**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 September 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 x NO  ̈
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act.
  Large
        accelerated filer  ̈ Accelerated filer  ̈ Non-accelerated filer  ̈ (Do not
        check if a smaller reporting company)
 Smaller
        reporting company x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES  ̈ NO x
  As
        of
        November 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.
  
  Table
        of
        Contents
  Page**PART
                  I – FINANCIAL INFORMATION**
              **2**Item
                  1.
              FINANCIAL
                  STATEMENTS
              2CONDENSED
                  CONSOLIDATED BALANCE SHEETS AS AT SEPTEMBER 30, 2008 (UNAUDITED)
                  AND
                  DECEMBER 31, 2007
              2CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                  (LOSS) FOR
                  THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                  (UNAUDITED)
              3CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
                  SEPTEMBER
                  30, 2008 AND 2007 (UNAUDITED)
              4NOTES
                  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
              5Item
                  2.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              15Item
                  3.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              20Item
                  4T.
              CONTROLS
                  AND PROCEDURES
              21PART
                  II - OTHER INFORMATION
              21Item
                  1.
              LEGAL
                  PROCEEDINGS
              21Item
                  1A.
              RISK
                  FACTORS
              22Item
                  2
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              22Item
                  3
              DEFAULTS
                  UPON SENIOR SECURITIES
              22Item
                  4
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              22Item
                  6
              EXHIBITS
              22SIGNATURES
              23
  i
  **PART
        I – FINANCIAL INFORMATION**
  **Item
                1.**
              **FINANCIAL
                  STATEMENTS**
  **CLIFFORD
        CHINA ESTATES INC.**
  **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 
 **September 30, 2008**
              
              **December 31, 2007****Unaudited****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              1,406,839
              
              $
              5,282,725Restricted
                  cash
              
              
              1,301,323
              
              
              -Construction
                  in progress - real estate for resale
              
              
              55,038,941
              
              
              21,848,349Prepayments
                  and other assets
              
              
              793,856
              
              
              457,698Deferred
                  selling cost
              
              
              718,574
              
              
              -Receivables
                  from associated companies
              
              
              1,632,417
              
              
              486Total
                  current assets
              
              
              60,891,950
              
              
              27,589,258**NON-CURRENT
                  ASSETS**Property
                  and equipment, net of accumulated depreciation
              
              
              194,435
              
              
              153,056**TOTAL
                  ASSETS**
              
              **$**
              **61,086,385**
              
              **$**
              **27,742,314****LIABILITIES
                  AND STOCKHOLDERS’ EQUITY (DEFICIT)****LIABILITIES****CURRENT
                  LIABILITIES**Bank
                  loan (current portion)
              
              $
              10,170,398
              
              $
              -Accounts
                  payable
              
              
              1,860,330
              
              
              2,680,137Accrued
                  expenses and other payables
              
              
              418,325
              
              
              91,659Deferred
                  revenue
              
              
              11,720,139
              
              
              -Due
                  to director
              
              
              6,378,057
              
              
              5,706,764Taxes
                  payable
              
              
              445,087
              
              
              -Deferred
                  tax liability
              
              
              197,560
              
              
              127,357Payables
                  to associated companies
              
              
              19,894,600
              
              
              17,616,038Total
                  current liabilities
              
              
              51,084,496
              
              
              26,221,955**NON-CURRENT
                  LIABILITIES**Bank
                  loan (net of current portion)
              
              
              10,170,398
              
              
              -**TOTAL
                  LIABILITIES**
              
              
              **61,254,894**
              
              
              **26,221,955****STOCKHOLDERS’
                  EQUITY (DEFICIT)**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
              
              
              5,346,086
              
              
              4,188,355Accumulated
                  deficit
              
              
              (6,339,762
              )
              
              (3,077,576
              )Accumulated
                  other comprehensive income
              
              
              770,167
              
              
              354,580TOTAL
                  STOCKHOLDERS’ EQUITY (DECIFIT)
              
              
              **(168,509**
              **)**
              
              **1,520,359****TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY (DECIFIT)**
              
              **$**
              **61,086,385**
              
              **$**
              **27,742,314**
  See
        accompanying notes to the condensed consolidated financial
        statements
  2
  **CLIFFORD
        CHINA ESTATES INC.**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **AND
        COMPREHENSIVE INCOME (LOSS) (UNAUDITED)**
 
