UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON, D.C.
20549



FORM 10-K/A

Amendment No.
2

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal
year ended December 31, 2012



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ____________
to ____________



Commission file number: 001-34065



China Housing & Land Development,
Inc.

(Exact name of registrant as specified
in our charter)



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



1008 Liuxue Road,
Baqiao District

Xi’an,
Shaanxi Province

China 710038

(Address of principal
executive offices) (Zip Code)



86-29-82582632

(Registrant’s telephone number, including
area code)





(Former name, former address and former
fiscal year,

if changed since last report)



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



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



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



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ̈Nox



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.   Yes ̈Nox



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. YesxNo ̈



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



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



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



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



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



The number of shares outstanding of our
common stock as of June 30, 2012, was 35,438,079 shares. The aggregate market value of the common stock held by non-affiliates
(16,925,107 shares), based on the closing market price ($1.97 per share) of the common stock as of June 30, 2012 was $33,342,461.



As of March 31, 2013 the number of shares
of the registrant’s classes of common stock outstanding was 35,086,599.



DOCUMENTS INCORPORATED BY REFERENCE



|Document |  | Parts
    Into Which Incorporated
|-------- |  | ---------------------------------
|         |  |                                  
|None     |  | Not applicable                   











Explanatory Note





| |  | The Company is
filing this Amendment No. 2 to the Original Filing ("Amendment No. 2") to include (a) the reissued report of MSCM for
the December 31, 2011 comparative period, dated March 29, 2012, and MSCM's consent to the inclusion of same, and (b) MNP's updated
report on the December 31, 2012 financial statements and the adjustments described in Note 2 that were applied to restate the
December 31, 2011 and 2010 financial statements, and MNP's consent to the Company's inclusion of same.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Amendment
No.2 relates entirely to the auditors' reports and consents thereon. Amendment No.2 does not contain any additional amendments
to the financial statements on which the auditors' reports have been issued beyond those described in Note 2 of the financial
statements as filed under Amendment No.1.













TABLE OF CONTENT



|SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1                                                                                                               
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------
|                                                      |                                                                                                                 
|PART I                                                |                                                                                                                 
|                                                      |                                                                                                                 
|ITEM 1                                                | BUSINESS (As restated)                                                                                          
|ITEM 1A                                               | RISK FACTORS                                                                                                    
|ITEM 1B                                               | UNRESOLVED STAFF COMMENTS                                                                                       
|ITEM 2                                                | PROPERTIES                                                                                                      
|ITEM 3                                                | LEGAL PROCEEDINGS                                                                                               
|ITEM 4                                                | MINE SAFETY DISCLOSURES                                                                                         
|                                                      |                                                                                                                 
|PART II                                               |                                                                                                                 
|                                                      |                                                                                                                 
|ITEM 5                                                | MARKET FOR REGISTRANT’S COMMON
    EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|ITEM 6                                                | SELECTED FINANCIAL DATA (As restated)                                                                           
|ITEM 7                                                | MANAGEMENT DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (As restated)           
|ITEM 7A                                               | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                  
|ITEM 8                                                | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA (As restated)                                                   
|ITEM 9                                                | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE                        
|ITEM 9A                                               | CONTROLS AND PROCEDURES                                                                                         
|ITEM 9B                                               | OTHER INFORMATION                                                                                               
|                                                      |                                                                                                                 
|PART III                                              |                                                                                                                 
|                                                      |                                                                                                                 
|ITEM 10                                               | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
    GOVERNANCE                                                      
|ITEM 11                                               | EXECUTIVE COMPENSATION                                                                                          
|ITEM 12                                               | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS              
|ITEM 13                                               | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    DIRECTOR INDEPENDENCE                                       
|ITEM 14                                               | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                          
|                                                      |                                                                                                                 
|PART IV                                               |                                                                                                                 
|                                                      |                                                                                                                 
|ITEM 15                                               | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                         
|                                                      |                                                                                                                 
|SIGNATURES                                            | 96                                                                                                              











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



| |  | “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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| |  | “GFA” means gross floor area.
| |  | -----------------------------



This report contains additional trade
names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks
to imply an endorsement of us by such companies, or any relationship with any of these companies.



SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS



This annual report includes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of
historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding
our future financial position, business strategy and plans and objectives of management for future operations. When used in this
filing, the words believe, may, will, estimate, continue, anticipate, intend, expect, and similar expressions are intended to
identify forward-looking statements.



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



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



1







PART I



ITEM 1.  BUSINESS



OUR COMPANY



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



We commenced our operations in Xi’an
in 1999 and have been considered one of the industry leaders and one of the largest private residential developers in the region.
We have experienced significant growth in the past 13 years and have developed over 1.5 million square meters of residential projects.
Through the utilization of modern design and technology, as well as a strict cost control system, we are able to offer our customers
high quality, cost-effective products. Most of our projects are designed by world-class architecture firms from the United States,
Canada and Europe that have introduced advanced “eco” and “green” technologies into our projects.



As we are focusing primarily on the demand
from first time home buyers and first time up-graders in western China, the majority of our apartments range in size from 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 referrals from our existing customers.



We acquire our land reserves and development
sites primarily from the local government, open-market auctions, acquisitions of old factories from the government and acquisitions
of distressed assets from commercial banks. We do not depend on a single method of land acquisition, which enables us to acquire
land at reasonable costs and, generally enables us to generate higher returns 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, management and sale of residential real estate properties to capitalize on the rising demand for real estate from
China’s emerging middle class. We seek 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. For example, in 2011, we entered into the Ankang city market for a residential project. Furthermore, we have
identified certain other cities that possess attractive replication dynamics.



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



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 revenue over the next three to five years.



2







Attractive market opportunity



The real estate market in western China
has grown slower than that of eastern China. We believe the region is well positioned to grow at faster rates for the next few
years due to social and economic factors. 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 in 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 generally have been able to acquire land assets
at prices more reasonable than those obtained by 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 is known for high quality products at cost-effective
prices.



Experienced management team



We have an experienced management team
with a proven track record of developing and expanding our operations. Our four primary officers have more than 70 years of experience
developing residential properties. As a result, we have developed extensive core competencies that are supplemented by in-house
training and development programs. We believe that our management’s core competencies, extensive industry experience and
long-term vision and strategy will enable us to effectively realize growth opportunities.



