UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 333-105903

China Housing & Land Development, Inc.

(Exact name of registrant as specified in our charter)

NEVADA	20-1334845
(State or other jurisdiction of incorporation or  organization)	(I.R.S. Employer Identification No.)

6 Youyi Dong Lu, Han Yuan 4 Lou

 Xi'an, Shaanxi Province

 China 710054

(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code)

86-29-82582632

(Former name, former address and former fiscal year,

 if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $ .001 par value per share	NASDAQ Capital Market

 Securities registered pursuant to Section 12(g) of the Act: none.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.   Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

        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 definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨   No  x

The number of shares outstanding of our common stock as of July 1, 2010, was 33,065,386 shares. The aggregate market value of the common stock held by non-affiliates (16,705,185 shares), based on the closing market price ($2.26 per share) of the common stock as of July 1, 2010 was $37,753,718.

As of March 14, 2011 the number of shares of the registrant’s classes of common stock outstanding was 35,078,639.

Except as otherwise indicated by the context, references in this Form 10-K to:

o “U.S. Dollar,” “$” and “US$” mean the legal currency of the United States of America.

o “RMB” means Renminbi, the legal currency of China.

o “China” or the “PRC” are references to the People’s Republic of China.

o “SEC” is a reference to the Securities & Exchange Commission of the United States of America.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
None	Not applicable

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding our future financial position, business strategy and plans and objectives of management for future operations. When used in this filing, the words believe, may, will, estimate, continue, anticipate, intend, expect, and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to the risks discussed under the heading “Risk Factors”. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements.

In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this annual report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.

TABLE OF CONTENT

PART I
ITEM 1	BUSINESS	1
ITEM 1A	RISK FACTORS	14
ITEM 2	PROPERTIES	26
ITEM 3	LEGAL PROCEEDINGS	26
PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	27
ITEM 6	SELECTED FINANCIAL DATA	29
ITEM 7	MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
ITEM 8	FINANCIAL STATEMENT AND SUPPLEMENTARY DATA	47
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	74
ITEM 9A(T)	CONTROLS AND PROCEDURES	74
ITEM 9B	OTHER INFORMATION	75
PART III
ITEM 10	DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	76
ITEM 11	EXECUTIVE COMPENSATION	81
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	84
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	85
ITEM 14	PRINCIPAL ACCOUNTING FEES AND SERVICES	86
PART IV
ITEM 15	EXHIBITS AND REPORTS ON FORM 10-K	86
SIGNATURES		89

PART I  

ITEM 1  BUSINESS

OUR COMPANY

We are a leading residential developer with a focus on fast growing Tier II and Tier III cities in Western China. We are dedicated to providing quality and affordable housing to middle class families. The majority of our customers are first time home buyers and first time up-graders, who, we believe, will benefit from China’s rapid gross domestic product (“GDP”) growth and the middle classes’ corresponding increase in purchasing power.

We commenced our operation in Xi’an in 1999 and have been considered as one of the industry leaders and one of the largest private residential developers in the region. We have experienced significant growth in the past 12 years and have completed over 1.3 million square meters of residential projects. Through the utilization of modern design and technology, as well as a strict cost control system, we are able to offer our customers high quality, cost-effective products. Most of our projects are designed by world-class architecture firms from the United States, Canada and Europe that have introduced advanced “eco” and “green” technologies into our projects.

As we are focusing primarily on the demand from first time home buyers and first time up-graders in Western China, the majority of our apartments have sizes in the range of 70 square meters to 120 square meters; with such sizes considered to be a stable market section of the residential real estate market in Western China. Our typical residential project is approximately 100,000 square meters in size and consists of multiple high-rise, middle-rise and low-rise buildings as well as the community center, commercial units, educational facilities such as kindergartens and other auxiliary facilities. In addition, we provide property management services to our developments and have exclusive membership systems for our customers. We typically generate a large portion of our sales through the recommendations of our existing customers.

We acquire our land reserves and development sites through primary land development with the local government, open-market auctions and acquisition of old factories from the government and distressed assets from commercial banks. We do not depend on a single land acquisition method and this facilitates our acquisition of the land at a reasonable cost and also in receiving higher returns on our investments from our developments. We intend to continue our expansion into other strategically selected cities in Western China by leveraging our brand name and scalable business model.

Our Strategies

We are primarily focused on the development, construction, and management and sale of residential real estate properties to capitalize on the rising demand for real estate from China’s emerging middle class.  We strive to become the market leader in Western China and plan to implement the following specific strategies to achieve our goal:

Consolidate through Acquisition and Partnership. Currently, the residential real estate market in Western China is fragmented with many small players. We believe that this market fragmentation will provide us with opportunities for acquisitions or partnerships. We believe acquisitions will provide us better leverage in negotiations and better economies of scale.

Expand into Other Tier II and Tier III Cities. We believe our proven business model and expertise can be replicated in other Tier II and Tier III cities, especially in Western China. As such, we have identified certain cities that possess attractive replication dynamics.

Continue to Focus on the Middle Market. Since the middle class has growing purchasing power and, as a result of prevailing Chinese culture and values, a strong desire to own homes, we believe the demands for residential real estate from the emerging middle class will offer attractive opportunities for growth of our Company. Thus, we plan to leverage our brand name, experience and design capabilities to meet these demands from the middle class.

 

Our Competitive Strengths

We believe we have the following competitive strengths which will enable us to compete effectively and to capitalize on the growth opportunities in our market:

 

Leading position in our market and industry

We are one of the largest private residential real estate developers in western China. We believe that we have strong design and sales capabilities as well as a well-regarded brand name in the region. Due to strong local project experience and long term relationships with the central and local governments, we have been able to acquire significant land assets at reasonable costs, thereby providing a strong pipeline of potential future business and revenues over the next three to five years.

Attractive market opportunity

The real estate market in western China has grown slower than that of eastern China. We believe the region is well positioned to grow at faster rates for the next few years due to social, economic, regulatory and government stimulus-related factors. Our real estate sales has recovered from the 2008 economic downturn with growth from US$24,306,062 in 2008 to US$78,511,269 in 2009 to US$131,472,461 in 2010. Our business model has proven to be efficient and we plan to expand into other Tier II and Tier III cities in western China. Our growth strategy is focused on western China, and we believe we will significantly benefit from the Chinese government’s “Go West” policy, which encourages economic development and population movement to western China.

Unique and proven business model

Due to strong local project experience and long term working relationships with the central and local governments, we have been able to acquire land assets at more reasonable costs than our competitors. We are primarily focused on capitalizing on rising demand for properties from China’s emerging middle class, which has significant purchasing power and a strong demand for residential housing. In order to leverage our brand to appeal to the middle class, we use various advertising media to market our property developments and to reach our target demographic, including newspapers, magazines, television, radio, e-marketing and outdoor billboards. We believe that our brand is widely recognized in our market and known for high quality products at cost-effective prices.

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Experienced management team

We have an experienced management team with a proven track record of developing and expanding our operations. Our top five managers have a total of more than 90 years of experience in developing residential properties. As a result, we have developed extensive core competencies, supplemented by in-house training and development programs. We believe that our management’s core competencies, extensive industry experience and long-term vision and strategy will enable us to effectively realize growth opportunities.

Greater access to financing through multiple channels

We enjoy multiple long term relationships with a number of high quality Chinese banks and these relationships ensure timely access to capital.  Our loan facilities are mainly used for development projects and day to day running of the business. Besides traditional banks, we are also working with other financial institutions, such as trust companies and real estate funds to diversify our funding channels and risks.

Corporate History

We are a Nevada company and substantially conduct all of our business through our operating subsidiaries in China. We were incorporated in the state of Nevada on July 6, 2004, as Pacific Northwest Productions Inc. On May 5, 2006, we changed our name to China Housing & Land Development, Inc. Currently we own 7 operating subsidiaries, 3 Hong Kong Special Purpose Vehicle (“SPV”) and 3 British Virgin Inland holding companies (“BVI”). The BVI holding companies and Hong Kong SPV companies have holding function only.

On April 21, 2006, we acquired 100% of the shares of Xi’an Tsining Housing Development Co., Ltd (“Tsining”) through a share purchase agreement.

On March 9, 2007, we acquired 100% of the shares of Xi’an New Land Development Co., Ltd. (“New Land”).

On November 5, 2008, the Company and Prax Capital entered into a Joint Venture agreement to set up Puhua (Xi’an) Real Estate Development Co., Ltd.(“Puhua”). On May 10, 2010, the Company signed an Amended and Restated Shareholders' Agreement with Prax Capital which is effective on January 1, 2010. The Company is committed to redeem Prax's investment. As a result, the Company consolidates 100% of Puhua in 2010.

On January 20, 2009, we signed an equity purchase agreement with the shareholders of Xi’an Xinxing Property management Co., Ltd. (Xinxing Property) and acquired 100% ownership of Xinxing Property.

On January 15, 2010, we acquired 100% ownership of Suodi Co., Ltd., (“Suodi”).

On March 31, 2010, we incorporated Xinxing Fangzhou Housing Development Co., Ltd., (“Fangzhou”).

On October 1, 2010, we acquired 100% shares of Xinxing Construction Co., Ltd. (“Xinxing Construction”).

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BUSINESS

Overview

We are a leading real estate development company headquartered in Xi’an doing business primarily in the western part of China. As such, we focus on real estate development opportunities in the region.

Through our subsidiaries located in China, we are engaged in the development, construction, sale and management of residential and commercial real estate units, as well as land development in Shaanxi province, China. Tsining has completed a number of significant real estate development projects in Xi’an. Through Tsining, we plan to expand our business into other developing urban markets in western China. 

Our business model has proven to be efficient and profitable since inception. We divide each project into 5 deployment phases, spanning from land acquisition to after sale services.

Our average project development lasts over 2 years, and provides us with initial revenues after 3 quarters.

Land Acquisition

To date, we have been successful in acquiring land from many sources including open market auctions, co-development with local governments and through the acquisition of distressed assets, such as bankrupt factories. We have achieved this through long term relationships with the central and local governments. We rarely enter open bidding for land.

Planning & Design

We work with world class architecture firms for most of our projects and maintain an in-house design team to supplement projects with our significant local knowledge. We also deploy an advanced cost control system and an enterprise resource planning system, which enable us to monitor and analyze our construction costs and progress on a daily basis.

Construction

We acquired Xinxing Construction Co., Ltd. on October 1, 2010. Through ownership of our own construction arm, we can better guarantee our customers high quality housing products. We can also enhance our cost control procedures in monitoring the construction process and thereby increase our margin. Furthermore, we can maintain our strong track record of providing quality on-time delivery. 

Marketing & Pre-Sales

We initiate the pre-sales process once we finish the foundation construction and receive the pre-sales permits from the government – our sales efforts are partly outsourced to external professionals. Currently, we work with well known sales agents, such as E-House and World Union Properties, which ranked number 1 and 2 in China, respectively, to assist with the sales of the properties we develop. Pre-sales provide us with income and many of our projects become cash flow positive within 9 months.

After Sales Service

We always follow-up with our customers after a sale to foster good and lasting relationships as well as future recommendations. We also have a wholly-owned property management company which performs integrated after-sales services, such as maintenance.

Corporate Information

Our principal executive office is located at 6 Youyi Lu, Han Yuan 4th Floor, Xi’an, 710054, People’s Republic of China. Our telephone number at this address is (86-29) 8258-2632 and our fax number is (86-29) 8258-2640.

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is http://www.chldinc.com.

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Our Industry

We primarily focus on the development, construction, sale and management of residential real estate properties in order to provide affordable housing to middle class consumers in western China. Our target demographic primarily consists of first time purchasers and first time up-graders. Our current development projects are mainly located in Xi’an, Shaanxi Province, in the PRC. We are in the process of expanding into other Tier II and Tier III cities in western China.

Overall Industry Overview

In early 2000, the Chinese real estate industry started to transition towards a market-oriented system. Although the Chinese government still owns all of the urban land in China, land use rights with terms of up to 70 years, can be granted to, and owned or leased by, private individuals and companies. A large and active market in the private sector has developed for sales and transfers of land use rights which were initially granted by the Chinese government. All property units built on such land belong to private developers for the term of period indicated. The recent transition in the real estate industry’s structure in China has fostered the development of real estate-related businesses, such as property development, property management and real estate agencies.

The significant growth of the Chinese economy during the past decade has led to a significant expansion of the real estate industry. This expansion has been supported by other factors, including increasing urbanization, growing personal affluence, as well as the emergence of the mortgage lending market. The following table sets forth selected statistics for the overall real estate industry in mainland China for the periods indicated. 

Source: China Statistic Year Book (all government data is based on calendar year)

Growth Drivers

Western China

We believe the residential real estate industry is well positioned to grow at comparable rates for the next few years due to social, economic, regulatory and government stimulus-related factors.  Key growth drivers include the following:

· “Go West” policy. The “Go West” policy encourages economic development and population movement to western China which includes: 6 provinces, 5 autonomous regions and 1 municipality; these areas comprise 56% of mainland China’s land with only approximately 23% of its population. The policy was issued in 1999, and the whole plan is divided into 3 phases. Phase I includes the development of infrastructure (transport, hydropower plants, energy, and telecommunications), enticement of foreign investment, increased efforts on ecological protection (such as reforestation), promotion of education, and retention of talent flowing to richer provinces. As a result, significant foreign and domestic investments in Xi’an and throughout western China are set to support the growth of middle class incomes. Also, the strong demand in residential properties is driven, in part, by increasing urbanization.

Source: China Statistic Year Book (all government data is based on calendar year)

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· Increasing Urbanization in Western China. The urban population in China has grown significantly over the past 10 years, creating higher demand for housing in many cities. The following table sets forth China’s urban population, total population and urbanization rates for the periods indicated:

· New urbanization trends of population to the West. Urbanization in the Tier II cities is faster than the total population growth. Over 300 million urban new comers are expected to need housing in the next two decades. According to data of Xi’an Statistical Bureau, in 2008 the population of Xi’an was 8.4 million, and the urban rate was 47%. The government projects the population will increase to 10.7 million and the urban rate will reach 80% in 2020.

Source: National Bureau of Statistics.

· China’s Rapidly Growing Middle-Class Population.  China’s current population stands at over 1.3 billion and is expected to reach 1.4 billion by 2026. The middle-class is the fastest growing segment of the population with 130 million people in 2006 and expected to grow to 500 million by 2026. The middle class is defined as house-holds with an annual income of between $6,000 and $25,000, with housing the number one spending category. The rapid urbanization, growth in consumer spending coupled with the significant growth of the urban disposable income per capita (more than doubled from 2003 to 2009) and low home ownership levels compared to Western countries make the middle class a massive driver of the future growth of the Chinese real estate market.

Source: PRC State Council Development Research Center, National Bureau of Statistics, and Monitor Group.

Government Policies.

Type of Cities in China

China has 167 cities with a population of over 1 million. These cities are divided into 3 categories/tiers.

There are significant differences distinguishing Tier I cities from Tier II and Tier III cities in China:

Tier I

A group of four cities, located near the East Coast of China, compose the group of Tier I cities: Beijing, Shanghai, Shenzhen, and Guangzhou. These cities are more urbanized and have higher GDPs per capita than Tier II and Tier III cities. The residential real estate prices in Tier I cities have been skyrocketing and these price fluctuations are the catalyst for many government policy changes.

Tier II and III

There are over 35 Tier II and III cities with an aggregate population of 215 million people. The demand for real estate properties in Tier II and Tier III cities is strong. Industrial expansion and improved infrastructure will support continued urbanization and fuel the growth of the real estate sector in these cities.