 **Nine-months ended**
              
              **Three-months ended****September 30,**
                **2008**
              
              **September 30,**
                **2007**
              
              **September 30,**
                **2008**
              
              **September 30,**
                **2007****REVENUES**
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -**COST
                  OF REVENUE**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**GROSS
                  PROFIT**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**EXPENSES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Selling,
                  general and administrative**
              
              
              2,771,634
              
              
              169,446
              
              
              792,512
              
              
              87,716(2,771,634
              )
              
              (169,446
              )
              
              (792,512
              )
              
              (87,716
              )**OTHER
                  INCOME**Interest
                  income
              
              
              39,150
              
              
              11,841
              
              
              10,041
              
              
              5,660Exchange
                  gain
              
              
              223,666
              
              
              -
              
              
              (16,170
              )
              
              -Other
              
              
              16,248
              
              
              1,187
              
              
              10,411
              
              
              1,154**LOSS
                  BEFORE INCOME TAXES**
              
              
              (2,492,570
              )
              
              (156,418
              )
              
              (788,230
              )
              
              (80,902
              )**INCOME
                  TAX EXPENSE**
              
              
              (769,617
              )
              
              -
              
              
              (337,373
              )
              
              -**NET
                  LOSS**
              
              
              (3,262,187
              )
              
              (156,418
              )
              
              (1,125,603
              )
              
              (80,902
              )**FOREIGN
                  CURRENCY TRANSLATION GAIN/(LOSS)**
              
              
              415,587
              
              
              15,745
              
              
              (92,160
              )
              
              26,442**COMPREHENSIVE
                  LOSS**
              
              **$**
              **(2,846,600**
              **)**
              **$**
              **(140,673**
              **)**
              **$**
              **(1,217,763**
              **)**
              **$**
              **(54,460**
              **)**Loss
                  per common share, basic and diluted
              
              $
              (0.07
              )
              $
              (0.05
              )
              $
              (0.02
              )
              $
              (0.03
              )Weighted
                  average number of common sharesoutstanding,
                  basic and diluted
              
              
              50,000,000
              
              
              3,000,000
              
              
              50,000,000
              
              
              3,000,000
  See
        accompanying notes to the condensed consolidated financial statements
  3
  **CLIFFORD
        CHINA ESTATES INC.**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
 
 **Nine-months ended****September 30, 2008**
              
              **September 30, 2007****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (3,262,187
              )
              $
              (156,418
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              15,351
              
              
              8,075Deferred
                  income tax
              
              
              55,916
              
              
              -Changes
                  in operating assets and liabilities:Restricted
                  cash
              
              
              (1,279,243
              )
              
              -Construction
                  in progress
              
              
              (31,358,133
              )
              
              (5,122,921
              )Prepayments
                  and other assets
              
              
              (304,756
              )
              
              (123,852
              )Receivables
                  from related companies
              
              
              (1,027,631
              )
              
              -Deferred
                  selling expense
              
              
              (706,382
              )
              
              -Accounts
                  payable
              
              
              (960,134
              )
              
              (834
              )Taxes
                  payable
              
              
              437,536
              
              
              -Accrued
                  expenses and other payables
              
              
              318,601
              
              
              -Deferred
                  revenue
              
              
              11,521,285
              
              
              -Net
                  cash used in operating activities
              
              
              (26,549,777
              )
              
              (5,395,950
              )**Cash
                  flows from investing activities**Purchase
                  of property and equipment, net
              
              
              (31,776
              )
              
              (2,328
              )Net
                  cash used in investing activities
              
              
              (31,776
              )
              
              (2,328
              )**Cash
                  flows from financing activities**Advances
                  from related companies
              
              
              7,138,218
              
              
              6,209,680Repayments
                  to related companies
              
              
              (4,945,410
              )
              
              (7,135,618
              )Advances
                  to related companies
              
              
              (2,003,863
              )
              
              (6,746,085
              )Repayments
                  from a related company
              
              
              1,428,760
              
              
              5,303,054Advances
                  from a director
              
              
              671,293
              
              
              5,524,716Proceeds
                  from bank loan
              
              
              19,995,675
              
              
              -Net
                  cash provided by financing activities
              
              
              22,284,673
              
              
              3,155,747**Net
                  decrease in cash and cash equivalents**
              
              
              **(4,296,880**
              **)**
              
              **(2,242,531**
              **)**Cash
                  and cash equivalents - beginning of period
              
              
              5,282,725
              
              
              3,251,774Effect
                  of foreign exchange rate changes
              
              
              420,994
              
              
              155,112**Cash
                  and cash equivalents - end of period**
              
              **$**
              **1,406,839**
              
              **$**
              **1,164,355****Supplemental
                  disclosures of cash flow information**Imputed
                  interest capitalized in construction in progresson
                  related party payables
              
