**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-Q**
  x
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
  For
        the
        quarterly period ended June 30, 2008
  or
   ̈
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                  ACT
  For
        the
        transition period from ___________ to ______________
  **Commission
        File No. 000-52020**
  **CLIFFORD
        CHINA ESTATES INC.**
 *(Exact
        name of registrant as specified in its charter)*
 Nevada
              
              331013808*(State or other jurisdiction of incorporation or*
                *organization)*
              
              *(I.R.S. Employer Identification No.)*
  7/F, Chai Wan Industrial City, Phase 2, 70
        Wing Tai Road, Chai Wan, Hong Kong
 *(Address
        of principal executive offices)(Zip Code)*
  (+852)
        2889-0183
 *(Registrant’s
        telephone number, including area code)*
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.   YES xNO ̈
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
  Large
        accelerated filer  ̈ Accelerated filer  ̈ Non-accelerated filer  ̈ Smaller
        reporting company x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES  ̈ NO x
  As
        of
        August 13, 2008, the registrant had 50,000,000 shares of common stock ($0.001
        par value) and 5,000,000 shares of preferred stock ($0.001 par value) issued
        and
        outstanding.


**PART
                  I -****FINANCIAL
                  INFORMATION**
              1Item
                  1.
              
              Financial
                  Statements
              1Condensed
                  Consolidated Balance Sheets as at December 31, 2007 and June 30,
                  2008
                  (Unaudited)
              1Condensed
                  Consolidated Statements of Operations and Comprehensive Income
                  (Loss) for the Three and Six Months Ended June 30, 2007 and 2008
                  (Unaudited)
              2Condensed
                  Consolidated Statements of Cash Flows for the Six Months Ended
                  June 30,
                  2007 and 2008 (Unaudited)
              3Notes
                  To Condensed Consolidated Financial Statements (Unaudited)
              4Item
                  2.
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              14Item
                  3.
              
              Quantitative
                  and Qualitative Disclosures about Market Risk
              19Item
                  4T.
              
              Controls
                  and Procedures
              20**PART
                  II -****OTHER
                  INFORMATION**
              20Item
                  1.
              
              Legal
                  Proceedings
              20Item
                  1A.
              
              Risk
                  Factors
              20Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              21Item
                  3.
              
              Defaults
                  Upon Senior Securities
              21Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              21Item
                  5.
              
              Other
                  Information
              21Item
                  6.
              
              Exhibits.
              21**SIGNATURES**
              
              
              22
  i
  **PART
        I - FINANCIAL INFORMATION**
  **Item
                1.**
              **FINANCIAL
                  STATEMENTS**
  **CLIFFORD
        CHINA ESTATES INC.**
  **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
  **June
                  30, 2008**
              
              **December
                  31, 2007****Unaudited****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              2,076,344
              
              $
              5,282,725Restricted
                  cash
              
              
              2,142,101
              
              
              -Construction
                  in progress - real estate for resale
              
              
              49,337,687
              
              
              21,848,349Prepayments
                  and other assets
              
              
              592,547
              
              
              457,698Deferred
                  selling cost
              
              
              454,316
              
              
              -Receivables
                  from an associated company
              
              
              1,059,659
              
              
              486Total
                  current assets
              
              
              55,662,654
              
              
              27,589,258**NON-CURRENT
                  ASSETS**Property
                  and equipment, net of accumulated depreciation
              
              
              193,072
              
              
              153,056**TOTAL
                  ASSETS**
              
              **$**
              **55,855,726**
              
              **$**
              **27,742,314****LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****LIABILITIES****CURRENT
                  LIABILITIES**Bank
                  loan (Current portion)
              
              $
              6,570,653
              
              $
              -Accounts
                  payable
              
              
              3,103,979
              
              
              2,680,137Accrued
                  expenses and other payables
              
              
              493,867
              
              
              91,659Deferred
                  revenue
              
              
              6,477,008
              
              
              -Due
                  to director
              
              
              6,236,877
              
              
              5,706,764Taxes
                  payable
              
              
              384,649
              
              
              -Deferred
                  tax liability
              
              
              203,329
              
              
              127,357Payables
                  to associated companies
              
              
              17,904,238
              
              
              17,616,038Total
                  current liabilities
              
              
              41,374,600
              
              
              26,221,955**NON-CURRENT
                  LIABILITIES**Bank
                  loan (Net of current portion)
              
              
              13,871,379
              
              
              -**TOTAL
                  LIABILITIES**
              
              
              **55,245,979**
              
              
              **26,221,955****STOCKHOLDERS’
                  EQUITY**Preferred
                  stock: 5,000,000 shares authorized, issued andoutstanding
                  at $0.001 par value
              
              
              5,000
              
              
              5,000Common
                  stock: 50,000,000 shares authorized, issued andoutstanding
                  at $0.001 par value
              
              
              50,000
              
              
              50,000Additional
                  paid in capital
              
              
              4,906,580
              
              
              4,188,355Accumulated
                  deficit
              
              
              (5,214,160
              )
              
              (3,077,576
              )Accumulated
                  other comprehensive income
              
              
              862,327
              
              
              354,580TOTAL
                  STOCKHOLDERS’ EQUITY
              
              
              **609,747**
              
              
              **1,520,359****TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              **$**
              **55,855,726**
              
              **$**
              **27,742,314**
  See
        accompanying notes to the condensed consolidated financial
        statements
  1
  **CLIFFORD
        CHINA ESTATES INC.**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **AND
        COMPREHENSIVE INCOME (LOSS) (UNAUDITED)**
  **Six-months
                  ended**
              
              **Three-months
                  ended****June
                  30, 2008**
              
              **June
                  30, 2007**
              
              **June
                  30, 2008**
              
              **June
                  30, 2007****REVENUES**
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -**COST
                  OF REVENUE**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**GROSS
                  PROFIT**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**EXPENSES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Selling,
                  general and administrative**
              
              
              1,979,122
              
              
              81,730
              
              
              1,755,234
              
              
              41,403(1,979,122
              )
              
              (81,730
              )
              
              (1,755,234
              )
              
              (41,403
              )**OTHER
                  INCOME**
              
              
              
              
              
              -
              
              
              
              
              
              -Interest
                  income
              
              
              29,109
              
              
              6,181
              
              
              14,795
              
              
              2,424Exchange
                  gain
              
              
              239,836
              
              
              342,005
              
              
              103,107
              
              
              214,648Other
              
              
              5,837
              
              
              33
              
              
              5,833
              
              
              33**(LOSS)
                  INCOME BEFORE INCOME TAXES**
              
              
              (1,704,340
              )
              
              266,489
              
              
              (1,631,499
              )
              
              175,702**INCOME
                  TAX EXPENSE**
              
              
              (432,244
              )
              
              (85,501
              )
              
              (398,062
              )
              
              (53,662
              )**NET
                  (LOSS) INCOME**
              
              
              (2,136,584
              )
              
              180,988
              
              
              (2,029,561
              )
              
              122,040**FOREIGN
                  CURRENCY TRANSLATION GAIN/(LOSS)**
              
              
              507,747
              
              
              (10,697
              )
              
              253,707
              
              
              26,442**COMPREHENSIVE
                  (LOSS) INCOME**
              
              **$**
              (1,628,837
              )
              **$**
              170,291
              
              **$**
              (1,775,854
              )
              **$**
              148,482Earnings
                  per common share, basic and diluted
              
              
              *
              
              
              *
              
              
              *
              
              
              *Weighted
                  average number of common sharesoutstanding,
                  basic and diluted
              
              
              50,000,000
              
              
              3,000,000
              
              
              50,000,000
              
              
              3,000,000
  *
        Less
        than $0.01 per share
  See
        accompanying notes to the condensed consolidated financial statements
  2
  **CLIFFORD
        CHINA ESTATES INC.**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
  **Six-months
                  ended****June
                  30, 2008**
              
              **June
                  30, 2007****Cash
                  flows from operating activities**Net
                  (loss) income
              
              $
              (2,136,584
              )
              $
              180,988Adjustments
                  to reconcile net (loss) income to net cash used in operating activities:
              