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Typically, housing is affordable for consumers in Tier II and Tier III cities compared to Tier I cities. Disposable income in Tier II and Tier III cities increased faster than real estate prices and overall saving rates in Tier II ad Tier III cities have been higher than in Tier I cities.

  

Source: Bureau of Statistics of the above cities

Economic Developments

Rapid economic growth in eastern China has made Tier I cities more mature, making Tier II and Tier III cities a viable alternative for companies looking to reduce their costs. This has subsequently caused a movement towards these Tier II and Tier III cities. Multinational corporations have been expanding out of mega cities along the East Coast of China, such as Beijing, Shanghai, and Shenzhen, into neighboring and inland cities. Intel, for example, recently opened a development center in Chengdu, while the Liberty Mutual Group, the U.S. insurance giant, has chosen Chongqing for its Chinese headquarters. Unilever relocated its Chinese headquarters from Shanghai to the neighboring province of Hefei due to the lower labor and land costs as well as the city’s strategic location.

The Chinese government has also been instrumental in stimulating regional growth by designating certain second-tier regions as priority zones. These actions are benefitting Xi’an, our primary market. Furthermore, beyond regional growth, local growth saw Xi’an’s urban disposable income grow by 17.3% in 2010.

As the ripple effect of economic growth continues to permeate Tier II cities and create a healthy environment for real estate development, leading indicators are signaling continuing moderate growth in local property markets.

Source: CEIC and E-House Company Reports.

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City of Xi’an

Background

Xi’an served as the capital of China during 13 dynasties (from West Zhou in 1066 BC to Tang in 907 AD) and is well known for its Terracotta Army and other famous historic landmarks. Today, the city’s economic leadership is derived from its high-technology, pharmaceutical, military, aerospace, tourism, and advanced education industries.  The central government’s “Go West” policy has designated Xi’an as the regional economic hub of western China. To further encourage western China’s development, the central government plans to establish the Central Shanxi Plain Economic Region that will help enable the free flow of people, skills, capital, and trade amongst the western provinces. Xi’an, as the economic center of western China, will play a unique leadership role among the western Tier II cities.

Xi’an is becoming an international city which boasts a large and educated work force. The city has China’s third largest university-educated workforce, making it a hotbed for research & development (“R&D”), high-technology manufacturing and information technology (“IT”) solutions.  Xi’an has begun to attract high-tech companies, including IBM, Applied Materials, Micron Technology, and Infineon. Applied Materials, for example, selected Xi’an for its $255 million phase one R&D center that will design and develop equipment for semiconductor chip manufacturing. In addition, Micron Technology has invested $250 million in Xi’an for packaging and testing of semiconductor chips, and GE will establish its China innovation center in Xi’an in 2011.

China has announced its intention to become a world-class center for information technology R&D, production, outsourcing and services to rival and perhaps surpass the success of India’s IT industry. Xi’an is expected to play an important role in that effort, having been designated by the government as one of five China “Outsourcing Bases”. Similar to Bangalore and Hyderabad in India, the Xi’an local government is carving out a niche in IT outsourcing by creating the 400,000 square-meter Xi’an Software Park (the “Park”). The Park has already attracted top software and technology companies, including IBM, which is the government’s joint venture partner in creating the Park. Sybase, SPSS, Nortel, Fujouru, and NEC are already operating in the Park.

The Xi’an local government has laid out a master plan through the year 2020 to foster economic transformation and urbanization. For example, Xi’an is now limiting development in the city’s famous historical “Gated Wall City” (or “Inner Ring”), which will be revamped primarily for tourism. The city plans to relocate about 450,000 residents from the Inner Ring to the second, third, and fourth rings of the city and beyond.  One of the most ambitious plans is the development of a new satellite city in the Baqiao district, about eight kilometers from Xi’an’s city center. The Xi’an local government is developing the Baqiao district into the “First Water City of the West”, complete with high-end residential properties and hotels, international convention centers and a high-technology industry center. The new urban area will be home to 900,000 middle-to-upper income residents and for firms in industries that include R&D, services and high-technology, plus the potential headquarters for the Chinese operations of multinational corporations.

Emerging as an International City

Been approved by central government to be one of three international cities in China along with Beijing and Shanghai, Xi’an’s local government has been proactive in enhancing the city’s international image by hosting world class events like the Euro-Asia Economic Forum every second year and the Formula One Powerboat World Championship. To attract international tourists, Xi’an is leveraging its famous historical and cultural significance. Xi’an has revamped its tourism infrastructure in numerous ways, including the redevelopment of the famous Terracotta historical park. It also has selected China’s largest construction company to build a RMB 20 billion ($3 billion) theme park and residential and commercial redevelopment project on the grounds of the famous Da Ming Gong Palace that was built 1,300 years ago during the Tang Dynasty. The city has also built out infrastructure to attract international travelers and, in turn, is drawing large foreign retailers. Several large retailers have entered Xi’an, including Wal-mart, Carrefour, and Metro of Germany. Xi’an’s historic mystique and economic potential have also lured top luxury brands, including Louis Vuitton, Gucci, Prada and Versace to open outlets in the city.

Xi’an real estate market

Strong fundamentals

We believe that demographic and economic factors, including the emerging high-tech industries and the increasing influx of foreign capital will stimulate Xi’an’s future growth. In 2008, the Xi’an population was 8.4 million people, the average urban living area per person was 26.3 square meters, lower than China’s urban average of 28 square meters per person in the same year. Xi’an has announced projections of population increases to 10.7 million and average living area per person to 33 square meters by 2020. This will require an additional 132 million square meters of new residential development by 2020. Despite the solid economic growth and rising housing demand, average real estate prices in Xi’an are still less than half of those in the mega cities such as Shanghai, Beijing and Shenzhen.

Xi’an: Growing, leading, and still affordable

In conjunction with its role as the economic hub of western China, Xi’an’s disposable income per capita has increased significantly over the past several years, as shown below. However, compared with other cities, Xi’an’s housing is relatively affordable.

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Source: Xi’an bureau of statistics Source: Bureau of statistics of above cities.

Source: NBS, Xi’an Bureau of Statistics, CEIC Source: NBS, Xi’an Bureau of Statistics, CEIC

2010 Xi’an market update

With the seasonality impact due to Chinese New Year, and a series of national policies imposed on Chinese real estate market, the first half of 2010 saw a marked slowdown in Xi’an’s real estate industry, which is in line with the performance of the national real estate market during the same time period. However, unlike the markets in the Tier I cities which were largely impacted by the policies, Xi’an’s real estate market started to recover after customer hesitation with respect to the impact of the policies subsided in May. The market stayed hot from June through the remainder of the year. Both sales volume and prices increased. Total volume increased 1% to 14.2 million square meters, while average selling price per square meter increased 22.2% from RMB 5,083 to RMB 6,211.

Xi’an’s Transaction and Supply in 2010

Source: E House (China) report.

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Supply/demand in Xi’an

According to a Chinese Real Estate Investment Council’s (the “CRIC”) research report, the demand and supply of residential real estate in Xi’an area is considered stable. During 2010, the total new supply of salable ground floor area (“GFA”) to the Xi’an market was 12.8 million square meters, and sold area was reached 14.2 million square meters. This imbalance has caused the market inventory to decrease significantly. Even with the national policies targeting speculation in the real estate market introduced in April, 2010, GFA sold maintained stable levels during the entire year and totaled 14.2 million square meters.

Competitive Landscape

The real estate development business in China is organized into 4 levels under the structure of the “Qualification Certificate for Real Estate Development Enterprises”. The starting level is Level 4 (see table below). A company may climb the scale to participate in larger projects. However, only one level may be ascended per year. We attained Level 1 status under the Chinese Ministry of Construction licensing policy in December 2009.

	Registered Capital (million)		Experience (years)		Developed Area (square feet)
Level 1	US$	6.25		5	3,229,278
Level 2	US$	2.5		3	1,614,639
Level 3	US$	1		2	538,213
Level 4	US$	0.125		1	N/A

 

On the national level, there are numerous Level 1 companies involved in real estate projects across China (to develop in multiple regions a Level 1 status is required). There are 79 housing and land development companies listed on the Shanghai, Shenzhen and Hong Kong Stock Exchanges. However, such companies usually undertake large scale projects and their projects focus on high-end family. We do not consider them to be our direct competitors as we target small to medium size projects, and focus on middle-class family residences.

We are aware of two companies in Xi’an which could be considered to be our direct competitors in the small to medium sized project sector:

(i) Xi’an Tande C., Ltd. (Level 1) (“Tande”), is one of the largest real estate developers in Xi’an. Tande is a state-owned enterprise established in May 1991 and subsequently listed on the Shanghai Exchange in 2006. Tande generally undertakes larger scale projects and already expanded their business into Shengzhen, Suzhou and Tianjing by 2007. By the end of December, 2010, Tande had completed fourteen projects. As Tande is state-owned, they need to complete some government projects including building public spaces and infrastructure. These requirements can negatively impact their profitability.

(ii) Xi’an Ziwei Development Company (Level 1) (“Ziwei”), a state-owned enterprise established in 1999. This company has five projects completed with a total construction area of around 4 million square meters. It has eight projects currently under development with a total construction area of 1.5 million square meters. Since Ziwei is controlled by the Xi’an High-Tech Zone Government most of Ziwei’s developments are located in the northwest section of Xi’an city.

Company Section

Projects under construction

Project Name	Type of Projects	Actual or Estimated Construction Period	Actual or Estimated Pre-sale Commencement Date		Total Site Area (m2)		Total Gross Floor Area (m2)		Sold GFA by December 31, 2010 (m2)
JunJing II phase two	Multi-Family residential & Commercial	Q2/ 2009 - Q2/2011		Q3/2009		29,800		122,136		120,349
Puhua Phase One	Multi-Family residential & Commercial	Q4/2009 - Q3/2011		Q4/2009		47,600		139,730		89,533
Puhua Phase Two	Multi-Family residential & Commercial	Q2/2010 - Q3/2012		Q2/2010		47,300		218,635		27,142

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Project name	Total Number of Units		Number of Units sold by December 31, 2010		Estimated Revenue ($million)		Contracted Revenue by December 31, 2010 ($million)		Recognized Revenue by December 31, 2010 ($million)
JunJing II phase two		1,015		1,006		95.1		93.0		89.2
Puhua Phase One		840		792		118.6		68.9		41.1
Puhua Phase Two		1,284		234		200.9		20.5		7.3

JunJing II: JunJing II is located at 38 East Hujiamiao, Xi’an, with total GFA of approximately 248,568 square meters. It is our first “Canadian” style residential community and has “green and energy-saving” characteristics. The project is divided into 2 phases, namely JunJing II phase one and JunJing II phase two. We started the construction of JunJing II phase one in the third quarter of 2007 and started the pre-sale campaign in the second quarter of 2007.

The construction of phase two commenced in the second quarter of 2009 and pre-sales started within the same quarter. As of December 31, 2010, the contract revenue for phase two was $93 million, of which we had recognized $89.2 million in revenues. Revenues will continue to be recognized as the construction progresses.

Puhua: The Puhua project, the Company’s 79 acre project located in the Baqiao New Development Zone, has a total land area of 192,582 square meters and an expected GFA of approximately 640,000 square meters.

The construction of the Puhua project began in June 2009. The whole project, which consists of four phases, is expected to be completed in the third quarter of 2014, with estimated revenues of $700 million. The Company began accepting pre-sale contracts for units in the Puhua Phase One project on October 24th, 2009. As of December 31, 2010, the contract revenue for Puhua project was $89.4 million.

Projects under planning and in process

Project Name	Type of Projects	Estimated Construction Period	Estimated Pre-sale Commencement	Total Site Area (m2)		Total GFA (m2)		Total Number of Units
Baqiao New Development Zone	Land Development	2009- 2020	N/A		N/A		N/A		N/A
JunJing III	Multi-Family residential & Commercial	Q4/2010 - Q1/2012	Q2/2011		8,094		49,636		570
Park Plaza	Multi-Family residential & Commercial	Q2/2011 - Q4/2014	Q3/2011		44,250		141,822		2,000
Golden Bay	Multi-Family residential & Commercial	Q2/2011 - Q4/2014	Q3/2011		146,099		252,540		N/A
Textile City	Multi-Family residential & Commercial	Q3/2012 -Q3/2018	Q3/2012		433,014		630,000		N/A

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

Xi’an has designated the Baqiao District as a major resettlement zone where the city expects 900,000 middle to upper income inhabitants to settle. The Xi’an local government intends to create a thriving commercial and residential zone similar to Pudong, Shanghai, which has provided many new economic opportunities and significant amounts of housing for Shanghai’s growing population.

The Xi’an municipal government plans investments of RMB 50 billion (over $7.6 billion) in infrastructure in the Baqiao New Development Zone. The construction of a large-scale public wetland park is well underway. It will embellish the natural environment adjacent to China Housing’s Baqiao Project.

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

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

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In December 2010, we signed a preliminary contract with the government with the intention to acquire a 107 acre tract of land for development of a new real estate housing project. The new project, with an estimated total GFA of 630,000 square meters, is expected to begin in the third quarter of 2011.

After selling 18.4 acres and placing 79 acres in Puhua project and setting aside approximately 42 acres for the Golden Bay Project, about 348 acres remained available for the Company to develop in the Baqiao Project.

JunJing III: JunJing III is located near our JunJing II project and the city expressway. It will have an expected total GFA of about 49,636 square meters. The project will consist of 3 high rise buildings, each 28 to 30 stories high. The project is targeting middle to high income customers who require a high quality living environment and convenient transportation to the city center. We started construction during the fourth quarter of 2010 and expect pre-sales to begin during the second quarter of 2011. The total estimated revenue from this project is about $46 million.

Park Plaza: In July 2009, the Company entered into a Letter of Intent to acquire 44,250 square meters of land in the center of Xi’an for the Park Plaza project. The Company intends to develop a large mid-upper income residential and commercial development project on this site, with a gross floor area of 141,822 square meters. The four-year construction of Park Plaza was expected to begin in the second quarter 2011. We anticipated accepting pre-sale purchase agreements in the third quarter of 2011, and revenues from pre-sale agreements will begin to be recognized when all revenue recognition criteria have been met. The total revenue from Park Plaza is estimated to be $154 million.

Golden Bay: The Golden Bay project is located within the Baqiao project, with a total GFA of 252,540 square meters. The Golden Bay project will consist of residential buildings as well as a commercial area. Construction was anticipated to begin in the second quarter of 2011, and we expect to begin accepting pre-sale purchase agreements in the third quarter of 2011.

Textile City: The Textile City project is located within the Baqiao New Development Zone. The project consists of residential buildings and a commercial area. Construction is expected to start in the third quarter of 2012, and the entire project will take 5 years.

Major Completed Projects with units available for sale

Project name	Type of Projects	Completion Date	Total Site Area (m2)	Total GFA (m2)		Total Number of Units	Number of Units sold by December31,  2010
JunJing II Phase One	Multi-Family residential & Commercial	Q4/2009	39,524		141,601	1,191	1,175
Tsining-24G	Hotel, Commercial	Q2/2006	8,227		43,563	773	758
JunJing I	Multi-Family residential & Commercial	Q3/2006	55,588		167,931	1,671	1,655

We started the construction of JunJing II phase one in the third quarter of 2007 and started the pre-sale campaign in the second quarter of 2007.  The project was completed in December 2009 and generated total revenue of $86 million.