Greater access to financing through
multiple channels



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



Corporate History



We are a Nevada company and conduct substantially
all of our business through our operating subsidiaries in China. We were incorporated in the state of Nevada on July 6, 2004,
as Pacific Northwest Productions Inc. On May 5, 2006, we changed our name to China Housing & Land Development, Inc. Currently
we own 8 operating subsidiaries, 3 Hong Kong Special Purpose Vehicles (“SPV”) and 3 British Virgin Island
holding companies (“BVI”). The BVI holding companies and Hong Kong SPVs are used as holding companies.



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



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



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



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



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



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



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



On July 28, 2011, we established Ankang
Xinxing Jiyuan Real Estate Development Co., Ltd. (“Jiyuan”).



3











BUSINESS



Overview



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



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



Since its inception, our business model
has proven to be efficient and profitable. We divide each project into five deployment phases, spanning from land acquisition
to after sale services.







Our average project development lasts
over two years and begins to provide us with revenues after three quarters.



Land Acquisition



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



4







Planning & Design



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



Construction



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



Marketing & Pre-Sales



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



After Sales Service



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



Corporate Information



In October 2012, we moved to a new office
building located at 1008 Liuxue Road, Baqiao District, Xi’an, 710038, People’s Republic of China. Our telephone number
at this address is (86-29) 8258-2632 and our fax number is (86-29) 8258-2640.



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



Our Industry



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



Overall Industry Overview



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



The significant growth of the Chinese
economy during the past decade has led to a significant expansion of the real estate industry. This expansion has been supported
by other factors, including increasing urbanization, growing personal wealth, as well as the emergence of the mortgage lending
market. Meanwhile, culturally, as real estate is the most important asset to many Chinese families, it attracts serious attention
from the government. Thus, the Chinese government has imposed a series of policies intended to help the real estate industry to
grow in a rational and healthy fashion. The following table sets forth selected statistics for the overall real estate industry
in mainland China for the periods indicated.



5









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



With the advent of the global financial
crisis in second half of 2008, the Chinese government instituted a number of measures designed to enhance the real estate industry
and stimulate the economy. However, the average selling price of real estate increased dramatically and, in the second half of
2009, the government had to undertake measure to curb real estate prices.



Government Policies



Starting in April 2010, the Chinese central
government introduced a number of polices to restrain housing prices from irrational increases. These polices mainly included
differentiating mortgage purchases interest rates among first, and second home buyers (first time up-graders) and speculators,
limiting housing demand by restricting housing purchases by non-resident buyers, increasing land supply and taxation measures.



On the demand side, the Chinese central
government took the following measures to reduce total demand in the real estate market: Since April 2010, the Chinese central
government increased the mortgage rates for second home buyers to 110% of the benchmark rates and ceased approving third home
mortgages. The down payments amount for second time home purchasers was also increased to up to 50% of the home cost. Further,
though varied in different cities, most Tier I and Tier II cities forbade non-resident home purchases and resident third time
home purchases in order to restrict speculation. In addition, a 20% capital gains tax would be collected for secondary housing
transactions on real estate properties with a holding period of less than five years. A property tax was applied in Shanghai and
Chongqing and will be expanded to cover more cities with large housing stocks.



On the supply side, according to the China
Ministry of Land and Resources, land supply for residential development was planned to increase to 1,726 million square meters
during 2012, an increase of 38% compared with actual land supply in 2011. Social housing construction will accelerate to increase
the housing supplies for first time home buyers. According to the Ministry of Housing and Urban-Rural Development (MOHURD), the
Chinese government will complete 4.7 million new social housing units in 2013, compared with 5 million units in 2012, and begin
construction of 6.3 million units in 2013, compared with 7 million units in 2012.



Apart from adjusting supply and demand,
the central government required local governments to take certain measures to prevent real estate average selling prices (ASP)
from increasing too fast as compared to local GDP growth rates or local income growth rates.



During 2012, the Chinese real estate industry
continued to be heavily influenced by government policies designed to create rational and healthy real estate industry growth.



Although heavily regulated, the Chinese
real estate industry still has strong fundamentals.



Growth Drivers



Western China



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



| | • | “Go West”
                                                                   policy. The “Go West” policy encourages
                                                                   economic development in and population movement to western
                                                                   China, which includes 6 provinces, 5 autonomous regions and
                                                                   1 municipality. These areas comprise 56% of mainland China’s
                                                                   land but only approximately 23% of its population. The policy
                                                                   was issued in 1999, and the plan is divided into 3 phases.
                                                                   Phase I (2001-2010) includes the development of infrastructure
                                                                   (transport, hydropower plants, energy, and telecommunications),
                                                                   enticement of foreign investment, increased ecological protection
                                                                   efforts (such as reforestation), promotion of education, and
                                                                   retention of talent that would otherwise flow to more affluent
                                                                   provinces. Based on improved infrastructure, strategic structuring,
                                                                   and system development from Phase I, Phase II (2011-2030) will
                                                                   foster specialized industry and further facilitate economic
                                                                   growth from industrialization and marketization, etc. Phase
                                                                   III (2031-2050) will further improve living standards for all
                                                                   the residents of western China, especially people in remote
                                                                   areas. As a result, significant foreign and domestic investments
                                                                   in Xi’an and throughout western China are set to support
                                                                   the growth of middle class incomes.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6











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



| | • | Increasing Urbanization
                                                                   in China. The strong demand for residential properties
                                                                   is also driven, in part, by increasing urbanization. The urban
                                                                   population in China has grown significantly over the past 10
                                                                   years, creating higher demand for housing in many cities. In
                                                                   2012, China’s urbanization rate surpassed 52%, reaching
                                                                   52.6%. The central government reiterated the importance of
                                                                   urbanization stimulation in early 2013. The table set forth
                                                                   below shows China’s urban population, total population
                                                                   and urbanization rates.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | New urbanization trends
                                                                   of population to the West. The urbanization rate in
                                                                   Tier II cities is higher than the total population growth of
                                                                   China. Over 300 million urban new comers are expected to need
                                                                   housing in the next two decades. According to data from the
                                                                   Xi’an Statistical Bureau, in 2012 the population of Xi’an
                                                                   was 8.55 million, and the urbanization rate was 71.5%. The
                                                                   government projects the population will increase to 10.7 million
                                                                   and the urbanization rate will reach 80% in 2020.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Source: National
Bureau of Statistics.