              
              
              
              
              -Depreciation
              
              
              8,189
              
              
              6,481Deferred
                  income tax
              
              
              432,244
              
              
              85,501Changes
                  in operating assets and liabilities:(Increase)
                  in restricted cash
              
              
              (2,142,101
              )
              
              -(Additions)
                  to construction in progress
              
              
              (25,245,691
              )
              
              (1,252,196
              )(Increase)
                  decrease in prepayments and other assets
              
              
              (102,882
              )
              
              658,618(Increase)
                  in receivables from a related company
              
              
              (1,025,598
              )
              
              -(Increase)
                  in deferred selling cost
              
              
              (439,713
              )
              
              -Increase
                  (decrease) in accounts payables
              
              
              244,868
              
              
              (907
              )Increase
                  in accrued expenses and other payables
              
              
              385,524
              
              
              -Increase
                  in deferred revenue
              
              
              6,268,816
              
              
              -Net
                  cash used in operating activities
              
              
              (23,752,928
              )
              
              (321,515
              )**Cash
                  flows from investing activities**(Purchase)
                  disposal of property and equipment, net
              
              
              (29,185
              )
              
              4,598Net
                  cash (used in) provided by investing activities
              
              
              (29,185
              )
              
              4,598**Cash
                  flows from financing activities**Advances
                  from related companies
              
              
              4,460,285
              
              
              4,534,409Repayments
                  to related companies
              
              
              (4,997,596
              )
              
              (7,049,975
              )Advances
                  to a related company
              
              
              -
              
              
              (2,590,945
              )Advance
                  from a director
              
              
              530,113
              
              
              3,791,978Increase
                  in long-term bank loan
              
              
              13,425,509
              
              
              -Increase
                  in short-term bank loan
              
              
              6,359,451
              
              
              -Net
                  cash provided by (used in) financing activities
              
              
              19,777,762
              
              
              (1,314,533
              )**Net
                  decrease in cash and cash equivalents**
              
              
              (4,004,351
              )
              
              (1,631,450
              )Cash
                  and cash equivalents - beginning of period
              
              
              5,282,725
              
              
              3,251,774Effect
                  of foreign exchange rate changes
              
              
              797,970
              
              
              (226,567
              )**Cash
                  and cash equivalents - end of the period**
              
              **$**
              **2,076,344**
              
              **$**
              **1,393,757****Supplemental
                  disclosures of cash flow information**Imputed
                  interest capitalized in construction in progresson
                  related party payables
              
              
              753,702
              
              
              630,283Cash
                  paid for interest
              
              
              507,484
              
              
              -
  See
        accompanying notes to the condensed consolidated financial
        statements
  3
  **CLIFFORD
        CHINA ESTATES INC.**
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
  **NOTE
        1** **-
        ORGANIZATION AND PRINCIPAL ACTIVITIES**
  Clifford
        China Estates Inc. (the “Company”) was originally incorporated under the laws of
        the State of Delaware on July 15, 2002 under the name “North American Marketing
        Corporation” with authorized common stock of 50,000,000 shares with $0.001 par
        value. On March 25, 2004, the Company changed its domicile to the state of
        Nevada and changed its name to “Elite Artz, Inc.” (“Elite Artz”) with the
        addition of authorized capitalization of 20,000,000 shares of preferred stock
        with $0.001 par value.
  On
        October 1, 2007, the Company entered into and completed an Agreement for
        Share
        Exchange (the “Agreement”) with Parkade International Limited (“Parkade”) and
        Clifford Manufacturing Co. Ltd. (“Clifford Manufacturing”), the sole shareholder
        of Parkade. Pursuant to the terms of the Agreement, Elite Artz acquired 100%
        ownership interest in Parkade from Clifford Manufacturing.
        Consideration paid by the Company to Clifford Manufacturing consisted of
        43,881,200 shares of Elite Artz’ common stock and 5,000,000 shares of Elite
        Artz’ preferred stock (the “Acquisition”). Immediately following completion of
        the share exchange transaction, Parkade became a wholly owned subsidiary
        of
        Elite Artz and Elite Artz had 50,000,000 shares of its common stock issued
        and
        outstanding and 5,000,000 share of its preferred stock issued and outstanding.
        Each share of preferred stock is initially convertible into ten (10) shares
        of
        common stock at the option of the holders, subject to the availability of
        the
        common stock, at any time after the original issue date.
  For
        accounting purposes, the acquisition of Parkade by Elite Artz has been recorded
        as a reverse acquisition of a public shell and the recapitalization of Parkade
        was based on factors demonstrating that Parkade represents the accounting
        acquirer. The acquisition is equivalent to the issuance of stock by Parkade
        for
        the net monetary assets (which were not significant) of Elite Artz. The
        shareholder of Parkade received approximately 88% of the post Acquisition
        common
        stock of Elite Artz. In addition, the management personnel and the board
        of
        directors of the post-Acquisition company had previously held similar positions
        with Parkade.
  On
        January 28, 2008, Elite Artz formed a corporation under the laws of the State
        of
        Nevada with the name “Clifford China Estates Inc.” (“Merger Sub”) and on January
        29, 2008, Elite Artz acquired 1,000 shares of Merger Sub’s common stock for
        cash. As such, Merger Sub became a wholly-owned subsidiary of Elite Artz.
        On
        January 31, 2008, Merger Sub was merged with and into Elite Artz. As a result
        of
        the merger, the Company’s name was changed to “Clifford China Estates Inc.”
Prior to the merger, Merger Sub had no liabilities and nominal assets and,
        as a
        result of the merger, the separate existence of Merger Sub then ceased. Clifford
        China Estates Inc. was the surviving corporation in the merger and, except
        for
        the name change provided for in the Agreement and Plan of Merger, there was
        no
        change in the Company’s directors, officers, capital structure or the
        business.
  Through
        its wholly-owned subsidiary, Guangzhou City Clifford Development (Panyu)
        Company
        Limited (“Panyu”), a company established under the laws of the People’s Republic
        of China (the “PRC”), the Company owns land use rights in a real estate project
        known as Clifford Waterfront (“Clifford Waterfront”) (formerly known as Clifford
        Garden) located at Shawan Town, Panyu District of Guangzhou City, Guangdong
        Province, PRC. Clifford Waterfront occupies a plot of land of approximately
        800,000 square feet and will consist of 24 blocks of high-rise residential
        buildings with a total saleable area of approximately 1,500,000 square feet
        after the completion of construction.
  4
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
  Parkade
        International Limited (“Parkade”), a wholly-owned subsidiary, was incorporated
        on February 16, 1993 under the laws of the British Virgin Islands. Parkade
        is an
        investment holding company.
  Glory
        Park International Limited (“GP”), a wholly-owned subsidiary of Parkade, was
        incorporated on January 22, 2008 under the laws of the British Virgin Islands.
        GP is a newly established entity that is used by the Company for the payment
        of
        certain expenses .
  **NOTE
        2** **-
        BASIS OF PRESENTATION**
  The
        accompanying unaudited, condensed consolidated financial statements include
        the
        accounts of Clifford China Estates Inc. and its wholly-owned subsidiaries
        (collectively referred as the “Company”).
  The
        Company’s condensed consolidated financial statements as of June 30, 2008 and
        for the three and six-month periods ended June 30, 2008 and 2007 have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America (“US GAAP”) and with the instructions of Form 10-Q and
        Rule10-01 of Regulation S-X .
  Pursuant
        to the rules and regulations of the Securities and Exchange Commission (the
        “SEC”), certain information and footnote disclosures normally included in
        financial statements prepared in accordance with US GAAP have been condensed
        or
        omitted. These financial statements should be read in conjunction with the
        financial statement and the notes thereto included in the Company’s audited
        annual financial statements for the year ended December 31, 2007, which are
        included in the Company’s Annual Report on Form 10-KSB for the year ended
        December 31, 2007, filed with the SEC on April 1, 2008. Amounts as of December
        31, 2007 are derived from these audited consolidated financial statements.
  In
        the
        opinion of the management, all adjustments (which comprise of only normal
        recurring adjustments) considered necessary to present fairly the Company’s
        financial position as of June 30, 2008, and the results of its operations
        and
        cash flows for the three and six-month periods ended June 30, 2008 and 2007,
        have been included.
  *Use
        of Estimates*
  The
        preparation of financial statements in conformity with US GAAP requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets, liabilities, revenues and expenses and the disclosure of contingent
        assets and liabilities. Actual results could materially differ from these
        estimates.
  *Foreign
        Currency Translation*
  The
        accompanying consolidated financial statements are presented in United States
        dollars (“USD”). The Company has subsidiaries whose functional currencies are
        dominated in Chinese Renminbi (“RMB”) and Hong Kong dollars (“HKD”).
  5
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
 Capital
        accounts of the consolidated financial statements are translated into USD
        from
        RMB and HKD at their historical exchange rates when the capital transactions
        occurred. Assets and liabilities are translated at the exchange rates as
        of the
        balance sheet date. Income and expenditures are translated at the average
        exchange rate during the period. The translation rates are as
        follows:
  **2008**
              
