration payments (“Late Payments”) if the company failed to file a
Registration Statement within 60 days after the closing date of the 5% Senior
Secured Convertible Debt. The Company commenced negotiations with the investors
of the 5% Senior Secured Convertible Debt to waive the Late Payments in December
2008, as both parties believed that the registration statement would become
effective within a short period of time. However, as the registration statement
has not become effective as of September 2009, the investors of the 5% Senior
Secured Convertible Debt have decided to claim the Late Payments. The Company
has decided to present the Late Payments as security registration
expenses.





The
security registration expenses were $600,000 for the three months ended March
31, 2009, compared to $0 in the same period of 2008.





Provision
for income taxes





The
company booked a provision for income tax of $713,641 compared with the $280,951
recorded in the same period of 2008.




The
effective tax rate was 27.3 percent for 2009 and 85.5 for 2008. The primary
reason for the high effective tax rates in 2008 was that the change in fair
value of embedded derivative and warrants could not be deducted from the
income before taxes.




Noncontrolling
Interest





We
recorded $(47,135) loss attributable to noncontrolling shareholder of
Puhua and Success Hill, which is related to the formation of Puhua in the first
quarter of 2009. We did not have any loss attributable to noncontrolling
shareholder in the same period of 2008.





Net
income





Net
income in the three months ended March 31, 2009 increased 2,533 percent to
$1,255,584 from $47,685 in the same period of 2008.





As
explained above, the increase in net income was due primarily to the improvement
of market sentiment, higher sales revenues from our current construction
project, and a higher average sales price for the units sold, partly offset
by the higher selling, general, and administrative expenses and the change
in the fair value of warrants and the embedded derivative in the first
quarter of 2009.


29





Basic
and diluted earnings per share




Basic
earnings per share was $0.04 in the three months ended March 31, 2009,
compared to $0.00 in the same period of 2008. Diluted earnings per share
was $0.04 in the three months ended March 31, 2009, compared to
$(0.01) in the same period of 2008.




Common
shares used to calculate basic and diluted EPS




The
weighted average shares outstanding used to calculate the basic earnings per
share was 30,893,757 shares in the three months ended March 31, 2009 and
30,142,565 shares in the same period of 2008. The weighted average shares
outstanding used to calculate the diluted earnings per share
was 30,897,575 shares in the three months ended March 31, 2009 and
30,298,090 shares in the same period of 2008.




Foreign
exchange





The
company operates in China and accounts in the Chinese renminbi(RMB) but reports
its financial results in U.S. dollars, based on the exchange rates of the two
currencies. The fluctuation of exchange rates during the three months ended
March 31, 2009 and the same period of 2008, when translating the operating
results and financial positions at different exchange rates, created the accrued
gain (loss) on foreign exchange.





Cash
flow discussion




The
decrease in cash for the three months ended March 31, 2009 was $(26,759,990)
compared with $12,187,924 increase in cash in the same period of
2008.





Cash flow
from operating activities in the three months ended March 31, 2009 decreased
631.4 percent to $(25,801,611) from $(3,527,844) in the same period of
2008, primarily due to the operating cash outflow associated with the
development of Tsining JunJing II Phase One.





The cash
from investing activities in the three months ended March 31, 2009 was $813,922,
compared with $(245,617) use of cash in the same period of 2008,
primarily due to the cash acquired from Xinxing Property Management Co. Ltd. and
the proceeds from sale of fixed assets.





Cash flow
from financing activities in the three months ended March 31, 2009 used
$(1,772,301) compared with $15,961,385 in 2008, since the company issued
the $20 million convertible debt and warrants in the first quarter of
2008.





In
mid-2008, the company signed a RMB 1 billion (about $147 million) construction
credit line agreement with China Construction Bank to support the company’s
development projects. The company has been granted a RMB 22 million loan for the
JunJing II Phase One project and expects another 22 million loan once the
JunJing II Phase Two project begins.




Debt
leverage





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





Total
debt outstanding as of March 31, 2009 was $59,390,438 compared with $59,186,304
on December 31, 2008.





Net debt
outstanding (total debt less cash) as of March 31, 2009 was $48,041,477 compared
with $20,955,952 on December 31, 2008. The company's net debt as a percent of
total capital (net debt plus shareholders' equity) was 29.6 percent on
March 31, 2009 and 15.6 percent on December 31, 2008. The increase in net debt
as a percent of total capital was primarily due to the payment of land use right
in the first quarter of 2009, which decreased our cash to $10.6 million at March
31, 2009 from $37.4 million on December 31, 2008.