| | • | China’s Rapidly
                                                                   Growing Middle-Class Population. China’s
                                                                   current population stands at over 1.3 billion and is expected
                                                                   to reach 1.4 billion by 2026. The middle-class is the fastest
                                                                   growing segment of the population with 130 million people in
                                                                   2006 and is expected to grow to 500 million by 2026. The middle
                                                                   class is currently defined as house-holds with an annual income
                                                                   of between $6,000 and $25,000, with housing the number one
                                                                   expense category. Rapid urbanization and growth in consumer
                                                                   spending coupled with significant growth in disposable income
                                                                   per capita in urban areas (almost tripled from 2005 to 2012)
                                                                   and low levels of home ownership compared to western countries
                                                                   make the middle class a massive driver of the future growth
                                                                   in the Chinese real estate market.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7







| |  | 
| |  | 



Source: Global Demographics, PRC State
Council Development Research Center and National Bureau of Statistics.



Type of Cities in China



According to Chinese Academy of Social
Sciences, China had 118 cities with populations of over 1 million as of the end of 2008. These cities are divided into three categories/tiers.



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



Tier I



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



Tier II



There are over 20 cities viewed as Tier
II cities that have populations over 5 million people. The demand for real estate in Tier II cities is strong. Industrial expansion
and improved infrastructure will support continued urbanization and fuel the growth of the real estate sector in these cities.
However, we do see speculation and high housing prices in many tier II cities, and restrictive policies are enforced in tier II
cities.



Tier III



Tier III cities are seldom affected by
restrictive policies. Demand in such cities is great and mainly from first time home buyers who are encouraged by government policies.
However, we do see increased competition in these cities as more developers expand into these cities to take advantage of the
relatively fewer restrictive policies.



Typically, housing is affordable for consumers
in Tier II and Tier III cities compared to Tier I cities. Disposable income in Tier II and Tier III cities has increased faster
than real estate prices.



| |  | 
| |  | 

Source:
Bureau of Statistics of the above cities



8







Economic Developments



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



The Chinese government has also been instrumental
in stimulating regional growth by designating certain Tier II regions as priority zones. These actions are benefitting Xi’an,
our primary market.



City of Xi’an



Background



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



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



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



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



Emerging as an International City



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



9







Xi’an Real Estate Market



Strong fundamentals



During 2012, the GDP of Xi’an increased
11.8% to RMB 436.9 billion (US$69.4 billion). Average urban disposable income increased to RMB 29,982 (US$4,759), a real increase
of 12.3% compared with that of 2011. Real estate investment in 2012 totaled RMB 128.2 billion (US$20.3 billion), an increase of
28.6%.



We believe that demographic and economic
factors, including the emerging high-tech industries and the increasing influx of foreign capital will stimulate Xi’an’s
future growth. In 2012, the Xi’an population was 8.6 million people; the average urban living area per person was 33 square
meters. Despite the solid economic growth and rising housing demand, average real estate prices in Xi’an are still less
than half of those in the mega cities such as Shanghai, Beijing and Shenzhen.



Xi’an: Growing, leading, and
still affordable



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



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



2012 Real estate market impacted by
government policies



During 2012, the central government continued
restrictive policies on the real estate market. Most cities saw slower real estate investment, stable or reduced transaction volumes
and average selling prices, and some cities even experienced reduced average selling prices. Through enforcement of affordable
housing investment, the central government intended to restructure the real estate market in China. As a Tier II city, Xi’an
implemented all the restrictive policies required by the central government. In late February of 2011, Xi’an’s local
government put forward local restrictive policies limiting housing purchases. Additionally, Xi’an’s local government
required that the average selling price increase of newly built residential products should be less than 15%, and such an increase
must not surpass Xi’an’s GDP growth rate and disposable income growth rate. During 2012, the Xi’an local government
carried out an additional policy limiting real estate profit margin to 10%. However, compared with other tier I and tier II cities,
Xi’an’s restrictive policies were characterized as fairly mild.



2012 Xi’an Market update



Overall, the restrictive policies resulted
in lower transaction volumes during the year. According to E-House (China), Xi’an’s transaction volume reached 11.6
million square meters in 2012, representing a 26.6% decrease as compared with that of 2011. Average selling price increased 4.0%
from RMB 7,324 to RMB 7,619 per square meter.



10











According to a Chinese Real Estate Investment
Council’s (the “CRIC”) research report, the supply outpaced the demand in Xi’an’s real estate market
in 2012. This imbalance has caused an increase in market inventory to 11.7 million square meters, which would take 12 months to
destock. Generally, under rebounding demand and restrictive policies, Xi’an real estate market was stable in both transaction
volume and average selling price.



2013 Xi’an Real Estate Market
Outlook



We believe that these government policies
will still play an important role in Xi’an’s real estate market. The central government will continue restrictive
policies and tighten credit policies, but the local government will take certain measures to boost local GDP and local government
fiscal revenue. Additionally, we saw customer hesitation created by government policies starting to decline with increased demand
from first time home buyers. In general we believe the real estate market in Xi’an will be stable in 2013.



City of Ankang and Ankang Real Estate
Market



Ankang city is located 260 kilometers
to the south of Xi’an, has a population of over 2.6 million. According to the Ankang Bureau of Statistics, during 2012,
Ankang’s GDP totaled RMB 51.3 billion (US$8.1 billion) with a year over year growth rate of 15.2%, ranking it second in
Shaanxi Province. Average urban disposable income achieved US$3,222 with a growth rate of 16.9%.



Real Estate in Ankang is much less subject
to restrictive policies compared with tier I and tier II cities. Real estate purchases in Ankang are mainly from first time home
buyers. During 2012, the average selling price of real estate in Ankang was about RMB 4,500 (US$714) per square meter, compared
with RMB 7,619 (US$1,209) in Xi’an. Given the lower cost of labor and materials, real estate development in Ankang could
achieve around 30% gross margins, which is on the same historical level as projects we have completed in Xi’an.