              **2007**Period
                  end RMB : $ exchange rate
              
              
              6.84863
              
              
              7.7113Average
                  period RMB : $ exchange rate
              
              
              7.07608
              
              
              7.7512Period
                  end HKD : $ exchange rate
              
              
              7.800
              
              
              7.800Average
                  period HKD : $ exchange rate
              
              
              7.800
              
              
              7.800
  On
        July
        21, 2005, the PRC changed its foreign currency exchange policy from a fixed
        RMB/USD exchange rate into a flexible rate under the control of the PRC
        government.
  The
        RMB
        is not freely convertible into foreign currency and all foreign exchange
        transactions must take place through authorized institutions. No representation
        is made that the RMB amounts could have been, or could be, converted into
        USD at
        the rates used in translation.
  **NOTE
        3** **-
        RESTRICTED CASH**
  Pursuant
        to Rules and Regulations of the State-Owned Land Resource Bureau
        (“SOLRB”), the
        Company is required to place in designated bank accounts certain amounts
        of
        pre-sale proceeds as guarantee deposits for construction of related properties.
        The deposits can only be used for purchases of construction materials and
        payments of construction fees on the respective properties after approval
        from the SOLRB is obtained. Such guarantee deposits will only be
        released upon completion of construction of related pre-sold property
        or issuance of the real estate ownership certificate, whichever is earlier.
        As
        of June 30, 2008, the Company has restricted cash in its banks as guarantee
        deposits in the amount of $2,142,100.
  **NOTE
        4 - CONSTRUCTION IN PROGRESS - REAL ESTATE FOR RESALE**
  Construction
        in progress of real estate for resale consists of expenditures for land
        development including set-up cost, infrastructure cost, construction cost
        and
        indirect cost. Construction cost also includes interest costs which comprise
        both interest and imputed interest on bank and related party loans. These
        interest costs are capitalized during the construction term of real estate
        projects, which normally begins when payments are made for land usage rights,
        and ends when the real estate project is substantially completed and held
        available for occupation. Costs subsequent to the completion of construction
        are
        usually minor amounts and are expensed as incurred.
  Expenditures
        for land development are capitalized and are allocated to development projects
        by the specific identification method. Construction in progress is stated
        at the
        lower of cost or net realizable value. During 2008 and 2007, the Company
        had
        only one construction project in progress.
  6
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
 Construction
        in progress - real estate for resale as of June 30, 2008 and December 31,
        2007
        is summarized as follows:
  **As
                  of**
                **June
                  30 , 2008 (unaudited)**
              
              **As
                  of**
                **December
                  31, 2007**Cost
                  of land use rights
              
              $
              3,323,419
              
              $
              3,089,411Set-up
                  costs
              
              
              5,926,006
              
              
              2,984,240Infrastructure
                  costs
              
              
              2,507,721
              
              
              1,233,659Construction
                  costs
              
              
              37,484,874
              
              
              14,510,139Indirect
                  costs
              
              
              95,667
              
              
              30,900$
              49,337,687
              
              $
              21,848,349
  All
        land
        belongs to the State in the PRC. Enterprises and individuals can pay the
        State a
        fee to obtain a right to use a piece of land for commercial or residential
        purposes for a period of 50 years or 70 years, respectively. The right of
        land
        usage can be sold, purchased, and exchanged in the market. The Company has
        obtained the land use rights from Panyu Sub-bureau of Land Resources of
        Guangzhou for its Clifford Waterfront project for a period of 70 years.
  Interest
        costs included in the construction cost amounted to $2,637,100 during the
        six
        months ended June 30, 2008 (for the same period in 2007, it was
        $1,260,500).
  Capitalized
        costs are allocated to real estate projects the Company holds for sale.
        Allocation of costs is based on a cost-per-square-meter method. Costs associated
        with units which are held for sale remain in project costs inventory until
        relevant units are sold.
  The
        Company expects that the construction work will be fully completed by the
        end of
        2008. The cost of the pre-sold residential units is deferred and recognized
        only when the corresponding sales are closed and recognizable, which is expected
        to occur during 2009 (Note 12).
  **NOTE
        5 - PREPAYMENTS AND OTHER ASSETS**
  Prepayments
        and other assets include material deposits paid to suppliers and quality
        assurance deposits paid to the local government. As of June 30, 2008, the
        quality assurance deposits amounted to $173,900, which are to be returned
        to the
        Company after the construction is completed.
  Other
        assets also include sales/business tax paid to the government based on
        sales proceeds received by the Company during the period. During the six
        months
        ended June 30, 2008, sales tax recorded as deferred expense was $308,100,
        of
        which $153,300 was submitted to the government and $154,800 was
        payable.
  **NOTE 6
        - DEFERRED SELLING COSTS**
  During
        the six months ended June 30, 2008, the Company has incurred selling costs
        such
        as marketing, sales commission and referral expense. These costs are directly
        related to real estate sales, and management believes that these costs
        are recoverable. Therefore, the costs have been deferred
        and will be charged to expense when the related revenue is
        recognized .
  **NOTE 7** **-** **PROPERTY AND EQUIPMENT**
  Property
        consists of 13 residential apartment units located in China that Panyu purchased
        in 1996. All the residential apartment units are used for the Company’s quarters
        for its workers for its construction project. The net book value of these
        units
        as of June 30, 2008 was approximately $153,700. Included in property is a
        motor vehicle that the Company purchased in May 2008 with a net book value
        of $23,000 as of June 30, 2008.
  7
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
 Equipment
        consists primarily of office equipment with a net book value of $16,300 at
        June
        30, 2008.
  Using
        the
        straight-line depreciation method, property and equipment are depreciated
        over
        their respective useful lives after subtracting 10% residual value of the
        original cost.
  **NOTE 8
        -** **RECEIVABLES
        FROM ASSOCIATED COMPANIES**
  Receivables
        from associated companies, which are either directly or indirectly controlled
        by
        Mr. Pang, represent advances made by the Company to these associated companies
        and are non-interest bearing with no fixed repayment terms. The breakdown
        of receivables from the associated companies as of June 30, 2008 and December
        31, 2007 is summarized as follows:
  **As
                  of**
              
              **Movement
                  during the period**
              
              **As
                  of****Dec
                  31, 2007**
              
              **Advances**
              
              **Repayments**
              
              **June
                  30, 2008**(i)Clifford
                  Real Estate Agency Ltd
              
              $
              -
              
              $
              1,050,193
              
              $
              24,594
              
              $
              1,059,659Fartake
                  Investment Ltd.
              
              
              275
              
              
              -
              
              
              275
              
              
              -Guangzhou
                  City Huadu Clifford Estate Ltd.
              
