China Housing & Land Development, Inc. - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - China Housing & Land Development, Inc.	v239793_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - China Housing & Land Development, Inc.	v239793_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - China Housing & Land Development, Inc.	v239793_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - China Housing & Land Development, Inc.	v239793_ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - China Housing & Land Development, Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________________ to _______________

000-51429

(Commission file number)

CHINA HOUSING & LAND DEVELOPMENT, INC.

(Exact name of registrant as specified in its charter)

Nevada	20-1334845
(State or other jurisdiction of	(IRS Employer Identification
incorporation or organization)	No.)

6 Youyi Dong Lu, Han Yuan 4 Lou

Xi'An, Shaanxi Province

China 710054

(Address of principal executive offices)

86-029-8258-2632

(Issuer's telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

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

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 of Common Stock outstanding on November 14, 2011 was 34,961,339 shares.

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

“CHLN,” the “Company,” “we,” “our,” or “us” are references to China Housing & Land Development, Inc.

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

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

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

“U.S.” is a reference to the United States of America.

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

“GFA” means gross floor area.

CHINA HOUSING & LAND DEVELOPMENT, INC.

Index

		Page Number

PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Interim Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	3
	Interim Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010 (unaudited)	4
	Interim Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010 (unaudited)	5
	Interim Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)	6
	Interim Condensed Consolidated Statements of Shareholders’ Equity As at September 30, 2011 and December 31, 2010 (unaudited)	7

	Notes to Interim Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION	39

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	(Removed and reserved)	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

SIGNATURES		40

EX-31.1	(Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002)

EX-31.2	(Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002)

EX-32.1	(Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002)

EX-32.2	(Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Balance Sheets

As of September 30, 2011 (Unaudited) and December 31, 2010

	September 30,			December 31,
	2011			2010
ASSETS
Cash and cash equivalents	$	74,098,123		$	46,904,161
Cash - restricted		40,701,899			34,756,450
Accounts receivable, net of allowance for doubtful accounts of $314,908 and $266,493, respectively		13,910,436			9,297,505
Other receivables, prepaid expenses and other assets, net		3,930,649			7,653,925
Real estate held for development or sale		148,301,082			104,586,550
Property and equipment, net		31,728,567			29,735,836
Advance to suppliers		844,374			1,223,366
Deposits on land use rightss		63,508,273			74,938,729
Intangible assets, net		53,488,970			51,846,410
Goodwill		1,869,798			1,806,905
Deferred financing costs		290,894			401,703
Total assets	$	432,673,065		$	363,151,540

LIABILITIES
Accounts payable	$	29,523,570		$	22,542,083
Advances from customers		69,581,165			52,229,189
Accrued expenses		2,307,947			2,507,638
Payable for acquisition of businesses		-			2,363,385
Income and other taxes payable		13,584,230			15,429,752
Other payables		6,039,241			5,663,222
Loans from employees		12,213,860			8,787,879
Loans payable		105,275,231			82,971,074
Deferred tax liability		14,712,954			14,344,712
Warrants liability		86,886			2,766,382
Fair value of embedded derivatives		504,789			2,027,726
Convertible debt		8,939,523			16,251,840
Mandatorily redeemable non-controlling interests in Subsidiaries		45,890,236			33,535,969
Total liabilities		308,659,632			261,420,851

SHAREHOLDERS' EQUITY
Common stock: $.001 par value, authorized 100,000,000 shares; issued 35,078,639 and 32,685,331, respectively		35,079			32,685
Additional paid in capital		48,865,219			38,996,078
Common stock held in treasury, at cost (117,300 shares at September 30, 2011 and 0 shares at December 31, 2010).		(167,357	)		-
Common stock subscribed		-			59,606
Statutory reserves		6,654,715			6,654,715
Retained earnings		48,975,756			41,528,907
Accumulated other comprehensive income		19,650,021			14,458,698
Total shareholders' equity		124,013,433			101,730,689

Total liabilities and shareholders' equity	$	432,673,065		$	363,151,540

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Income

For The Three and Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	3 Months			3 Months			9 Months			9 Months
	September 30,			September 30,			September 30,			September 30,
	2011			2010			2011			2010
REVENUES
Real estate sales	$	26,711,856		$	31,455,921		$	61,941,929		$	99,067,368
Other income		5,387,137			2,592,853			12,966,952			5,148,115
Total revenues		32,098,993			34,048,774			74,908,881			104,215,483

COST OF REVENUES
Cost of real estate sales		18,829,374			22,568,245			46,618,588			74,821,470
Cost of other income		3,743,196			571,224			7,927,620			1,684,851
Total cost of revenues		22,572,570			23,139,469			54,546,208			76,506,321

Gross margin		9,526,423			10,909,305			20,362,673			27,709,162

OPERATING EXPENSES
Selling, general, and administrative expenses		2,913,008			2,873,590			9,667,449			9,170,039
Stock based compensation		96,438			-			114,258			-
Other expenses		54,267			232,493			444,745			420,525
Interest expense		148,739			433,666			1,111,347			1,388,166
Accretion expense on convertible debt		217,391			363,624			761,195			1,038,732
Total operating expenses		3,429,843			3,903,373			12,098,994			12,017,462

NET INCOME FROM BUSINESS OPERATIONS		6,096,580			7,005,932			8,263,679			15,691,700

CHANGE IN FAIR VALUE OF DERIVATIVES
Loss on extinguishment of debt		-			-			-			2,180,492
Change in fair value of embedded derivatives		(60,705	)		(958,688	)		(1,522,937	)		(2,832,023	)
Change in fair value of warrants		58,937			(405,821	)		(1,055,337	)		(3,203,085	)
Total change in fair value of derivatives		(1,768	)		(1,364,509	)		(2,578,274	)		(3,854,616	)

Income before provision for income taxes and non-controlling interest		6,098,348			8,370,441			10,841,953			19,546,316

Provision for income taxes		1,758,024			1,926,345			3,529,614			4,467,337
Recovery of deferred income taxes		(62,542	)		(31,370	)		(134,510	)		(82,367	)
NET INCOME		4,402,866			6,475,466			7,446,849			15,161,346

Charge to non-controlling interest		-			-			-			(14,229,043	)

NET INCOME ATTRIBUTABLE TO CHINA HOUSING & LAND DEVELOPMENT, INC.	$	4,402,866		$	6,475,466		$	7,446,849		$	932,303

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		35,071,915			33,082,573			34,683,383			32,911,414

Diluted		36,687,624			37,374,784			36,299,092			35,636,354

NET INCOME (LOSS) PER SHARE
Basic	$	0.13		$	0.20		$	0.21		$	0.03

Diluted	$	0.12		$	0.15		$	0.18		$	(0.05	)

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Comprehensive Income

For The Three and Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	3 Months		3 Months		9 Months		9 Months
	September 30,		September 30,		September 30,		September 30,
	2011		2010		2011		2010

NET INCOME	$	4,402,866	$	6,475,466	$	7,446,849	$	15,161,346

OTHER COMPREHENSIVE INCOME
Gain in foreign exchange		2,107,334		1,561,913		5,191,323		2,368,760

COMPREHENSIVE INCOME		6,510,200		8,037,379		12,638,172		17,530,106

Charge to non-controlling interest		-		-		-		(14,229,043	)

Comprehensive income attributable to China Housing & Land Development, Inc.	$	6,510,200	$	8,037,379	$	12,638,172	$	3,301,063

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

CHINA HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Cash Flows

For The Nine Months Ended September 30, 2011 and 2010

(Unaudited)

	September 30,			September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,446,849		$	15,161,346
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Bad debt recovery		(106	)		-
Depreciation		1,458,231			901,085
Stock based compensation		114,258			-
Gain on disposal of fixed assets		(2,132,235	)		(287,460	)
Gain on disposal of assets held for sale		-			(1,134,675	)
Amortization of deferred financing costs		115,873			115,873
Amortization of intangible assets		159,086			-
Recovery of future income taxes		(134,510	)		(82,367	)
Loss on extinguishment of debt		-			2,180,492
Change in fair value of embedded derivatives		(1,522,937	)		(2,832,023	)
Change in fair value of warrants		(1,055,337	)		(3,203,085	)
Accretion expense on convertible debt		761,195			1,038,732
(Increase) decrease in assets:
Accounts receivable		(4,275,924	)		(1,986,986	)
Other receivable and prepaid expense		3,459,908			(3,218,104	)
Real estate held for development or sale		(39,459,829	)		2,340,492
Advances to suppliers		426,003			5,631,869
Refund (deposit) on land use rightss		13,713,982			(29,559,410	)
Deferred financing costs		-			(140,684	)
Increase (decrease) in liabilities:
Accounts payable		6,126,563			(1,470,626	)
Advance from customers		15,072,522			23,391,607
Accrued expense		10,714,452			10,609,030
Other payables		149,623			515,184
Income and other taxes payable		(1,854,156	)		5,388,733
Net cash provided by operating activities		9,283,511			23,359,023

CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash		(4,591,006	)		(74,047	)
Purchase of property and equipment		(3,342,218	)		(1,123,185	)
Cash acquired from acquisition of business		-			2,179
Proceeds from sale of property and equipment		3,097,231			864,518
Proceeds from sale of assets held for sale					412,252
Net cash used in investing activities		(4,835,993	)		81,717

CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from banks		35,075,203			34,151,372
Repayments of bank loans		(15,364,215	)		(19,077,303	)
Loans from or repayment to employees, net		3,062,757			2,414,989
Repayments of loans payable for acquisition of business		(2,373,232	)		(7,536,715	)
Purchase of treasury stock		(167,357	)		-
Net cash provided by financing activities		20,233,156			9,952,343

INCREASE IN CASH AND CASH EQUIVALENTS		24,680,674			33,393,083

Effects of foreign currency exchange		2,513,288			1,354,510

CASH AND CASH EQUIVALENTS, beginning of period		46,904,161			36,863,216

CASH AND CASH EQUIVALENTS, end of period	$	74,098,123		$	71,610,809

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Shareholders' Equity

As of September 30, 2011 and December 31, 2010

(Unaudited)

	Common Stock				Additional paid		Treasury			Common stock			Statutory		Retained		Accumulated comprehensive
	Shares		Par value		in capital		Stock			subscribed			reserves		earnings		income		Totals

BALANCE, December 31, 2010		32,685,331	$	32,685	$	38,996,078	$	-		$	59,606		$	6,654,715	$	41,528,907	$	14,458,698	$	101,730,689

Common stock issued for stock based compensation		20,625		21		59,585		-			(59,606	)		-		-		-		-

Common stock issued for warrants exercise		619,905		620		1,623,539		-			-			-		-		-		1,624, 159

Common stock issued for conversion of convertible debt		1,752,778		1,753		8,071,759		-			-			-		-		-		8,073,512

Net income		-		-		-		-			-			-		2,469,083		-		2,469,083

Foreign currency translation adjustment		-		-		-		-			-			-		-		1,362,871		1,362,871