Tsining-24G: 133 Changle Road, Xi’an. 24G is a redevelopment of an existing 26 floor building, located in the center of the most mature and developed commercial belt of the city. This upscale development includes secured parking, cable TV, hot water, air conditioning, natural gas access, internet connection, and exercise facilities. This project was awarded “The Most Investment Potential Award in Xi’an City” in 2006. Its target customers were white-collar workers, small business owners and traders, and entrepreneurs. Total area available for residential use is 43,563 square meters, which includes 773 one to three bedroom serviced apartments. The project started construction in June 2005 and was completed in June 2006. Sales totaled $44.2 million.

Tsining JunJing Garden I: 369 North Jinhua Road, Xi’an. It is the first “German” style residential & commercial community in Xi’an, designed by the world-famous WSP architectural firm. Its target customers were local middle income families. The project has 15 residential apartment buildings consisting of 1,671 one to five bedroom apartments. The project features secured parking, cable TV, hot water, heating systems, and access to natural gas. Total GFA available is 167,931 square meters. JunJing Garden I is also a commercial venture that houses small businesses serving the needs of JunJing Garden I residents and surrounding residential communities. The project was completed in September 2006 and generated total revenue of $51.7 million.

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Sales and Marketing

Pre-Sales and Sales

In China, developers typically start to market and offer properties before construction is completed. Under PRC pre-sales regulations, property developers must satisfy specific conditions before they can pre-sell properties that are under construction. These mandatory conditions include:

·   the land premium must have been paid in full;

·   the land use rights certificate, the construction site planning permit, the construction work planning permit and the construction permit must have been obtained;

·   at least 25% of the total project development cost must have been incurred;

·   the progress and the expected completion and delivery date of the construction must be fixed;

·   the pre-sale permit must have been obtained; and

·   the completion of certain milestones in the construction processes must be specified by the local government authorities.

These mandatory conditions require a certain level of capital expenditure and substantial progress in project construction occur before commencement of pre-sales.  Developers are required to file all pre-sale contracts with local land bureaus and real estate administrations after entering into such contracts.

We benefit from a strong sales and marketing platform which is complemented by the efforts of professional third party sales agents. As we strive to develop lasting relationships with our customers, the majority of our sales are generated by recommendations from existing customers. The new sales initiatives of our sales department generate approximately 44% of our total sales.  More than 70% of our customers are first time buyers (who are looking to become property owners).

After-sale Services and Delivery

We assist customers in arranging financing as well as in various title registration procedures related to their properties. We have also set up an ownership certificate team to assist purchasers in obtaining property ownership certificates.

We closely monitor the progress of construction of our property projects and conduct pre-delivery property inspections to ensure timely delivery of a high quality product. The time frame for delivery is set out in the sale and purchase agreements entered into with our customers and we are subject to penalty payments to the purchasers for any delays in delivery caused by us. Once a property development has been completed and has passed the requisite government inspections, we will notify our customers and hand over their keys as well as possession of the properties.

We operate a wholly owned property management company that manages properties and ancillary facilities. We frequently follow up with our customers after the sale to foster good and lasting relationships as well as future recommendations.

Marketing

As of December 31, 2010, we maintain a marketing and sales force for our development projects with 21 professionals specializing in marketing and sales. We also train and use outside real estate agents to market and increase the public awareness of our products, and spread the acceptance and influence of our brand. However, we primarily let our own sales force represent our brand and our projects rather than rely on third party brokers or agents as we believe our own dedicated sales representatives are better motivated to serve our customers and to control the pricing and selling expenses of our properties.

Quality Control

We utilize quality control to ensure that our buildings and residential units meet high standards. Through our contractors, we provide customers with warranties covering the building structure as well as certain fittings and facilities of our property developments in accordance with the relevant regulations. To ensure construction quality, our construction contracts contain quality warranties and penalty provisions for poor work quality. We do not allow contractors to subcontract or transfer their contractual obligations to third parties. We typically withhold 5% of the agreed construction fees for two to five years after completion of the construction as a deposit. This deposit helps to incentivize contractors to deliver a quality product.

Governmental and environmental Regulations

To date, we have been compliant with all registrations and requirements for the issuance and maintenance of all licenses required by the applicable governing authorities in China. These licenses include:

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·   “Qualification Certificate for Real Estate Development” authorized by the Shaanxi Construction Bureau, effective from December 20, 2009 to December 20, 2012. License No: JianKaiQi (2006) 603. The housing and land development process is regulated by the Ministry of Construction and authorized by the local offices of the Ministry. Each development project must obtain the following licenses:

o   “License for Construction Area Planning” and “License for Construction Project Planning”, authorized by Xi’an Bureau of Municipal Design; and

o   “Building Permit” authorized by the Committee of Municipal and Rural Construction.

After construction is complete, the project must meet certain standards in order to obtain a validation certificate. These standards are regulated by the Local Ministry of Construction Bureau.

Housing and land development sales companies are regulated by the Ministry of Land & Natural Resources and authorized by the local office of the Ministry. Each project has to be authorized and must obtain a “Commercial License for Housing Sale” from the Real Estate Bureau.

Employees

As of December 31, 2010, we had 750 employees.

We believe we have a good working relationship with our employees. We are not a party to any collective bargaining agreements. At present, no significant change in our staffing is expected over the next 12 months, except for our acquisition of the Xinxing Construction we acquired in October, 2010. All employees are eligible for performance-based compensation.

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ITEM 1A. RISK FACTORS

An investment in our securities is speculative and involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before purchasing any of our securities. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties may also adversely impair our business operations. If any of the events described in the risk factors below actually occur, our business, financial condition or results of operations could suffer significantly. In such case, the value of your investment could decline and you may lose all or part of the money you paid to buy our securities.

In addition to other matters identified or described by us from time to time in filings with the SEC, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement. Some of these important factors, but not necessarily all important factors, include the following:

Risks Related to Our Business

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

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

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

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

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

The real estate development industry is capital intensive, and development requires significant up-front expenditures to acquire land and begin development. Accordingly, we incur substantial indebtedness to finance our homebuilding and land development activities. Although we believe that internally generated funds and current borrowing capacity will be sufficient to fund our capital and other expenditures (including land acquisition, development and construction activities), the amounts available from such sources may not be adequate to meet our needs. If such sources are not sufficient, we would seek additional capital in the form of debt or equity financing from a variety of potential sources, including bank financings and securities offerings.  Our ability to secure sufficient financing for land use rights acquisition and property development depends on a number of factors that are beyond our control, including market conditions in the capital markets, investors’ perception of our securities, lenders’ perception of our creditworthiness, the PRC economy and the PRC government regulations that affect the availability and cost of financing for real estate companies. Furthermore, the availability of borrowed funds to be utilized for land acquisition or development and construction, may decline, and, as a result, the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with new loans and this could render obtaining funds more difficult if not impossible. In turn, the failure to obtain sufficient capital to fund our planned capital and other expenditures could have a material adverse effect on our business.

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

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

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We are subject to extensive government regulation which could make it difficult for us to obtain adequate funding or additional funding.

Various PRC regulations restrict our ability to raise capital through external financings and other methods, including, but not limited to, the following:

· we cannot pre-sell uncompleted residential units in a project prior to achieving certain development milestones specified in related regulations;

· PRC banks are prohibited from extending loans to real estate companies to fund the purchase of land use rights;

· we cannot borrow from a PRC bank for a particular project unless we fund at least 35% of the total investment amount of that project from our own capital;

· we cannot borrow from a PRC bank for a particular project if we do not obtain the land use right certificate for that project;

· property developers are strictly prohibited from using the proceeds from a loan obtained from a local bank to fund property developments outside the region where the bank is located; and

· PRC banks are prohibited from accepting properties that have been vacant for more than three years as collateral for loans.

The PRC government may introduce other measures that limit our access to additional capital. In November 2007, the China Bank Regulatory Commission, or the CBRC, provided policy guidelines to PRC banks and Chinese subsidiaries of foreign banks that loans outstanding at December 31, 2007 should not exceed the level of outstanding loans as of October 31, 2007. This lending freeze may limit our ability to access additional loans or to roll over existing loans as they mature, and may also prevent or delay potential customers’ abilities to secure mortgage loans to purchase residential properties. In addition, on July 10, 2007, the State Administration of Foreign Exchange, or SAFE, issued a circular restricting a foreign invested property developer’s ability to raise capital through foreign debt, if such developer is established after June 1, 2007 or increases its registered capital after June 1, 2007. Under this circular, our ability to utilize the proceeds of this offering to provide funding to our PRC operations is significantly limited. We cannot assure you that we will be able to obtain sufficient funding to finance intended purchases of land use rights, develop future projects or meet other capital needs as and when required at a commercially reasonable cost or at all. Failure to obtain adequate funding at a commercially reasonable cost may limit our ability to commence new projects or to continue the development of existing projects or may increase our borrowing costs.

We are subject to extensive government regulation which may cause us to incur significant liabilities or may restrict our business activities.

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

Our shareholders may be subject to substantial dilution.

On January 28, 2008, we issued $20,000,000 in our 5.0% Senior Secured Convertible Notes (“Notes”). The Investors have the right to convert up to 45% ($9 million) of the principal amount of the Convertible Debt into common shares at an initial conversion price of $5.57, subject to an upward adjustment. The Company, at its discretion, may redeem the remaining non-convertible portion of Convertible Debt ($11 million) (the “Non-convertible Portion”) at 100% of the principle amount, plus any accrued and unpaid interest. In addition, we issued warrants to acquire shares of our common stock at $6.07 per share of common stock (the “Warrants”), exercisable at any time after January 28, 2008 to and including February 28, 2013, the expiration date of the Warrants.  These securities have anti-dilution protection provisions, which will become operative upon our issuance of the additional securities at the below specified dollar amounts.  In addition, the holders of these securities were granted registration rights.   The holders may choose to convert part or all of their Notes into our common shares.  If we issue additional securities at a price lower than the specified amount, we may have to issue additional securities to the holders.  If any, or a combination of such events occurs, the proportionate ownership interest of our existing shareholders may be diluted. On June 10, 2010, the Company and the Investors entered into an amendment (the “Amendment”), which grants Investors the rights to convert the $11 million Non-convertible Portion of the Convertible Debt. The rights expire 5 business days after the effective date of the registration statement registering the shares to be issued on the conversion.

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The warrants issued in 2008 were amended as well to permit the investors to exercise the Warrants on a cashless basis and receive one common share for every two Warrants held if the investor converts at least 55% of face amount of Convertible Debt held.

Upon entering the Amendment, certain investors have agreed to convert 55% of the aggregate face amount of debt to common shares and convert the Warrants by receiving one common share for every two warrants held within 5 business days after the effective date of the registration statement filed by the Company.

We may be unable to acquire desired development land sites at commercially reasonable costs

Our revenue depends on the completion and sale of our projects, which in turn depend on our ability to acquire development sites. Our land use rights costs are a major component of our cost of real estate sales and increases in such costs could diminish our gross margin. In China, the PRC government controls the supply of land and regulates land sales and transfers in the secondary market. As a result, the policies of the PRC government, including those related to land supply and urban planning, affect our ability to acquire, and our costs of acquiring, land use rights for our projects. In recent years, the government has introduced various measures attempting to moderate investment in the property market in China. Although we believe that these measures are generally targeted at the luxury property market and speculative purchases of land and properties, we cannot assure you that the PRC government will not introduce other measures in the future that adversely affect our ability to obtain land for development. We currently acquire some of our development sites primarily through company bankruptcies. Under current regulations, land use rights acquired from government authorities for commercial and residential development purposes must be purchased through a public tender, auction or listing-for-sale. We may not be able to continue to purchase land use rights through reorganization of other companies in bankruptcy and that our land use rights costs may increase in the future, which may lead to a decrease in our profit margin. In addition, we may not successfully obtain desired development sites due to the increasingly intense competition in the bidding processes. Moreover, the supply of potential development sites in any given city will diminish over time and we may find it increasingly difficult to identify and acquire attractive development sites at commercially reasonable costs in the future.

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

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

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

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

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

From time to time, our development sites may experience strong winds, storms, flooding and earth quakes. Natural disasters could impede operations or damage infrastructure necessary to our construction projects and operations. The occurrence of natural disasters could adversely affect our business and the results of our operations, as well as our prospects and financial condition.

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We are dependent on third-party subcontractors, manufacturers, and distributors for all construction services and the supply of construction materials, and a discontinued supply of such services and materials could adversely affect our construction projects.

The Company is dependent on third-party subcontractors, manufacturers, and distributors for all construction services and the supply of construction materials. Construction services or products purchased from the Company’s five largest subcontractors/suppliers accounted for 45% of the total purchases for the year ended December 31, 2010. A discontinued supply of such services and materials will adversely affect our construction projects.

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

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

Our operating subsidiary must comply with environmental protection laws and such compliance could adversely affect our profitability.

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

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

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

The recognition of our real estate revenue and costs relies upon our estimation of total project sales value and cost.

We recognize our real estate revenue based on the percentage of completion method depending on the estimated project construction period. Under this method, revenue and costs are calculated based on an estimation of total project costs and total project revenue, which are revised on a regular basis as the work progresses. Any material deviation between the actual and the estimated total project sales and costs may result in an increase, a reduction or an elimination of reported revenues or costs from period to period, and, as a result, such deviations could have an impact on our net income of the fiscal year.

Our failure to assist our customers in applying for property ownership certificates in a timely manner may lead to compensatory liabilities to our customers.

We are required to meet various requirements within 90 days after delivery of our properties, or such other period as contracted with our customers, in order for our customers to apply for their property ownership certificates. These requirements include passing various governmental clearances, formalities and procedures. Under our sales contracts, we are liable for any delay in the submission of the required documents that is a result of our failure to meet such requirements, and, in such cases, we are required to compensate our customers for such delays. In the case of serious delays on one or more property projects, we may be required to pay significant compensation to our customers and our reputation may be adversely affected.

We do not have insurance to cover potential losses and claims.

We do not have insurance coverage against potential losses or damages with respect to our properties before their delivery to customers, nor do we maintain insurance coverage against liability from tortious acts or other personal injuries on our project sites. Although we require our contractors to carry insurance, we believe most of our contractors do not comply with this requirement. Our contractors may not be sufficiently insured themselves or have the financial ability to absorb any losses that arise with respect to our projects or pay our claims. In addition, there are certain types of losses, such as losses due to earthquakes, which are currently uninsurable in China. While we believe that our practice is in line with the general practice in the PRC property development industry, there may be instances when we will have to internalize losses, damages and liabilities because of the lack of insurance coverage, which may in turn adversely affect our financial condition and results of operations.

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We may fail to obtain, or may experience material delays in obtaining necessary government approvals for any major property development, which could adversely affect our business.

The real estate industry is strictly regulated by the PRC government. Property developers in China must abide by various laws and regulations, including implementation rules promulgated by local governments to enforce these laws and regulations. Before commencing, and during the course of, development of a property project, we need to apply for various licenses, permits, certificates and approvals, including land use rights certificates, construction site planning permits, construction work planning permits, construction permits, pre-sale permits and completion acceptance certificates. We need to satisfy various requirements to obtain these certificates and permits. To date, we have not encountered serious delays or difficulties in the process of applying for these certificates and permits, but we cannot guarantee that we will not encounter serious delays or difficulties in the future. In the event that we fail to obtain the necessary governmental approvals for any of our major property projects, or a serious delay occurs in the government’s examination and approval progress, we may not be able to maintain our development schedule and our business and cash flows may be adversely affected. We may forfeit land to the PRC government if we fail to comply with procedural requirements applicable to land grants from the government or the terms of the land use rights grant contracts.