              
              211
              
              
              -
              
              
              211
              
              
              -$
              486
              
              $
              1,050,193
              
              $
              25,080
              
              $
              1,059,659
  Due
        to
        the exchange rate difference, the ending balance at June 30, 2008 may not
        reconcile to balances brought forward plus advances and minus repayments.
  (i) This
        represents pre-sale proceeds amount received on behalf of the Company by
        Clifford Real Estate Agency Ltd.
  **NOTE 9
        - PAYABLES TO AS** **SOCIATED
        COMPANIES**
  Payables
        to associated companies consist of amounts owed by the Company to such
        associated companies, which are either directly or indirectly controlled
        by Mr.
        Pang. The advances from the associated companies are mainly used for the
        Company’s construction projects in China. These liabilities are not secured by
        any of the Company’s assets, have no fixed repayment terms but are expected to
        be repaid to the companies during 2008 and 2009. Balances marked with an
        asterisk (“*”) are interest bearing at 6.8% per annum. The breakdown of payables
        to associated companies as of June 30, 2008 and December 31, 2007 is summarized
        as follows:
  **As
                  of**
              
              **Movement
                  during the period**
              
              **As
                  of****Dec
                  31, 2007**
              
              **Advances**
              
              **Repayments**
              
              **June
                  30, 2008**Guangzhou
                  City Clifford Property Limited
              
              $
              1,783,294
              
              $
              -
              
              $
              -
              
              $
              1,898,187*Guangzhou
                  City Clifford PropertyManagement
                  Limited
              
              
              4,458,910
              
              
              -
              
              
              -
              
              
              4,745,472*Guangzhou
                  City Guanwan Property Ltd.
              
              
              1,783,294
              
              
              -
              
              
              -
              
              
              1,898,189*Foshan
                  City Clifford Estates (Nanhoi) Ltd.
              
              
              3,017,882
              
              
              -
              
              
              2,826,423
              
              
              292,029*Foshan
                  City Clifford Property (Nanhoi) Ltd.
              
              
              1,371,765
              *
              
              -
              
              
              1,413,211
              
              
              -
  8
  **CLIFFORD
        CHINA ESTATES INC.**
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
  Clifford
                  Estates (Panyu) Limited
              
              
              -
              
              
              41,806
              
              
              7,355
              
              
              35,595Clifford
                  (Panyu) Property management ltd
              
              
              -
              
              
              23,170
              
              
              393
              
              
              23,534Clifford
                  Estates Resort Center
              
              
              -
              
              
              18,408
              
              
              18,218
              
              
              196Guangzhou
                  City Huadu CliffordDevelopment
                  Ltd
              
              
              685,819
              
              
              -
              
              
              706,540
              
              
              -Guangzhou
                  City Clifford IndustrialEstates
                  (Huadu) Limited
              
              
              -
              
              
              1,413,211
              
              
              -
              
              
              1,460,145*Guangzhou
                  City Clifford Supermarket
                  (Panyu)
              
              
              -
              
              
              408
              
              
              -
              
              
              422Clifford
                  Farm
              
              
              -
              
              
              12
              
              
              -
              
              
              13Richpro
                  International Limited
              
              
              -
              
              
              1,807,825
              
              
              25,455
              
              
              1,841,564Abroad
                  Trading Limited
              
              
              -
              
              
              202,820
              
              
              -
              
              
              209,556Hitech
                  Company Limited
              
              
              -
              
              
              203,357
              
              
              -
              
              
              210,111Pearl
                  Exhibition and Convention Centre Ltd
              
              
              -
              
              
              749,267
              
              
              -
              
              
              774,150Clifford
                  Investment Co. Ltd.
              