BALANCE, March 31, 2011		35,078,639	$	35,079	$	48,750,961	$	-		$	-		$	6,654,715	$	43,997,990	$	15,821,569	$	115,260,314

Net income		-		-		-		-			-			-		574,900		-		574,900

Stock based compensation		-		-		17,820		-			-			-		-		-		17,820

Foreign currency translation adjustment		-		-		-		-			-			-		-		1,721,118		1,721,118

BALANCE, June 30, 2011		35,078,639	$	35,079	$	48,768,781	$	-		$	-		$	6,654,715	$	44,572,890	$	17,542,687	$	117,574,152

Net income		-		-		-		-			-			-		4,402,866		-		4,402,866

Stock based compensation		-		-		96,438		-			-			-		-		-		96,438

Stock repurchase – at cost				-		-		(167,357	)		-			-		-		-		(167,357	)

Foreign currency translation adjustment		-		-		-		-			-			-		-		2,107,334		2,107,334

BALANCE, September 30, 2011		35,078,639	$	35,079	$	48,865,219	$	(167,357	)	$	-		$	6,654,715	$	48,975,756	$	19,650,021	$	124,013,433

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

September 30, 2011 and 2010 (Unaudited) and December 31, 2010

Note 1 – Organization and Basis of Presentation

China Housing & Land Development, Inc., (the “Company”) is a Nevada corporation, originally incorporated on July 6, 2004 under the name Pacific Northwest Productions Inc., (“Pacific”). On May 5, 2006, the Company changed its name to China Housing & Land Development, Inc. The Company, through its subsidiaries, is engaged in acquisition, development, management, and sale of commercial and residential real estate properties located primarily in Xi’an, Shaanxi Province, People’s Republic of China (PRC or China).

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries, Xi’an Tsining Housing Development Company Inc. (“Tsining”), Xi’an New Land Development Co. (“New Land”), Manstate Assets Management Limited (“Manstate”), Success Hill Investments Limited (“Success Hill”), Puhua (Xi’an) Real Estate Development Co., Ltd. (“Puhua”), Xi’an Xinxing Property Management Co., Ltd. (“Xinxing Property”), Suodi Co., Ltd. (“Suodi”), Shaanxi Xinxing Construction Co., Ltd. (“Xinxing Construction”), Xinxing FangZhou Housing Development Co., Ltd. (“FangZhou”), Wayfast Holdings Limited (“Wayfast”), Clever Advance Limited (“Clever Advance”), Gracemind Holdings Limited (“Gracemind”), Treasure Asia Holdings Limited (“Treasure Asia”) and AnKang JiYuan Real Estate Development Co., Ltd. (“JiYuan”) (collectively, the “Subsidiaries”). JiYuan was incorporated on July 28, 2011 for future real estate development projects in AnKang City near Xi’an. Wayfast with its 100% subsidiary - Clever Advance and Gracemind with its 100% subsidiary - Treasure Asia were incorporated as holding companies in March 2009 and they were inactive during the nine months ending September 30, 2011. All inter-company balances and transactions have been eliminated on consolidation. The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with Generally Accepted Accounting Principles (“GAAP”) of the United States of America (“GAAP”).

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair statement of the Company’s interim condensed consolidated balance sheets as at September 30, 2011, the Company’s interim condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2011 and 2010 and, the Company’s interim condensed consolidated statements of cash flows for the three and nine months also ended September 30, 2011 and 2010. These adjustments consist of normal recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year.

The unaudited interim condensed consolidated financial statements are based on accounting principles that are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Annual Report”); except as disclosed below. They do not include certain footnote disclosures and financial information normally included in annual consolidated financial statements prepared in accordance with GAAP and, therefore, should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2010 Annual Report.

Accounting Principles Recently Adopted

In April 2010, the FASB issued FASB Accounting Standard Update (“ASU”) No. 2010-13 “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades”. ASU 2010-13 updates ASC 718 to codify the consensus reached in EITF Issue No. 09-J, “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades”. ASU 2010-13 clarifies that share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the underlying equity security trades should not be considered to meet the criteria requiring classification as a liability. ASU No. 2010-13 became effective for the Company on January 1, 2011. The adoption of this ASU did not have a material impact on the Company’s interim condensed consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” which expands the disclosure requirements concerning the credit quality of an entity’s financing receivables and its allowance for credit losses. ASU No. 2010-20 became effective for the Company on January 1, 2011. The adoption of this ASU did not have a material impact on the Company’s interim condensed consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28 “when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts”. The FASB amended the existing guidance to modify Step 1 of the goodwill impairment test for a reporting unit with a zero or negative carrying amount. Upon adoption of the amendment, an entity with a reporting unit that has a carrying amount that is zero or negative is required to assess whether it is more likely than not that the reporting unit’s goodwill is impaired. If the entity determines that it is more likely than not that the goodwill of the reporting unit is impaired, the entity should perform Step 2 of the goodwill impairment test for the reporting unit. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Any goodwill impairments occurring after the initial adoption of the amendment should be included in earnings. ASU No. 2010-28 became effective for the Company on January 1, 2011. The adoption of this ASU did not have a material impact on the Company’s interim condensed consolidated financial statements.

Note 1 – Organization and Basis of Presentation (continued)

In December 2010, the FASB issued ASU 2010-29 “Disclosure of supplementary pro forma information for business combinations”. The FASB amended the existing guidance to require a public entity, which presents comparative financial statements, to disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendment also expanded the required supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination, which are included in the reported pro forma revenue and earnings. ASU No. 2010-29 became effective for the Company on January 1, 2011. The adoption of this ASU did not have a material impact on the Company’s interim condensed consolidated financial statements.

Foreign exchange rates used:

	September 30, 2011		December 31, 2010		September 30, 2010
Period end RMB/U.S. Dollar exchange rate		6.3780		6.6000		6.6905
Average RMB/U.S. Dollar exchange rate		6.4165		6.7690		6.7677

Note 2 – Mandatorily Redeemable Preferred Stock and Non-controlling Interest

The Company recorded accretion cost on the mandatorily redeemable non-controlling interest using the effective interest method based on effective interest rate of 45%. The related accretion cost incurred for the three and nine months ended September 30, 2011 were $4,056,699 and $10,989,764, respectively (2010 - $5,044,349 and $13,752,833) and was capitalized in real estate construction in progress.

	Mandatory Redeemable Non-controlling Interests in Subsidiaries
Mandatory redeemable non-controlling interests in subsidiaries at December 31, 2010	$	33,535,969
Capitalized accretion cost on mandatorily redeemable non-controlling interests in subsidiaries		10,989,764
Difference in foreign exchange translation		1,364,503
Mandatorily redeemable non-controlling interests in subsidiaries at September 30, 2011	$	45,890,236

The mandatory redemption schedules are as follow:

Date
December 31, 2011	$	31,357,792
December 25, 2012		27,594,857
Total	$	58,952,649

Note 3 – Supplemental Disclosure of Cash Flow Information

Income taxes paid amounted to $4,897,768 and $320,530 for the nine months ended September 30, 2011 and 2010, respectively. Interest paid for the nine months ended September 30, 2011 and 2010 amounted to $9,858,269 and $7,389,232, respectively.

Note 4 – Other Receivables, Prepaid Expenses and Deposits

Other receivables and prepaid expenses consisted of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010

Other receivable	$	1,690,792		$	3,223,089
Allowance for bad debts		(143,327	)		(177,392	)
Prepaid expenses		546,798			194,389
Prepaid other tax expenses		1,836,386			4,413,839
Other receivables and prepaid expenses	$	3,930,649		$	7,653,925

Note 5 – Real Estate Held for Development or Sale

The following summarizes the components of real estate inventories at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Real estate projects completed and held for sale
Junjing I project		$	3,674,528	$	4,012,179
JunJing II project			1,338,012		3,389,501
Tsining 24G project			44,318		621,238
Gangwan project			37,348		96,245
Tsining Home IN project			59,530		57,527
Real estate completed and held for sale			5,153,736		8,176,690

Real estate projects held for development
Puhua project			104,804,440		85,107,643
Tangdu project			4,648,626		4,495,490
Junjing III project			21,206,394		2,569,084
Park Plaza project			6,397,111		2,013,116
JunJing II project phase two (completed as at September 30, 2011)			-		847,697
Golden Bay project			4,327,796		826,948
Other projects			1,089,531		415,152
Construction materials			673,448		134,730
Real estate held for development			143,147,346		96,409,860

Total real estate held for development or sale		$	148,301,082	$	104,586,550

Interest on debts and accretion costs on mandatorily redeemable non-controlling interest in subsidiaries incurred by the Company for the three and nine months ended September 30, 2011 was $6,548,733 and $20,409,934, respectively (September 30, 2010 - $6,420,373 and $18,523,786). The Company capitalized $6,423,212 in construction in progress during the three months ended September 30, 2011 (September 30, 2010 - $6,025,188), and the Company capitalized $19,361,165 in construction in progress during the nine months ended September 30, 2011 (September 30, 2010 - $17,251,537).

Note 6 – Property and Equipment

Property and equipment consisted of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Income producing properties and improvements	$	29,267,851		$	28,000,452
Buildings and improvements		4,386,526			4,945,393
Head office under construction		2,542,836			-
Electronic equipment		510,991			445,578
Vehicles		482,391			466,165
Computer software		202,767			179,318
Office furniture		115,121			141,655
Total		37,508,483			34,178,561
Accumulated depreciation		(5,779,916	)		(4,442,725	)
Property and equipment, net	$	31,728,567		$	29,735,836

Depreciation expense for the three months ended September 30, 2011 and 2010 amounted to $493,259 and $307,588, respectively. Depreciation expense for the nine months ended September 30, 2011 and 2010 amounted to $1,458,231 and $901,085, respectively. The depreciation expense was included in the selling, general and administrative expenses and cost of other income.

Note 7 – Intangible Asset

Intangible assets consist of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Development rights acquired (a)	$	50,633,200		$	48,930,082
Land use rights acquired (b)		8,427,461			8,143,992
Construction license acquired (c)		1,180,334			1,140,632
		60,240,995			58,214,706
Accumulated amortization		(6,752,025	)		(6,368,296	)
Intangible assets, net	$	53,488,970		$	51,846,410

(a)

The development rights for 487 acres of land in Baqiao Park was obtained through the acquisition of New Land in fiscal 2007. The intangible asset has a finite life. The development rights were originally scheduled to expire on June 30, 2011. The Company was able to extend the rights to June 30, 2016 on November 25, 2010.

(b)	The land use rights were acquired through acquisition of Suodi. The land use rights certificate will expire in November, 2048. The Company amortizes the land use rights over 39 years (36 years remaining).

(c)

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 successfully renewed the license to December 31, 2015 during the second quarter.