Competitive Landscape



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



11







|        |  | Registered Capital (million) |       |  | Experience (years) |   |  | Developed Area (square
    feet) | 
|------- |  | ---------------------------- | ----- |  | ------------------ | - |  | -------------------------------- | 
|Level 1 |  | US$                          | 6.25  |  |                    | 5 |  |                                  | 
|Level 2 |  | US$                          | 2.5   |  |                    | 3 |  |                                  | 
|Level 3 |  | US$                          | 1     |  |                    | 2 |  |                                  | 
|Level 4 |  | US$                          | 0.125 |  |                    | 1 |  |                                  | 



On the national level, there are numerous
Level 1 companies involved in real estate projects across China (to develop in multiple regions a Level 1 status is required).
There are 180 housing and land development companies listed on the Shanghai, Shenzhen and Hong Kong Stock Exchanges. We continued
to see increased competition in the Xi’an real estate market. According to E-house (China), during 2012, the top 10 real
estate companies accounted for 34% of the total market, compared with 33% and 27% in 2011 and 2010, respectively. Most of these
companies are national players, but we are aware of three companies in Xi’an which could be considered to be our direct
competitors in the small to medium sized project sector:



Xi’an Tande co., ltd. (Level 1)
(“Tande”) is one of the largest real estate developers in Xi’an. Tande is a state-owned enterprise that was
established in May 1991 and was subsequently listed on the Shanghai Exchange in 2006. Tande generally undertakes larger scale
projects and has expanded its business into Shengzhen, Suzhou, Shanghai and Tianjin. As Tande is state-owned, it needs to complete
a certain amount of government projects including building public spaces and infrastructure. These requirements can negatively
impact Tande’s profitability.



12







Xi’an Titan Real Estate co., ltd
(Level 1) (“Titan”) was established in 2001 and mainly operates in Xi’an. The company has nine projects on sale
and two projects in the planning phase in Xi’an. The company has recently entered Chengdu, Jinan, Kunshan and Nanjing.



Xi’an Ziwei Development Company
(Level 1) (“Ziwei”) is a state-owned enterprise that was established in 1999. This company has completed eight projects
and has eight projects currently under development. Since Ziwei is controlled by the Xi’an High-Tech Zone Government most
of Ziwei’s developments are located in the northwest section of Xi’an city.



Our Projects



Projects Under Construction



|Project
    Name  |  | Type of
    Projects                  |  | Actual or
    Estimated Construction
    Period |  | Actual or
    Estimated Pre-sale
    Commencement Date |  | Total Site Area (m2) |        |  | Total Gross Floor Area (m2) |  |         | Sold GFA by December 31, 2012 (m2) | 
|----------------- |  | ------------------------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------ |  | -------------------- | ------ |  | --------------------------- |  | ------- | ---------------------------------- | 
|                  |  |                                       |  |                                                 |  |                                                        |  |                      |        |  |                             |  |         |                                    | 
|Puhua Phase Two   |  | Multi-Family residential & Commercial |  | Q2/2010 - Q4/2013                               |  | Q2/2010                                                |  |                      | 47,300 |  |                             |  | 261,090 |                                    | 
|                  |  |                                       |  |                                                 |  |                                                        |  |                      |        |  |                             |  |         |                                    | 
|Ankang Project    |  | Multi-Family residential & Commercial |  | Q2/2012 - Q3/2015                               |  | Q4/2012                                                |  |                      | 74,820 |  |                             |  | 243,152 |                                    | 
|                  |  |                                       |  |                                                 |  |                                                        |  |                      |        |  |                             |  |         |                                    | 
|Park Plaza        |  | Multi-Family residential & Commercial |  | Q1/2012 - Q2/2014                               |  | Q1/2013                                                |  |                      | 44,250 |  |                             |  | 149,822 |                                    | 
|                  |  |                                       |  |                                                 |  |                                                        |  |                      |        |  |                             |  |         |                                    | 
|Puhua Phase Three |  | Multi-Family residential & Commercial |  | Q2/2012 - Q2/2014                               |  | Q1/2013                                                |  |                      | 30,600 |  |                             |  | 129,300 |                                    | 



|Projectname       |  | TotalNumber ofUnits |       |  | Number ofUnits sold byDecember 31,2012 |  |       | EstimatedRevenue($ millions) |  |  | ContractedRevenue byDecember 31, 2012($ millions) |  |  | RecognizedRevenue byDecember 31, 2012($ millions) |      
|----------------- |  | ------------------- | ----- |  | -------------------------------------- |  | ----- | ---------------------------- |  |  | ------------------------------------------------- |  |  | ------------------------------------------------- | -----
|                  |  |                     |       |  |                                        |  |       |                              |  |  |                                                   |  |  |                                                   |      
|Puhua Phase Two   |  |                     | 1,587 |  |                                        |  | 1,026 |                              |  |  | 246.7                                             |  |  |                                                   | 103.3
|                  |  |                     |       |  |                                        |  |       |                              |  |  |                                                   |  |  |                                                   |      
|Ankang Project    |  |                     | 2,121 |  |                                        |  | 106   |                              |  |  | 206.3                                             |  |  |                                                   | 6.9  
|                  |  |                     |       |  |                                        |  |       |                              |  |  |                                                   |  |  |                                                   |      
|Park Plaza        |  |                     | 694   |  |                                        |  | 0     |                              |  |  | 154.0                                             |  |  |                                                   | 0    
|                  |  |                     |       |  |                                        |  |       |                              |  |  |                                                   |  |  |                                                   |      
|Puhua Phase Three |  |                     | 1,899 |  |                                        |  | 0     |                              |  |  | 152.9                                             |  |  |                                                   | 0    



Puhua Phase Two: The construction
of Puhua Phase Two began in the second quarter of 2010. It is one of Puhua’s four projects; it’s total estimated revenue
is $256.5 million. The contract revenue for Puhua Phase Two was $103 million as of December 31, 2012.



Ankang Project: The Ankang project
is located in Ankang city, which is approximately 260 kilometers south of Xi’an in China’s Shaanxi Province. The project
consists of residential buildings and a commercial area. Construction started in the second quarter of 2012, and presales started
in the fourth quarter of 2012, but because it did not meet revenue recognition criteria, we were unable to recognize any revenue
during the fourth quarter of 2012. Total GFA of the project is expected to reach 243,152 square meters. Total projected revenue
is estimated to be $171.9 million.