              
              4,515,074
              
              
              -
              
              
              -
              
              
              4,515,074$
              17,616,038
              
              $
              4,460,284
              
              $
              4,997,595
              
              $
              17,904,237
  Due
        to
        the exchange rate difference, the ending balance at June 30, 2008 may not
        reconcile to balances brought forward plus advances and minus repayments.
  **RELATED
        PARTY TRANSACTIONS**
  On
        December 12, 2006, the Company signed a project management contract for the
        period from January 2007 to December 2008 for the development of Clifford
        Waterfront with Richpro International Limited, a company owned by Clifford
        L.K.
        Pang (“Mr. Pang”), the Company’s Chief Executive Officer, Chief Financial
        Officer and Director, at a cost equal to 5% of total construction cost of
        Clifford Waterfront, which the Company believes is equivalent to a project
        management agreement it may receive from an unaffiliated third party. During
        the
        six-months ended June 30, 2008, the management fees paid to Richpro
        International Limited amounted to $1,841,600. Nil for the corresponding period
        in 2007.
  On
        September 10, 2007, the Company signed a consultancy agreement for the period
        from October 2007 to September 2009 for the sales and marketing planning
        and
        execution of Clifford Waterfront development project with Abroad Trading
        Limited, a company owned by Mr. Pang, at a cost equal to 2% of total sales
        of
        Clifford Waterfront, which the Company believes is equivalent to a similar
        consultancy agreement it may receive from an unaffiliated third party. During
        the six months ended June 30, 2008, the marketing fees paid to Abroad Trading
        Limited amounted to $209,600. Nil for the corresponding period in 2007.
  On
        April
        1, 2008, the Company entered into a consultancy agreement for the period
        from
        April 1, 2008 to March 31, 2009 for the international sales and marketing
        planning and execution of Clifford Waterfront development project with Hitech
        Company Limited, a company owned by Mr. Pang, at a cost equal to 2% of total
        sales of Clifford Waterfront, which the Company believes is equivalent to
        a
        similar consultancy agreement it may receive from an unaffiliated third party.
        During the six months ended June 30, 2008, the marketing fees paid to Hitech
        Company Limited amounted to $210,100. Nil for the corresponding period in
        2007.
  9
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
 On
        April
        1 2008, the Company entered into a service agreement with Clifford Estates
        (Panyu) Limited (“Clifford Estates”), a company owned by Mr. Pang. Under the
        terms of the agreement, upon request, Clifford Estates, will provide service
        in
        information technology, human resources, purchasing, transportation and
        conference room rental. In return the Company will pay Clifford Estate a
        monthly
        fee of $4,300 which the Company believes is equivalent to the cost of service
        it
        may incur using an unaffiliated third party. During the six months ended
        June
        30, 2008, service fee incurred amounted to $12,700. During the six months
        period, Clifford Estates also made payments to suppliers in the amount of
        $22,900 on behalf of the Company.
  Clifford
        (Panyu) Property Management Ltd., a company owned by Mr. Pang, provided service
        to the Company during the six months ended June 30, 2008. The total service
        cost
        during the period was $23,500. Services provided include cleaning and securities
        for Clifford Waterfront.
  The
        Company purchased $422 of goods from Guangzhou City Clifford Supermarket
        (Panyu), a company owned by Mr. Pang, during the six months ended June 30,
        2008
        and t he
        Company purchased $196 of maintenance materials from Clifford Estates
        Resort Center, a company owned by Mr. Pang, during the six months ended June
        30,
        2008.
  In
        December, 2007, the Company entered into two advertising contracts (one for
        Television commercial and one for newspaper advertisements) with Pearl
        Exhibition and Convention Centre Ltd (“Pearl”), a company owned by Mr. Pang.
        Both contract terms are January 1, 2008 to December 31, 2008. Per the contracts,
        Pearl will provide television commercial broadcasts and newspaper and magazine
        advertisement service to the Company. During the six months ended June 30,
        2008,
        advertising fees paid to Pearl totaled $774,200. Nil for the corresponding
        period in 2007.
  During
        the six months ended June 30, 2008 and 2007, Parkade used the office address
        of
        a related company for its registered address purpose. The registered address
        is
        provided free of charge for both periods. The fair value of registered address
        is estimated to be $385 per annum.
  **NOTE
        10 - AMOUNTS DUE TO A DIRECTOR (MR. PANG)**
  Amounts
        due to one of the Company’s directors (Mr. Pang) consist of advances from
        that director and payments on behalf of the Company by that director. The
        amounts are unsecured and non interest bearing with no fixed payment terms,
        but
        are expected to be repaid to the director during 2008 and 2009. An amount
        of
        $530,100 was advanced from this director during the six-month period ended
        June 30, 2008.
  **NOTE
        11 - BANK LOAN**
  On
        August
        3, 2007, Panyu obtained a bank loan from the Bank of China in the amount
        of
        $20,442,000 to finance the construction projects. The bank loan is due in
        36
        months from the initial draw date, and bears interest at The People’s Bank of
        China legal standard rate times 90% (6.8% as of June 30, 2008). The bank
        loan is
        guaranteed by Foshan Clifford Estates (Nanhoi) Ltd., an associated company,
        and
        was drawn during the three-month period ended March 31, 2008. The bank loan
        requires repayment of $2,920,200 before September 30, 2008, accumulated
        repayment of $6,570,600 before March 31, 2009, and accumulated repayment
        of
        $10,221,000 before September 30, 2009. The remaining balance must be repaid
        before the expiration date of the loan or before the Company sells 85% of
        the
        Clifford Waterfront project, whichever is earlier.
  10
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
 **NOTE
        12** - **REVENUE**
  The
        pre-sales of Clifford Waterfront residential units began on April 26, 2008.
        Since then, the Company has started to receive pre-sale proceeds from
        customers. During the six months ended June 30, 2008, no real estate sales
        have
        been recorded, as the pre-sales transactions will not be closed until 2009.
        In
        addition, the construction is still in progress and is expected to be completed
        by the end of 2008. Real estate sales will be reported in accordance with
        the
        provisions of Statement of Financial Accounting Standards No. 66, “Accounting
        for Sales of Real Estate”. Revenue from sales of residential properties is
        recognized when relevant units and spaces are available for occupancy and
        delivered to buyers with appropriate title documents. A sale is not considered
        consummated until (1) the parties are bound by the terms of a contract, (2)
        all consideration has been exchanged, (3) any permanent financing of which
        the
        seller is responsible has been arranged, (4) all conditions precedent to
        closing
        have been performed, (5) the seller does not have substantial continuing
        involvement with the property, and (6) the usual risks and rewards of ownership
        have been transferred to the buyer. Sales transactions not meeting all the
        conditions of the full accrual method are accounted for using the deposit
        method
        of accounting. Under the deposit method, all costs are capitalized as incurred,
        and payments received from the buyer are recorded as a deposit liability.
  The
        Company has recorded all pre-sale proceeds as deferred revenue in the
        balance sheet. The deferred revenue will be recorded as sales when the relevant
        units and/or spaces are available for occupancy and have been delivered to
        buyers.
  **NOTE
        13** - **INCOME TAX**
  The
        Company has adopted the provisions of Statement of Financial Accounting
        Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” (“SFAS 109”) which
        incorporates the use of the asset and liability approach of accounting for
        income taxes. The Company allows for recognition of deferred tax benefits
        in
        future years. Under the asset and liability approach, deferred taxes are
        provided for the net tax effects of temporary differences between the carrying
        amounts of assets and liabilities for financial reporting purposes and the
        amounts used for income tax purposes.
  The
        Company recognizes certain income and expenses that do not conform to the
        timing
        and conditions of PRC tax provisions.
  “Accounting
        for Uncertainty in Income Taxes”— an interpretation of FASB Statement No. 109.
        (“FIN 48”) clarifies the accounting for uncertainty in income taxes recognized
        in an enterprise’s financial statements in accordance with SFAS 109, and
        prescribes a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. This interpretation also provides guidance on
        derecognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition.
  *Corporation
        Income Tax (“CIT”)*
  In
        accordance with the relevant tax laws and regulations of Hong Kong and the
        PRC,
        in 2008, the statutory CIT rates are 17.5% in Hong Kong and 25% (for 2007,
        the
        statutory CIT rate was 33%) in the PRC.
  No
        provision for Hong Kong CIT has been made as the Company has no assessable
        profits during the six months ended June 30 2008 and 2007. Provision for
        PRC
        Enterprise Income Tax was provided at the applicable statutory CIT rate.
        During
        the quarter, the Company has started to accrue CIT based on a 20% deemed
        profit
        rate on the pre-sales proceeds received in accordance with the relevant tax
        rules issued by the PRC tax authority.
  11
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
  Deferred
        Tax Asset and Liability
  As
        of
        June 30, 2008, Panyu has an accumulated net operating loss of $148,600
        eligible to be utilized against profits earned from 2008 to 2011. Under the
        PRC
        tax regulations Panyu is entitled to utilize its tax loss for up to 5 years
        of
        operations. However, no deferred tax asset was recorded in Panyu to reflect
        such
        tax loss because the PRC tax regulations change frequently and it is uncertain
        whether such deferred tax asset can be realized in subsequent years.
  As
        of
        June 30, 2008, Panyu recorded a gain on the foreign currency translation