For the three and nine months ended September 30, 2011, the Company has recorded $53,698 and $159,086 of amortization expense of the land use rights (2010 - $Nil and $Nil). The amortization was included in selling, general and administrative expenses. There was no amortization of the development rights during the three and nine months ended September 30, 2011 and 2010.

Note 8 – Accrued Expenses

	September 30, 2011		December 31, 2010
Accrued expenses	$	1,462,555	$	2,265,650
Accrued interest on loans		845,392		241,988
Total	$	2,307,947	$	2,507,638

Note 9 – Payable for Acquisition of Businesses

	September 30, 2011		December 31, 2010
Payable to original shareholders of Xinxing Construction (i)	$	-	$	2,272,727
Payable to original shareholders of Suodi (ii)		-		90,658
Total	$	-	$	2,363,385

(i)	The Company has fully repaid the purchase price of Xinxing Construction during the first quarter of fiscal 2011.

(ii)	The Company has fully repaid the amount due to the original shareholders of Suodi during the third quarter of fiscal 2011.

Note 10 – Loans from Employees

The Company has borrowed monies from certain employees to fund the Company’s construction projects. These unsecured loans bear interest at 20% per annum and are available to all employees.

Included in these loans are loans from the Company’s executives.

	September 30, 2011		December 31, 2010
Chairman	$	783,945	$	757,576
Chief executive officer		313,578		303,030
Chief financial officer		235,183		227,273
	$	1,332,706	$	1,287,879

Note 11 – Loans payable

Bank loans represent amounts due to various banks. These loans generally can be renewed with the banks when they expire. Bank loans as of September 30, 2011 and December 31, 2010 consisted of the following:

	September 30, 2011		December 31, 2010
Xi’an Rural Credit Union Zao Yuan Rd. Branch
Originally due July 2, 2011, renewed on June 27, 2011 and extended to July 1, 2012, annual interest is at 8.856 percent, secured by the Company’s Jun Jing I building No. 12, Han Yuan and guaranteed by the Company’s President, President’s spouse, CEO, Tsining’s general manager and his spouse	$	2,508,624	$	2,727,273

Xinhua Trust Investments Ltd.
Due February 10, 2012, annual interest is at 10 percent, secured by the 24G project		23,518,345		22,727,273

Bank of Xian
Annual interest is fixed at 130% of People’s Bank of China prime rate at the time of borrowing (or 8.528%), secured by the Company’s Jun Jing I building No. 12 $783,945 is payable on March 31, 2012; $783,945 is payable on June 30, 2012; and $627,155 is payable on August 29, 2012		2,195,045		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 (6.31%) secured by the PuHua project with a minimum repayment of $7.6 million required by December 31, 2011.		15,678,896		22,727,273

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

JP Morgan International Bank Limited Brussels Branch
Due December 14, 2011, annual interest is at 1.2 percent, secured by $34,656,146 of restricted cash		30,016,529		30,016,529

Tianjin Cube Equity Investment Fund Partnership
Due January 27, 2012, annual interest is 9.6 percent, secured by JunJing II Commercial Units		31,357,792		-

Total	$	105,275,231	$	82,971,074

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

The loans payable balances were secured by certain of the Company’s real estate held for development or sale with a carrying value of $105,817,960 at September 30, 2011 (December 31, 2010 - $89,538,930), certain buildings and income producing properties and improvements with a carrying value of $18,248,354 at September 30, 2011 (December 31, 2010 - $4,458,389). The weighted average interest rate on loans payable as at September 30, 2011 was 6.76% (December 31, 2010 – 5.5%).

Note 11 – Loans payable (continued)

The loans payable were also secured by certain real estate units sold to customers. The Company obtained consent from these customers that the Company does not have to remove the mortgage on such apartments or the register the transfer of the ownership of such apartments by the Company to the customers for the time being.

Note 12 – Fair Value of Financial Instruments

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of the measurement date, September 30, 2011, and the basis for that measurement, by level within the fair value hierarchy:

Fair Value Measurements Using	Assets/Liabilities
	Level 1		Level 2		Level 3		At Fair Value
Warrants liability	$	-	$	86,886	$	-	$	86,886
Fair value of embedded derivatives		-		504,789		-		504,789
Total	$	-	$	591,675	$	-	$	591,675

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of the measurement date, December 31, 2010, and the basis for that measurement, by level within the fair value hierarchy:

Fair Value Measurements Using	Assets/Liabilities
	Level 1		Level 2		Level 3		At Fair Value
Warrants liability	$	-	$	2,766,382	$	-	$	2,766,382
Fair value of embedded derivatives		-		2,027,726		-		2,027,726
Total	$	-	$	4,794,108	$	-	$	4,794,108

Note 13 – Convertible Debt

On January 28, 2008, the Company issued Senior Secured Convertible Debt due in 2013 (the “Convertible Debt”) and warrants to subscribe for common shares for an aggregate purchase price of $20 million. Both the warrant and embedded conversion option associated with the Convertible Debt meet the definition of a derivative instrument according to the standard “Accounting for Derivative Instruments and Hedging Activities”. Because the warrant and the convertible debt are denominated in U.S. dollars and the Company’s functional currency is the Chinese RMB, the exemption from derivative instrument accounting provided by the standard is not available and therefore the warrant and embedded conversion option are recorded as a derivative instrument liability and periodically marked-to-market.

On June 10, 2010, the Company and the Investors entered into an amendment (the “Amendment”), which grants investors the right to convert the $11 million non-convertible portion of the Convertible Debt. The right expires 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. 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.

On January 25, 2011, certain investors requested and the Company’s Board approved the request to convert $9,763,000 of convertible debt into 1,752,783 common shares with related warrants exercised on a two to one cashless basis. The conversion was effective on February 16, 2011. Since the Company’s registration statement became effective during the period, the right to convert the $11 million non-convertible portion of the Convertible Debt and to exercise the warrants on a cashless basis and receive one common share for every two warrants expired.

The fair values of the warrants and embedded conversion option at September 30, 2011 were determined to be $9,974 and $504,789, respectively (December 31, 2010 - $1,920,097 and $2,027,726), using the Cox-Ross-Rubinstein Binomial (“CRR”) Model with the following assumptions:

Note 13 – Convertible Debt (continued)

	September 30, 2011			December 31, 2010
Expected life	1.33-1.42 years			0.16 - 2.16 years
Expected volatility		75	%		95% - 100	%
Risk-free interest rate		0.17 – 0.18	%		0.11 - 0.68	%
Dividend yield		0	%		0	%

For the three months ended September 30, 2011, the Company recorded an increase in fair value for the warrants of $3,863 and an decrease of fair value of embedded derivatives of $60,705, respectively (September 30, 2010 – decrease of $224,605 and $958,688). For the nine months ended September 30, 2011, the Company recorded a decrease in fair value of the warrants and embedded derivatives of $286,333 and $1,522,937, respectively (September 30, 2010 - $2,325,083and $2,832,023), in the interim condensed consolidated statements of income (loss).

The carrying value of the Convertible Debt is accreted to its stated amount on maturity using the effective interest method. The effective interest rate was determined to be 15.42%. The carrying value of Convertible Debt on September 30, 2011 was $8,939,523 (December 31, 2010 - $16,251,840). Related interest and accretion costs for the three months ended September 30, 2011 were $130,806 and $217,391, respectively (September 30, 2010 - $264,859 and $363,624), and for the nine months ended September 30, 2011 were $450,527 and $761,195, respectively (September 30, 2010 - $791,958 and $1,038,732).

Note 14 – Shareholders' Equity

Common stock

As at December 31, 2010, the Company has accrued $59,606 of stock-based compensation to the independent directors as common stock subscribed. A total of 20,625 shares of common stock were issued during the first quarter of fiscal 2011.

The Company issued 619,905 shares of common stock for warrants exercised. The warrants were valued at $1,624,159 at the time of exercise.

The Company issued 1,752,778 shares of common stock for conversion of convertible debt. The convertible debt was valued at $8,073,512 at the time of exercise.

Warrants

Pursuant to accounting guidance, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settle in a Company’s Own Stock”, the warrants issued contain a provision permitting the holder to demand payment based on a valuation in certain circumstances. Therefore, the Company recorded the warrants issued through private placements in 2007 as a liability at their fair value on the date of grant and then revalued them to $76,912 on September 30, 2011 (December 31, 2010 - $846,285) using the CRR Binomial Lattice Model with the following assumptions:

	September 30, 2011			December 31, 2010
Expected life	0.61 years			1.36 years
Expected volatility		85	%		70	%
Risk-free interest rate		0.08	%		0.40	%
Dividend yield		0	%		0	%

The loss from the change in fair value of warrants for the three months ended September 30, 2011 was $55,074 (September 30, 2010 – gain of $181,216), and the gain from the change in fair value of warrants for the nine months ended September 30, 2011 was $769,274 (September 30, 2010 – gain of $878,002).

Including the fair value of warrants associated with the convertible debt (note 13), the total warrant liability as at September 30, 2011 was $86,886 (December 31, 2010 - $2,766,382). The total loss from the change in fair value of warrants for the three months ended September 2011 was $58,937 and the gain for the nine months ended September 2011 was $1,055,337, respectively (September 30, 2010 – gain of $405,821 and $3,203,085).

Note 14 – Shareholders' Equity (continued)

The following table provides information with respect to warrant transactions:

	Number of Warrants Outstanding			Weighted Average Exercise Price
December 31, 2010		3,940,947		$	5.06
Exercised		(1,239,816	)		6.07
Expired		-			-
September 30, 2011		2,701,131		$	4.59

The following summarizes the weighted-average information about the outstanding warrants as at September 30, 2011:

Outstanding Warrants
Exercise Price		Number		Average Remaining Contractual Life
$	4.50		2,539,416	0.61 years
$	6.07		161,715	1.42 years
$	4.59		2,701,131	0.66 years

Stock Options

On June 13, 2011, the Company has granted options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options was determined based on the fair value of the common stock at the grant date.

Options expire on the earlier of ten years from the issue date, subject to earlier termination resulting from an option holder’s death or departure from the Company or change of control. Unless otherwise determined by the Board of Directors, options granted vest as to 30%, 30% and 40% on each of the first, second and third anniversary dates of the option grants. The vesting is also subject to certain performance conditions on each vesting date.

The following table provides information with respect to stock option transactions:

	Number of Stock Options Outstanding		Weighted Average Exercise Price
December 31, 2010		-	$	-
Granted		1,227,755		1.39
Expired		-		-
September 30, 2011		1,227,755	$	1.39

The following summarizes the weighted-average information about the outstanding stock options as at June 30, 2011:

Outstanding Stock Options
Exercise Price		Number		Average Remaining Contractual Life
$	1.39		1,227,755	9.71 years

Stock-based compensation

The 1,227,755 stock options granted on June 13, 2011 have an estimated fair value of $1,316,911 for an average value of $1.04 to $1.10 per stock option using the CRR option pricing model with the following key assumptions:

	June 13, 2011
Expected life	5.5 – 6.5 years
Expected volatility		95	%
Risk-free interest rate		1.74% - 2.10	%
Dividend yield		0	%

The expected life of options represents the period of time the granted options are expected to be outstanding. As the Company had not previously granted options, no historical exercising pattern could be followed in estimating the expected life. Therefore, the expected life was estimated as the average of the contractual term and the vesting period. The Company has not paid dividends in the past nor does it expect to pay dividends in the foreseeable future.