Park Plaza: In July 2009, the Company
entered into a Letter of Intent to acquire 44,250 square meters of land in the center of Xi’an for the Park Plaza project.
In March 2011, the Company officially acquired the land use right for Park Plaza. The Company intends to develop a large mid-upper
income residential and commercial project on this site, with a gross floor area of 141,822 square meters. The four-year construction
of Park Plaza started in the second quarter 2012. We have started accepting pre-sale purchase agreements 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.



Puhua Phase Three: Puhua Phase
Three project covers 30,600 square meters with a total GFA of 177,193 square meters. We have started pre-sale of Puhua Phase Three
during the first quarter of 2013 and we will start recognizing revenues based on the percentage of completion method.



13







Projects Under Planning and in Process



|Project
    Name            |  | Type of Projects                      |  | Estimated
    Construction Period |  | Estimated
    Pre-sale Commencement |  | Total Site Area(m2) |         |  | Total GFA (m2) |  |         | Total
    Number of Units
|--------------------------- |  | ------------------------------------- |  | --------------------------------- |  | ----------------------------------- |  | ------------------- | ------- |  | -------------- |  | ------- | -------------------------
|Baqiao New Development Zone |  | Land Development                      |  | 2009- 2020                        |  | N/A                                 |  |                     | N/A     |  |                |  | N/A     |                          
|                            |  |                                       |  |                                   |  |                                     |  |                     |         |  |                |  |         |                          
|Puhua Phase  Four           |  | Multi-Family residential & Commercial |  | Q2/2013 - Q4/2014                 |  | Q3/2013                             |  |                     | 61,087  |  |                |  | 263,833 |                          
|                            |  |                                       |  |                                   |  |                                     |  |                     |         |  |                |  |         |                          
|Golden Bay                  |  | Multi-Family residential & Commercial |  | Q2/2013 - Q4/2014                 |  | Q3/2013                             |  |                     | 146,099 |  |                |  | 252,540 |                          
|                            |  |                                       |  |                                   |  |                                     |  |                     |         |  |                |  |         |                          
|Textile City                |  | Multi-Family residential & Commercial |  | Q3/2013 - Q3/2018                 |  | Q3/2014                             |  |                     | 433,014 |  |                |  | 630,000 |                          



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



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



The Xi’an municipal government plans
investments of RMB 50 billion (over $7.6 billion) in infrastructure in the Baqiao New Development Zone. The construction of a
large-scale public wetland park is well underway. It will enhance 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 in the joint venture. The
joint venture is further described in the Puhua section below.



In December 2010, we signed a
preliminary contract with the government disclosing our intention to acquire an additional 107 acre tract of land for another
project. The Company has not acquired the land use right because the government is clearing the land and otherwise making the
land sellable. It is common practice in China for the government to clear all the existing buildings and move all existing
residences prior to selling a tract of land. However, because we signed the preliminary land acquisition agreement with the
government, the Company has first priority to purchase the land. We estimate that we may obtain the land use right for this
piece of land by the end of 2013.



After selling 18.4 acres, placing 79 acres
in the Puhua project and approximately 42 acres in the Golden Bay project and setting aside 107 acres for a future project, approximately
241 acres remain available for the Company to develop in the Baqiao area. The Company has a $42.7 million deposit on land use
rights as of December 31, 2012. The Company intends to utilize this deposit to offset the actual acquisition price of the land
use rights of the 42 acres for Golden Bay, the 107 acres for the future project and the remaining 241 acres of land.



However, the actual acquisition price
for these land use rights will be determined at the time of the actual land use right acquisition by negotiating with the government.
The Company will pay for any additional amount in excess of the $42.7 million deposit according to the final bidding price.



Pursuant to an exclusive development right
agreement, the government is obligated to sell the land to the Company.



Puhua Phase Four: Puhua Phase Four
covers 61,087 square meters with a total GFA of 216,611 square meters. Construction is anticipated to begin in the second quarter
of 2013, and we expect to begin accepting pre-sale purchase agreements in the following quarter.



Golden Bay: The Golden Bay project
is located within the Baqiao project, with a total GFA of 252,540 square meters. The Golden Bay project will consist of residential
buildings as well as a commercial area. Construction was anticipated to begin in the second quarter of 2013, and we expect
to begin accepting pre-sale purchase agreements in the third quarter of 2013. The Company is planning on obtaining the land use
right from the government in April 2013. This will be funded by a private fund company. The estimated price for the land use right
will be around $40 million.



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 2013, and the entire project will take five years.



14







Major Completed Projects with Units
Available for Sale



|Project name         |  | Type ofProjects                       |  | CompletionDate |  | Total SiteArea(m2) |        |  | Total GFA(m2) |  |         | TotalNumber ofUnits |  |  | Number ofUnits sold byDecember 31,2012 | 
|-------------------- |  | ------------------------------------- |  | -------------- |  | ------------------ | ------ |  | ------------- |  | ------- | ------------------- |  |  | -------------------------------------- | 
|Puhua Phase One      |  | Multi-Family residential & Commercial |  | Q4/2012        |  |                    | 47,600 |  |               |  | 137,137 |                     |  |  | 858                                    | 
|JunJing III          |  | Multi-Family residential & Commercial |  | Q4/2012        |  |                    | 8,094  |  |               |  | 52,220  |                     |  |  | 531                                    | 
|JunJing II Phase One |  | Multi-Family residential & Commercial |  | Q4/2009        |  |                    | 39,524 |  |               |  | 142,214 |                     |  |  | 1,215                                  | 
|JunJing I            |  | Multi-Family residential & Commercial |  | Q3/2006        |  |                    | 55,588 |  |               |  | 167,931 |                     |  |  | 1,671                                  | 



Puhua Phase
One: Puhua Phase One is one of Puhua’s four phases. The total estimated revenue for the project is $130 million and
the Company has generated contract revenue of $107 million as of December 31, 2012.



JunJing III: JunJing III is located
near our JunJing II project and the city expressway. It has a GFA of about 52,220 square meters. The project consists of three
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 pre-sales began during the fourth quarter of 2011. The project was completed in the fourth quarter of 2012. As of December
31, 2012, we have recognized $49.5 million in revenue out of $50.2 million in contract sales.