According to the relevant PRC regulations, if we fail to develop a property project according to the terms of the land use rights grant contract, including those relating to the payment of land premiums, specified use of the land and the time for commencement and completion of the property development, the PRC government may issue a warning, may impose a penalty or may order us to forfeit the land. Specifically, under current PRC law, if we fail to commence development within one year after the commencement date stipulated in the land use rights grant contract, the relevant PRC land bureau may issue a warning notice to us and impose an idle land fee on the land of up to 20% of the land premium. If we fail to commence development within two years, the land will be subject to forfeiture to the PRC government, unless the delay in development is caused by government actions or force majeure. Even if the commencement of the land development is compliant with the land use rights grant contract, if the developed General Floor Area (“GFA”) on the land is less than one-third of the total GFA of the project or the total capital invested is less than one-fourth of the total investment of the project and the suspension of the development of the land continues for more than one year without government approval, the land will also be treated as idle land and be subject to penalty or forfeiture. We cannot assure you that circumstances leading to significant delays in our development schedule or forfeiture of land will not arise in the future. If we forfeit land, we will not only lose the opportunity to develop the property projects on such land, but may also lose all past investments in such land, including land premiums paid and development costs incurred.

If Tsining, one of our PRC Subsidiaries, fails to repay the outstanding loan secured by mortgages on apartments already sold to customers, the house purchasers may claim damages against us for failure to duly transfer legal ownership of any relevant purchased houses.

One of our PRC Subsidiaries, Tsining, borrowed a loan of RMB150,000,000 from Xinhua Trust Co., Ltd. for a term of two (2) years pursuant to a loan agreement, dated as of 29 January 2010, for its development and construction of Phase II of Junjing Garden Project. To secure its payment obligations under the said loan agreement, Tsining created mortgages on 463 apartments of the 24G Project with a total area of 36,528.56 square meters and registered under Tsining’s name in favor of Xinhua Trust Co., Ltd.  Among the 463 apartments mortgaged to Xinhua Trust Co., Ltd., 417 apartments with a total area of 33,734.59 square meters were already sold to customers.  After paying certain compensation to such customers, Tsining has obtained the consent of such customers that Tsining does not need to remove the mortgage on such apartments or to register the transfer of the ownership of such apartments by Tsining to the customers for the time being.

However, if Tsining fails to repay the outstanding loan secured by the mortgages con the apartments already sold to customers pursuant to the terms of the loan agreement, Xinhua Trust Co., Ltd. may request foreclosure of the mortgages. If this occurs, the affected customers may request reinstatement of the ownership of the apartments in question and file a claim against Tsining for their losses and damages that might be incurred due to the foreclosure of the mortgages.  Such an outcome could have a material impact on our operations in China.

As a public company, we are required to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act of 2002.  If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act or if we fail to maintain adequate internal controls over financial reporting, our business, results of operations and financial condition could be materially adversely affected.

As a public company, we are required to comply with the periodic reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including preparing annual reports and quarterly reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under U.S. federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, we are required under applicable law and regulations to design and implement internal controls over financial reporting, and evaluate our existing internal controls with respect to the standards adopted by the U.S. Public Company Accounting Oversight Board.

We cannot assure you that we will not identify control deficiencies that may constitute significant deficiencies or material weaknesses in our internal controls in the future. As a result, we may be required to implement further remedial measures and to design enhanced processes and controls to address issues identified through future reviews. This could result in significant delays and costs to us and require us to divert substantial resources, including management time, from other activities.

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If we do not fully remediate the material weaknesses identified by management or fail to maintain the adequacy of our internal controls in the future, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, any failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common stock.

Risk Relating to the Residential Property Industry in China

Our global income and the dividends we receive from our PRC subsidiary may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our results of operations.

Under the PRC Enterprise Income Tax Law and its implementing rules, both became effective from January 1, 2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” The State Administration of Tax, or SAT, issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by PRC individuals, like our company, the determining criteria set forth in Circular 82 may reflect SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or individuals. Accordingly, we may be considered a resident enterprise and may therefore be subject to the enterprise income tax at 25% on our global income. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, a 25% enterprise income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

Under the applicable PRC tax laws in effect before January 1, 2008, dividend payments to foreign investors made by foreign-invested enterprises in China and paid to the foreign investors, such as Tsining Housing Development, were exempt from PRC withholding tax. Pursuant to the PRC Enterprise Income Tax Law, however, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors will be subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

The PRC Enterprise Income Tax Law and its implementation rules provide that PRC withholding tax at the rate of 10% will generally be applicable to dividends derived from sources within the PRC and received by non-PRC enterprise shareholders. Similarly, gains derived from the transfer of shares by such shareholders are also subject to PRC enterprise income tax if such gains are regarded as income derived from sources within the PRC. We are a U.S. holding company and substantially all of our income may come from dividends we receive from our subsidiaries, primarily those located in China. If the dividends we pay to our shareholders, or the gains our non-PRC shareholders may realize from the transfer of our common shares are be treated as PRC-sourced income, 10% PRC withholding tax will be imposed.

In addition, because there remains uncertainty regarding the interpretation and implementation of the PRC Enterprise Income Tax Law and its implementation rules, it is uncertain whether, if we are regarded as a PRC resident enterprise, any dividends to be distributed by us to our non-PRC shareholders would be subject to any PRC withholding tax. Hence we cannot assure you that such dividends will continue to be exempt from PRC income tax law. If we are required under the PRC Enterprise Income Tax Law to withhold PRC income tax on our dividends payable to our non-PRC corporate shareholders, your investment in our common shares may be materially and adversely affected.

We may rely principally on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business.

We are a holding company, and we may rely principally on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, which include the funds necessary to pay dividends and other cash distributions to our shareholders and to service any debt we may incur. In the future, if our PRC subsidiaries incur debt on their own behalf, the instruments governing the debt may restrict their abilities to pay dividends or make other distributions to us.

Under PRC laws and regulations, our PRC subsidiaries, as foreign invested enterprises in the PRC, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a foreign invested enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

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Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

The enforcement of the Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and our results of operations.

On June 29, 2007, the National People’s Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. Compared to the Labor Law, the Labor Contract Law establishes more restrictions and increases costs for employers to dismiss employees, including specific provisions related to fixed-term employment contracts, temporary employment, probation, consultation with the labor union and employee assembly, employment without a contract, dismissal of employees, compensation upon termination and overtime work, and collective bargaining. According to the Labor Contract Law, an employer is obliged to sign a labor contract with unlimited term with an employee if the employer continues to hire the employee after the expiration of two consecutive fixed-term labor contracts or the employee has worked for the employer for ten consecutive years. The employer also has to pay compensation to an employee if the employer terminates an unlimited-term labor contract. Such compensation is also required when the employer refuses to renew a labor contract that has expired, unless it is the employee who refuses to extend the expired contract. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year for an employer are entitled to a paid vacation ranging from 5 to 15 days, depending on their length of service. Employees who waive such vacation time at the request of employers shall be compensated for three times their regular salaries for each waived vacation day.

According to the above PRC central government and local regulations, we are required to pay to the designated government agencies various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance for all employees,. At the same time, we are required to pay statutory employee benefits based on the local government pre-set contribution ratio, and accrue provisions for unpaid employee benefits based on relevant central government regulations. Thus, we cannot be certain that such accrued amounts will be sufficient to meet any additional employee benefits payments that we are required to pay in the future. As a result of these new measures designed to enhance labor protection, our employee costs are expected to increase, which may adversely affect our business and our results of operations.

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

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

The lack of a liquid secondary market for residential property may discourage investors from acquiring new properties. The limited amount of property mortgage financing available to PRC individuals may further inhibit demand for residential developments.

We face intense competition from other real estate developers.

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

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

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

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

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

In May 2006, the Ministry of Construction, National Development and Reform Commission, or the NDRC, People’s Bank of China (“PBOC”) and other relevant PRC government authorities jointly issued the Opinions on Adjusting the Housing Supply Structure and Stabilizing the Property Prices, which introduced measures to limit resources allocated to the luxury residential market. For instances, the new measures require that since June 1, 2006 at least 70% of a residential project must consist of units with a Gross Floor Area (“GFA”) of less than 90 square meters per unit, and the minimum amount of down payment was increased from 20% to 30% of the purchase price of the underlying property if it has a unit GFA of 90 square meters or more and the property is purchased for residence purpose only.  In September 2007, PBOC and China Banking Regulatory Commission issued the Circular on Strengthening the Management of Commercial Real Estate Credit Facilities, which increased the minimum down payment for any purchase of second or subsequent residential property to 40% of the purchase price if the purchaser had obtained a bank loan to finance the purchase of his or her first property.

In July 2006, the Ministry of Construction, the Ministry of Commerce, NDRC, PBOC, the State Administration for Industry and Commerce and State Administration of Foreign Exchange (“SAFE”) issued Opinions on Regulating the Entry and Administration of Foreign Investment in Real Property Market, which impose significant requirements on foreign investment in the PRC real estate sector. For instance, these opinions set forth requirements of registered capital of a foreign invested real property enterprise as well as thresholds for a foreign invested real property enterprise to borrow domestic or overseas loans. In addition, in May 2007, the Ministry of Commerce and SAFE jointly issued the Notice on Further Strengthening and Regulating the Approval and Supervision of Foreign Investment in Real Estate Market, which requires, a foreign invested real property enterprise approved by local authorities to register such approvals with the Ministry of Commerce.

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

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

Substantially all purchasers of our residential properties rely on mortgages to fund their purchases. An increase in interest rates may significantly increase the cost of mortgage financing, thus affecting the affordability of residential properties. In 2008, PBOC changed the lending rates five times. The benchmark lending rate for loans with a term of over five years, which affects mortgage rates, was increased to 5.94 percent on August 30, 2010. The PRC government and commercial banks may also increase the down payment requirement, impose other conditions or otherwise change the regulatory framework in a manner that would make mortgage financing unavailable or unattractive to potential property purchasers. Under current PRC laws and regulations, purchasers of residential properties generally must pay at least 20 percent of the purchase price of the properties before they can finance their purchases through mortgages. In May 2006, the PRC government increased the minimum amount of down payment to 30 percent of the purchase price of the underlying property if such property has a unit GFA of 90 square meters or more and the property is purchased for residence purpose only In September 2007, the minimum down payment for any purchase of second or subsequent residential property was increased to 40 percent of the purchase price if the purchaser had obtained a bank loan to finance the purchase of his or her first property. Moreover, the interest rate for bank loans of such purchase shall not be less than 110 percent of the PBOC benchmark rate of the same term and category. For further purchases of properties, there would be upward adjustments on the minimum down payment and interest rate for any bank loan. In addition, mortgagee banks may not lend to any individual borrower if the monthly repayment of the anticipated mortgage loan would exceed 50 percent of the individual borrower’s monthly income or if the total debt service of the individual borrower would exceed 55 percent of such individual’s monthly income. If the availability or attractiveness of mortgage financing is reduced or limited, many of our prospective customers may not be able to purchase our properties and, as a result, our business, liquidity and results of operations could be adversely affected.

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

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The PRC government has recently introduced certain policy and regulatory measures to cool down the real estate market and we already saw the effects of such policy and regulatory measures in certain cities.

Since the second half of 2009, the PRC real estate market has experienced exponential growth and housing prices rose rapidly in certain cities. In response to concerns over the scale of the increase in property investments, the PRC government has implemented measures and introduced policies to slow property development and promote the healthy development of the real estate industry in the PRC.

In April 2010, the general office of the PRC State Council issued a circular to all ministries and provincial-level local governments. Among other matters, the circular provided as follows: purchasers of a first residential property for their households with a gross floor area of greater than 90 square meters must make down payments of no less than 30% of the purchase price; purchasers of a second residential property for their households must make down payments of no less than 50% of the purchase price and the interest rate of any mortgage for such property must equal at least the benchmark interest rate plus 10%; and for purchasers of a third residential property, both the minimum down payment amount and applied interest rate must be significantly higher than the relevant minimum down payment and interest rate which would have been applicable prior to the issuance of the circular. In order to implement the requirements set forth in the State Council’s circular, the People’s Bank of China and  the Ministry of Land and Resources issued implementing regulatory measures to restrict mortgage lending and tighten the availability of land resources for future constructions.

In cities such as Beijing and Shanghai, we already saw the effects of such policies and regulatory measures. The sales volumes for real properties in Beijing and Shanghai reportedly have decreased significantly after the policy change. The sale price for certain properties in such cities have also started to show signs of weakening. The PRC government’s policy and regulatory measures on the PRC real estate sector could limit our access to required financing and other capital resources, adversely affect the property purchasers’ ability to obtain mortgage financing or significantly increase the cost of mortgage financing, reduce market demand for our properties and increase our operating costs. These factors may materially and adversely affect our business, financial condition, results of operations and prospects.

Our sales, revenues and operations will be affected if our customers are not able to secure mortgage financing on attractive terms, if at all.

Substantially all purchasers of our residential properties rely on mortgages to fund their purchases. If the availability or attractiveness of mortgage financing is reduced or limited, many of our prospective customers may not be able to purchase our properties and, as a result, our business, liquidity and results of operations could be adversely affected.

The recent circulars issued by the PRC State Council and related measures taken by ministries and local governments have restricted and may continue to restrict the ability of purchasers to qualify for or obtain mortgage financing. In response to a circular issued in April 2010, certain purchasers of our properties can no longer qualify for loans any more and this lead to cancellations of our existing sales and the returning of down payments by us to those persons who have previously entered into a contract with us to purchase a unit but were unable to obtain a mortgage within the 30-day period after the contract date.

PRC government may issue further restrictive measures in the future.

We cannot assure you that the PRC government will not issue further restrictive measures in the future.  The PRC government’s restrictive regulations and measures could increase our operating costs in adapting to these regulations and measures, limit our access to capital resources or even restrict our business operations, which could further adversely affect our business and prospects.

An increase in interest rates will increase our customers’ mortgage financing  which may further adversely affect the real estate market  in the PRC

An increase in interest rates may significantly increase the cost of mortgage financing, thus affecting the affordability of residential properties. According to the circular issued in April , financial institutions must determine the applicable loan interest rate and down-payment ratio for non-welfare residential property according to the following factors: (i) whether the borrower is purchasing a property for the first time; (ii) whether the borrower is purchasing the property for his/her own use; (iii) whether the property purchased is an ordinary residential property; and (iv) risk factors including the borrower’s credit records and payment ability. Increases in mortgage financing costs may dampen people’s desire to purchase residential properties and adversely affect the real estate market in the PRC.

The Company’s PRC Subsidiaries have taken the position that they are compliant with the taxation, environmental, employment and social security rules of China, and if that position turns out to be wrong, they may face penalties imposed by the PRC government.

While the Company believes its PRC Subsidiaries have been in compliance with PRC taxation, environmental, employment and social security rules during their operations in China, the Company has not obtained letters from the PRC government authorities confirming such compliance. If any PRC government authority takes the position that there is non-compliance with the taxation, environmental protection, employment and social security rules by any of the Company’s PRC Subsidiaries, they may be exposed to penalties from such PRC government authority, in which case the operation of the Company’s PRC Subsidiaries in question may be adversely affected.

Risks Related to Doing Business in China

China’s economic policies could affect our business.

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

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

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

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

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all of our revenues in RMB. Under our current corporate structure, our U.S. holding company may rely on dividend payments from our PRC subsidiaries, to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where RMB is to be converted into a foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. This could affect the ability of our PRC subsidiaries to obtain foreign exchange through debt or equity financings, including by means of loans or capital contributions from us. In the future, the PRC government may also at its discretion restrict access to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.