The Company does not believe any of the options will be forfeited because most of the stock options are granted to long-term employees and officers. In addition, since the performance condition will be set at a reasonably achievable level, the Company believes 100% of the performance conditions can be met.

Compensation expense for stock options is recognized over the vesting period. During the three and nine months ended September 30, 2011, compensation expense of $96,438 and $114,258, respectively (September 30, 2010 - $Nil) was recognized in the interim condensed consolidated statements of income.

Note 14 – Shareholders' Equity (continued)

Treasury Stock

The Company approved the plan to repurchase up to $5 million shares of the Company’s common stock. The repurchase will be made from time to time at prevailing market prices, through open market purchases. There is no guarantee as to the exact number of shares that will be repurchased by the Company and the Company may discontinue purchases at any time when the Board of Directors determines additional repurchases are not warranted. The repurchase program is expected to continue over the next 2 years.

During the third quarter of 2011, the Company repurchased 117,300 shares at average price of $1.4 and the total cost of $167,357 was recorded as treasury stock.

Note 15 – Other Revenue

	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2011			2010			2011			2010
Interest income		$	58,923		$	57,484		$	144,054		$	235,576
Rental income, net			243,348			201,778			1,105,668			1,042,715
Income from property management services			787,818			788,456			2,580,092			2,151,766
Construction contracts incomes			3,087,683			-			5,850,877			-
Gain on disposal of property and equipment			95,100			265,812			2,132,204			289,105
Gain on disposal of assets held for sale			-			1,134,675			-			1,134,675
Miscellaneous income			1,114,265			144,648			1,154,057			294,278
Total		$	5,387,137		$	2,592,853		$	12,966,952		$	5,148,115

Miscellaneous income represents gains from settlement (note 21) and other sundry incomes related to final closing of the real estate units.

Note 16 - Segment Reporting

The Company has two reportable segments: Real Estate Development and Sales segment and Real Estate Construction. The Real Estate Development and Sales segment includes operating subsidiaries, Tsining, Puhua, New Land, Suodi, FangZhou and JiYuan, while the Real Estate Construction segment represents Xinxing Construction. These two segments offer different products and services. The reportable segments are managed separately because they produce distinct products and provide different services. The Company and its other subsidiaries, Manstate, Success Hill, FangZhou, Wayfast, Clever Advance, Gracemind, Treasure Asia and Property Management are aggregated as All Others segment. The All Other segment includes revenue from property management services from Property Management and all head office expenses and all expenses resulting from the change in fair value of warrants embedded derivatives. None of other companies has ever met any of the quantitative thresholds for determining reporting segments.

Financial information with respect to the reportable segments and reconciliation to the amounts reported in the Company’s consolidated financial statements follows for the 3 months ended September 30, 2011.

	Real Estate Development and sales		Real Estate Construction		All others		Adjustments and Elimination			Consolidated

Revenues from external customers	$	26,711,856	$	3,087,683	$	787,818	$	-		$	30,587,357
Intersegment revenues		-		5,689,564		-		(5,689,564	)		-
Rental income		213,065		30,282		-		-			243,347
Miscellaneous income		1,019,252		247,450		1,586		-			1,268,288
Segments profit before tax		5,795,656		266,443		162,295		(126,046	)		6,098,348
Segments assets		422,465,490		8,336,836		1,870,739		-			432,673,065

Financial information with respect to the reportable segments and reconciliation to the amounts reported in the Company’s consolidated financial statements follows for the 9 months ended September 30, 2011.

	Real Estate Development and sales		Real Estate Construction		All other		Adjustments and Elimination			Consolidated

Revenues from external customers	$	61,941,929	$	5,850,877	$	2,580,092	$	-		$	70,372,898
Intersegment revenues		-		11,637,294		-		(11,637,294	)		-
Rental income		630,053		475,615		-		-			1,105,668
Miscellaneous income		3,179,277		247,450		3,588		-			3,430,315
Segment profit before tax		10,053,341		553,515		584,582		(349,485	)		10,841,953
Segments assets		422,465,490		8,336,836		1,870,739		-			432,673,065

During the fiscal 2010, the Company had only one reportable segment being the Real Estate Development and Sales segment.

Note 17 – Effect of Change in Estimate

Revisions in estimated gross profit margins related to revenue recognized under the percentage of completion method are made in the period in which circumstances requiring the revisions become known. These circumstances may include government fees, construction costs and infrastructure costs which were unknown to the management in the prior periods.

During the three and nine months ended September 30, 2011, real estate development projects with gross profits recognized in the immediate preceding periods had changes in their estimated gross profit margins. As a result of these changes of gross profit, net income for the three and nine months ended September 30, 2011 increase/(decreased) by $19,458 and $(5,257,399) (September 30, 2010 – decrease by $304,667 and $1,732,018), respectively. Basic and diluted earnings per share for the three months ended September 30, 2011 decreased by $0.001, respectively (September 30, 2010 – decrease by $0.01 and $0.01 per share). Basic and diluted earnings per share for the nine months ended September 30, 2011 decreased by $0.15 and $0.15, respectively (September 30, 2010 – decreased by $0.05 and $0.05 per share).

The effect of change in estimate is due to the completion of the Company’s JunJing II project in the second quarter. Upon completion of the project, costs previously unknown to the Company were added to the final costs. The Company agreed to construct additional infrastructure which was not part of the original design of the project for the residents out of good faith and publicrelations. Certain government fees were incurred upon completion of the project. The fees initially waived by Xian local government during the construction stage were reinstated during the final inspection of the JunJing II project. The Company also agreed to pay for additional labor and material incurred by subcontractors.

Note 18 – Earnings (Loss) per Share

Earnings per share for the three and nine months ended September 30, 2011, and 2010 were determined by dividing net income (loss) attributable to China Housing & Land Development, Inc. for the periods by the weighted average number of both basic and diluted shares of common stock and common stock equivalents outstanding.

	3 months		3 months			9 months			9 months
	September 30, 2011		September 30, 2010			September 30, 2011			September 30, 2010
Numerator
Net income attributable to China Housing & Land Development, Inc. – basic	$	4,402,866	$	6,475,466		$	7,446,849		$	932,303
Effect of dilutive securities
Warrants – change in fair value		-		(405,821	)		-			(369,884)
Convertible debt – change in fair value and interest expense		156,686		(595,064	)		(909,582	)		(2,319,064	)
Income (loss) attributable to China Housing & Land Development, Inc. – diluted	$	4,559,552	$	5,474,581		$	6,537,267		$	(1,756,645	)
Denominator
Weighted average shares outstanding – basic		35,071,915		33,082,573			34,683,383			32,911,414
Effect of dilutive securities

Warrants		-		701,547			-			291,706
Convertible debt		1,615,709		3,590,664			1,615,709			2,433,234
Weighted average shares outstanding – diluted		36,687,624		37,374,784			36,299,092			35,636,354
Earnings per share
Basic earnings per share	$	0.13	$	0.20		$	0.21		$	0.03
Diluted earnings (loss) per share	$	0.12	$	0.15		$	0.18		$	(0.05	)

All outstanding warrants have an anti-dilutive effect on the earnings per share and are therefore excluded from the determination of the diluted earnings per share calculations for the three and nine months ended September 30, 2011.

Note 19 – Commitments and Contingencies (continued)

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

The Company also had various commitments related to the land use rights acquisition with unpaid balances of approximately $19 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 rights certificate. Based on the current condition, the Company estimates that the balances will be paid in one year.

All future payments required under the various agreements are summarized below.

	Payment due by period
	Total			Less than 1 year			1-2 years			2-3 years		3-4 years		4-5 years		After 5 years

Operating leases		$	3,030,624		$	169,331		$	145,622	$	147,478	$	148,804	$	148,804	$	2,270,585
Land use rights			19,049,859			19,049,859					-		-		-		-
Total		$	22,080,483		$	19,219,190		$	145,622	$	147,478	$	148,804	$	148,804	$	2,270,585

Note 20 – Related Party Transactions

One of the Company’s executive officers’ spouse owned 37.83% of common stock of Xi’an Xinxing Days Hotel & Suites (“Days Hotel”). During the three and nine months ended September 30, 2011, the Company has incurred $46,886 and $134,600 fees to Days Hotel, respectively, (2010 - $Nil and $Nil). The Company also sold 14 apartments amounting to $695,439 to Days Hotel during the first quarter. No apartments were sold to Days Hotel during the second and third quarter. As at September 30, 2011, the Company has $146,877 (December 31, 2010 - $38,281) payable to Days Hotel.

Note 21 – Subsequent Events

The Equity Transfer Agreement signed on February 28, 2011 with the shareholders of Shaanxi Bihu Property Development Co., Limited (“Bihu”) to acquire all outstanding common shares was terminated on September 30, 2011. Upon termination of the agreement, Bihu paid the Company $640,120 as compensation for the termination of the agreement. The Company treated this as gain and recorded as Other Income.

As part of original agreement, the Company transferred approximately $4.7 million (RMB 30 million) into a restricted cash account for the acquisition on March 2, 2011. The restricted cash was transferred back to regular unrestricted cash account on October 5, 2011.

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

FORWARD-LOOKING STATEMENTS

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

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

Critical Accounting Policies and Estimates

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

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

The unaudited interim condensed consolidated financial statements are based on accounting principles that are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Annual Report”). They do not include certain footnote disclosures and financial information normally included in annual consolidated financial statements prepared in accordance with GAAP and, therefore, should be read in conjunction with the audited consolidated financial statements and notes included in the Company's 2010 Annual Report.

Warrants and derivative liability

As of September 30, 2011, the Company has approximately $86,886 of warrants liability and $504,789 of fair value of embedded derivatives on the balance sheet each representing less than one percent of the total liabilities of the Company.

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 have used the CRR Binomial Lattice Model for the past 3 years. We do not expect any significant changes to the assumptions except for the common share price and the expected volatility.

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

During the three months ended September 30, 2011, our common stock price experienced fluctuations with the price increasing from $1.43 on July 1, 2011 to $1.49 on September 30, 2011. The increase in stock price caused an increase in fair value for warrant liability and a decrease in embedded derivatives. As a result, we incurred approximately $58,937 as a change in fair value of warrants as an non-cash expense and recognized $60,705 as a change in fair value of embedded derivatives as a non-cash gain.

The following table summarizes the fair value of warrant liabilities and embedded derivative as of the periods indicated.