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 $100.8 million. JunJing II Phase Two has been
mostly sold out.



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



Sales and Marketing



Pre-Sales and Sales



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



| | • | the land premium must have
                                                                    been paid in full;
| | - | -----------------------------------------------------------------------------------------------------------------

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

| | • | at least 25% of the total
                                                                    project development cost must have been incurred;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| | • | the progress and the expected
                                                                    completion and delivery date of the construction must be fixed;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the pre-sale permit must have
                                                                    been obtained; and
| | - | --------------------------------------------------------------------------------------------------------------------

| | • | the completion of certain
                                                                    milestones in the construction process, which have been specified
                                                                    by the local government authorities, must occur.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



We benefit from a strong sales and marketing
platform which is complemented by the efforts of professional third party sales agents. As we strive to develop lasting relationships
with our customers, the majority of our sales are generated by recommendations from existing customers. The new sales initiatives
of our sales department generate approximately 60% of our total sales. More than 80% of our customers are first time home buyers.



After-sale Services and Delivery



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



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



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



15







Marketing



As of December 31, 2012, we maintain a
marketing and sales force for our development projects with 26 professionals specializing in marketing and sales. We also train
and use outside real estate agents to market and increase the public awareness of our products and our brand. However, we primarily
let our own sales force represent our brand and our projects rather than rely on third-party brokers or agents as we believe our
own dedicated sales representatives are better motivated to serve our customers and to control the pricing and selling expenses
of our properties.



Quality Control



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



Governmental and environmental Regulations



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



| | • | “Qualification Certificate
                                                                   for Real Estate Development” authorized by the Shaanxi
                                                                   Construction Bureau, effective from December 20, 2009 to December
                                                                   20, 2012. License No: JianKaiQi (2006) 603. The Company has
                                                                   applied for the renewal of the qualification and is waiting
                                                                   for the approval from government and the Company is confident
                                                                   in obtaining the renewal. The housing and land development
                                                                   process is regulated by the Ministry of Construction and authorized by
                                                                   the local offices of the Ministry. Each development project
                                                                   must obtain the following licenses:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | Ø | “Building
                                                                                                                 Permit”
                                                                                                                 authorized by
                                                                                                                 the Committee
                                                                                                                 of Municipal
                                                                                                                 and Rural Construction.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



Employees



As of December 31, 2012, we had 611
employees.



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



16







ITEM 1A. RISK FACTORS



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



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



Risks Related to Our Business



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



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



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



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



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



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



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



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



17







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



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



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

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

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

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

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

| | • | PRC banks are prohibited from
                                                                  accepting properties that have been vacant for more than three
                                                                  years as collateral for a loan.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



Our shareholders may be subject to
substantial dilution.



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



18







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



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



On January 25, 2011, certain investors
requested and the Company’s Board approved the request to convert the $9,763,000 non-convertible portion of the convertible
debt into 1,752,778 common shares with the related warrants exercised on a two-one cashless basis. The conversion became effective
on February 16, 2011.



Since the Company’s registration
statement became effective on February 25, 2011, 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 as of December
31, 2011.



The Company repaid all the convertible debt by the end of 2012.



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



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



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



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



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



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



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



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



19







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



The Company is dependent on third-party
subcontractors, manufacturers, and distributors for all construction services and the supply of construction materials. Construction
services or products purchased from the Company’s five largest subcontractors/suppliers accounted for 27% of the total purchases
for the year ended December 31, 2012. A disruption in the supply of such services and materials will adversely affect our
construction projects.



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



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



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



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



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



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



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



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



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



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



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



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



20







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



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



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



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



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



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



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



Risk Relating to the Residential Property
Industry in China



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



21







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



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



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



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



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



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



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



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



The majority of our revenues and operating
expenses are denominated in Renminbi. The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies
and, in certain cases, the remittance of currency out of China. Pursuant to the Foreign Currency Administration Rules promulgated
on January 29, 1996 and amended on January 14, 1997 and various regulations issued by the Administration for Foreign Exchange
(“SAFE”) and other relevant PRC government authorities, Renminbi is freely convertible only to the extent of current
account items, such as trade-related receipts and payments, interest and dividends. Capital account items, such as direct equity
investments, loans and repatriation of investments, require the prior approval from the SAFE or its local branch for conversion
of Renminbi into a foreign currency such as U.S. dollars, and remittance of the foreign currency outside the PRC. Shortages in
the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to
pay dividends or other payments to us, or otherwise satisfy its foreign currency-denominated obligations. Currently, each of our
PRC subsidiaries and affiliates may purchase foreign exchange for settlement of “current account transactions”, including
payment of dividends to us and payment of license fees and service fees to foreign licensors and service providers, without the
approval of SAFE. However, approval from the SAFE or its local branch is required where Renminbi is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.



22







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



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



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



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



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



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



We face intense competition from other
real estate developers.



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



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



23







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



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



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



In May 2006, the Ministry of Construction,
National Development and Reform Commission, or the NDRC, People’s Bank of China (the “PBOC”) and other relevant
PRC government authorities jointly issued the Opinions on Adjusting the Housing Supply Structure and Stabilizing the Property
Prices, which introduced measures to limit resources allocated to the luxury residential market. For instances, the new measures
require that after June 1, 2006 at least 70% of a residential project must consist of units with a Gross Floor Area (“GFA”)
of less than 90 square meters per unit, and, if it has a unit GFA of 90 square meters or more and the property is purchased for
residence purpose only, the minimum amount of down payment was increased from 20% to 30% of the purchase price of the underlying
property. In September 2007, the PBOC and the China Banking Regulatory Commission issued the Circular on Strengthening the Management
of Commercial Real Estate Credit Facilities, which increased the minimum down payment for any purchase of second or subsequent
residential property to 40% of the purchase price if the purchaser had obtained a bank loan to finance the purchase of his or
her first property. In February 2011, the Xi’an local government increased the minimum down payment for a second residential
property purchase to 60% of the purchase price and restricted any further purchases.