The fluctuation of the Renminbi may materially and adversely affect your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and China’s foreign exchange policies. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on exchange rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB solely to the U.S. dollar. Under this revised policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over the following three years. Since July 2008, however, the RMB has traded within a narrow range against the U.S. dollar. As a consequence, the RMB has fluctuated significantly since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. It is difficult to predict how long the current situation may last and when and how RMB exchange rates may change going forward. Any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from this offering of our common stock into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations.

Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced. Any significant devaluation of Renminbi may reduce our operation costs in U.S. dollars but may also reduce our earnings in U.S. dollars. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.

There can be no assurance that Renminbi will not be subject to devaluation. We may not be able to hedge effectively against Renminbi devaluation, so there can be no assurance that future movements in the exchange rate of Renminbi and other currencies will not have an adverse effect on our financial condition.

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

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

As our operations are presently based in China and some of our key directors and officers reside outside the United States, service of process on our key directors and officers may be difficult to effect within the United States. Also, substantially all of our assets are located outside the United States and any judgment obtained in the United States against us may not be enforceable outside the United States. Moreover, our PRC counsel has advised us that the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts. In order to minimize this risk of nonenforcement, we have appointed Pingji Lu, our Chairman and Chief Executive Officer, as our agent to receive service of process in any action against our company in the United States.

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

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

We may face obstacles from the communist system in China.

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

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

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

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

Interpretation of PRC laws and regulations involves uncertainty.

Our core business is conducted within China and is governed by PRC laws and regulations. The PRC legal system is based on written statutes, and prior court decisions can only be used as a reference. Since 1979, the PRC government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, with a view to developing a comprehensive system of commercial law, including laws relating to property ownership and development. However, due to the fact that these laws and regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC laws and regulations involves a degree of uncertainty. Some of these laws may be changed without being immediate publication or may be amended with retroactive effect. Depending on the government agency or how an application or case is presented to such agency, we may receive less favorable interpretations of laws and regulations than our competitors, particularly if a competitor has long been established in the locality of, and has developed a relationship with, such agency. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. All of these uncertainties may cause difficulties in the enforcement of our land use rights, entitlements under our permits, and other statutory and contractual rights and interests.

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

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

Risks Related to Our Common Stock

There is no assurance of an established public trading market, which may adversely affect the ability of investors in our company to sell their securities on the public markets.

Although our common stock trades on the NASDAQ’s automated quotation system (the “NASDAQ Stock Market”), a regular trading market for the securities may not be sustained in the future. Market prices for our common stock will be influenced by a number of factors, including:

• the issuance of new equity securities;

24

• changes in interest rates;

• competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

• variations in quarterly operating results;

• change in financial estimates by securities analysts;

• the depth and liquidity of the market for our common stock;

• investor perceptions of our company and the real estate industries generally; and

• general economic and other national conditions.

The limited prior public market and trading market may cause volatility in the market price of our common stock.

Our common stock is currently traded on the NASDAQ under the symbol “CHLN.” The quotation of our common stock on the NASDAQ does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to volatility. In the absence of an active trading market:

• investors may have difficulty buying and selling or obtaining market quotations;

• market visibility for our common stock may be limited; and

• a lack of visibility for our common stock may have a depressive effect on the market for our common stock.

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

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

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

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

As of March 11, 2011, our stock is quoted on the NASDAQ Stock Market and has a price of $2.43 per share.

Broker-dealer requirements may affect trading and liquidity.

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

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

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The dilutive effect of future issuances of securities may have an adverse impact on a shareholder’s proportionate ownership interest.

The existing shareholders do not have preemptive rights in any securities issued in the future. The rights of existing shareholders may be diluted by any such issuance. The issuance of shares of our securities in additional capital raising transactions may dilute, and thereby reduce, each existing shareholder’s proportionate ownership interest in our securities.

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

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”), subject to certain limitations. The SEC has recently adopted amendments to Rule 144 which became effective on February 15, 2008. Under these amendments, a person who has beneficially owned restricted shares of our common stock or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.

Persons who have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, under which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:

• 1% of the total number of securities of the same class then outstanding; or

• the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale;

Provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.

Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.

ITEM 2.  PROPERTIES

Our principal executive offices are located at 6 Youyi Dong Lu, Han Yuan 4 Lou, Xi’an, Shaanxi Province, China 710054. This office consists of approximately 2,608.06 square meters which we own.

Our properties are located in Xi’an, Shaanxi province in China.

Name of project	Geographic location	Subsistence area (square meter)
Tsining JunJing I	North Jinhua Road Xi'an City		29,929
Tsining-24G	East Erhuan of Xi'an City		8,999
Tsining JunJing II Phase one	Dongzhan Road of Xi'an City		136,012
Tsining JunJing II Phase two	Dongzhan Road of Xi'an City		112,556
Puhua Phase One	South Gongyuan Road of Xi’an City		139,730
Puhua Phase Two	South Gongyuan Road of Xi’an City		218,635
Yijing Yuan (Land)	South Erhuan of Xi'an City		60,666
Other Projects			4,218
Total			710,745

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on business, financial condition or operating results.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Our common stock has traded on the NASDAQ Capital Market under the symbol CHLN since May 16, 2008. The following table shows, for the periods indicated, the high and low trading prices for our common stock as reported by the National Quotation Bureau, Inc., from the first quarter of 2008 through December 31, 2010. Prior to May 16, 2008, our stock traded on the OTCBB market.

High & Low Stock Price	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
2010
High		4.49		3.98		2.64		2.80
Low		3.60		2.06		1.90		1.97
2009
High		1.90		6.15		6.59		5.30
Low		0.94		1.21		3.28		2.80
2008
High		6.10		5.65		4.25		2.33
Low		3.30		3.80		1.85		0.75

As of December 31, 2010, there were approximately 160 shareholders of record of our common stock, excluding shareholders who have their shares held in street name (by their stock brokerage firms).

Dividends: We have not paid any dividends during the past two years.

RECENT SALES OF UNREGISTERED SECURITIES.

Private Placement on January 28, 2008

On January 28, 2008, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain investors (the “Investors”). Pursuant to the Agreement, the Company agreed to sell to the Investors 5.0% Senior Secured Convertible Debt, which are convertible into shares of the Company’s common stock, for an aggregate purchase price of US$20,000,000 and to receive, in consideration for such purchase, warrants to acquire additional shares of common stock (the “Warrants”).

The 5% Senior Secured Convertible Debt (the “Convertible Debt” or the “Notes”) shall bear interest at a rate of 5% per annum (computed based on the actual days elapsed in a period of 360 days) of the RMB Notional Principal Amount (as defined in the Agreement), payable quarterly in arrears in US$ on the first business day of each calendar quarter and on the Maturity Date (as defined in the Agreement), in each case in an amount equal to the amount of such interest as expressed in RMB multiplied by the US$-RMB Exchange Rate (as defined in the Agreement) as of the applicable Interest Exchange Rate Determination Date (as defined in the Agreement). The Notes are secured by a first priority, perfected security interest in certain shares of common stock of Lu Pingji, as evidenced by a pledge agreement. The Notes are subject to events of default customary for convertible securities and for a secured financing.

The Company’s 5.0% Senior Secured Convertible Debt were purchased by the following investors: Whitebox Intermarket Partners, LP, Whitebox Convertible Arbitrage Partners, LP, Whitebox Hedged High Yield Partners, LP, Whitebox Special Opportunities Fund Series B Partners, LP, Pope Investments II, LLC, Berlin Income, L.P., Berlin Capital growth, L.P., Thomas G. Berlin, and Eastern Management & Financial, LLC. The shares of common stock covered by Warrants were 1,437,467 in total. The securities were being offered and sold in reliance upon the exemptions from securities registration afforded by Section 4(2) of the Securities Act and Rule 506 under Regulation D. All securities were sold to accredited investors and the Company did not use general solicitation or advertising to market the securities. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Agreement. 

The Warrants grant the Investors the right to acquire shares of Common Stock at $6.07 per share of common stock, subject to customary anti-dilution adjustments. The Warrants may be exercised to purchase common stock at any time after January 28, 2008 to and including February 28, 2013, the expiration date of the Warrants.

In connection with this transaction, the Company and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the terms and conditions of the Registration Rights Agreement, the Company agreed to register within 60 calendar days after closing shares of common stock issuable to the Investors for resale on a Form S-3 Registration Statement to be effective by 90 calendar days or 120 days if the registration statement is subject to a full review by the U.S. Securities and Exchange Commission. The Company shall register an amount of common stock for resale that equals at least 120% of the sum of shares issuable upon conversion of the Notes, the exercise of the Warrants and the payment of interest accrued on the Notes. The registration rights granted under the Registration Rights Agreement are subject to customary exceptions and qualifications and compliance with certain registration procedures.

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On June 10, 2010, the Company and the Investors entered into an amendment (the “Amendment”), which grants the Investors the right to convert the $11 million non-convertible portion of the Convertible Debt at an conversion price of $5.57. The rights expire 5 business days after the effective date that a registration statement is filed by the Company registering the shares to be issued on the conversion and the Company has given written notice thereof to the Investors unless by the end of such 5 business day period the holder and its affiliates have converted in aggregated at least 55% of the aggregated face amount of convertible debt held by holders and affiliates into common stock of the Company.

The Warrants issued in 2008 were amended as well to permit the Investors to exercise the Warrants on a cashless basis and receive one common share for every two Warrants held if the investor converts at least 55% of face amount of Convertible Debt held.

Upon entering the Amendment, certain Investors agreed to convert 55% of the aggregate face amount of Convertible Debt to common shares and convert their Warrants by receiving one common share for every two Warrants held within 5 business days after the effective date of the registration statement filed by the Company.

On January 25, 2011, the Company’s board approved certain Investors to convert $9,763,000 of Convertible Debt into 1,752,778 common shares with related Warrants exercised on two to one cashless basis. The registration statement for these shares became effective on February 28, 2011.

SUBSEQUENT DEVELOPMENTS

The Company signed an Equity Transfer Agreement on February 28, 2011 with the shareholders of Shaanxi Bihu Property Development Co., Limited (“Bihu”) to acquire all outstanding common shares of Bihu. Bihu is located in Hu County, which is a satellite city located approximately 35 kilometers from Xi’an. The total purchase price is approximately $15.2 million (RMB 100 million). The Company paid $4.54 million (RMB 30 million) as a deposit on March 2, 2011. The remaining balance will be paid within five business days of the date that the equity registration was finalized with PRC government.

On January 31, 2011, the Company entered into a Project Finance Agreement (the “PFA”) with Tianjin Cube Xindao Equity Investment Fund Partnership, Tianjin Cube Xinde Equity Investment Fund Partnership, Tianjin Cube Xinren Equity Investment Fund Partnership, and Tianjin Cube Xinyi Equity Investment Fund Partnership (the “Lenders” or the “Pledgees”).

Under the PFA, the Lenders have agreed to lend the Company two hundred million (200,000,000) Renminbi (“RMB”) or approximately US$ 30.3 million (the “Obligation”). In order to enable the Lenders to loan the Obligation to the Borrower an entrustment structure is being used under which China Construction Bank Co., Ltd. (“CCB”) acts as an intermediary for the flow of funds from the Lenders to the Borrower. As such, the Company, each of the Lenders and CCB entered into four separate entrustment loan agreements, each dated January 31, 2011 to establish the entrustment structure (the “Side Agreements”, together with the PFA the “Loan Agreements”).

The term of the Obligation is one year and the interest rate on the Obligation is 9.6% per annum. The interest rate is subject to increase in the event of late payments by the Borrower. The term of the Obligation may be extended by six months in the sole discretion of the Lenders. The Borrower is also subject to certain penalties should the Borrower seek to repay the Obligation during the first nine months following the execution of the Loan Agreements. Furthermore, upon the occurrence of certain events of default the Lenders may accelerate repayment of the Obligation.

On January 19, 2011, the holders of a majority of the shares of the Company’s voting stock (the “Majority Stockholders”) approved the China Housing & Land Development, Inc. 2010 Long-term Incentive Plan (the “2010 Plan”)

The shares of Stock issuable under the 2010 Plan are available either from authorized but unissued shares or from shares reacquired by us on the open market. Subject to the adjustment provision mentioned below, the maximum number of shares in the Plan available for issuance under the 2010 Plan shall be 6,530,529, and the maximum number of common stock that will be awarded to any one Grantee (as defined) during any calendar year shall not exceed 300,000 shares.

On January 25, 2011, the Company’s board approved certain Investors to convert $9,763,000 of Convertible Debt into 1,752,778 common shares with related warrants exercised on two to one cashless basis.

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ITEM 6. SELECTED FINANCIAL DATA

Summary of operations

(US$ in thousands, except per share amounts)

	As of December 31
	2010		2009		2008
Total revenue	$	140,269	$	86,559	$	26,616
Cost of sales		104,382		62,902		21,624
Selling, general, and administrative expenses		12,910		9,182		8,498
Stock-based compensation		60		252		3,079
Security registration expenses		0		1,787		613
Interest expenses		1,834		2,323		1,346
Other expenses		938		386		296
Accretion expense on convertible debt		1,417		1,213		969
Income (loss) from operations		18,728		8,514		(9,808	)
Net income	$	17,595	$	1,732	$	8,783
Net income per common share - Basic		0.10		0.08		0.29
Net income per common share - Diluted		0.02		0.08		0.28

Financial data

(in thousands)

	As of December 31
	2010		2009
Total assets	$	363,152	$	259,785
Total shareholders’ equity		101,731		119,098
Basic weighted average shares outstanding		32,854		31,180
Diluted weighted average shares		35,579		31,180

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis

FORWARD LOOKING STATEMENTS

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

Critical Accounting Policies and Estimates

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

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

Warrants and derivative liability

As of December 31, 2010, the Company has approximately $2.8 million of warrants liability and $2.0 million of fair value of embedded derivatives on its balance sheet, representing approximately 1.1% and 0.8% of the total liabilities of the Company, respectively.

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

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

Prior to June 10, 2010, the date of Amendment of Convertible Debt, the Company used the CRR Binomial Lattice Model to assess the fair value of warrants and embedded derivatives at each reporting period. After the Amendment, since the investor could exercise the warrants on a cashless basis and receive one common share for every two warrants held, if the investor converts at least 55% of face amount of Convertible Debt held, in addition to the CRR Binomial Lattice Model, the Company also uses an alternative valuation method (the “Alternative Model”) to assess the fair value of the warrants. The Alternative Model is based on the share price of the Company at valuation date and the number of common shares that could result from the two for one cashless exercise. The Company records the warrant liability based on the higher valuation resulted from either CRR Binomial Lattice Model or Alternative Model at each valuation date.  During the year ended December 31, 2010, our common stock price experienced large fluctuations with the price decreasing from $4.13 on December 31, 2009 to $2.74 on December 31, 2010. The decrease in stock price caused a decrease in fair value for warrants liability and embedded derivatives. As a result, we recognized approximately $2.53 million as a change in fair value of warrants and $3.88 million as a change in fair value of embedded derivatives, which are all non-cash gains.

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The following table summarizes the fair value of warrant liability and embedded derivatives during the periods indicated.