	September 30, 2011		December 31, 2010

Fair value of warrants liability	$	86,886	$	2,766,382
Fair value of embedded derivatives	$	504,789	$	2,027,726

The following tables summarize all of the warrants and conversion options outstanding and the assumptions used for their valuations as of September 30, 2011 and December 31, 2010.

Investor Warrants:	9/30/2011			12/31/2010
Strike price		6.07			6.07
Market price		1.49			2.74
Valuation date	9/30/2011			12/31/2010
Expiry date	2/28/2013			2/28/2013
Volatility		75.00	%		100.00	%
Risk free rate		0.18	%		0.68	%
Option value		0.06168			0.97788

Number of warrants		161,715			1,401,531

Value		9,974			1,920,097

Investor Warrants: 5-7-2007	9/30/2011			12/31/2010
Strike price		4.50			4.50
Market price		1.49			2.74
Valuation date	9/30/2011			12/31/2010
Expiry date	5/9/2012			5/9/2012
Volatility		85.00	%		70.00	%
Risk free rate		0.08	%		0.40	%

Option value		0.03254			0.45965

# of warrants		2,539,416			2,539,416

Value		76,912			846,285

Conversion Option Valuation:	9/30/2011			12/31/2010
Strike price		5.57			5.57
Market price		1.49			2.74
Valuation date	9/30/2011			12/31/2010
Expiry date	1/28/2013			1/28/2013
Volatility		75.00	%		95.00	%
Risk free rate		0.17	%		0.11	%
Option value		0.06486			0.01800

Host Value – principal		8,999,500			1,237,500
Host Value – interest		-			-

Shares issuable on conversion (1)		1,615,709			3,590,664

Option value – principal		504,789			2,027,726

Derivative value		504,789			2,027,726

(1) The increase in shares issuable on conversion is due to the amendment entered into on June 10, 2010 by the Company and the applicable investors, which grants those investors the right to convert the $11 million Non-convertible Portion of the Convertible Debt. Please refer to Note 13 of the Financial Statements for detailed information.

Real estate held for development or sale, intangible assets 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 to 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 recognize an impairment loss based on the fair value of the assets.

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

When real estate costs are determined to be impaired, they are written down to their estimated net realizable value. The Company evaluates the carrying value for impairment based on the undiscounted future cash flows of the assets. Write-downs of real estate costs deemed impaired are recorded as adjustments to the cost basis. There has been no impairment on real estate inventories and no impairment loss has been recorded for the three and nine months ended September 30, 2011 and 2010.

The following summarizes the components of real estate inventories as at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Real estate projects completed and held for sale
Junjing I project		$	3,674,528	$	4,012,179
JunJing II project			1,338,012		3,389,501
Tsining 24G project			44,318		621,238
Gangwan project			37,348		96,245
Tsining Home IN project			59,530		57,527
Real estate completed and held for sale		$	5,153,736	$	8,176,690

Real estate projects held for development
Puhua project			104,804,440		85,107,643
Tangdu project			4,648,626		4,495,490
Junjing III project			21,206,394		2,569,084
Park Plaza project			6,397,111		2,013,116
JunJing II project phase two (completed as at June 30, 2011)			-		847,697
Golden Bay project			4,327,796		826,948
Other projects			1,089,531		415,152
Construction materials			673,448		134,730
Real estate held for development			143,147,346		96,409,860

Total real estate held for development or sale		$	148,301,082	$	104,586,550

Interest on debts and accretion costs on mandatorily redeemable non-controlling interest in subsidiaries incurred by the Company for the three and nine months ended September 30, 2011 were $6,548,733 and $20,409,934, respectively (September 30, 2010 - $6,420,373 and $18,523,786). The Company capitalized $6,423,212 in construction in progress during the three months ended September 30, 2011 (September 30, 2010 - $6,025,188), and the Company capitalized $19,361,165 in construction in progress during the nine months ended September 30, 2011 (September 30, 2010 - $17,251,537).

Intangible asset

The intangible asset consists of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Development rights acquired (a)	$	50,633,200		$	48,930,082
Land use rights acquired (b)		8,427,461			8,143,992
Construction license acquired (c)		1,180,334			1,140,632
		60,240,995			58,214,706
Accumulated amortization		(6,752,025	)		(6,368,296	)
Intangible assets, net	$	53,488,970		$	51,846,410

(a)

(b)	The land use rights were acquired through acquisition of Suodi. The land use rights certificate will expire in November, 2048. The Company amortizes the land use rights over 39 years (36 years remaining).

(c)

The construction license was acquired through acquisition of Xinxing Construction. The construction license, which is subject to renewal every 5 years, is not amortized and has an indefinite estimated useful life because management believes the Company will be able to continuously renew the license in the future. The license was subject to renewal on March 10, 2011. The Company successfully renewed the license until December 31, 2015 during the second quarter of 2011.

For the three and nine months ended September 30, 2011, the Company has recorded $53,698 and $159,086 of amortization expense of the land use rights (2010 - $Nil and $Nil), respectively. The amortization expense was included in selling, general and administrative expenses. There was no amortization of the development rights during the three and nine months ended September 30, 2011 and 2010.

Deposits on land use rights

		September 30, 2011				December 31, 2010
Deposits on land use rights			63,508,273				74,938,729

The decrease in deposits on land use rights was mainly due to reclassification of the deposits on land use rights of the JunJing III project to real estate held for development or sale, as the Company completed a transaction to purchase the land use rights for the JunJing III project during the first quarter of 2011.

The Company conducts regular reviews of the deposits on land use rights. After review and assessment, the Company concluded that there was no significant decrease in the market price and therefore no impairment write-down was required. According to E-House (China) Real Estate Research Institute the average residential sale price in Xi’an city was stable in the fiscal quarter ended September 30, 2011. The average sale price increased to 7,411 RMB per square meter (approximately US$1,155 per square meter) from 6,799 RMB (approximately US$1,046 per square meter) in the second quarter 2011, representing an increase of 9.0 percent quarter-over-quarter.

Material trends and uncertainties that may impact continuing operations

Changes in national and regional economic conditions, as well as in areas where we conduct our operations and where prospective purchasers of our homes live, may result in more caution on the part of homebuyers resulting in fewer home purchases. According to data from the Xi’an Bureau of Statistics, Xi’an city’s real estate transaction volume (in terms of sq. meter signed) decreased about 14.2% in the third quarter of 2011 compared to the same period of 2010. All of our projects are currently in Xi’an city. During the third quarter of 2011, our revenue of properties decreased approximately 15.1% over same period of 2010, which was mainly due to the fact that the majority of the units from the JunJing II project have been sold and new projects such as JunJing III and Park Plaza have not yet met all the revenue recognition criteria.

Virtually all purchasers of our homes finance their acquisitions through lenders providing mortgage financing. A substantial increase in mortgage interest rates or unavailability of mortgage financing would adversely affect the ability of prospective homebuyers to obtain the financing they need in order to purchase our homes, as well as the ability of prospective move-up homebuyers to sell their current homes. For example, if mortgage financing became less available, demand for our homes could decline. A reduction in demand could also have an adverse effect on the pricing of our homes because we (and our competitors) may reduce prices in an effort to compete for home buyers. A reduction in pricing could result in a decline in revenues and margins. Additionally, policies were implemented by the local government in February 2011 to curb speculation in the real estate market. These new policies included capping year-over-year housing unit ASP increases to 15%, restricting third-time home purchases for local residents and second-time home purchases for non-local residents. These new policies could result in buying delays amongst potential new customers, which could impact our revenues.

The real estate development industry is capital intensive, requiring significant up-front expenditures to acquire land and begin development. Accordingly, we incur substantial indebtedness to finance our homebuilding and land development activities. Although we believe that internally generated funds and our 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/or securities offerings. The availability of borrowed funds, to be utilized for land acquisition, development and construction, may be greatly reduced, and the lending community may require larger amounts of equity to be invested by borrowers in a project in connection with new loans. Failure to obtain sufficient capital to fund planned capital and other expenditures could have a material adverse effect on our business.

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

As of September 30, 2011, we had $74,098,123 of cash and cash equivalents, compared to $46,904,161 as of December 31, 2010, an increase of $27,193,962. As of September 30, 2011, we had loans payable of $105,275,231, of which $37,616,529 is due within 2011 and remaining balance is due in 2012. As of December 31, 2010, our loans payable was $82,971,074.

The Company believes that the combination of present capital resources, internally generated funds, and unused financing sources are more than adequate to meet cash requirements for the year 2011. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of land for the development of future projects, through cash provided by operations and additional funds raised by future financings. Upon acquiring land for future development, we intend to raise funds to develop our projects by obtaining mortgage financing mainly from local banking institutions with which we have done business in the past. We believe that our relationships with these banks are in good standing and that our real estate will secure the loans needed. We believe that adequate cash will be available to fund our operations.

BUSINESS

Our Company

We are a leading residential real estate 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, that, we believe, will benefit from China’s rapid gross domestic product (“GDP”) growth and the middle classes’ corresponding increase in purchasing power.

We commenced operations in Xi’an in 1999 and have been considered to be 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 architectural firms from the United States, Canada and Europe. These firms 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 a 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, which in turn results in our typically 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 sale and management of residential real estate properties in order 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 to grow 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 that 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 a faster rate for the next few years due to social, economic, regulatory and government stimulus-related factors. Our real estate sales have 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.

Our Property Projects

We provide three fundamental types of real estate developments:

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

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

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

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

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

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

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

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

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

September 30,

2011

(m2)

Puhua Phase One

Multi-Family residential & Commercial

Q2/2010

- Q3/2011

Q4/2009

47,600

139,400

97,198

Puhua Phase Two

Multi-Family residential & Commercial

Q2/2010

- Q3/2012

Q2/2010

47,300

260,810

55,766

Project name	Total Number of Units		Number of Units sold by September 30, 2011		Estimated Revenue ($million)		Contracted Revenue by September 30, 2011 ($million)		Recognized Revenue by September 30, 2011 ($million)
Puhua Phase One		838		720		127.4		91.0		69.3

Puhua Phase Two		1,284		573		245.4		61.4		33.9

Puhua: The Puhua project, the Company’s 79 acre joint venture 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 2010. The entire four phase project 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 24, 2009. As of Sep 30, 2011, the contract revenue for Puhua project is $152.4 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

2010-

2020

N/A

JunJing III

Multi-Family

residential &

Commercial

Q4/2010-

Q1/2012

Q4/2011

8,094

49,636

570

Park Plaza

Multi-Family

residential &

Commercial

Q2/2011-

Q4/2014

Q2/2012

44,250

141,822

2,000

Golden Bay

Multi-Family

residential &

Commercial

Q2/2011-

Q4/2014

Q3/2012

146,099

252,540

N/A

Textile City

Multi-Family

residential &

Commercial

Q3/2012-

O3/2018

Q4/2012

433,014

630,000

N/A

Baqiao New Development Zone: On March 9, 2007, we entered into a Shares 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 rights to develop and sell 487 acres of land in a newly designated satellite city of Xi’an.