              $
              1,157,734
              
              $
              945,425Cash
                  paid for interest
              
              $
              836,983
              
              $
              -Cash
                  paid for income tax
              
              $
              302,015
              
              $
              -
  See
        accompanying notes to the condensed consolidated financial
        statements
  4
  **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 a recapitalization of Parkade,
        which 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.
  5
  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 September 30, 2008
        and for the three and nine-month periods ended September 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
        Rule 10-01 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 September 30, 2008, and the results of its operations
        and cash flows for the three and nine-month periods ended September 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”).
  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:
  6
  **2008**
              
              **2007**Period
                  end RMB : $ exchange rate
              
              
              6.88272
              
              
              7.54338Average
                  period RMB : $ exchange rate
              
              
              7.00151
              
              
              7.66600Period
                  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 local 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 pre-sold property constructed or issuance of
        the
        real estate ownership certificate, whichever is earlier. As of September
        30,
        2008, the Company has restricted cash in its banks as guarantee deposits
        in the
        amount of $1,301,300.
  **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.
  Construction
        in progress - real estate for resale as of September 30, 2008 and December
        31,
        2007 is summarized as follows:
  7
  **As of**
                **September 30 , 2008**
                **(unaudited)**
              
              **As of**
                **December 31, 2007**Cost
                  of land use rights
              
              $
              3,306,960
              
              $
              3,089,411Set-up
                  costs
              
              
              6,104,499
              
              
              2,984,240Infrastructure
                  costs
              
              
              2,952,080
              
              
              1,233,659Construction
                  costs
              
              
              42,534,859
              
              
              14,510,139Indirect
                  costs
              
              
              140,543
              
              
              30,900$
              55,038,941
              
              $
              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 usage 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, which consist of both bank loan
        interest and imputed interest on advances from related parties, amounted
        to
        $3,352,900 during the nine months ended September 30, 2008 (for the same
        period
        in 2007, it was $945,400).
  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 in the
        fourth
        quarter 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
        5 – PREPAYMENTS AND OTHER ASSETS**
  Prepayments
        and other assets mainly include business/sales tax the Company submits to
        the
        government and quality assurance deposits paid to the local government. As
        of
        September 30, 2008, the quality assurance deposits amounted to $173,100,
        which
        are to be returned to the Company after the construction is completed. Other
        assets also include business/sales tax which is calculated based on 5% of
        sales
        proceeds received by the Company during the period. During the nine months
        ended
        September 30, 2008, sales tax recorded as deferred expense was $592,800 of
        which, $497,300 was submitted to the government and $95,500 was payable as
        of
        September 30, 2008. Business/sales tax, currently included in the balance
        sheet,
        will be charged to cost of goods sold when the relevant sales are recognized
        in
        2009.
  **NOTE
        6 – DEFERRED SELLING COSTS**
  During
        the nine months ended September 30, 2008, the Company has incurred selling
        costs
        such as 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.
  8
  **NOTE
        7 –** **PROPERTY AND EQUIPMENT**
  Property
        and equipment represents residential apartments, motor vehicles, and office
        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 September 30, 2008 was $149,000. In addition,
        included in property is a motor vehicle that the Company purchased in May
        2008
        with a net book value of $21,600 as of September 30, 2008.
  Equipment
        consists primarily of office equipment with a net book value of $23,800 at
        September 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
        Clifford L.K. Pang (“Mr. Pang”), the Company’s Chief Executive Officer, Chief
        Financial Officer and Director, 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 September
        30,
        2008 and December 31, 2007 is summarized as follows:
  **As of**
              
              **Movement during the period**
              
              **As of****December 31,**
                **2007**
              
              **Advances**
              
              **Repayments**
              
              **September 30,**
                **2008**#
              Clifford
                  Real Estate Agency Ltd
              
              $
              -
              
              $
              1,124,736
              
              $
              95,719
              
              $
              1,046,778Guangzhou
                  City Huadu Xinhua Clifford Real Estates Ltd
              
              
              -
              
              
              113
              
              
              -
              
              
              114Clifford
                  School
              
              
              275
              
              
              -
              
              
              275
              
              
              -Guangzhou
                  City Huadu Clifford Estate Ltd.
              