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



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



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



Substantially all purchasers of our residential
properties rely on mortgages to fund their purchases. An increase in interest rates may significantly increase the cost of
mortgage financing, thus affecting the affordability of residential properties. In 2008, the PBOC changed the lending rates five
times. The benchmark lending rate for loans with a term of over five years, which affects mortgage rates, was increased
to 5.94% on August 30, 2010. The PRC government and commercial banks may also increase the down payment requirement,
impose other conditions or otherwise change the regulatory framework in a manner that would make mortgage financing unavailable
or unattractive to potential property purchasers. Under current PRC laws and regulations, purchasers of residential properties
generally must pay at least 20% of the purchase price of the properties before they can finance their purchases through mortgages.
In May 2006, the PRC government increased the minimum amount of down payment to 30% of the purchase price of the underlying
property if such property has a unit GFA of 90 square meters or more and the property is purchased for residence purpose
only. In September 2007, the minimum down payment for any purchase of a second or subsequent residential property was increased
to 40% of the purchase price if the purchaser had obtained a bank loan to finance the purchase of his or her first property.
Moreover, the interest rate for bank loans of such purchases shall not be less than 110% of the PBOC benchmark rate of the
same term and category. In February 2011, the Xi’an local government increased the minimum down payment for a second residential
property purchase to 60% of the purchase price and restricted any further purchases. In addition, mortgagee banks may not lend
to any individual borrower if the monthly repayment of the anticipated mortgage loan would exceed 50% of the individual borrower’s
monthly income or if the total debt service of the individual borrower would exceed 55% of such individual’s monthly
income. If the availability or attractiveness of mortgage financing is reduced or limited, many of our prospective customers
may not be able to purchase our properties and, as a result, our business, liquidity and results of operations could be adversely affected.



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



24







The PRC government from time to time
introduces certain policy and regulatory measures to cool down the real estate market and we have seen the effects of such policies
and regulatory measures in certain cities.



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



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



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



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



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



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



PRC government may issue further restrictive
measures in the future.



On February 25, 2011, Xi’an’s
government put forward a local restrictive policy. The policy prohibits residential housing purchases for 1) non-local residents
who are not able to provide a local tax payment certificate for over one year, and 2) local residents who are already in possession
of two residential units. The policy also limits residential housing purchases for 1) non-local residents, who are able to provide
local tax payment certificates over one year, to only one unit, 2) local residents, who are already in possession of only one
residential unit, to one additional residential unit.



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



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



An increase in interest rates may significantly
increase the cost of mortgage financing, thus affecting the affordability of residential properties. According to a circular issued
in April 2010, financial institutions must determine the applicable loan interest rate and down-payment ratio for non-welfare
residential property according to the following factors: (i) whether the borrower is purchasing a property for the first
time; (ii) whether the borrower is purchasing the property for his/her own use; (iii) whether the property purchased
is an ordinary residential property; and (iv) risk factors including the borrower’s credit records and payment ability.
Increases in mortgage financing costs may dampen people’s desire to purchase residential properties and adversely affect
the real estate market in the PRC.



25







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



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



Risks Related to Doing Business in
China



China’s economic policies could
affect our business.



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



While China’s economy has experienced
significant growth over the past 20 years, such growth has been uneven, both geographically and among various sectors of the economy.
The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some
of these measures benefit the overall economy of China, but they may also have a negative effect on us. For example, our operating
results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations.



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



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



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



Restrictions on currency exchange may
limit our ability to utilize our revenues effectively.



The majority of our revenues and operating
expenses are denominated in Renminbi. The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies
and, in certain cases, the remittance of currency out of China. Pursuant to the Foreign Currency Administration Rules promulgated
on January 29, 1996 and amended on January 14, 1997 and various regulations issued by SAFE and other relevant PRC government authorities,
Renminbi is freely convertible only to the extent of current account items, such as trade-related receipts and payments, interest
and dividends. Capital account items, such as direct equity investments, loans and repatriation of investments, require the prior
approval from SAFE or its local branch for conversion of Renminbi into a foreign currency such as U.S. dollars, and remittance
of the foreign currency outside the PRC. Shortages in the availability of foreign currency may restrict the ability of our PRC
subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency-denominated
obligations. Currently, each of our PRC subsidiaries and affiliates may purchase foreign exchange for settlement of “current
account transactions”, including payment of dividends to us and payment of license fees and service fees to foreign licensors
and service providers, without the approval of SAFE. However, approval from the SAFE or its local branch is required where Renminbi
is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated
in foreign currencies.



26







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



The value of the Renminbi against the
U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and
economic conditions and China’s foreign exchange policies. The conversion of RMB into foreign currencies, including U.S.
dollars, has been based on exchange rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed
its decade-old policy of pegging the value of the RMB solely to the U.S. dollar. Under this revised policy, the RMB is permitted
to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Since the removal of the U.S. dollar
peg, the RMB has appreciated more than 30% against the U.S. dollar. It is difficult to predict how long the current situation
may last and when and how RMB exchange rates may change going forward. Any significant revaluation of the Renminbi may materially
and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S.
dollars we receive from an offering of our common stock into Renminbi for our operations, appreciation of the Renminbi against
the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations.



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



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



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



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



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



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



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



We may face obstacles from the communist
system in China.



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



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



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



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



27







Interpretation of PRC laws and regulations
involves uncertainty.



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



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



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



Risks Related to Our Common Stock



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



Although our common stock trades on the
NASDAQ, a regular trading market for the securities may not be sustained in the future. Market prices for our common stock will
be influenced by a number of factors, including:



| | • | the issuance of new equity securities;
| | - | --------------------------------------

| | • | changes in interest rates;
| | - | --------------------------

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

| | • | variations in quarterly operating
                                                                  results;
| | - | ------------------------------------------------------------------------------------------------------------

| | • | change in financial estimates
                                                                  by securities analysts;
| | - | -----------------------------------------------------------------------------------------------------------------------

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

| | • | investor perceptions of our
                                                                  company and the real estate industry generally; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| | • | general economic and other national
                                                                  conditions.
| | - | -----------------------------------------------------------------------------------------------------------------



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



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



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

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

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



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



Our executive officers and directors and
principal stockholders together beneficially own 24.58% of the voting power of our outstanding voting capital stock. These stockholders
will be able to influence the composition of our Board of Directors, will retain the voting power to influence matters requiring
stockholder approval and will continue to have significant influence over our affairs. This concentration of ownership could have
the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to
obtain control of us, which in turn could have a material and adverse effect on the market price of our common stock or prevent
our stockholders from realizing a premium over the market prices for their shares of our common stock.