	2010		2009		2008
Fair value of warrants liability	$	2,766,382	$	5,074,191	$	1,117,143
Fair value of embedded derivatives	$	2,027,726	$	3,991,047	$	760,398

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

Investor  Warrants:	12/31/2010			12/31/2009
Strike price		6.07			6.07
Market price		2.74			4.13
Valuation date	12/31/2010			12/31/2009
Expiry date	2/28/2013			2/28/2013
Volatility		100.00	%		105.00	%
Risk free rate		0.68	%		1.78	%
Option value		0.97788			2.43971
# of warrants		1,401,531			1,437,467
CRR Binomial Lattice Model Value		1,370,529			3,507,000

Alternative Model

# of shares if warrants converted two for one	700,765	N/A
Alternative Value	1,920,097	N/A
Warrants Value	1,920,097	3,507,000

Investor  Warrants:	12/31/2010			12/31/2009
Strike price		4.50			4.50
Market price		2.74			4.13
Valuation date	12/31/2010			12/31/2009
Expiry date	5/9/2012			5/9/2012
Volatility		70.00	%		105.00	%
Risk free rate		0.40	%		1.33	%
Option value		0.33322			0.61711
# of warrants		2,539,416			2,539,416
Value		846,285			1,567,092

Conversion Option Valuation:	12/31/2010			12/31/2009
Strike price		5.57			5.57
Market price		2.74			4.13
Valuation date	12/31/2010			12/31/2009
Expiry date	2/28/2011-1/28/2013			1/28/2013
Volatility		95.00	%		105.00	%
Risk free rate		0.11	%		1.74	%
Option value		0.92349-0.01800			2.47002
Host Value - principal		20,000,000			9,000,000
Host Value - interest		0			0
Shares issuable on conversion		3,590,664			1,615,799
Option Value - principal		2,027,726			3,991,047

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

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

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

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Our judgments and estimates related to impairment include our determination of whether an event has occurred that warrants an impairment test. If a test is required, we will also have to make certain judgments and estimations concerning our expectations of future cash flows and the calculation of the fair value of the impaired assets.

When real estate costs are determined to be impaired, they are written down to their estimated fair value less cost to sell. The Company evaluates the carrying value for impairment based on the undiscounted future cash flows of the assets. Write-downs of real estate costs deemed impaired would be recorded as adjustments to the cost basis. There has been no impairment on the real estate inventories and no impairment loss has been recorded for the year ended December 31, 2010, 2009 and 2008.

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

	2010		2009
Real estate projects completed and held for sale	$	8,176,690	$	20,417,820
Real estate projects held for development		96,409,860		82,585,709
Total real estate held for development or sale	$	104,586,550	$	103,003,529

 Intangible asset

As of December 31, 2010 and December 31, 2009 our intangible assets consist of the following:

	2010			2009
Development right required	$	48,930,082		$	47,310,765
Land use right acquired		8,143,992			-
Construction qualification acquired		1,140,632			-
		58,214,706			47,310,765
Accumulated amortization		(6,368,296	)		(5,955,631	)
Intangible asset, net		51,846,410			41,355,134

The development rights for 487 acres of land in Baqiao Park were obtained pursuant to the acquisition of New Land in fiscal year 2007. Intangible assets have a finite life. In accordance with accounting standards, “Goodwill and Other Intangible Assets”, intangible assets are subject to amortization over their estimated useful life. In the case of Baqiao Park, the amortization of the intangible asset is based on the percentage of profit margin realized over the total expected profit margin to be realized from the 487 acres of land in the Baqiao Project. The Company reviews its business plan for its 487 acres of land in Baqiao Park periodically and updates its assumptions based on the prevailing market prices and management’s estimates concerning  the profit margins. The method of amortization selected reflects the pattern in which the economic benefits of an intangible asset is realized. This method is intended to match the pattern of amortization with the income-generating capacity of the asset.

The land use right was acquired through acquisition of Suodi, which will expire in November 2048.

The construction license was acquired through acquisition of Xinxing Construction. The construction license, which is subject to be renewed every 5 years, is not amortized and has an indefinite estimated useful life because management believes the Company is able to continuously renew the license in the future. The license was subject to renewal on March 10, 2011. The Company has already submitted the application for renewal and management believes the Company can successfully renew the license. In the event that the Company cannot renew the license, management will reassess the recoverability of the intangible asset.

The Company evaluates its intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Based on estimated future cash flows, the Company records a write-down for impairments. No impairment write-down was recognized for the years ended December 31, 2010, 2009 or 2008.

For the year ended December 31, 2010, the Company recorded $207,029 amortization expense on the Baqiao Project land use rights. The amortization was included in selling, general and administrative expenses. There was no amortization on development rights that were capitalized and included in our real estate held for development or sale during fiscal year 2000.

Deposits on land use rights

	2010		2009
Deposits on land use rights		74,938,729		28,084,346

The Company conducts regular reviews of the deposits on land use rights. After review and assessment, the Company concluded that there were no significant decreases in market prices and therefore no impairment write-downs were required. According to E House (China) Real Estate Research Institute the average residential sale price in Xi’an city was stable in the fiscal year ended December 31, 2010. The average sale price increased to 6,211 RMB per square meter (approximately US$ 941 per square meter) from 5,080 RMB in 2009, representing about 22% year-on-year growth.

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Material trends and uncertainties that may impact our continuing operations

Changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations and where prospective purchasers of our homes live, may result in more caution on the part of homebuyers and consequently fewer home purchases. Since the third quarter of 2010, we feel that the prevailing attitudes of buyers in the market have improved and that the transaction volume has increased compared to same period of 2009.

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

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

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

As of December 31, 2010, we had $46,904,161 of cash and cash equivalents, compared to $36,863,216 as of December 31, 2009, an increase of $10,040,945.

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

CONSOLIDATED OPERATING RESULTS

Fiscal Year Ended December 31, 2010 Compared With 2009

Revenues

Our revenues are mainly derived from the sale of residential and commercial units in western China, mainly in Xi’an and the surrounding area. We also perform infrastructure work for the local government as well as preliminary land development projects.

The revenues from our real estate sales in the year ended December 31, 2010 increased 68% to $131.5 million from $78.5 million as compared to the same period of 2009. We believe the primary reasons for the growth are stable market conditions, customer-friendly design and strong pipeline projects. Compared to 2009, we have more projects under construction and in the marketing process than during the same period during 2009. Our new project, Puhua Phase One and Phase Two was able to achieve very impressive contract sales of approximately $21.4 million in the fourth quarter of 2010. Also, we were able to recognize the revenue in Puhua Phase One from early in 2010. This project should further increase our sales and revenue  in the coming years.

We officially started the pre-sale for Puhua Phase Two in the second quarter of 2010. As of December 31, 2010, we have pre-sold about 12% of all available GFA and 18% of all available units.

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Effective January 1, 2008, the Company changed its revenue recognition policy for sales of development properties to the percentage of completion method. Previously, the full accrual method was used. The percentage of completion method is based on estimated costs incurred. The change more accurately reflects the business activity of the Company and matches revenues with the costs incurred in earning such revenue. The standard “Accounting Changes and Error Corrections” requires that a change in accounting policy be reflected through retrospective application of the new accounting policy to all prior periods, unless it is impracticable to do so. The Company has determined that retrospective application to periods prior to January 1, 2008 is not practical as the necessary information needed to restate prior periods is not available. Therefore, the Company began to apply the percentage completion method on a prospective basis beginning January 1, 2008.

Revenues by project:	2010		2009
US$
Project Under Construction
Tsining JunJing II Phase Two		63,403,184		25,778,463
Puhua Phase One		41,069,075		-
Puhua Phase Two		7,300,049		-
Completed Project
Tsining JunJing II Phase One		13,522,521		48,682,294
Tsining JunJing I		3,406,763		(610,582	)
Tsining-24G		2,013,427		3,878,828
Tsining In Home		492,795		552,441
Other		264,647		229,825
Revenues from the sale of properties	$	131,472,461	$	78,511,269

Our project in process is the Baqiao Project where we possess the exclusive rights to develop 487 acres of land. In 2007, we acquired the development rights and recognized $24,405,717 in revenue as a result of an approximately 18 acre land sale to an unrelated developer. Near the end of 2008, we initiated a joint venture with Prax Capital to co-develop 79 acres within the Puhua Project. Prax Capital invested $29.3 million in cash into the joint venture. After setting aside approximately 42 acres for the newly planned Golden Bay project, approximately 348 acres remain available for development in the Baqiao Project.

Revenues by project:	2010			2009
US$
Tsining JunJing II Phase One
Contract sales	$	13,522,521		$	39,292,219
Revenue	$	13,522,521		$	48,682,294
Total gross floor area (GFA) available for sale		141,601			136,012
GFA sold during the period		16,779			61,955
Remaining GFA available for sale		6,212			17,051
Percentage of completion		100	%		100	%
Percentage GFA sold during the period		11.85	%		45.55	%
Percentage GFA sold to date		96	%		87.46	%
Average sales price per GFA	$	805			634
Tsining JunJing II Phase Two
Contract sales	$	52,437,874		$	40,547,451
Revenue	$	63,403,184		$	25,778,463
Total gross floor area (GFA) available for sale		122,136			122,136
GFA sold during the period		65,016			55,333
Remaining GFA available for sale		1,786			66,803
Percentage of completion		95.34	%		63.25	%
Percentage GFA sold during the period		53.23	%		45.30	%
Percentage GFA sold to date		99	%		45.30	%
Average sales price per GFA	$	807		$	733

Puhua Phase One contract sales, including Q4 2009	$	68,851,673		-
Revenue	$	41,069,075		-
Total gross floor area (GFA) available for sale		139,730		-
GFA sold during the period		89,533		-
Remaining GFA available for sale		31,511		-
Percentage of completion		64.63	%	-
Percentage GFA sold during the period		64.08	%	-
Percentage GFA sold to date		64.08	%	-
Average sales price per GFA	$	769		-
Puhua Phase Two contract sales, including Q4 2009	$	20,539,648		-
Revenue	$	7,300,049		-
Total gross floor area (GFA) available for sale		218,635
GFA sold during the period		27,142		-
Remaining GFA available for sale		191,493
Percentage of completion		35.67	%	-
Percentage GFA sold during the period		12.41	%
Percentage GFA sold to date		12.41	%	-
Average sales price per GFA	$	756

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Revenues from projects under construction

Tsining JunJing II Phase Two

Tsining JunJing II Phase Two consists of 11 middle-rise and high-rise buildings with total expected revenues of approximately $95.1 million. We officially started the pre-sales in the second quarter of 2009 and were able to secure $93.0 million in contract sales for 1,006 units of which we recognized approximately $63.4 million in 2010.

Puhua Phase One
 

Phase One consists of 13 middle-rise and high-rise buildings and Garden Houses with total expected revenues of approximately $118.6 million. We officially started the pre-sales in the fourth quarter of 2009 and were able to secure $68.9 million in contract sales for 792 units of which we recognized approximately $41.1 million since pre-sales.

Puhua Phase Two

Phase Two consists of 7 middle-rise and high-rise buildings and Garden Houses with total expected revenues of approximately $200.9 million. We officially started the pre-sales in the second quarter of 2010 and were able to secure $20.5 million in contract sales for 234 units of which we recognized approximately $7.3 million in 2010.

Revenues from projects completed

Revenue in 2010 from completed projects accounted for about 15% of total revenue from sales of properties during the year. The completed projects included Tsining JunJing I, Tsining-24G, Tsining in Home and JunJing II Phase One. As the market prices for the retail units went up, we accelerated our marketing plan and were able to achieve approximately $3.4 million from our remaining retail units in Tsining JunJing I.

Other income

Other income includes interest income, rental income, property management income, construction income and gain from disposal of properties and equipment and asset held for sale. We recognized $8.8 million in other income for the year ended December 31, 2010 compared with $8.0 million in the same period of 2009. The 10 percent increase is mainly due to following reasons: 1) income from property management services of Xinxing Property because of the increase of new projects; 2)  miscellaneous construction contracts of Xinxing Construction since Xinxing Construction has some small third party clients; and 3) gain on disposal of fixed assets from Tsining for selling apartments used by Xinxing Hotel Management Co., Ltd.

Cost of real estate sales

The cost of properties and land for the year ended December 31, 2010 increased 70.7 percent to $98.3 million compared with $57.6 million in the same period of 2009. The increase was primarily a result of the increased sales volume in our JunJing II Phase Two and Puhua Phase One.

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Revenues and the cost of revenues from Puhua Phase One began to be recognized in the first quarter 2010 and are being recognized using the percentage of completion method of accounting.

Gross profit and profit margin

Gross profit for the year ended December 31, 2010 was $35.9 million, representing an increase of 51.7 percent from $23.7 million in the same period of 2009. The gross profit margin for the year ended December 31, 2010 was 25.6 percent compared with 27.3 percent in the same period of 2009. The decrease in the gross profit margin was mainly due to the reclassification of Junjing I from assets held for sale to property and plant, thus we recorded the accumulated depreciation which amounted to $1.89 million. 

Selling, general and administrative expenses

SG&A for the year ended December 31, 2010 increased 40.6 percent to $13.0 million from $9.2 million in the same period of 2009. The increase in SG&A is mainly due to the increased marketing expenses associated and the administrative expenses related to the Puhua project. However the ratio of SG&A to total revenues for the year decreased from 10.6% in 2009 to 9.2% in 2010. This decrease is due to  Company improvements in management and operating efficiency.

Stock-based compensation

We incurred stock-based compensation expenses amounting to $59,606 for the year ended December 31, 2010, compared to $252,118 in 2009. The shares issued to directors were issued in accordance with their service agreements.

Other expenses

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

Other expenses in the year ended December 31, 2010 increased 143.1 percent to $937,568 compared with $385,652 in the same period of 2009. This was the result of the Company incurring extra charges related to the delivery of Tsining-24G.

Operating profit and operating profit margin

Operating profit ended December 31, 2010 was $18.7 million compared with $8.5 million in the same period of 2009, primarily due to the higher profits generated by JunJing II Phase One and Phase Two. As a result, the operating profit margin was 13.4 percent for the year ended December 31, 2010 compared with 9.8 percent for the year ended December 31, 2009.

Interest expense

Interest expense for the year ended December 31, 2010 decreased 21.0 percent to $1.8 million from $2.3 million for the year ended December 31, 2009. This decrease of interest expense is due to an increase in capitalized interest resulting from a larger number of projects.

Change in fair value of embedded derivative

The Company recorded a $3.9 million gain for the change in fair value of embedded derivatives for the year ended December 31, 2010 compared with $3.2 million expense in the same period of 2009.

The embedded derivatives are related to the Company’s $20 million convertible debt offering completed in January 2008. The change in the fair value of embedded derivatives was a periodic adjustment to the estimated cost to the Company, which was provided by a valuation model. The Company booked a $3.9 million gain during 2010 which was mainly a result of the stock price change.

Change in fair value of warrants

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

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

Prior to June 10, 2010, the date of Amendment of Convertible Debt, the Company used CRR Binomial Lattice Model to assess the fair value of warrants and embedded derivatives at each reporting period. After the Amendment, the investor could exercise the warrants on a cashless basis and receive one common share for every two warrants held, if the investor converts at least 55% of face amount of Convertible Debt held. In addition to the CRR Binomial Lattice Model, the Company also uses an alternative valuation method (the “Alternative Model”) to assess the fair value of the warrants. The Alternative Model is based on the share price of the Company at valuation date and the number of common shares that could result from the two for one cashless exercise. The Company records the warrant liability based on the higher valuation resulted from either CRR Binomial Lattice Model or Alternative Model at each valuation date.