              
              211
              
              
              11
              
              
              222
              
              
              -Clifford
                  School
              
              
              -
              
              
              4,285
              
              
              -
              
              
              4,359##
              Foshan
                  City Clifford Property (Nanhoi) Ltd.
              
              
              -
              
              
              1,999,568
              
              
              1,428,263
              
              
              581,166$
              486
              
              $
              3,128,713
              
              $
              1,524,479
              
              $
              1,632,417
  Due
        to
        the exchange rate difference, the ending balance at September 30, 2008 may
        not
        reconcile to balances brought forward plus advances and minus repayments.
  (#)
        The
        balance represents amounts paid or received by this related party on behalf
        of
        the Company.
  (##)
        Interest is imputed on this related party receivables at 6.8% per
        annum.
  **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. Interest is imputed on balances
        marked with an asterisk(“*”) at 6.8% per annum below. The breakdown of payables
        to associated companies as of September 30, 2008 and December 31, 2007 is
        summarized as follows:
  9
  **As of**
              
              **Movement during the period**
              
              **As of****December 31,**
                **2007**
              
              **Advances**
              
              **Repayments**
              
              **September 30, 2008****Payables
                  to related companies**Guangzhou
                  City Clifford Property Limited
              
              $
              1,783,294
              
              $
              -
              
              $
              -
              
              $
              1,888,788
              *Guangzhou
                  City Clifford Property Management Limited
              
              
              4,458,910
              
              
              -
              
              
              -
              
              
              4,721,970
              *Guangzhou
                  City Guanwan Property Ltd.
              
              
              1,783,294
              
              
              -
              
              
              -
              
              
              1,888,788
              *Foshan
                  City Clifford Estates (Nanhoi) Ltd.
              
              
              3,017,882
              
              
              2,142,394
              
              
              2,856,525
              
              
              2,469,954
              *Foshan
                  City Clifford Property (Nanhoi) Ltd.
              
              
              1,371,765
              
              
              -
              
              
              1,428,263
              
              
              -
              *Clifford
                  Estates (Panyu) Limited
              
              
              -
              
              
              67,607
              
              
              46,679
              
              
              21,290Clifford
                  (Panyu) Property management ltd
              
              
              -
              
              
              60,779
              
              
              14,462
              
              
              47,116Clifford
                  Estates Resort Center
              
              
              -
              
              
              18,650
              
              
              18,412
              
              
              242Guangzhou
                  City Huadu Clifford Development Ltd
              
              
              685,819
              
              
              -
              
              
              714,131
              
              
              -Guangzhou
                  City Clifford Industrial Estates (Huadu) Limited
              
              
              -
              
              
              1,428,263
              
              
              -
              
              
              1,452,914
              *Guangzhou
                  City Clifford Supermarket (Panyu)
              
              
              -
              
              
              36
              
              
              -
              
              
              37Clifford
                  Farm
              
              
              -
              
              
              68
              
              
              -
              
              
              68Richpro
                  International Limited
              
              
              -
              
              
              1,827,079
              
              
              581,069
              
              
              1,267,515Abroad
                  Trading Limited
              
              
              -
              
              
              329,559
              
              
              -
              
              
              335,248Hitech
                  Company Limited
              
              
              -
              
              
              333,714
              
              
              -
              
              
              339,474Pearl
                  Exhibition and Convention Centre Ltd
              
              
              -
              
              
              930,069
              
              
              -
              
              
              946,122Clifford
                  Investment Co. Ltd.
              