Xi’an has designated the Baqiao District as a major resettlement zone where the city expects 900,000 middle to upper income inhabitants to settle. The Xi’an local government intends to generate a success similar to that created in Pudong, Shanghai, which has resulted in new economic opportunities and provided housing for Shanghai’s growing population.

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

Through 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 project is further described in the Puhua section below.

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

After selling 18.4 acres, placing 79 acres in the joint venture, and setting aside approximately 42 acres for the Golden Bay Project, about 348 acres remains 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 has 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 to begin recognizing revenue during the fourth quarter of 2011. The total estimated revenue from this project is about $46 million.

As of Sep 30, 2011, customers have pledged to purchase $38.2 million JunJing III units. The revenue will be recognized based on the percentage of completion method upon obtaining all the necessary government permits. In an effort to reduce speculation, the Xi’an government has extended the number of days required to secure the necessary construction permits, which has caused the delay of the revenue recognition of Junjing III. The Company has been able to obtain two out of five permits as of October 2011, and expects to obtain the remaining permits in the fourth quarter of 2011.

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 to upper income residential and commercial development project on this site, with an estimated GFA of 141,822 square meters. We anticipate accepting pre-sale purchase agreements in the second quarter of 2012, 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. We expect to begin accepting presale purchase agreements in the third quarter of 2012.

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 fourth quarter of 2012 and the entire project will take 5 years.

Completed Projects with Units Available for Sale

Project name	Type of Projects	Completion Date		Total Site Area (m2)		Total GFA (m2)		Total Number of Units		Number of Units sold by September 30, 2011
JunJing II Phase Two	Multi-Family . residential & Commercial		Q2/2011		29,800		121,888		1,015		1,014
JunJing II Phase One	Multi-Family residential & Commercial		Q4/2009		39,524		142,214		1,215		1,200
JunJing Garden I	Multi-Family residential & Commercial		Q3/2006		55,588		167,931		1,671		1,668

JunJing II Phase Two: The construction of JunJing II Phase Two commenced in the second quarter of 2009 and pre-sales started within the same quarter. As of June 30, 2011, the contract revenue for Phase Two is $100 million and we have recognized all the contract revenue as the percentage of completion reached 100%.

JunJing II Phase One: 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 $95 million.

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

CONSOLIDATED OPERATING RESULTS

Three Months Ended September 30, 2011 Compared With Three Months Ended September 30, 2010

Revenues

Our revenues are mainly derived from the sale of residential and commercial units and buildings, infrastructure work we perform for the local government and land development projects in the Baqiao area. In the third quarter of 2011, most of our revenues came from the Puhua Phase One and Puhua Phase Two projects.

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 TsiningJunJing II and PuHua Projects. Before that time, the full accrual method was used for all of our residential, commercial and infrastructure projects. Infrastructure projects continue to be accounted for using the full accrual method of accounting.

	Three months		Three months
	ended		ended
Revenues by project:	Sep 30, 2011		Sep 30, 2010
US$
Project Under Construction
Puhua Phase One		12,852,050		2,977,388
Puhua Phase Two		12,588,905		-
Tsining JunJing II Phase Two (Completed on June 30, 2011)				10,104,983
Projects Completed
Tsining JunJing II Phase One		1,118,044		1,200,153
Tsining JunJing II Phase Two (Under construction on September 30, 2010)	$	107,068	$
Tsining JunJing I		45,789		506,270
Tsining-24G		-		1,565,565
Tsining Gang Wan		-		-
Tsining In Home		-		78,659
Revenues from the sale of properties	$	26,711,856	$	31,455,921

The following table summarizes details of our most significant projects:

	Three Months			Three Months
	Ended			Ended
Revenues by project:	Sep 30, 2011			Sep 30, 2010
US$
Project Under Construction
Puhua Phase One contract sales	$	5,806,231		$	12,108,057
Revenue		12,852,050			10,104,983
Total gross floor area (GFA) available for sale		139,400			139,730
GFA sold during the period		4,829			14,145
Remaining GFA available for sale		18,099			68,605
Percentage of completion		74.6	%		49.7	%
Percentage GFA sold during the period		3.5	%		10.1	%
Percentage GFA sold to date		87.2	%		45.4	%
Average sales price per GFA	$	1,202		$	850

Puhua Phase Two contract sales		14,859,498			9,538,222
Revenue	$	12,588,905		$	2,977,388
Total gross floor area (GFA) available for sale		260.810			218,635
GFA sold during the period		13,534			12,768
Remaining GFA available for sale		193,142			179,119
Percentage of completion		47.58	%		26.6	%
Percentage GFA sold during the period		5.2	%		5.8	%
Percentage GFA sold to date		26.0	%		8.7	%
Average sales price per GFA	$	1,098		$	747

*Difference in total GFA available for sale is due to addition of a new building

Revenues from projects under construction

Puhua Phase One

Puhua Phase One consists of 7 garden houses, 2 mid-rise and 4 high-rise buildings with total expected revenues of approximately $127.4 million. During the third quarter of 2011, we were able to secure $6 million in contract sales. We also recognized approximately $12.9 million in revenues based on the percentage of completion method.

Puhua Phase Two

Puhua Phase two has expected revenues of approximately $245.4 million. During the third quarter of 2011, we were able to secure $14.9 million in contract sales. We also recognized approximately $12.6 million in revenues based on the percentage of completion method.

Please note that the method of percentage of completion was utilized to recognize revenue from January 1, 2008. Only revenues for Puhua Phase One and Phase Two are recognized using this method. The percentage of completion of the construction for each building as of September 30, 2011 are shown below:

Puhua Phase one	Percentage of Completion
1#	96.46	%
2#	97.77	%
3#	58.51	%
4#	95.25	%
5#	50.09	%
6#	95.79	%
7#	57.42	%
8#	86.01	%
9#	82.33	%
10#	79.81	%
11#	48.07	%
12#	77.73	%
13#	79.13	%

Puhua Phase two	Percentage of Completion
14#	42.80	%
15#	51.61	%
16#	61.48	%
17#	67.70	%
18#	39.93	%
19#	47.98	%
20#	57.16	%
21#	50.71	%
22#	51.46	%
23#	55.66	%
24#	35.16	%

The above are all the buildings under pre-sale in Puhua Phase One, and Phase Two.

Revenues from projects completed

The revenue from completed projects totaled $1,270,900 for the three months ended Sep 30, 2011, compared to $3,350,647 during the same period of 2010. Due to its completion, JunJing II Phase Two was reclassified as a completed project during the second quarter of fiscal 2011.

Other income

Other income includes property management fees, rental income, revenues from the disposal of fixed assets as well as government’s allowance for the equivalent cost of interest on the Company’s investments required to support infrastructure construction, continued river management and suburban planning for the entire Baqiao high-technology industrial park. We recognized $5,387,137 in other income for the three months ended September 30, 2011 compared with $2,592,853 in the same period of 2010. The increase can be explained by the following table, which summarizes the breakdown of the other income and the changes during the three months ended September 30, 2011 and 2010:

	For the three months ended
	September 30,		September 30,
	2011		2010
Interest income	$	58,923	$	57,484
Rental income, net		243,348		201,778
Income from property management services		787,818		788,456
Construction contract income		3,087,683		-
Gain on disposal of property and equipment		95,100		265,812
Gain on disposal of assets held for sale		-		1,134,675
Miscellaneous income		1,114,265		144,648
Total	$	5,387,137	$	2,592,853

Cost of properties and land

The cost of properties and land in the three months ended September 30, 2011 decreased 16.6 percent to $18,829,374 compared with $22,568,245 in the same period of 2010. The decrease was primarily a result of the decreased sales in our current selling projects. Due to the completion of the JunJing II Phase Two project, the primary selling projects were Puhua Phase One and Phase Two during the third quarter of 2011.

Gross profit and profit margin

Gross profit for the three months ended September 30, 2011 was $9,526,423, representing a 12.7 percent decrease from $10,909,305 in the same period of 2010. The gross profit margin for the three months ended September 30, 2011 was 29.7 percent compared with 32 percent in the same period of 2010. However, the Company’s gross margin from real estate sales was 29.5 percent during the third quarter of fiscal 2011 compared to 28.3 percent for the third quarter of fiscal 2010. In general, the Company’s real estate sales should have an approximately 25 percent margin (after business taxes).

Selling, general and administrative expenses

Selling, general and administrative expenses (SG&A) for the three months ended September 30, 2011 increased 1.4 percent to $2,913,008 from $2,873,590 in the same period of 2010. SG&A accounted for 9.1 percent of total revenue in the third quarter of 2011 compared to 8.4 percent for the same period in 2010. The increase in SG&A to total revenue is primarily due to the decrease of revenue.

Stock-based compensation

Stock-based compensation results from the employee stock option plan started in the second quarter of 2011. The plan was intended to serve as incentive to employees. Under the plan, 1,227,755 stock options were granted to the employees of the Company. Stock-based compensation in the three months ended September 30, 2011 was $96,438. We incurred no stock-based compensation during the third quarter of 2010.

	June 13, 2011
Expected life	5.5 – 6.5 years
Expected volatility		95	%
Risk-free interest rate		1.74% - 2.10	%
Dividend yield		0	%

The expected life of options represents the period of time the granted options are expected to be outstanding. As the Company had not previously granted options, no historical exercising pattern could be relied upon in estimating the expected life. Therefore, the expected life was estimated as the average of the contractual term and the vesting period. The Company has not paid dividends in the past nor does it expect to pay dividends in the foreseeable future.

The Company does not believe any of the options will be forfeited because most of the stock options are granted to long-term employees and officers. In addition, since the performance conditions are set at a reasonably achievable level, the Company believes 100% of the performance conditions can be met.

Other expenses

Other expenses mainly consist of late delivery settlements and maintenance costs. Other expenses in the three months ended September 30, 2011 were $54,267 compared with $232,493 in the same period of 2010.

Operating profit and operating profit margin

Operating profit is defined as gross profit minus operating expenses but before change in fair value of derivatives and income taxes. Operating profit in the three months ended September 30, 2011 was $6,096,580 compared with $7,005,932 in the same period of 2010. The decresae was primarily due to the decreased revenues in the third quarter of 2011. The operating profit margin decreased to 19.0 percent for the third quarter of 2011 compared with 20.6 percent for the same period of 2010. Reduced revenues were the primary contributing factor to the reduction in operating profit margin.

Interest expense

Interest expense in the three months ended September 30, 2011 decreased 65.7 percent to $148,739 from $433,666 in the same period of 2010. The decrease was mainly due to capitalization of loan interest in the third quarter of 2011.