        of a
        HKD dominated loan to Panyu. In accordance with the current tax laws of the
        PRC,
        the Company is required to pay PRC tax on the translation gain. Accordingly,
        the
        estimated tax liability in the amount of $ 203,300 was recorded as a deferred
        tax liability of Panyu as of June 30, 2008.
  *Land
        Appreciation Tax (“LAT”)*
  The
        State
        Administration of Taxation (“SAT”) issued an announcement on August 2, 2004 in
        respect of imposing LAT on property developers. Subsequently, the SAT issued
        a
        new announcement on December 28, 2006, with the intention to strengthen the
        mechanism for collection of LAT on property developers and authorizing the
        local
        tax bureau to issue detailed implementation rules and procedures appropriate
        to
        local environments, which became effective on February 1, 2007. The Company
        started to accrue LAT based on sales proceeds received from the pre-sales,
        as
        required by the local tax authority. The percentage of LAT accrued by the
        Company ranges from 1-2% of the sales proceeds received, depending on the
        size
        of the properties sold.
  The
        applicable LAT rate is progressive and ranges from 30% to 60%, depending
        on the
        amount of the taxable gain calculated after taking into consideration allowable
        prescribed deductions, which include the cost of land usage right and
        construction expense.
  The
        calculation of LAT must be finalized and paid to the relevant tax authorities
        prior to the date that:
  l
            the
                Clifford Waterfront project is fully completed and approved by the
                government and over 85% of the total sellable gross floor area has
                been
                sold, or  l
            is
                three years after the pre-sale/sales permits are acquired (The Company
                has
                obtained some pre-sale permits for certain number of blocks for the
                residential units. The Company expects to obtain all pre-sale permits
                by
                the third quarter of 2008).  Relevant
        taxation authorities may also require the Company to pay LAT on the occurrence
        of such other events as it may specify.
  Although
        the Company has started to prepay the LAT based on sales proceeds it has
        received, it has not made any provision for the remaining balance of LAT
        as no
        revenue has been recognized and significant judgment and estimates are required
        in determining the amount of LAT, especially when the construction costs
        are not
        yet finalized and all the deductible costs that go into the calculation of
        LAT
        have not been examined and approved by the local tax authorities. Management
        believes that the amount of LAT accrued at June 30, 2008 is reasonable.
  12
 **CLIFFORD
          CHINA ESTATES INC.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **(UNAUDITED)**
 **NOTE
        14** - **EARNINGS (LOSS) PER SHARE**
  Basic
        earnings per share is computed by dividing net income available to common
        shareholders by the weighted-average number of common shares outstanding
        during
        the period. Diluted earnings per share is computed similar to basic earnings
        per
        share except that the denominator is increased to include the number of
        additional common shares would have been outstanding if the potential common
        shares had been issued and if the additional common shares were dilutive.
        As of
        June 30, 2008 and 2007, there were no dilutive securities outstanding.
  **NOTE** **15
        - CONTINGENCIES AND COMMITMENTS**
  As
        of
        June 30, 2008, the Company has made capital commitments with various contractors
        for the construction works of Clifford Waterfront. The commitments should
        be
        fulfilled by the end of 2008 when the project is estimated to be fully
        completed. The Company expects to meet the capital commitments through
        internally generated cash flow and from future borrowings.
  As
        of
        June 30, 2008, the Company had contingent liabilities in the amount of
        $2,025,400, which represents guarantees in respect of mortgage facilities
        granted by certain banks relating to the mortgage loans arranged for certain
        purchasers of the Clifford Waterfront apartments. Pursuant to the terms of
        the
        guarantees, upon default in mortgage payments by the purchasers, the Company
        is
        responsible to repay the outstanding mortgage principal together with accrued
        interest and penalty owed by the defaulted purchasers to the banks and the
        Company is entitled to take over the legal title and possession of the related
        properties. The contingent liabilities should be discharged upon earlier
        of (i)
        issuance of the real estate ownership certificate which the
        Company expects to be available within one year after the sales transaction
        is closed, and (ii) the satisfaction of mortgaged loan by the purchasers
        of
        properties.
  The
        directors consider that in case of default in payments, the net realizable
        value
        of the related properties can cover the repayment of the outstanding mortgage
        principals together with the accrued interest and penalty and therefore no
        provision has been made in the financial statements for the guarantees.
  **NOTE
        16** - **RECENT ACCOUNTING PRONOUNCEMENTS**
  In
        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS
        157”), which defines fair value, establishes a framework for measuring fair
        value in accordance with generally accepted accounting principles, and expands
        disclosures about fair value measurements. SFAS 157 was effective for the
        Company on January 1, 2008 for all financial assets and liabilities. For
        all
        non-financial assets and liabilities, SFAS 157 is effective for the Company
        on
        January 1, 2009. As it relates to the Company’s financial assets and
        liabilities, the adoption of SFAS 157 did not have a material impact on the
        Company’s consolidated financial statements. The Company is still in the process
        of evaluating the impact that SFAS 157 will have on its non-financial assets
        and
        liabilities.
  In
        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows entities to
        voluntarily choose to measure certain financial assets and liabilities at
        fair
        value (“fair value option”). The fair value option may be elected on an
        instrument-by-instrument basis and is irrevocable, unless a new election
        date
        occurs. If the fair value option is elected for an instrument, SFAS 159
        specifies that unrealized gains and losses for that instrument be reported
        in
        earnings at each subsequent reporting date. SFAS 159 was effective for the
        Company on January 1, 2008. The Company did not apply the fair value option
        to
        any of its outstanding instruments and therefore, SFAS 159 did not have an
        impact on the Company’s consolidated financial statements.
  In
        May
        2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting
        Principles. This Statement identifies 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 generally accepted accounting principles (GAAP) in the United
        States. This is effective 60 days following the SEC’s approval of the Public
        Company Accounting Oversight Board amendments to AU Section 411, The Meaning
        of
        Present Fairly in Conformity With Generally Accepted Accounting Principles.
        This
        pronouncement is not expected to have any direct impact on the Company’s
        consolidated financial statements.
  13
  **Item
          2.** **M****ANAGEMENT’S
          DISCUSSION AND ANALYSIS****OF FINANCIAL CONDITION AND RESULTS OF
          OPERATIONS**
  Forward
        Looking Statements
  This
        report contains forward-looking statements within the meaning of the federal
        securities laws. These include statements about our expectations, beliefs,
        intentions or strategies for the future, which we indicate by words or phrases
        such as *“anticipate,”
        “expect,” “intend,” “plan,” “will,” “we believe,” “CLCE believes,” “management
        believes”* and
        similar language. The forward-looking statements are based on the current
        expectations of CLCE and are subject to certain risks, uncertainties and
        assumptions, including those set forth in the discussion under *“Description
        of Business”* and *“Management’s
        Discussion and Analysis or Plan of Operation”* .
        The
        actual results may differ materially from results anticipated in these
        forward-looking statements. We base the forward-looking statements on
        information currently available to us, and we assume no obligation to update
        them.
  **Business**
  Overview
  We
        are an
        affiliated company of Clifford Group, a major residential property developer
        headquartered in Guangzhou City, the capital city of Guangdong Province of
        the
        People’s Republic of China. We mainly develop and sell middle to high-end
        residential communities and estates in Guangzhou under the name of “Clifford.”
We also develop commercial retail areas for shops, car-parks and recreational
        facilities in our projects.
  As
        at the
        end of this quarter, we are constructing and pre-selling residential apartment
        units in Clifford Waterfront, a project located in the Panyu District of
        Guangzhou City.
  The
        second quarter of fiscal year 2008 was an exciting and challenging quarter
        for
        us. We commenced the pre-sales of apartment units in Clifford Waterfront
        on
        April 26, 2008. As at the end of the second quarter, we have pre-sold 9,107
        square meters of gross floor area (“GFA”), resulting in net sales order of
        $10,049,200.
  During
        the second quarter, w e
        have
        continued the construction of Clifford Waterfront and obtained pre-sale permits
        for a number of blocks of apartments, bringing the total GFA available for
        sale
        as at the end of the second quarter to 57,534 square meters. As of June 30,
        2008, the value of construction in progress was $49,337,700, an increase
        of 46%
        from $33,843,900 as of March 31, 2008. Overall, construction of the apartment
        buildings is progressing as planned. The overall completion of the entire
        project is expected to take place by the end of 2008. The delivery of apartment
        units to our customers will begin around May 2009.
  14
  The
        results of operations for the three and six-month periods ended June 30,
        2008
        are not necessarily indicative of the operating results for the full fiscal
        year.
  The
        following table summarizes the results of our operations during the three
        and
        six-month period ended June 30, 2008 and 2007, and provides information
        regarding the dollar and percentage changes from the three and six-month
        periods
        ended June 30, 2008 to the same period in 2007.
  **6
                  months ended**
              