              
              4,515,074
              
              
              -
              
              
              -
              
              
              4,515,074$
              17,616,038
              
              $
              7,138,218
              
              $
              5,659,541
              
              $
              19,894,600
  Due
        to
        the exchange rate difference, the ending balance at September 30, 2008 may
        not
        reconcile to balances brought forward plus advances and minus repayments.
  **RELATED
        PARTY TRANSACTIONS**
  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 is to provide service
        in
        information technology, human resources, purchasing, transportation and
        conference room rental. In return, the Company is to pay Clifford Estates
        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. In addition, during
        the
        period, Clifford Estates makes payments to suppliers on behalf of the Company
        to
        purchase office stationary. During the nine months ended September 30, 2008,
        total service fees incurred and the payment made on behalf of the Company
        amounted to $67,600.
  Clifford
        (Panyu) Property Management Ltd., a company owned by Mr. Pang, provided services
        to the Company during the nine months ended September 30, 2008. The total
        service cost during the period was $60,800. Services provided mainly include
        cleaning and security for Clifford Waterfront.
  10
  Clifford
        Estates Resort Center, a company controlled by Mr. Pang, provided office
        maintenance services to the Company. During the nine months ended September
        30,
        2008, the total service cost totaled to $18,700.
  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 Mr. Pang,
        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 nine-months ended September
        30,
        2008, the management fees incurred from Richpro International Limited amounted
        to $1,827,000.
  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 could have received from an unaffiliated third party.
        During the nine-months ended September 30, 2008, the marketing fees incurred
        from Abroad Trading Limited amounted to $329,600.
  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 could have received from an unaffiliated
        third
        party. During the nine-months ended September 30, 2008, the marketing fees
        incurred from Hitech Company Limited amounted to $333,700.
  In
        December, 2007, the Company entered into two advertising contracts (one for
        television commercials and one for newspaper advertisements) with Pearl
        Exhibition and Convention Centre Ltd. (“Pearl”), a company owned by Mr. Pang.
        Both contract terms are from January 1, 2008 to December 31, 2008. According
        to
        the contracts, Pearl is to provide television commercial broadcasts and
        newspaper and magazine advertisement services to the Company. During the
        nine
        months ended September 30, 2008, advertising fees incurred from Pearl totaled
        $930,100. The Company believes that the fees incurred are similar to what
        could
        have been incurred from an unaffiliated third party.
  During
        the nine months ended September 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 estimated fair value
        of
        the registered address usage is estimated to be $385 per year.
  **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 $671,300
        was
        advanced from this director during the nine-month period ended September
        30,
        2008. Interest is imputed on the payable to the director at 6.8% per annum.
  11


**NOTE
      11 – BANK LOAN**




On
      August
      3, 2007, Panyu obtained a bank loan from the Bank of China in the amount of
      $20,340,800 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 September 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 an accumulated repayment of $6,538,100 before March 31,
      2009,
      and accumulated repayment of $10,170,400 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.




**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 nine months ended September 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
      in the fourth quarter of 2008. Real estate sales will be reported in accordance
      with the provisions of Statement of Financial Accounting Standards (“SFAS”) 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 SFAS No. 109, “Accounting for Income
      Taxes,” 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.


12




*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 nine months ended September 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.




Deferred
      Tax Asset and Liability




As
      of
      September 30, 2008, Panyu has an accumulated net operating loss of $146,800
      eligible to be utilized against profits earned from 2008 to 2013. 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
      September 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 $197,600 was recorded
      as a deferred tax liability of Panyu as of September 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:




·
            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




·
            is
                three years after the pre-sale/sales permits are acquired.




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 September 30, 2008 is reasonable.


13




**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
      September 30, 2008 and 2007, there were no dilutive securities outstanding.




**NOTE** **15
      – CONTINGENCIES AND COMMITMENTS**




As
      of
      September 30, 2008, the Company has made capital commitments with various
      contractors for the construction 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
      September 30, 2008, the Company had contingent liabilities in the amount of
      $4,676,900, 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 we expect 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
      principal 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 Financial Accounting Standard Board (“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.


14




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.


**Item
                2.**
              **MANAGEMENT’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,” “Company believes,”
“management believes”* and
      similar language. The forward-looking statements are based on the current
      expectations of Clifford China Estates Inc. 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
      of
      September 30, 2008, we are constructing and pre-selling residential apartment
      units in Clifford Waterfront, a project located in the Panyu District of
      Guangzhou City.




We
      commenced the pre-sales of apartment units in Clifford Waterfront on April
      26,
      2008. As at the end of the third quarter, we have pre-sold 19,366 square meters
      (208,454 square feet) of gross floor area (“GFA”), resulting in net sales orders
      of $18,469,000.




During
      the third quarter, w e
      have
      continued the construction of Clifford Waterfront and obtained pre-sale permits
      for all the residential apartments. As of September 30, 2008, the carrying
      value
      of construction in progress was $55,038,900, an increase of 12% from $49,337,700
      as of June 30, 2008. Construction of the apartment buildings is progressing
      as
      planned. The overall completion of the entire project is expected to take place
      in the fourth quarter of 2008. The delivery of apartment units to our customers
      will begin around May 2009.