The change in fair value of warrants resulted in a $2.5 million gain for the year ended December 31, 2010, compared to $4.4 million loss during the same period of 2009, which was a result of the periodic adjustment to the estimated cost to the Company to provide the common shares, assuming that all of the warrants will be exercised sometime in the future. The basis for estimating the cost to provide the common shares was provided by the valuation model. The CRR model depends on the following assumptions: the Company’s common stock price underlying the warrants; strike price; expected life; expected volatility; risk free interest rate; and dividend rate. During 2010, our common stock price experienced large fluctuations with the price decreasing from $4.13 on December 31, 2009 to $2.74 on December 31, 2010. The decrease in stock price and expected volatility caused an increase in fair value for warrants and the change of fair value was booked as a non-cash gain.

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Security registration expenses

Pursuant to the agreement with the investors of the 5% Senior Secured Convertible Debt, the Company was required to pay the investors certain late registration payments (“Late Payments”) if the Company failed to file a registration statement within 60 days after the closing date of the 5% Senior Secured Convertible Debt. The Company commenced negotiations with the Investors in the 5% Senior Secured Convertible Debt to waive the Late Payments in December 2008, as both parties believed that the registration statement would become effective within a short period of time. However, as the registration statement had not become effective as of September 2009, the Convertible Debt investors decided to claim the Late Payments. The Company had accrued Late Payments of $1.78 million by 2009. On September 28, 2009, the Company negotiated a First Amendment (the “Amendment”) with the Investors to settle the Late Payments in the amount of $2.4 million issuing 614,290 common stock shares. The amount of 614,290 shares of common stock was determined by dividing $2.4 million the total Late Payments up to September 28, 2009, by 95% of the historical volume weighted average price (“VWAP”) of the common stock shares, as determined by using Bloomberg function VWAP, for the immediate preceding 30 days period. In accordance with the Amendment, the Investors will waive any further Late Payments claimes against the Company under the Registration Rights Agreement. We do not expect any similar claims in the future.

The security registration expenses were $0 for the year ended December 31, 2010, compared with $1.8 million in the same period of 2009.

Recovery of income taxes

The provision for current income taxes for the year December 31, 2010 was $5.5 million compared with $0.8 million recovery of current income tax. The recovery of income taxes for the year ended December 31, 2009 was due to the tax settlement between Hao Tai and the local tax bureau.

Mandatory redeemable noncontrolling interests in Subsidiaries

On November 5, 2008, the Company and Prax Capital (“Prax”) entered into a joint venture agreement to develop 79 acres within China Housing’s Baqiao project located in Xi’an. Prax invested $29.3 million for a 25% interest in Puhua by obtaining 1,000 Class A shares of Success Hill (“Class A Shares”) with various distribution rights. Prax’s initial investments were recorded as noncontrolling interests in the consolidated financial statement.

During the first quarter of 2010, the Company proposed to redeem Prax’s 1000 Class A shares in Success Hill in order to fix the maximum return on Prax’s initial investment. Both parties then entered into an Amended and Restated Shareholders’ Agreement on May 10, 2010. Effective January 1, 2010, the Company will redeem from Prax, and Prax agrees to such redemption, all of Prax’s Class A Shares within three years by December 31, 2012 for consideration of the USD equivalent of $87.27 million (RMB 576 million).

As Prax’s interest in the consolidated subsidiaries meets the definition of a mandatorily redeemable financial instrument, it is reported within liabilities as a mandatorily redeemable non-controlling interest in subsidiaries on the Company’s consolidated balance sheet and initially valued at the fair value of cash that would be due and payable to Prax under the Amended and Restated Shareholder agreement.

As of January 1, 2010, the Company recorded a liability of $42,600,511 reflecting the fair value of the redemption amount of Prax’s interest and eliminated the original non-controlling interest in the equity on the consolidated balance sheet.  The difference of $14,229,043 between the carrying value of the original non-controlling interests and the fair value of the redemption amount of Prax’s interest has been reflected as a charge to non-controlling interests. Subsequently, the Company recorded accretion cost on these redeemable noncontrolling interests using the effective interest method based on an effective interest rate of 45%. The related accretion cost incurred for the year ended December 31, 2010 was $19,855,876 (2009 - $Nil) and was capitalized as real estate construction in progress.

Net income attributable to China Housing & Land Development, Inc.

Net income attributable to China Housing & Land Development, Inc. for the year ended December 31, 2010 increased 36.3 percent to $3.37 million from $2.47 million in the same period of 2009.

The decrease from our operating profit of $18.7 million to our $3.37 million net income attributable to China Housing & Land Development, Inc. was due to $14.2 million charge to noncontrolling interest. Combining this with change in fair value of embedded derivatives and warrants and loss on extinguishment of debt, we arrive at the non-GAAP normalized net income of $13.4 million.

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	2010
Net income attributable to China Housing & Land Development, Inc.	$	3,366,195
Less:  CHANGE IN FAIR VALUE OF DERIVATIVES
Change in fair value of embedded derivatives		(3,882,873	)
Change in fair value of warrants		(2,527,423	)
Add:       Charge to noncontrolling interest		14,229,043
Loss on extinguishment of debt		2,180,492
Non-GAAP normalized net income attributable to China Housing & Land Development, Inc.	$	13,365,434

The overall real estate market condition in Xi’an has improved since the third quarter of 2010, which is demonstrated in the pre-sales results of our current projects under construction, i.e. JunJing II Phase Two and Puhua Project. In 2010, we were able to secure approximately $182.4 million in contract sales and were able to recognize approximately $111.8 million as revenue. Both the contract sales amounts and revenues are the highest recorded in the Company’s history.

With the introduction of JunJing II Phase Two and Puhua Phase Two, we expect the gross margin to improve slightly in the future, primarily because of the better quality and higher average sale price of JunJing II Phase Two.

  

Basic and diluted earning purchase (“EPS”) attributable to China Housing & Land Development, Inc.

Basic EPS attributable to China Housing & Land Development, Inc. was $0.10 for the year ended December 31, 2010, compared to $0.08 in the same period of 2009. Diluted EPS attributable to China Housing & Land Development, Inc. was $0.02 for the year ended December 31, 2010, compared to $0.08 in the same period of 2009. The number of shares outstanding doesn’t change significantly from year to year.

 

Common shares used to calculate basic and diluted EPS attributable to China Housing & Land Development, Inc.

The weighted average shares outstanding used to calculate basic EPS attributable to China Housing & Land Development, Inc. was 32,854,429 shares in the year ended December 31, 2010 and 31,180,246 shares in the same period of 2009. The weighted average shares outstanding used to calculate the diluted EPS attributable to China Housing & Land Development, Inc. was 35,579,398 shares in the year ended December 31, 2010 and 31,180,246 shares in the same period of 2009.

Foreign exchange

The Company operates in China and the functional currency is Chinese Renminbi (“RMB”) but the reporting currency is the U.S. dollar, based on the exchange rates of the two currencies. The fluctuation of the exchange rate during 2010 and the same period of 2009, when translating the operating results and financial positions at different exchange rates, created the accrued gain (loss) on foreign exchange. The gain on foreign exchange for the year ended December 31, 2010 was $4,295,215, compared with a loss of $234,318 in the same period of 2009.

CONSOLIDATED OPERATING RESULTS

Fiscal Year Ended December 31, 2009 Compared With 2008

Revenues

Our revenues are mainly derived from the sale of residential and commercial units in Western China, mainly in Xi’an city. We also perform infrastructure work for the local government as well as preliminary land development projects.

The revenues from the sale of properties in the year ended December 31, 2009 increased 223% to $78.5 million from $24.3 million in the same period of 2008. We believe the primary reasons for the growth are the stable market conditions, customer-friendly design and strong pipeline projects. Compared to 2008, we have more projects under construction and in the marketing process than those at the same time during 2009. Our new project, Puhua Phase One was able to achieve very impressive contract sales amount, approximately $14.4 million in the fourth quarter. We will be able to recognize the revenue in Puhua Phase One beginning in early 2010. This project will further increase our sales and revenue amount in the coming years.

In 2009, approximately 95% of our revenue came from Tsining JunJing II Phase One and Phase Two, We officially started the pre-sale for Tsining JunJing II Phase One and Phase Two in the second quarter of 2008 and second quarter of 2009, respectively. As of December 31, 2009, the construction of Tsining JunJing II Phase One was completed. We have already pre-sold approximately 87% of all available GFA and 95% of all available units. We also plan to rent out a few commercial units in JunJing II Phase Two which has a better layout than Phase One; as a result, we expect it to achieve a higher selling price. During 2009, the average selling price in Phase Two was about 15% higher than Phase One. As of December 31, 2009, we have pre-sold about 49% of all available GFA and 51% of all available units.

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

Revenues by project:	2009			2008
US$
Project Under Construction
Tsining JunJing II Phase One	$	48,682,294		$	23,776,789
Tsining JunJing II Phase Two		25,778,463			-
Puhua Phase One		-			-
Projects Completed
Tsining JunJing I		(610,582	)		264,066
Tsining-24G		3,878,828			27,243
Tsining In Home		552,441			121,076
Additional Project		229,825			116,888
Infrastructure Project
Baqiao infrastructure construction		-			-
Project In Process
Baqiao		-			-
Revenues from the sale of properties	$	78,511,269		$	24,306,062

Our project in process is the Baqiao project where we have the exclusive right to develop 487 acres. In 2007, we acquired the development rights and recognized $24,405,717 in revenue as a result of an approximately 18 acre land sale to an unrelated developer. Near the end of 2008, we initiated a joint venture with Prax Capital to co-develop 79 acres within the Baqiao project. Prax Capital invested $29.3 million in cash into the joint venture. After setting aside approximately 42 acres for the newly planned Golden Bay project, approximately 348 acres remain available for development in the Baqiao project.

Revenues by project:	2009		2008
US$
Project Under Construction
Tsining JunJing II Phase One
contract sales	$	39,292,219	$	33,166,864
Revenue	$	48,682,294	$	23,776,789
Total gross floor area (GFA) available for sale		136,012		136,012
GFA sold during the period		61,955		57,006
Remaining GFA available for sale		17,051		79,006
Percentage of completion		100%		65.95	%
Percentage GFA sold during the period		45.55%		41.91	%
Percentage GFA sold to date		87.46%		41.91	%
Average sales price per GFA	$	634	$	582
Tsining JunJing II Phase Two
contract sales	$	40,547,451		-
Revenue	$	25,778,463		-
Total gross floor area (GFA) available for sale		122,136		-
GFA sold during the period		55,333		-
Remaining GFA available for sale		66,803		-
Percentage of completion		63.25%		-
Percentage GFA sold during the period		45.30%		-
Percentage GFA sold to date		45.30%		-
Average sales price per GFA	$	733		-

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Revenues from projects under construction

Tsining JunJing II Phase One

JunJing II Phase One consists of 13 residential buildings and 3 auxiliary buildings, including one kindergarten, with a gross floor area of about 136,012 square meters. JunJing II Phase One was one of our major revenue generating projects during 2009, contributing approximately $48.7 million in revenues. By December 31, 2009, we had pre-sold approximately 1,126 units in the project, which accounts for about 95% of all available units totaling approximately 118,961 square meters, about 87% of available GFA. Delivery to customers for this project began at the end of October 2009.

Tsining JunJing II Phase Two

Tsining JunJing II Phase Two consists of 12 middle-rise and high-rise buildings with total expected revenues of approximately $94.1 million. We officially started the pre-sales in the second quarter of 2009 and were able to secure $40.5 million in contract sales for 516 units of which we recognized approximately $25.8 million in 2009.

Revenues from projects completed

Revenues in 2009 from completed projects stayed at the same level of 2008, accounting for about 5% of total revenue from sales of properties during the year. The completed projects including Tsining JunJing I, Tsining-24G, Tsining In Home and other additional projects. As the market price in the retail units went up, we accelerated our marketing plan and were able to achieve approximately $3.9 million from our remaining retail units in Tsining-24G project.

Other income

Other income includes interest income, rental income, other non-operating income as well as government reimbursement of infrastructure cost on the company’s investments required to support infrastructure construction, continued river management, and suburban planning for the entire Baqiao high-technology industrial park. We recognized $8.0 million in other income for the year ended December 31, 2009 compared with $2.3 million in the same period of 2008. The 273 percent increase is mainly due to the government reimbursement of infrastructure cost. During the fourth quarter of 2009, we recognized approximately $3.7 million as revenue from the #3 river dam project that was awarded to us by the local government. The interest income from our initial investment in the Baqiao area for the preliminary land development project also generated about $0.7 million during the year.

Cost of real estate sales
 

The cost of properties and land for the year ended December 31, 2009 increased 168 percent to $57.6 million compared with $21.5 million in the same period of 2008. The increase was primarily a result of the increased sales volume in our JunJing II Phase One and Phase Two projects.

Revenues and the cost of revenues from Project Tsining JunJing II Phase One began to be recognized in the second quarter 2008 and are being recognized using the percentage of completion method of accounting. The revenues and cost of revenues for Tsining-24G, most of which was sold in the first quarter 2007, were recognized using the full accrual method of accounting.

Gross profit and profit margin

Gross profit for the year ended December 31, 2009 was $23.7 million, representing an increase of 373.9 percent from $5.0 million in the same period of 2008. The gross profit margin for the year ended December 31, 2009 was 27.3 percent compared with 18.9 percent in the same period of 2008. The increase in the gross profit margin was mainly due to more projects under construction, strict cost control and higher average selling prices. The residential units we sold during the year ended December 31, 2009 generally had higher profit margins than the units sold in the same period of 2008 mainly due to the fact that we executed a marketing campaign for JunJing II Phase One starting in the second quarter of 2008 and used discounted prices to attract market interest and encourage future sales. During 2009, we concentrated more on research and development and were able to deliver real estate with better quality and higher average sales prices. Sales are much better with the improvement in market conditions.

Selling, general and administrative expenses

SG&A for the year ended December 31, 2009 increased 8.1 percent to $9.2 million from $8.5 million in the same period of 2008. The increase in SG&A is mainly due to the increased sales, for example, the marketing expenses associated with Tsining JunJing II Phase One and Phase Two projects and the administrative expenses and marketing expenses related to the Puhua project. However the ratio of SG&A to total revenues for the year decreased from 32.1% in 2008 to 10.6% in 2009, because the Company is improving the management and operating efficiency. In October 2009, we launched the marketing campaign for the Puhua Phase One project and successfully secured about $15.0 million of the contract amount. However, due to the overall construction still in the beginning stage, we were not be able to recognize revenue from the Puhua Phase One project. Still, we recognized approximately $2.3 million in selling and administrative expenses in 2009. Without the impact from Puhua, our SG&A expenses would be about $6.9 million, which, we believe is reasonable going forward.

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Stock-based compensation

We incurred stock-based compensation expenses amounting to $252,118 for the year ended December 31, 2009, comprised of common stock issued for services provided by the Company’s directors and former CFO, compared to $3.1 million in 2008, representing an 91.8 percent decrease. The number of shares granted to each individual was calculated in accordance with the Company’s Detail Implementation Rule for Restricted Stock Incentive Plan of 2008-2009. The compensation was based on the stock price on the grant date of July 2, 2008 the day the awards were formally approved by the Board of Directors.

Other expenses

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

Other expenses in the year ended December 31, 2009 increased 30.5 percent to $385,652 compared with $295,595 in the same period of 2008. The Company incurred the maintenance expenses related to the delivery of JunJing Phase One projects.

Operating profit and operating profit margin

Operating profit ended December 31, 2009 was $8.5 million compared with a $9.8 million operating loss in the same period of 2008, primarily due to the higher revenue generated by Tsining JunJing II Phase One and Phase Two. As a result, the operating profit margin was 9.8 percent for the year ended December 31, 2009 compared with negative 37.1 percent for the year ended December 31, 2008.