              **3
                  months ended****June
                  30, 2008**
              
              **June
                  30, 2007**
              
              **%
                  change**
              
              **June
                  30, 2008**
              
              **June
                  30, 2007**
              
              **%
                  change****Revenue**
              
              $
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              
              -**Cost
                  of revenue**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Gross
                  profit**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Selling,
                  general and administrative**
              
              
              1,979,122
              
              
              81,730
              
              
              2,322
              %
              
              1,755,234
              
              
              41,403
              
              
              4,139
              %**Other
                  income**
              
              
              274,782
              
              
              348,219
              
              
              21
              %
              
              123,735
              
              
              217,105
              
              
              43
              %**(Loss)
                  profit from operation**
              
              
              (1,704,340
              )
              
              266,489
              
              
              740
              %
              
              (1,631,449
              )
              
              175,702
              
              
              (1,029
              %)**Income
                  tax expense**
              
              
              (432,244
              )
              
              (85,501
              )
              
              406
              %
              
              (398,062
              )
              
              (53,662
              )
              
              642
              %**NET
                  (LOSS) INCOME**
              
              
              (2,136,584
              )
              
              180,988
              
              
              (1,281
              %)
              
              (2,029,561
              )
              
              122,040
              
              
              (1,763
              %)
  Inflation
  The
        Company’s business, as well as the real estate industry in general, is affected
        by a number of economic factors including inflation. Inflation already
        had an impact and may continue to affect our major construction and
        development costs in the foreseeable future. The ability of the Company to
        pass
        on product cost increases in the form of increased sales prices is dependent
        upon market conditions. Such price increases might reduce the number of people
        who are able to afford the homes offered by the Company. However, it is our
        management’s objective to control our cost structure to mitigate the effect of
        inflation. Also, inflationary trends affect interest rates, and, therefore,
        a portion of our finance costs may increase.
  Currency
        Exchange Fluctuations
  A
        majority of our expenses were denominated in Renminbi (“RMB”), the currency of
        China and in Hong Kong dollar (“HKD”), the currency of Hong Kong. There can be
        no assurance that RMB-to-U.S. dollar exchange rates and HKD-to-U.S. dollar
        exchange rates will remain stable. A devaluation of the RMB or the HKD relative
        to the U.S. dollar would adversely affect our business, financial condition
        and
        results of operations. We do not engage in currency hedging.
  Trends
        or Uncertainties
  Our
        management has identified some trends and uncertainties that may unfavorably
        affect the Company’s future sales and profitability. First, austerity measures
        implemented by the Chinese government have taken aim at the fast growing
        real
        estate industry. Regulations such as tightening lending to real estates
        developers and restricting usage on borrowed capital have caused developers
        to
        operate with a relatively limited source and amount of capital. Moreover,
        increased mortgage interest rate has increased the burden on consumers, and
        this
        has become one of the major factors that caused the decrease in housing
        transaction volume. Second, construction costs increased significantly due
        to
        inflation. According to the National Bureau of Statistics of China, overall
        construction prices have increased by 14.6% for the first half of the year.
        Within construction prices, material prices rose by 16.5% and labor cost
        by
        13.3%. We believe that inflation will continue to add pressure on our
        construction costs in the coming quarters. Because of the negative trends
        and
        uncertainties surrounding the housing market, which indicate that a potential
        impairment on our construction-in-progress (“CIP”) may exist, we have evaluated
        the CIP as of the end of June 2008 in accordance with Statement of Financial
        Accounting Standards No 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets.  Based on our evaluation, management believes that the
        CIP was not impaired as of June 30, 2008.  Going forward, our management
        will closely monitor these trends and minimize the impact from these adverse
        trends and uncertainties. We will continue to employ a prudent financial
        management strategy to ensure smooth and efficient operations.
  15
  Plan
        of Operation
  During
        the second quarter of fiscal 2008, conditions within the residential property
        development industry remained very challenging. Total sales revenue and number
        of transactions of newly developed residential property in Guangzhou decreased
        by 12% and 29%, respectively, compared to the same period last year. We believe
        the most significant factors contributing to the slowing of demand for new
        homes
        include a continued high level of new and existing homes for sale, a decrease
        in
        the availability of mortgage financing for many potential homebuyers and
        a
        decline in homebuyer consumer confidence. Many prospective homebuyers continue
        to approach the purchase decision more tentatively due to continued increases
        in
        price concessions and sales incentives offered on both new and existing homes,
        concern over their ability to sell an existing home or obtain mortgage financing
        and the general uncertainty surrounding the housing market.
  We
        took
        advantage of the seasonal increase in traffic around the Chinese Labor Day
        weekend when we commenced sales for Clifford Waterfront in late April. However,
        the number of units sold decreased significantly in May and June. While we
        believe that housing market conditions will improve over the long-term, we
        expect that conditions in the near-term will continue to be challenging,
        and may
        deteriorate further. We will review our pricing strategy and also attempt
        to
        increase sales by providing increased sales incentives, but the factors above,
        combined with the continued pricing responses of our competitors, may limit
        the
        impact of our pricing efforts.
  **Results
        of Operations - Three and Six-Months Ended June 30, 2008 and
        2007**
  Revenue
        and Cost of Revenue
  The
        pre-sales of Clifford Waterfront residential units commenced on April 26,
        2008.
        However, no revenue was recognized by the Company for the three or six months
        ended June 30, 2008 because the sales transactions will not be closed until
        2009, when the residential properties are ready to be occupied. Although
        sales
        transactions will not be closed until next year, the Company has already
        been
        receiving deposits and mortgage payments from customers.
  Net
        sales
        orders represents the number and dollar value of new sales contracts executed
        with customers, net of sales contract cancellations. For the three and six
        months ended June 30, 2008 the value of net sales orders amounted to
        $10,049,200. For this amount, 9,107 square meters GFA or 100 units were sold,
        of
        which 87 are two bedroom units, 10 are four bedroom units and 3 are duplex
        units. As of June 30, 2008, we have received payments in the total of $6,477,000
        for the 100 apartments sold. The reminder of payments in the amount of
        $3,572,200 will be received in full when they are due or the mortgage loans
        were
        granted to the purchasers by the lending institutions. We expect payments
        to be
        received in full within three months after a sales order is taken.
  Cost
        of
        revenue has been capitalized in the balance sheet as construction is still
        in
        progress. As of the end of the second quarter of 2008, construction in progress
        amounted to $49,337,600, which, accordingly, will be included in the income
        statement as cost of revenue when the relevant residential units are ready
        to be
        occupied starting around May 2009.
  16
  Operating
        expenses
  *Sales
        and marketing*
  Marketing
        expenses mainly covered TV commercials that were broadcast in both Hong Kong
        and
        Guangdong, PRC and marketing planning expenses paid to marketing agents.
        During
        the three and six months ended June 30, 2008, the Company has incurred marketing
        fees in the amount of $1,380,300.
  Expenses
        such as referral fee and sales commission that could directly relate to sales
        have been capitalized as deferred selling expense in the balance sheet and
        will
        subsequently be included to the income statement accordingly when the relevant
        sales are closed in 2009.
  *General
        and administrative*
  General
        and administrative expenses mainly consisted of salaries and professional
        expenses. For the six months ended 2008, salary and professional expense
        amounted to $145,000 and $318,200 respectively, as compared to $70,000 and
        $1,100 for the same period in 2007. For the three months ended June 30, 2008,
        salaries and professional expense were $108,100 and $177,700 respectively,
        as
        compared to the $35,400 and $300 respectively for the same period in 2007.
  Salary
        expense mainly covers salaries paid to full-time administrative employees.
        Professional expenses mainly composed of audit fees, legal counsel fees and
        consultancy fees.
  The
        dramatic increase in salary and professional expenses resulted from the Company
        hiring more full-time administrative staff and external professional firms
        as
        the Company has started to operate as a public company since the end of 2007.
        In
        addition, in April 2008, a consulting firm was hired to assist the Company
        to
        assess and document its internal controls and business processes in working
        toward complying with section 404 of the Sarbanes Oxley Act.
  Other
        Income
  Other
        income mainly consisted of exchange gain and bank interest income. As the
        RMB
        has appreciated against the HKD, exchange gain was generated from a Panyu’s loan
        originally dominated in HKD for both year 2008 and 2007.
  (Loss)
        profit from operation
  The
        Company recorded a loss from operations in the amount of $1,704,300 for the
        six-month period ended June 30, 2008 as compared to a profit of $266,500
        for the
        same period in 2007. For the three months ended June 30, 2008, loss from
        operations amounted to $1,631,500 as compared to a profit of $175,700 for
        the
        same period in 2007. The change from a profit to a loss from operation for
        the
        three and six-month periods ended June 30, 2008 is due to the fact that the
        exchange gain for the current year was not enough to compensate for our
        operating expenses. In addition, as the pre-sales of Clifford Waterfront
        began
        in April 2008, more operating expenses were incurred.
  17
  Income
        tax we paid during the quarter mainly consists of tax on exchange gain, LAT
        and
        CIP. Income tax was provided for the exchange gain on Panyu’s loan dominated in
        HKD. In addition, Panyu has accrued CIT based 20% of the pre-sales proceeds
        received, in accordance with the relevant tax rules issued by the tax authority.
        Also, the Company has prepaid LAT to the government ranging from 1-2% of
        the
        sales proceeds received.
  **Liquidity
        and Capital Resources**
  We
        have
        financed our growth and cash needs to date with temporary loans from affiliated
        companies and directors. In addition, on August 3, 2007, Panyu, our wholly-owned
        subsidiary, entered into a long-term loan agreement with the Bank of China
        in
        the amount of $20,442,000 for financing Clifford Waterfront. The bank loan,
        guaranteed by Foshan Clifford Estates (Nanhoi) Ltd., an associated company
        owned
        by Mr. Pang. , was drawn during the six-month period ended June 30, 2008.
        The
        following sets out our cash position as at June 30, 2008 and our cash flows
        for
        three months ended March 31, 2008 and 2007.
  Cash
        Position
  As
        at June 30, 2008, the Company had cash and cash equivalents and working capital
        in the amount of $2,076,300 and $14,288,000, respectively.
  Cash
        Flow
  **For
                  the six-months ended****June
                  30****2008**
              
              **2007**Net
                  cash (used in) operating activities
              
              $
              (23,752,928
              )
              $
              (321,515
              )Net
                  cash (used in) provided by investing activities
              
              $
              (29,185
              )
              $
              4,598Net
                  cash provided by (used in) financing activities
              
              $
              19,777,762
              
              $
              (1,314,533
              )Net
                  (decrease) in cash and cash equivalents
              
              $
              (4,004,351
              )
              $
              (1,631,450
              )
  *Cash
        flows from operating activities*
  Net
        cash
        used in operating activities was $23,752,900 for the six month period ended
        June
        30, 2008, an increase of $23,431,400 from $321,500 for the same period in
        2007.
        The increase was mainly due to an increase in payments to various contractors
        as
        the construction of the Clifford Waterfront properties has been progressing.
  18




*Cash
      flows from investing activities*




The
      investing activities represent the purchase or disposal of property and
      equipment.