15




The
      results of operations for the three and nine-month periods ended September
      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
      nine-month periods ended September 30, 2008 and 2007, and provides information
      regarding the dollar and percentage changes for the three and nine-month periods
      ended September 30, 2008 compared to the same periods in 2007.





**Nine-months ended**
            
            **Three-months ended****September 30,**
              **2008**
            
            **September 30,**
              **2007**
            
            **%**
              **change**
            
            **September 30,**
              **2008**
            
            **September**
              **30, 2007**
            
            **%**
              **change****Revenue**
            
            $
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            $
            -
            
            
            -**Cost
                of revenue**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Gross
                profit**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Selling,
                general and administrative expense**
            
            
            2,771,634
            
            
            169,446
            
            
            1,536
            %
            
            792,512
            
            
            87,716
            
            
            804
            %**Other
                income**
            
            
            279,064
            
            
            13,028
            
            
            2,042
            %
            
            4,282
            
            
            6,814
            
            
            (37
            )%**Loss
                before income taxes**
            
            
            (2,492,570
            )
            
            (156,418
            )
            
            1,494
            %
            
            (788,230
            )
            
            (80,902
            )
            
            874
            %**Income
                tax expense**
            
            
            (769,616
            )
            
            -
            
            
            -
            
            
            (337,372
            )
            
            -
            
            
            -**NET
                LOSS**
            
            
            (3,262,187
            )
            
            (156,418
            )
            
            1,986
            %
            
            (1,125,603
            )
            
            (80,902
            )
            
            1,291
            %




Inflation




The
      Company’s business, as well as the real estate industry in general, is affected
      by a number of economic factors, including inflation. Although inflation has
      moderated slightly in the third quarter, overall, it has 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 dollars (“HKD”), the currency of Hong Kong. There can be
      no assurance that RMB-to-U.S. dollar exchange rates or 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.


16




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 rates have 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 15.1% for the nine months ended Sep 30,
      2008. Within construction prices, material prices rose by 17.1% and labor cost
      by 13.9%. We believe that inflation will continue to add pressure on our
      construction costs in the fourth quarter of 2008, when we anticipate that
      construction will be completed. 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 September 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 September 30, 2008.  Going forward, our management will
      continue to 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.




Plan
      of Operation




During
      the third 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 30% and 24%, 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. As a response
      to weakening sales, we decided to reduce prices to increase sales during the
      third quarter. We believe this strategy has generally worked because our sales,
      in terms of number of units, have increased by 21% compared to the second
      quarter, while the overall market within the Guangzhou area increased by only
      14%. 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 Nine-Months Ended September 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 or cost of revenue was recognized by the Company for the
      three or nine months ended September 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. The payments received by the Company are currently accounted for
      in
      the balance sheet as deferred revenue and will be recognized in the income
      statement as revenue when the relevant transactions are closed in 2009 and
      all
      revenue recognition criteria have been satisfied.


17




Cost
      of
      revenue, such as construction cost, has been recorded in the balance sheet
      as Construction
      in progress - real estate for resale as the residential properties are still
      under development. These capitalized construction costs will be charged to
      cost
      of revenue when the relevant residential units are ready to be occupied, which
      is expected to occur around May 2009.




Operating
      expenses




*Sales
      and marketing*




Marketing
      expenses mainly were for TV commercials that were broadcast in both Hong Kong
      and Guangdong, PRC and marketing planning expenses paid to marketing agents.
      During the three and nine months ended September 30, 2008, the Company has
      incurred marketing fees in the amount of $586,600 and $1,966,900, respectively.




Expenses
      such as referral fee and sales commission that could directly relate to sales
      have been recorded as deferred selling cost in the balance sheet and will
      subsequently be charged to the income statement when the relevant sales are
      closed in 2009.




*General
      and administrative*




General
      and administrative expenses mainly consisted of salaries and professional
      expenses. For the nine months ended September 30, 2008, salary and professional
      expense amounted to $243,800 and $424,500, respectively, as compared to $105,400
      and $6,300 for the same period in 2007. For the three months ended September
      30,
      2008, salaries and professional expense were $98,829 and $106,300, respectively,
      as compared to the $35,400 and $5,200, respectively for the same period in
      2007.