Change in fair value of embedded derivative

The embedded derivative is related to the Company’s $20 million convertible debt offering completed in January 2008. The change in the fair value of embedded derivatives is a periodic adjustment to the estimated cost to the Company, which was provided by the Cox-Ross-Rubinstein Binomial Lattice valuation model (CRR model)

The CRR model depends on the following assumptions: the Company’s common stock price underlying the warrants; strike price; conversion price; expected life; expected volatility; risk free interest rate; and dividend rate. During the third quarter of 2011, our common stock price experienced fluctuations with the price increasing from $1.43 on July 1, 2011 to $1.49 on September 30, 2011. The change in stock price and expected volatility caused an increase in fair value for warrants and the change of fair value was booked as a reverse of non-cash expense.

The company recorded $(60,705) in the change in fair value of embedded derivatives in the three months ended September 30, 2011 compared with $(958,688) in the same period of 2010.

Change in fair value of warrants

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

An investor typically only exercises a warrant to buy common shares when the stock price is higher than the warrant exercise price. The investor pays the exercise price and the Company covers the difference between the warrant exercise price and the share price at the time of conversion.

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

The change in fair value of warrants was $58,937 in the three months ended September 30, 2011, compared to $(405,821) during the same period of 2010, which consisted of the periodic adjustment to the estimated cost to the company to provide the common shares, assuming that all of the warrants will be exercised sometime in the future. The basis for estimating the cost to provide the common shares was provided by the valuation model. The CRR model depends on the following assumptions: the Company’s common stock price underlying the warrants; strike price; expected life; expected volatility; risk free interest rate; and dividend rate. During the third quarter of 2011, our common stock price experienced changes from $1.43 on July 1, 2011 to $1.49 on September 30, 2011. The change in stock price and expected volatility caused an increase in fair value for warrants and the change of fair value was booked as a loss of non-cash expense. During the third quarter of 2010, our common stock price experienced large fluctuations with the price decreasing from $2.26 on July 1, 2010 to $2.00 on September 30, 2010. The decrease in stock price and expected volatility caused a decrease in fair value for warrants and the change of fair value was booked as a reverse of non-cash expense.

Provision for income taxes

The $1,758,024 provision for income taxes for the three months ended September 30, 2011 decreased from $1,926,345 for the three months ended September 30, 2010 due to decrease in net income from business operations.

Net income

Net income for the three months ended September 30, 2011 decreased 32 percent to $4,402,866 compared to $6,475,466 in the same period of 2010. The decrease in net income was mainly due to reduced total revenue and decreased gain from noncash items.

Charge to non-controlling interest

The Company had no such cost during the third quarter of 2011.

Basic and diluted earnings per share

Basic earnings per share was $0.13 in the three months ended September 30, 2011, compared to $0.20 in the same period of 2010. Diluted earnings per share was $0.12 in the three months ended September 30, 2011, compared to $0.15 in the same period of 2010. The number of shares outstanding did not change significantly from year to year. Earnings available to distribute decreased to $4.4 million in the third quarter of 2011 from $6.5 million in the third quarter of 2010.

Common shares used to calculate basic and diluted EPS

The weighted average shares outstanding used to calculate basic earnings per share was 35,071,915 shares in the three months ended September 30, 2011 and 33,082,573 shares in the same period of 2010. The weighted average shares outstanding used to calculate the diluted earnings per share was 36,687,624 shares in the three months ended September 30, 2011 and 37,374,784 shares in the same period of 2010.

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 rate of the two currencies. The fluctuation of exchange rates during the three months ended September 30, 2011 and the same period of 2010, 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 in the three months ended September 30, 2011 was $2,107,334, compared with a gain of $1,561,913 in the same period of 2010.

Nine Months Ended September 30, 2011 Compared With Nine Months Ended September 30, 2010

Revenues

In the nine months ended September 30, 2011, most of our revenues came from Puhua Phase One and Puhua Phase Two projects.

	9 months		9 months
	ended		ended
Revenues by project:	September 30, 2011		September 30, 2010
US dollars
Project Under Construction
Puhua Phase One		25,775,409		29,822,986
Puhua Phase Two		25,992,965		3,601,898
Tsining JunJing II Phase Two (Completed on June 30, 2011)				56,135,716

Projects Completed
Tsining JunJing II Phase Two (Under construction on September 30, 2010)		6,270,097
Tsining JunJing II Phase One		2,391,817		4,335,534
Tsining JunJing I		718,485		2,880,109
Tsining-24G		695,439		1,692,425
Tsining Gang Wan		97,717		-
Tsining In Home		-		-
Additional Project				598,700
Revenues from the sale of properties	$	61,941,929	$	99,067,368

Revenues from the sale of properties

The revenues from the sale of properties in the nine months ended September 30, 2011 decreased 37.47 percent to $61,941,929 from $99,067,368 in the same period of 2010. The decrease was primarily due to the completion of JunJing II Phase Two during the second quarter of 2011. As a result, the primary active projects were Puhua Phase One and Two.

Revenues from projects under construction

Puhua Phase One and Phase Two

Puhua Phase One consists of 7 garden houses, 2 mid-rises and 4 high-rises buildings with total expected revenues of approximately $127.4 million. Puhua Phase Two consists of 11 mid-rises and high-rises. The pre-sale of Phase One began in the fourth quarter of 2010 and we were able to secure $16.0 million in contract sales for the 9 months ended September 30, 2011 and in total we recognized approximately $25.8 million of revenue for the project during the 9 months ended September 30, 2011. For Phase Two we were able to secure $39.3 million in contract sales for the 9 months ended September 30, 2011. We also recognized approximately $26.0 million in revenues based on the percentage of completion method.

Revenues from projects completed

The revenue from completed projects totaled $10,173,555 for the nine months ended September 30, 2011, compared to $9,506,768 during the same period of 2010. Due to its completion, JunJing II Phase Two was reclassified as a completed project during the second quarter of fiscal 2011.

Other income

Other income includes property management fees, rental income, revenues from the disposal of fixed assets as well as government’s allowance for the equivalent cost of interest on the Company’s investments required to support infrastructure construction, continued river management and suburban planning for the entire Baqiao high-technology industrial park. We recognized $12,966,952 in other income for the nine months ended September 30, 2011 compared with $5,148,115 in the same period of 2010. The 152 percent increase can be explained by the following table, which summarizes the breakdown of the other income and the corresponding changes during the nine months ended September 30, 2011 and 2010:

	For the nine months ended
	September 30,		September 30,
	2011		2010
Interest income	$	144,054	$	235,576
Rental income, net		1,105,668		1,042,715
Income from property management services		2,580,092		2,151,766
Construction contract income		5,850,877		-
Gain on disposal of property and equipment		2,132,204		289,105
Gain on disposal of assets held for sale		-		1,134,675
Miscellaneous income		1,154,057		294,278
Total	$	12,966,952	$	5,148,115

(1)	The increase of rental income is due the increased rented units during 2011.

(2)	The construction contract income revenue is from Xinxing Construction, which was acquired since October of 2010.

(3)	The increase in gain on disposal of property and equipment is caused by the sale of a building, which resulted in a gain of $2,055,070 in April of 2011.

(4)	Miscellaneous income includes the compensation received due to the settlement of the Bihu project. Upon termination of the agreement signed with Bihu, Bihu paid the Company $640,120 as compensation for the termination of the agreement.

Cost of properties and land

The cost of properties and land for the nine months ended September 30, 2011 decreased 37.7 percent to $46,618,588 compared with $74,821,470 in the same period of 2010. The decrease was primarily a result of reduced sales volume during the period. The sales of our JunJing II Phase Two project were completed in the second quarter of 2011. As a result, we had only Puhua Phase One and Phase Two units available for sale during the second and third quarters of 2011, which led to decreased sales volume.

Gross profit and profit margin

Gross profit for the nine months ended September 30, 2011 was $20,362,673, representing a decrease of 26.5 percent from $27,709,162 in the same period of 2010. The gross profit margin for the nine months ended September 30, 2011 was 27.2 percent compared with 26.6 percent in the same period of 2010. The improved market conditions resulted in an increase in average selling price for all of our projects, which led to an improved gross profit margin. In general, the Company’s real estate sales should have an approximate 25% margin (after business taxes).

Selling, general and administrative expenses

Selling, general and administrative expenses (SG&A) for the nine months ended September 30, 2011 increased 5.4 percent to $9,667,449 from $9,170,039 in the same period of 2010. The increase in SG&A is primarily due to the increased expenses associated with new projects to be constructed in the near future and increased audit expense associated with SOX compliance. Employee salary increases also contributed to the increased administrative expenses. SG&A accounted for 12.9 percent of total revenue for the nine months ended September 30, 2011 compared to 8.8 percent for the same period in 2010.

Stock-based compensation

Stock-based compensation results from the employee stock option plan started in the second quarter of 2011. The plan was intended to serve as an incentive to our employees. Under the plan, 1,227,755 stock options have been granted to the employees of the Company.

Stock-based compensation in the nine months ended September 30, 2011 was $114,258. We incurred no stock-based compensation during the same period of 2010.

	June 13, 2011
Expected life	5.5 – 6.5 years
Expected volatility		95	%
Risk-free interest rate		1.74% - 2.10	%
Dividend yield		0	%

The expected life of options represents the period of time the granted options are expected to be outstanding. As the Company had not previously granted options, no historical exercising pattern could be relied upon in estimating the expected life. Therefore, the expected life was estimated as the average of the contractual term and the vesting period. The Company has not paid dividends in the past nor does it expect to pay dividends in the foreseeable future.

The Company does not believe any of the options will be forfeited because most of the stock options are granted to long-term employees and officers. In addition, since the performance conditions are set at a reasonably achievable level, the Company believes 100% of the performance conditions can be met.

Compensation expense for stock options is recognized over the vesting period. During the nine months ended September 30, 2011, compensation expense of $114,258 (September 30, 2010 - $Nil) was recognized in the interim condensed consolidated statements of income.

Other expenses

Other expenses consist mainly of late delivery settlements and maintenance costs. Other expenses in the nine months ended September 30, 2011 increased to $444,745 compared with $420,525 in the same period of 2010.

Operating profit and operating profit margin

Operating profit is defined as gross profit minus operating expenses but before change in fair value of derivatives and income taxes. Operating profit in the nine months ended September 30, 2011 was $8,263,679 compared with $15,691,700 operating profit in the same period of 2010. The decrease was primarily due to the reduced revenue during the nine months ended September 30, 2011. The operating profit margin was 11.0 percent for the nine months ended September 30, 2011 compared to 15.1 percent for the same period of 2010. The decrease was primarily due to the increased SG&A during the period.

Interest expense

Interest expense in the nine months ended September 30, 2011 decreased 19.9 percent to $1,111,347 from $1,388,732 in the same period of 2010. This decrease was primarily due to the capitalization of employee loan interest during year 2011.

Change in fair value of embedded derivative

The embedded derivative is related to the Company’s $20 million convertible debt offering completed in January 2008. The change in the fair value of embedded derivatives was a periodic adjustment to the estimated cost to the Company, which was provided by the Cox-Ross-Rubinstein Binomial Lattice valuation model (CRR model).