*Cash
      flows from financing activities*




Net
      cash
      provided by financing activities for the six months ended June 30, 2008 was
      $19,777,800 as compared to net cash used of $1,314,500 for the same period
      in
      2007. The increase was mainly attributable to a net increase in bank borrowings
      from the Bank of China.




We
      believe that our available cash and cash equivalents as of June 30, 2008, along
      with the expected proceeds from our operations as well as funds available by
      our
      directors/group companies when needed, will provide adequate liquidity to fund
      our operations through at least the next twelve months.




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance sheet arrangements as defined by rules recently enacted
      by
      the Financial Accounting Standards Board, and accordingly, no such arrangements
      are likely to have a current or future effect on our financial position,
      revenues or expenses, results of operations, liquidity, capital expenditures
      or
      capital resources.




**Recent
      Accounting Pronouncements**




Please
      refer to footnote 16 of our interim financial statements appearing
      above.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Our
      financial statements and related public financial information are based on
      the
      application of accounting principles generally accepted in the United States
      (“US GAAP”). US GAAP requires the use of estimates, assumptions, judgments and
      subjective interpretations of accounting principles that have an impact on
      the
      assets, liabilities, revenues and expenses amounts reported. These estimates
      can
      also affect supplemental information contained in our external disclosures
      including information regarding contingencies, risk and financial condition.
      We
      believe our use of estimates and underlying accounting assumptions adhere to
      US
      GAAP and are consistently and conservatively applied. We base our estimates
      on
      historical experience and on various other assumptions that we believe to be
      reasonable under the circumstances. Actual results may differ materially from
      these estimates under different assumptions or conditions. We continue to
      monitor significant estimates made during the preparation of our financial
      statements.




There
      have not been significant changes to our critical accounting policies and
      estimates during the three or six months ended June 30, 2008 compared to those
      disclosed in Note 3 - Item 7 included in our 2007 Annual Report on Form 10-KSB.
      While all these significant accounting policies impact financial condition
      and
      results of operations, we view certain of these policies as critical. Policies
      determined to be critical are those policies that have the most significant
      impact on our consolidated financial statements and require management to use
      a
      greater degree of judgment and estimates. Actual results may differ from those
      estimates. Our management believes that given current facts and circumstances,
      it is unlikely that applying any other reasonable judgments or estimate
      methodologies would cause an adverse effect on our consolidated results of
      operations, financial position or liquidity for the periods presented in this
      report.




**Item
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** ****




This
      information has been omitted based on the Company’s status as a smaller
      reporting company.




19




**Item
      4T.**  **CONTROLS
      AND PROCEDURES**




Our
      Chief
      Executive Officer and Chief Financial Officer conducted an evaluation of the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
      of
      1934, as amended (the Exchange Act)) as of June 30, 2008. Based on that
      evaluation, the Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were not effective as of the end
      of
      the period covered by this report to ensure that information required to be
      disclosed in the reports that we file or submit under the Exchange Act is
      accumulated and communicated to our management, including our Chief Executive
      Officer and Chief Financial Officer, as appropriate to allow timely decisions
      regarding required disclosures. The reasons that our Chief Executive Officer
      and
      Chief Financial Officer arrived at this conclusion are:




·
            *Our
                inability to complete the Management’s Quarterly Report on Internal
                Control over Financial Reporting.*For the reasons described below under “Internal Control over Financial
                Reporting,” our management’s assessment of our internal controls over
                financial reporting was substantially delayed and is not complete
                as of
                the date of this quarterly report. Because we were not able to complete
                this report within the time period prescribed our management is not
                able
                to make a determination at this time that our disclosure controls
                and
                procedures were effective as of the end of the period covered by
                this
                report.




·
            *Our
                independent registered public accounting firm has reported a material
                weakness in our disclosure controls and
                procedures.*




In
      light
      of the foregoing, we are working diligently with our Board of Directors and
      outside advisors to design and implement more formal disclosure controls and
      procedures to ensure that such procedures are effective.




Notwithstanding
      the conclusion that our disclosure controls and procedures were not effective
      as
      of the end of the period covered by this report, the Chief Executive Officer
      and
      the Chief Financial Officer believe that the financial statements and other
      information contained in this quarterly report present fairly, in all material
      respects, our business, financial condition and results of operations.




CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING




There
      were no changes in internal controls over financial reporting that occurred
      during the first half of 2008 that have materially affected, or are reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.




**PART
      II - OTHER INFORMATION**




**Item
      1.**  **LEGAL
      PROCEEDINGS**




We
      are
      currently not involved in any litigation that we believe could have a material
      adverse effect on our financial condition or results of operations. There is
      no
      action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      or, to the knowledge of the executive officers of our company or any of our
      subsidiaries, threatened against or affecting our company, our common stock, any
      of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers
      or directors in their capacities as such, in which an adverse decision could
      have a material adverse effect.




**Item
      1A.**  **RISK
      FACTORS**




This
      information has been omitted based on the Company’s status as a smaller
      reporting company.


20




**Item
      2.**  **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**




None.




**Item
      3.**  **DEFAULTS
      UPON SENIOR SECURITIES**




None.




**Item
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




None.




**Item
      5.**  **OTHER
      INFORMATION** ****




On
        December 12, 2007, our wholly-owned subsidiary, Guangzhou City Clifford
        Development (Panyu) Company Limited, entered into a newspaper and magazine
        advertising agreement for the period from January 1, 2008 to December 31,
        2008
        for newspaper and magazine advertising of Clifford Waterfront development
        project with Pearl Exhibition and Convention Centre Ltd., a company owned
        by
        Clifford L.K. Pang, a director of the Company.
 
 On
        December 21, 2007, our wholly-owned subsidiary, Guangzhou City Clifford
        Development (Panyu) Company Limited, entered into a television advertising
        agreement for the period from January 1, 2008 to December 31, 2008 for
        television advertising of Clifford Waterfront development project with Pearl
        Exhibition and Convention Centre Ltd., a company owned by Clifford L.K. Pang,
        a
        director of the Company.
  On
        April
        1, 2008, our wholly-owned subsidiary, Guangzhou City Clifford Development
        (Panyu) Company Limited, entered into a service agreement with Clifford Estates
        (Panyu) Limited (“Clifford Estates”), a company owned by Clifford L.K. Pang, a
        director of the Company. Under the terms of the agreement, upon request,
        Clifford Estates, will provide information technology, human resources,
        purchasing and transportation and conference room rental services, at a monthly
        cost of RMB30,000.




**Item
      6. EXHIBITS**





Exhibit No.
            
            Description10.1
            
            Service Agreement
              dated
              April 1, 2008 by and between Guanzhou City Clifford Development (Panyu)
              Ltd. and Clifford Estates (Panyu) Ltd. *10.2
            
            2008
                TV Advertising Contract for Clifford Waterfront dated December 21,
                2007 by
                and between Guangzhou City Clifford Development (Panyu) Company Limited
                and Pearl Exhibition and Convention Centre Ltd. †10.3
            
            2008
                Newspaper and Magazine Advertising Contract dated December 12, 2007
                by and
                between Guangzhou City Clifford Development (Panyu) Company Limited
                and
                Pearl Exhibition and Convention Centre Ltd. †31.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002.




*
        Summary
        translation filed as an exhibit. The agreement is in Chinese and the version
        executed by the Company is in Chinese.
  †
        Confidential treatment has been requested with respect to certain portions
        of
        this exhibit. Omitted portions have been filed separately with the Securities
        and Exchange Commission.




21




**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.




Dated:
                August 14, 2008
            **Clifford
              China Estates Inc.**By:
            /s/
                Clifford L.K. PangClifford
                L.K. PangChief
                Executive Officer, Chief Financial
              Officer
                and Director(Principal
                Executive, Accounting and
              Financial
                Officer)




22