Salary
      expense mainly were salaries paid to full-time administrative employees.
      Professional expenses were mainly composed of audit fees, legal counsel fees
      and
      consultancy fees.




The
      significant 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 gains and bank interest income. As the
      RMB
      has appreciated against the HKD, exchange gain was generated from Panyu’s loan
      originated in HKD for both 2008 and 2007.




(Loss)
      profit from operation




The
      Company recorded a loss from operations in the amount of $2,492,600 for the
      nine-month period ended September 30, 2008 as compared to a loss of $156,400
      for
      the same period in 2007. For the three months ended September 30, 2008, loss
      from operations amounted to $788,200 as compared to a loss of $80,900 for the
      same period in 2007. The significant increase in loss from operations for the
      three and nine month ended September 30, 2008 as compared to the same periods
      in
      2007 is due to the significant increase in advertising expenses for Company’s
      sales of Clifford Waterfront in 2008.


18




Income
      tax consists of taxes on exchange gain and deferred revenue or payments received
      from customers. Income tax was provided for the exchange gain on Panyu’s loan
      dominated in HKD. In addition, Panyu has accrued CIT based on a 20% deemed
      profit rate on the pre-sales proceeds in accordance with the relevant tax rules
      issued by the tax authority.




**Liquidity
      and Capital Resources**




We
      have
      financed our growth and cash needs to date with 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 $20,340,800 for financing Clifford Waterfront. The bank loan,
      guaranteed by Foshan Clifford Estates (Nanhoi) Ltd., an associated company
      owned
      by Mr. Pang, was fully drawn during the nine-month period ended September 30,
      2008. The following sets out our cash position as at September 30, 2008 and
      our
      cash flows for nine months ended September 30, 2008 and 2007.




Cash
      Position




As
      at
      September 30, 2008, the Company had cash and cash equivalents and working
      capital in the amount of $1,406,800 and $9,807,500, respectively.




Cash
      Flow





**For the nine-months ended****September 30****2008**
            
            **2007**Net
                cash (used in) operating activities
            
            $
            (26,549,777
            )
            $
            (5,395,950
            )Net
                cash (used in) investing activities
            
            $
            (31,776
            )
            $
            (2,328
            )Net
                cash provided by financing activities
            
            $
            22,284,673
            
            $
            3,155,747Net
                (decrease) in cash and cash equivalents
            
            $
            (4,296,880
            )
            $
            (2,242,531
            )




*Cash
      flows from operating activities*




Net
      cash
      used in operating activities was $26,549,800 for the nine month ended September
      30, 2008, an increase of $21,153,800 from $5,396,000 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.




*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 nine months ended September 30, 2008
      was $22,284,700 as compared to net cash used of $3,155,800 for the same period
      in 2007. The increase was mainly attributable to bank borrowings from the Bank
      of China.




We
      believe that our available cash and cash equivalents as of September 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.


19




However,
      in the event that our operating plan changes due to changes in our strategic
      plans, lower than-expected revenues, unanticipated expenses, increased
      competition, unfavorable economic conditions or other unforeseen circumstances,
      including the continued turmoil and tightening of the credit markets, and
      further weakening of consumer confidence and spending, our liquidity may be
      negatively impacted. If so, we could be required to adjust our expenditures
      for
      the remainder of 2008 and for 2009 to conserve working capital or raise
      additional capital, possibly including debt or equity financing, to fund
      operations and our growth strategy.




**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.




**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 nine months ended September 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.


20




**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 September 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 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 quarter ended September 30, 2008 that have materially affected,
      or
      are reasonably likely to materially affect, the Company’s internal control over
      financial reporting. In May 2008, the Board of Directors hired an
      external consultant to assist the Company in improving its internal
      controls over financial reporting in order to comply with Section 404 of the
      Sarbanes-Oxley Act of 2002. Based on
      the assessments and recommendations from the consultant, management has been
      working diligently to improve the Company’s internal controls over financial
      reporting. Management will continue to implement the changes recommended for
      the
      rest of 2008.




**PART
      II - OTHER INFORMATION**




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




None.


21




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




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




**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**




None.




**Item
              6.**
            **EXHIBITS**





Exhibit No.
            
            Description31.1
            
            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.


22




**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:
                November 13, 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)


23




**EXHIBIT
      INDEX**





Exhibit
                No.
            
            Description31.1
            
            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.


24