30





Liquidity
and capital resources





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





As of
March 31, 2009, we had $10,598,200 of cash and cash equivalents, a decrease
of $26,827,140, compared with $37,425,340 of cash and cash equivalents as of
December 31, 2008.





Financial
obligations





As of
March 31, 2009, we had total bank loans of $34,392,425 with a weighted
average interest rate of 9.22 percent. Future scheduled maturities of loans
payable were as follows:





Due Date
                  
                  Outstanding Amount2009-09-14
                  
                  $
                  3,366,0672009-12-25
                  
                  $
                  4,390,5222010-08-29
                  
                  $
                  5,122,2762011-08-27
                  
                  $
                  21,513,560





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





Loans
payable





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





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





The
following table summarizes the company's loans payable that were outstanding as
of March 31, 2009:





(Millions of dollars)
                  
                  Balance
                  
                  
                  Interest rate
                  
                  Due dateXi'an
      Rural Credit Union
                  
                  $
                  3.37
                  
                  
                  
                  11.8
                  %
                  14-Sep-2009Commercial
      Bank Weilai
                  
                  $
                  4.39
                  
                  
                  
                  7.5
                  %
                  25-Dec-2009Commercial
      Bank Weilai
                  
                  $
                  5.12
                  
                  
                  
                  10.21
                  %
                  29-Aug-2010China
      Construction Bank
                  
                  $
                  21.51
                  
                  
                  
                  8.94
                  %
                  28-Aug-2011





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





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


31





Obligations Due by Period
                  
                  1 year
                  
                  
                  1-3 years
                  
                  
                  3-5 years(Millions
      of dollars)Current
      liabilities:Accounts
      payable
                  
                  $
                  9.63Income
      and other taxes payable
                  
                  
                  
                  
                  
                  $
                  8.82Other
      payables
                  
                  
                  
                  
                  
                  $
                  4.21Advances
      (deposits) from customers
                  
                  
                  
                  
                  
                  $
                  10.56Accrued
      expenses
                  
                  $
                  3.87Accrued
      security registration expenses
                  
                  $
                  1.21Long-term
      liabilities:Warranties
      liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  0.95Deferred
      tax
                  
                  
                  
                  
                  
                  $
                  11.47Fair
      value of embedded derivatives
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  0.64Convertible
      debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  13.90Long-term
      debt:Loans
      payable
                  
                  $
                  7.76
                  
                  
                  $
                  26.63Payable
      for acquisition of businesses
                  
                  $
                  9.43Loans
      from employees
                  
                  
                  
                  
                  
                  $
                  1.67





Liquidity
expectation





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





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




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




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





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





Item
3. Quantitative and Qualitative Disclosures About Market Risk





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




General
Real Estate Risk — There is a risk that the Company's property values could go
down due to general economic conditions, a weak market for real estate
generally, or changing supply and demand. The Company's property held for sale
value of approximately $14.3 million as of March 31, 2009, may change due to
market fluctuations. Currently, it is valued at our cost which is significantly
below the market value.





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


32




Foreign
Currency Exchange Rate Risk — The Company does all its business in the People’s
Republic of China. All the revenue and profit is denominated in RMB. When RMB
depreciates, it may adversely affect the Company's financial performance.
Specifically, since the Company's recent $20 million senior convertible note
interest payment is denominated in US dollars, the depreciation of RMB may incur
additional financing cost.




Item 4T.
Controls and Procedures





(a)
Evaluation of Disclosure Controls and Procedures.
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the
 Securities
Exchange Act of 1934 (the Exchange Act)). Disclosure controls and procedures are
controls and procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Securities Exchange Act
is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our principal executive officer and our principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures as of
the end of the period covered by this report were not effective due to the
identified significant deficiencies in our internal control over financial
reporting described in our Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2008. The Company has engaged Ernest & Young to aid in
the compliance with SOX 404.
 
 (c)
Changes in Internal Control over Financial Reporting.
 
 During
the quarter ended March 31, 2009, there was no change in our internal control
over financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.





Part II.
OTHER INFORMATION





Item 1.
Legal Proceedings





None for
the period covered by this report.





Item 1A.
Risk Factors.




An
investment in our company has a high degree of risk. Before you invest you
should carefully consider the risks and uncertainties described below and the
other information in this 10Q. If any of the following risks actually occur, our
business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.




Risks
Related to Our Business




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




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


33




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




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




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




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




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




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




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




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


34




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




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




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




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




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




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




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




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


35




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




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




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




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




Risk
Relating to the Residential Property Industry in China




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




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




We face
intense competition from other real estate developers.