The CRR model depends on the following assumptions: the Company’s common stock price underlying the warrants; strike price; conversion price; expected life; expected volatility; risk free interest rate; and dividend rate. During the nine months ended on September 30, 2011, our common stock price experienced large fluctuations with the price decreasing from $2.74 on December 31, 2010 to $1.49 on September 30, 2011. The decrease in stock price and expected volatility caused a decrease in fair value for warrants and the change of fair value was booked as a reverse of non-cash expense.

The company recorded $(1,522,937) in the change in fair value of embedded derivatives in the nine months ended September 30, 2011 compared with $(2,832,023) in the same period of 2010.

Change in fair value of warrants

The change in fair value of warrants was $(1,055,337) in the nine months ended September 30, 2011, compared to $(3,203,085) during the same period of 2010, which consisted of the periodic adjustment to the estimated cost to the company to provide the common shares, assuming that all of the warrants will be exercised sometime in the future. The basis for estimating the cost to provide the common shares was provided by the valuation model. The CRR model depends on the following assumptions: the Company’s common stock price underlying the warrants; strike price; expected life; expected volatility; risk free interest rate; and dividend rate. During the nine months ended on September 30, 2011, our common stock price experienced large fluctuations with the price decreasing from $2.74 on December 31, 2010 to $1.49 on September 30, 2011. The decrease in stock price and expected volatility caused a decrease in fair value for warrants and the change of fair value was booked as a reverse of non-cash expense.

Provision of income taxes

The income tax decreased from $4,464,337 for the nine months ended September 30, 2010 to $3,529,614 for the nine months ended September 30, 2011 is due to the decrease of net income from business operations.

Net income

Net income for the nine months ended September 30, 2011 decreased 50.9 percent to $7,446,849 compared to $15,161,346 in the same period of 2010. The decrease in net income was mainly due to reduced total revenue, and increased SG&A expense.

The periodic revaluation of derivatives and warrants also contributed approximately $2.6 million during the period mainly due to the decrease of our common stock price.

Charge to non-controlling interest

On November 5, 2008, the Company and Prax Capital (“Prax”) entered into a joint venture agreement to develop 79 acres within China Housing’s Baqiao project located in Xi’an. Prax invested $29.3 million for a 25% interest in Puhua through obtaining 1,000 Class A shares of Success Hill (“Class A Shares”) with various distribution rights. Prax’s initial investments were recorded as non-controlling interests in the consolidated financial statements. 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, under the terms of which, effective January 1, 2010, the Company will redeem all Prax’s Class A Shares within three years for consideration of the USD equivalent of $84.39 million (RMB 576 million).

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

As 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 under the Amended and Restated Shareholder Agreement 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 interest and the fair value of redemption amount has been reflected as a charge to non-controlling interest.

The Company had no such cost during the nine months ended September 30, 2011.

Basic and diluted earnings per share

Basic earnings per share was $0.21 in the nine months ended September 30, 2011, compared to $0.03 in the same period of 2010. Diluted earnings per share were $0.18 in the nine months ended September 30, 2011, compared to $(0.05) in the same period of 2010. The number of shares outstanding did not change significantly from year to year. Earnings available to distribute increased from $0.9 million for the nine months ended September 30, 2010 to $7.4 million in the same period 2011. The lower EPS and negative Diluted EPS in 2010 were mainly due to Prax restructuring which resulted in the recording of a one-time loss of $14,229,043.

Common shares used to calculate basic and diluted EPS

The weighted average shares outstanding used to calculate basic earnings per share was 34,683,383 shares in the nine months ended September 30, 2011 and 32,911,414 shares in the same period of 2010. The weighted average shares outstanding used to calculate the diluted earnings per share was 36,299,092 shares in the nine months ended September 30, 2011 and 35,636,354 shares in the same period of 2010.

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 rate of the two currencies. The fluctuation of exchange rates during the nine months ended September 30, 2011 and the same period of 2010, 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 in the nine months ended September 30, 2011 was $5,191,323, compared with $2,368,760 in the same period of 2010.

Cash flow discussion

There is net cash inflow of $24,680,674 during the nine months ended September 30, 2011 compared to $33,393,083 cash inflow during the same period of 2010.

Operating activity cash inflow was $9,283,511 in the nine months ended September 30, 2011, compared to operating cash inflow of $23,359,023 in the same period of 2010. The cash inflows were primarily from the sales of the property.

There was a cash outflow of $4,835,993 for investing activities for the nine months ended September 30, 2011, compared to investing cash inflow of $81,717 for the same period of 2010. The cash inflows during the first nine months of 2011 were primarily from the purchases of property and equipment.

There was a cash inflow of $20,233,156 for financing activities for the nine months ended September 30, 2011 compared with $9,952,343 of financing cash inflow in the same period of 2010 due to the additional bank loans drawn.

Debt leverage

Total debt consists of payables for acquisition of businesses, loans from employees, loans payable, convertible debt and mandatorily redeemable non-controlling interests in Subsidiaries.

Total debt outstanding as of September 30, 2011 was $172.4 million compared with $143.9 million on December 31, 2010. Net debt outstanding (total debt less cash) as of September 30, 2011 was $57.6 million compared with $62.3 million on December 31, 2010. The Company’s net debt as a percentage of total capital (net debt plus shareholders’ equity) was 46.4 percent on September 30, 2011 and 38.0 percent on December 31, 2010, which mainly resulted from additional bank and employee loans.

Liquidity and capital resources

Our principal liquidity demands are based on the development of new properties, property acquisitions, and general corporate purposes. As of September 30, 2011, we had $74,098,123 of cash and cash equivalents, compared to $46,904,161 as of December 31, 2010, an increase of $27,193,962. Along with progress in projects, we can use the internally generated cash flow to fund daily operations.

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

The Company also had various commitments related to land use rights acquisition with unpaid balances of approximately $19 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 rights certificate. Based on current conditions, the Company estimates that the balances will be paid in one year.

All future payments required under the various agreements are summarized below.

	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	$	3,030,624	$	169,331	$	145,622	$	147,478	$	148,804	$	148,804	$	2,270,585
Land use rights		19,049,859		19,049,859				-		-		-		-
Total	$	22,080,483	$	19,219,190	$	145,622	$	147,478	$	148,804	$	148,804	$	2,270,585

Financial obligations

The loans payable balances were secured by certain of the Company’s real estate held for development or sale with a carrying value of $105,817,960 at September 30, 2011 (December 31, 2010 - $89,538,930) and certain buildings and income producing properties and improvements with a carrying value of $18,248,354 at September 30, 2011 (December 31, 2010 - $4,458,389). The weighted average interest rate on loans payable as at September 30, 2011 was 6.76% (December 31, 2010 – 5.5%).

Certain real estate units sold to customers were utilized to secure the loans payable. The Company has obtained consent from these customers such that, for the time being, the Company does not have to remove the mortgage or to register the transfer of the ownership of the apartments..

Loans payable

	September 30, 2011		December 31, 2010
Xi’an Rural Credit Union Zao Yuan Rd. Branch
Originally due July 2, 2011, renewed on June 27, 2011 and extended to July 1, 2012, annual interest is at 8.856 percent, secured by the Company’s Jun Jing I building No. 12, Han Yuan and guaranteed by the Company’s President, President’s spouse, CEO, Tsining’s general manager and his spouse	$	2,508,624	$	2,727,273

Xinhua Trust Investments Ltd.
Due February 10, 2012, annual interest is at 10 percent, secured by the 24G project		23,518,345		22,727,273

Bank of Xi’an
Annual interest is fixed at 130% of People’s Republic of China prime rate at the time of borrowing (or 8.528%), secured by the Company’s Jun Jing I building No. 12. $783,945 is payable on March 31, 2012; $783,945 is payable on June 30, 2012; and $627,155 is payable on August 29, 2012.		2,195,045		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 (6.31%) secured by the PuHua project with a minimum repayment of $7.6 million required by December 31, 2011.		15,678,896		22,727,273

Xi’an Duqu Trust Bank
Due June 11, 2011, annual interest is at 9.18 percent, secured by the Company’s Junjing I properties		-		681,817

JP Morgan International Bank Limited Brussels Branch
Due December 14, 2011, annual interest is at 1.2 percent, secured by $34,656,146 of restricted cash		30,016,529		30,016,529

Tianjin Cube Equity Investment Fund Partnership
Due January 27, 2012, annual interest is 9.6 percent, secured by JunJing II commercial units		31,357,792		-

Total	$	105,275,231	$	82,971,074

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

The loans payable balances were secured by certain of the Company’s real estate held for development or sale with a carrying value of $105,817,960 at September 30, 2011 (December 31, 2010 - $89,538,930) and certain buildings and income producing properties and improvements with a carrying value of $18,248,354 at September 30, 2011 (December 31, 2010 - $4,458,389). The weighted average interest rate on loans payable as at September 30, 2011 was 6.76% (December 31, 2010 – 5.5%).

The Company believes that the combination of present capital resources, internally generated funds, and unused financing sources are more than adequate to meet cash requirements for the year 2011.

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

General Real Estate Risk

There is a risk that the Company’s property values could go down due to general economic conditions, a weak market for real estate generally, or changing supply and demand. The Company’s property held for sale value, approximately $148.3 million at the end of September 30, 2011, may change due to market fluctuations. Currently, it is valued at our cost, which is significantly below the market value.

Risk Relating to Property Sales

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

Foreign Currency Exchange Rate Risk

The Company conducts all of its business in the People’s Republic of China. All revenue and profit are denominated in RMB. When the RMB depreciates, it may adversely affect the Company’s financial performance.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective.

(b) Changes in Internal Control over Financial Reporting.

During the quarter ended September 30, 2011, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors.

We have no material changes to the risk factors previously disclosed in our Form 10-K, as amended, for the year ended December 31, 2010.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

Exhibit
Number		Description of Exhibit

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

101		The following materials from China Housing Land & Development's Quarterly Report on Form 10-Q for the three months ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited) as of September 30, 2011 and December 31, 2010; (ii) Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2011 and September 30, 2010; (iii) Consolidated Statements of Changes in Shareholders’ Equity (unaudited); (iv) Consolidated Statements of Cash Flows (unaudited) for the three and nine months ended September 30, 2011 and September 30, 2010 and (v) Notes to the Unaudited Consolidated Financial Statements (unaudited).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	China Housing & Land Development, Inc.

November 14, 2011	By:	/s/ Xiaohong Feng
		Xiaohong Feng
		Chief Executive Officer
		(Principal Executive Officer)

November 14, 2011	By:	/s/ Cangsang Huang
		Cangsang Huang
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

China Housing & Land Development, Inc. - FORM 10-Q - November 14, 2011

Attached files

China Housing & Land Development, Inc. Reports