Interest expense

Interest expense for the year ended December 31, 2009 increased 72.6 percent to $2.3 million from $1.3 million for the year ended December 31, 2008. This change was primarily due to the fact that we have more projects that are using bank loans to finance construction. We were able to pay down $24.3 million in bank loans throughout the year and maintain our outstanding bank loan amount at $36.2 million, which is 1.6% higher than the $35.6 million outstanding at the end of 2008. During 2009, we obtained about $24.9 million in new bank loans to finance our construction, of which, $12.4 million was from Bank of Beijing, with an interest rate set at the People’s Bank of China’s reference rate.

Change in fair value of embedded derivative

The Company recorded a $3.2 million expense in the change in fair value of embedded derivatives for the year ended December 31, 2009 compared with $3.2 million reversal of expense in the same period of 2008.

The embedded derivatives are related to the Company’s $20 million convertible debt offering completed in January 2008. The change in the fair value of embedded derivatives was a periodic adjustment to the estimated cost to the Company, which was provided by a valuation model. The Company booked a $3.2 million expense during 2009 which was mainly a result of the stock price change.

Change in fair value of warrants

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

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

The change in fair value of warrants was $4.4 million for the year ended December 31, 2009, compared to negative $4.9 million during the same period of 2008, which consisted of the periodic adjustment to the estimated cost to the Company to provide the common shares, assuming that all of the warrants will be exercised sometime in the future. The basis for estimating the cost to provide the common shares was provided by the valuation model. The CRR model depends on the following assumptions: the Company’s common stock price underlying the warrants; strike price; expected life; expected volatility; risk free interest rate; and dividend rate. During 2009, our common stock price experienced large fluctuations with the price increasing from $1.29 on December 31, 2008 to $4.31 on December 31, 2009. The increase in stock price and expected volatility caused an increase in fair value for warrants and the change of fair value was booked as a non-cash expense.

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

The change in fair value of warrants of negative $4.9 million in 2008 consisted of the periodic adjustment to the estimated cost to the Company to provide the common shares, assuming that all the warrants will be exercised sometime in the future. The basis for estimating the cost to provide those common shares was provided by the valuation model.

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Security registration expenses

Pursuant to the agreement with the investors of the 5% Senior Secured Convertible Debt, the Company was required to pay the investors certain late registration payments (“Late Payments”) if the Company failed to file a Registration Statement within 60 days after the closing date of the 5% Senior Secured Convertible Debt. The Company commenced negotiations with the investors of the 5% Senior Secured Convertible Debt to waive the Late Payments in December 2008, as both parties believed that the registration statement would become effective within a short period of time. However, as the registration statement has not become effective as of September 2009, the investors of the Convertible Debt decided to claim the Late Payments. The Company had accrued Late Payments of 1.78 million in 2009. On September 28, 2009, the Company negotiated a First Amendment (the “Amendment”) with the Investors to settle the Late Payments in the amount of $2.4 million by the issuance of 614,290 common stock shares. The amount of 614,290 shares of common stock was determined by dividing $2.4 million the total Late Payments up to September 28, 2009, by 95% of the historical volume weighted average price (“VWAP”) of the common stock shares, as determined by using Bloomberg function VWAP, for the immediate preceding 30 days period. In accordance with the Amendment, the Investors will waive any further Late Payments claims against the Company under the Registration Rights Agreement. We do not expect any similar claim in the future.

The security registration expenses were $1.8 million for the year ended December 31, 2009, compared with $0.6 million in the same period of 2008.

Recovery of income taxes

The Company booked a recovery for income tax provision of $0.8 million compared with $10.5 million in the same period of 2008. The Company calculates income tax provision based on the 25% statutory rate for each of the subsidiaries. The recovery was caused by the tax settlement between Hao Tai and the local tax bureau.

Non-controlling Interest

We recorded a $737,882 loss attributable to non-controlling shareholder of Puhua and Success Hill for the year ended December 31, 2009, which was related to the Puhua Phase One project. We recorded a $159,564 loss attributable to non-controlling shareholder for the year ended December 31, 2008. Beginning in October 2009, we launched the marketing campaign for the Puhua Phase One project and successfully secured about $15.0 million of the contract amount. However, due to the overall construction still in the beginning stage, we were not able to recognize revenue from the Puhua Phase One project. We expensed approximately $2.3 million selling and administrative expenses during 2009.

We recorded a $159,564 loss attributable to non-controlling shareholder of Puhua and Success Hill, which is related to the formation of Puhua in the fourth quarter of 2008.

Net income attributable to China Housing & Land Development, Inc.

Net income attributable to China Housing & Land Development, Inc. for the year ended December 31, 2009 decreased 71.1 percent to $2.47 million from $8.94 million in the same period of 2008.

The decrease in net income attributable to China Housing & Land Development, Inc. was primarily due to the non cash expenses related to the change in fair value of derivatives, approximately $7.6 million. By taking this into consideration, we arrive at the Non-GAAP normalized Net income of $10.2 million which is about 14.6 percent higher than in 2008.

		2009
Net income attributable to China Housing & Land Development, Inc.	$	2.5 million
Add:   CHANGE IN FAIR VALUE OF DERIVATIVES
Change in fair value of embedded derivatives		3.2 million
Change in fair value of warrants		4.4 million
Non-GAAP normalized Net income attributable to China Housing & Land Development, Inc.	$	10.2 million

The overall real estate market condition in Xi’an has improved since the beginning of 2009, which is demonstrated in the pre-sales results of our current projects under construction, i.e. JunJing II Phase One, Phase Two and Puhua Phase One. In 2009, we were able to secure approximately $79.6 million in contract sales and were able to recognize approximately $74.4 million as revenue. Both the contract sale amount and revenue are the highest recorded in the Company’s history.

With the introduction of JunJing II Phase Two and Puhua Phase One, we expect the gross margin to improve slightly in the future, primarily because of the better quality and higher average sale price of JunJing II Phase Two. The average price for Phase Two reached $733/square meter, $95 higher than Phase One.

Basic and diluted EPS attributable to China Housing & Land Development, Inc.

Basic EPS attributable to China Housing & Land Development, Inc. was $0.08 for the year ended December 31, 2009, compared to $0.29 in the same period of 2008. Diluted EPS attributable to China Housing & Land Development, Inc. was $0.08 for the year ended December 31, 2009, compared to $0.28 in the same period of 2008. The number of shares outstanding doesn’t change significantly from year to year. When the non-cash expenses related to change in fair value of derivatives are taken into consideration; the Pro forma Basic EPS will be $0.33 and Pro forma Diluted EPS will be $0.33. The Pro forma EPS represents a 13.8% increase compared to 2008.

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Common shares used to calculate basic and diluted EPS attributable to China Housing & Land Development, Inc.

The weighted average shares outstanding used to calculate basic EPS attributable to China Housing & Land Development, Inc. was 31,180,246 shares in the year ended December 31, 2009 and 30,516,411 shares in the same period of 2008. The weighted average shares outstanding used to calculate the diluted EPS attributable to China Housing & Land Development, Inc. was 31,180,246 shares in the year ended December 31, 2009 and 30,527,203 shares in the same period of 2008.

Foreign exchange

The Company operates in China and the functional currency is Chinese Renminbi (RMB) but the reporting currency is U.S. dollar, based on the exchange rates of the two currencies. The fluctuation of exchange rates during 2009 and the same period of 2008, when translating the operating results and financial positions at different exchange rates, created the accrued gain (loss) on foreign exchange. The loss on foreign exchange for the year ended December 31, 2009 was $234,318, compared with a gain of $5,882,178 in the same period of 2008.

Cash flow discussion

There was a net cash inflow of $7,904,833 for the year ended December 31, 2010 compared with a $574,573 cash outflow during the same period of 2009.

The major cash inflow resulted from financing activities. The inflow amounts to $36.9 for the year ended December 31, 2010 compared to an outflow of $1.1 million in the same period of 2009.

There was a cash outflow of $27 million from investing activities in 2010, compared with a cash outflow of $1.5 million for the same period of 2009. The increase was primarily due to change of restricted cash of  $33.7 million. It is offset by the proceeds from the sale of assets held for sale, which brought $2.1 million to the Company compared to $0 last year. Also, the cash from acquired business contributed $3.6 million cash for the year ended December 31, 2010.

There was a cash outflow of $2 million for operating activities in the year ended December 31, 2010 compared with a $2.1 million inflow in 2009. The difference is primarily attributable to the $44 million prepayment on land use rights. As we have more projects under construction compared to 2009 we incurred greater cash outflow to fund the construction. Also during 2010, there was an increase in advances from customers, which represents a $29.4 million cash inflow compared to an $11.9 million inflow during 2009.

The decrease in cash for 2009 was $574,573 compared with a $34,346,145 cash inflow in 2008.

The inflow amounts to $2.1 million from operating activities for the year ended December 31, 2009 compared to outflow of $29.1 million in the same period of 2008. As we have more projects under construction compared to 2008, we see more cash outflow to fund the construction: at the same time part of the deposit in land use rights were transferred into construction in progress. Also during 2009, there was an increase in advances from customers, which represented an $11.9 million cash inflow compared to a $3.6 million inflow during 2008.

There was a cash outflow of $1.5 million from investing activities in 2009, compared with a cash outflow of $0.5 million for the same period of 2008. The increase was primarily due to a change in restricted cash, which brought a $103,478 cash inflow to the Company compared to a $684,040 outflow last year. Also, the cash from acquired business contributed $0.5 million for the year ended December 31, 2009.

There was a cash outflow of $1.15 million for financing activities in the year ended December 31, 2009 compared with $63.9 million of inflow in 2008. The difference is primarily attributable to the financings that took place during 2008, including $19 million convertible notes issued in January 2008, $46 million new bank loan as well as the $29 million from joint venture partner Prax Capital.

Debt leverage

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

Total debt outstanding as of December 31, 2010 was $143.9 million compared with $59.8 million in 2009.

Net debt outstanding (total debt less cash and cash equivalents and restricted cash) as of December 31, 2010 was $62.3 million compared with $22.2 million as of December 31, 2009. The major reason for the increase in net debt outstanding is the increase in cash to $81.7 million at December 31, 2010 from $37.6 million on December 31, 2009. The Company’s net debt as a percentage of total capital (net debt plus shareholders’ equity) was 38.0% on December 31, 2010 and 15.7% on December 31, 2009.

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Total debt outstanding as of December 31, 2009 was $59.8 million compared with $59.2 million as of December 31, 2008.

Net debt outstanding (total debt less cash and cash equivalents and restricted cash) as of December 31, 2009 was $22.2 million compared with $21 million as of December 31, 2008. A major reason for the increase in net debt outstanding was the decrease in cash decreased to $37.6 million at December 31, 2009 from $38.2 million on December 31, 2008. The Company’s net debt as a percentage of total capital (net debt plus shareholders’ equity) was 15.7% on December 31, 2009 and 15.6% on December 31, 2008, a slight increase due to the cash balance decrease.

Liquidity and capital resources

Our principal liquidity demands are based on the development of new properties, property acquisitions, and general corporate endeavors.

As of December 31, 2010, we had $46,904,161 of cash and cash equivalents, compared with $36,863,216 of cash and cash equivalents as of December 31, 2009, a increase of $10,040,945. Our cash flow from financing activities provided $36,931,354 for the year ended December 31, 2010 compared with an outflow of $1,146,959 for the year ended December 31, 2009. Along with progress in projects, we started seeing positive cash flow from operations and we can use this internally generated cash flow to fund our projects in the pipeline.

The Company leases part of its office and hotel space under various operating lease agreements. The future minimum rental payments required under the operating lease agreements are summarized below.  The Company also had various commitments related to land use right acquisition with unpaid balances of approximately $23.3 million. The balances are not due until the vendor removes the existing building on the land and changes the zoning status of the land use right certificate. Based on the current condition, the Company estimates that the balances will be paid in two years.

	Payment due by period
Commitments and Contingencies	Total		Less than 1 year		1-2 years		2-3 years		3-4 years		4-5 years		After 5 years
Operating leases	$	771,516	$	170,855	$	79,208	$	79,208	$	79,208	$	79,208	$	283,829
Consulting contract		284,091		284,091		-		-		-		-		-
Land use rights		23,309,671		20,627,853		2,681,818		-		-		-		-
Total	$	24,365,278	$	21,082,799	$	2,761,026	$	79,208	$	79,208	$	79,208	$	283,829

Financial obligations

As of December 31, 2010, we had total bank loans of $82,971,074 with a weighted average interest rate of 5.5 percent.

Our mortgage debt (total bank loans) is secured by the assets of the Company.

Loans payable

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

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

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The following table summarizes the amounts and types of the Company’s obligations and provides the estimated period of maturity for the financial obligations by class as of December 31, 2010:

Obligations Due by Period	1 year		1-3 years		3-5 years
(Millions of dollars)
Current liabilities:
Accounts payable	$	22.54
Income and other taxes payable			$	15.43
Other payables			$	5.66
Advances (deposits) from customers			$	52.2
Accrued expenses	$	2.50
Current portion of long term loans payable	$	-
Long-term liabilities:
Warranties liabilities					$	2.77
Deferred tax			$	14.34
Fair value of embedded derivatives					$	2.03
Convertible Debt					$	16.25
Long-term debt:
Loans payable			$	82.97
Payable for acquisition of businesses	$	2.36
Loans form employees			$	8.79

The following table summarizes the Company’s loans payable that were outstanding as of December 31, 2010 and December 31, 2009:

	2010		2009
Xi’an Rural Credit Union Zao Yuan Rd. Branch
Due July 3, 2010, annual interest is at 8.496 percent, secured by the Company’s Jun Jing Yuan I, Han Yuan and Xin Xing Tower projects	$	-	$	2,930,017
Due July 2, 2011, annual interest is at 8.496 percent, secured by the Company’s Jun Jing Yuan I, Han Yuan and Xin Xing Tower projects		2,727,273		-
China Construction Bank, Xi’an Branch
Due August 27, 2011, annual interest is at a floating interest rate based on 110% of the People’s Bank of China prime rate, secured by the Company's Jun Jing Yuan II project		-		3,223,018
Due September 8, 2012, annual interest is at a floating interest rate based on 110% of the People’s Bank of China prime rate, secured by the Company's Jun Jing Yuan II project		-		12,452,571
Xinhua Trust Investments Ltd.
Due February 10, 2012, annual interest is at 10 percent, secured by the 24G project		22,727,273		-
Commercial Bank Weilai Branch
Due August 29, 2010, annual interest is at 10.21 percent, secured by the Company's Jun Jing Yuan I and XinXing Tower projects		-		5,127,528
Annual interest is at 7.29 percent, secured by the Company's Jun Jing Yuan I and XinXing Tower projects and guaranteed by Tsining. $757,576 is payable on March 20, 2011; $1,515,152 is payable on June 20, 2011, and $1,818,182 is payable on August 29, 2011		4,090,909		-
Bank of Beijing, Xi’an Branch
Due December 10, 2012, annual interest is at the prime rate of People’s Bank of China (December 31, 2010-5.85% and December 31, 2009-5.6%) secured by the PuHua project with a minimum repayment of $7.6 million required by December 31, 2011.		22,727,273		12,452,571
Xi’an Duqu Trust Bank
Due June 11, 2011, annual interest is at 9.18 percent, secured by the Company’s Junjing Yuan I properties		681,817		-