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




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


36





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




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




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




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




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




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




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




Substantially
all purchasers of our residential properties rely on mortgages to fund their
purchases. An increase in interest rates may significantly increase the cost of
mortgage financing, thus affecting the affordability of residential properties.
In 2007, PBOC raised the lending rates five times. The benchmark lending rate
for loans with a term of over five years, which affects mortgage rates, has been
increased to 7.83 percent. The PRC government and commercial banks may also
increase the down payment requirement, impose other conditions or otherwise
change the regulatory framework in a manner that would make mortgage financing
unavailable or unattractive to potential property purchasers. Under current PRC
laws and regulations, purchasers of residential properties generally must pay at
least 20 percent of the purchase price of the properties before they can finance
their purchases through mortgages. In May 2006, the PRC government increased the
minimum amount of down payment to 30 percent of the purchase price of the
underlying property if such property has a unit GFA of 90 square meters or more.
In September 2007, the minimum down payment for any purchase of second or
subsequent residential property was increased to 40 percent of the purchase
price if the purchaser had obtained a bank loan to finance the purchase of his
or her first property. Moreover, the interest rate for bank loans of such
purchase shall not be less than 110 percent of the PBOC benchmark rate of the
same term and category. For further purchases of properties, there would be
upward adjustments on the minimum down payment and interest rate for any bank
loan. In addition, mortgagee banks may not lend to any individual borrower if
the monthly repayment of the anticipated mortgage loan would exceed 50 percent
of the individual borrower’s monthly income or if the total debt service of the
individual borrower would exceed 55 percent of such individual’s monthly income.
If the availability or attractiveness of mortgage financing is reduced or
limited, many of our prospective customers may not be able to purchase our
properties and, as a result, our business, liquidity and results of operations
could be adversely affected.


37




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




Risks
Related to China




China’s
Economic Policies could affect our Business.




Substantially
all of our assets are located in China and substantially all of our revenue is
derived from our operations in China. Accordingly, our results of operations and
prospects are subject, to a significant extent, to the economic, political and
legal developments in China.




While
China’s economy has experienced significant growth in the past twenty years,
such growth has been uneven, both geographically and among various sectors of
the economy. The Chinese government has implemented various measures to
encourage economic growth and guide the allocation of resources. Some of these
measures benefit the overall economy of China, but they may also have a negative
effect on us. For example, operating results and financial condition may be
adversely affected by the government control over capital investments or changes
in tax regulations.




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




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




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




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


38




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




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




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




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




We may
face obstacles from the communist system in China.




Foreign
companies conducting operations in China face significant political, economic
and legal risks. The political system in China, including a cumbersome
bureaucracy, may hinder Western investment.




We may
have difficulty establishing adequate management, legal and financial controls
in China.




China
historically has not adopted a Western style of management and financial
reporting concepts and practices, modern banking, computer or other control
systems. We may have difficulty in hiring and retaining a sufficient number of
qualified employees to work in China. As a result of these factors, we may
experience difficulty in establishing management, legal and financial controls,
collecting financial data and preparing financial statements, books of account
and corporate records and instituting business practices that meet Western
standards.




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




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




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




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




Risks
Related to Our Common Stock




Our
common stock is currently traded on the NASDAQ Capital Market. The market price
of our common stock could fluctuate substantially due to a variety of factors,
including market perception of our ability to achieve our planned growth,
quarterly operating results of other real estate development companies,
trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.


39




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




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




We do not
anticipate paying dividends on the Common Stock.




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




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




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




Broker-dealer
requirements may affect trading and liquidity.




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




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




Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of our restricted stock in the
public marketplace could reduce the price of our common stock.


40




From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act (Rule
144), subject to certain limitations. In general, pursuant to Rule 144, a
stockholder (or stockholders whose shares are aggregated) who has satisfied a
one-year holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of 1
percent of the then outstanding shares of common stock or the average weekly
trading volume of the class during the four calendar weeks prior to such sale.
Rule 144 also permour, under certain circumstances, the sale of securities,
without any limitations, by a non-affiliate of our company that has satisfied a
two-year holding period. Any substantial sale of common stock pursuant to Rule
144 or pursuant to any resale prospectus may have an adverse effect on the
market price of our securities.





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





None for
the period covered by this report.





Item 3.
Defaults Upon Senior Securities





Not
applicable.





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





Not
applicable.





Item 5.
Other Information





Not
applicable.


41





Item 6.
Exhibits





(a)
Exhibits





ExhibitNumber
                
                DescriptionofExhibit31.1
                
                Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
                
                Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
                
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(Chief Executive Officer)32.2
                
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(Chief Financial
  Officer)


42





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





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





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




43