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



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



28







As of March 28, 2013, our stock is
quoted on the NASDAQ Stock Market and has a price of $1.5 per share.



Broker-dealer requirements may affect
trading and liquidity.



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



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



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



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



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



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



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



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

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



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



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



29







ITEM 2.  PROPERTIES



Most of the Company’s properties
held as fixed assets are constructed by the Company, held for rental purposes and are adequate for those purposes.



Due to expansion of the Company’s business and additional
recruitment, our current office building is no longer adequate for the Company. The Company moved to a new office building in
October 2012. The new office building has a GFA of about 9,800 square meters and is owned by the Company. Our new office is located
at 1008 Liuxue Road, Baqiao District Xi’an, Shaanxi Province, China 710038.





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



|Name of project     |  | Location                          |  | Subsistence
    area (m2) |        
|------------------- |  | --------------------------------- |  | ------------------------- | -------
|Tsining JunJing I   |  | North Jinhua Road Xi’an City      |  |                           | 15,844 
|Tsining-24G         |  | East Erhuan of Xi’an City         |  |                           | 3,758  
|Tsining JunJing II  |  | Dongzhan Road of Xi’an City       |  |                           | 299    
|Puhua Phase One     |  | South Gongyuan Road of Xi’an City |  |                           | 8,380  
|Puhua Phase Two     |  | South Gongyuan Road of Xi’an City |  |                           | 149,855
|Tsining JunJing III |  | Dongzhan Road of Xi’an City       |  |                           | 1,070  
|Total               |  |                                   |  |                           | 179,206



ITEM 3. LEGAL PROCEEDINGS



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



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



30







PART II



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



Our common stock has traded on the NASDAQ
Capital Market under the symbol CHLN since May 16, 2008. The following table shows, for the periods indicated, the high and low
trading prices of our common stock as reported by the National Quotation Bureau, Inc., from the first quarter of 2011 through
December 31, 2012. Prior to May 16, 2008, our stock traded on the OTCBB market.



|High & Low Stock Price |  | 1st Quarter |      |  | 2nd Quarter |  |      | 3rd Quarter |  |  | 4th Quarter | 
|---------------------- |  | ----------- | ---- |  | ----------- |  | ---- | ----------- |  |  | ----------- | 
|2012                   |  |             |      |  |             |  |      |             |  |  |             | 
|High                   |  |             | 1.41 |  |             |  | 1.97 |             |  |  | 2.00        | 
|Low                    |  |             | 1.03 |  |             |  | 1.41 |             |  |  | 1.22        | 
|2011                   |  |             |      |  |             |  |      |             |  |  |             | 
|High                   |  |             | 3.44 |  |             |  | 2.34 |             |  |  | 1.58        | 
|Low                    |  |             | 1.96 |  |             |  | 1.25 |             |  |  | 0.85        | 



As of December 31, 2012, there were approximately
147 shareholders on record of our common stock, excluding shareholders who have their shares held in street name (by their
stock brokerage firms).



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



Securities Authorized for Issuance
Under Equity Compensation Plans



The table below shows the equity compensation plan information
as of December 31, 2012.



|Equity Compensation Plan Information                             
|-----------------------------------------------------------------
|Plan Category                                                    
|                                                                 
|Equity compensation plans approved by security holders  (1)(2)(3)
|Equity compensation plans not approved by security holders       
|Total                                                            



| | (1) | Represents shares
                                                                                  of common stock available for issuance under
                                                                                  our 2007 Stock Incentive Plan (the “2007
                                                                                  Plan”) and our 2010 Long Term Incentive
                                                                                  Plan (the “2010 Plan”). For a description
                                                                                  of the material items of the 2007 Plan, please
                                                                                  see our registration statement on Form S-1/A
                                                                                  filed with the SEC on November 5, 2009. For
                                                                                  a description of the material items of the 2010
                                                                                  Plan, please see our Information Statement on
                                                                                  Form 14C filed with the SEC on January 20, 2011.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Shares available
                                                                                  for issuance under the 2010 Plan can be granted
                                                                                  pursuant to stock options, stock appreciation
                                                                                  rights, restricted stock, restricted stock units,
                                                                                  unrestricted stock and any other stock-based
                                                                                  award selected by the plan administrators. To
                                                                                  date shares issued pursuant to the 2010 Plan
                                                                                  have been issued as options and restricted stock.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Shares available
                                                                                  for issuance under the 2007 Plan can be granted
                                                                                  pursuant to restricted stock and to date all
                                                                                  issuances under the 2007 Plan have been issued
                                                                                  as restricted stock.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31







ITEM 6. SELECTED FINANCIAL DATA



Summary of operations

(US$ in thousands, except per share
amounts)



|                                              |  | 2012               |         |  | 2011               |   |         | 2010                                  | 
|--------------------------------------------- |  | ------------------ | ------- |  | ------------------ | - | ------- | ------------------------------------- | 
|                                              |  | (Restated – Note2) |         |  | (Restated – Note2) |   |         | (Restated – Note2) (Restated – Note2) | 
|Total revenue                                 |  | $                  | 149,461 |  |                    | $ | 120,793 |                                       | 
|Cost of sales                                 |  |                    | 102,781 |  |                    |   | 90,696  |                                       | 
|Selling, general, and administrative expenses |  |                    | 16,415  |  |                    |   | 13,033  |                                       | 
|Stock-based compensation                      |  |                    | 1,011   |  |                    |   | 211     |                                       | 
|Financing expenses                            |  |                    | 557     |  |                    |   | 1,218   |                                       | 
|Other expenses                                |  |                    | 123     |  |                    |   | 1,381   |                                       | 
|Accretion expense on convertible debt         |  |                    | 955     |  |                    |   | 987     |                                       | 
|                                              |  |                    |         |  |                    |   |         |                                       | 
|Net income                                    |  | $                  | 20,211  |  |                    | $ | 12,369  |                                       | 
|                                              |  |                    |         |  |                    |   |         |                                       | 
|Net earning (loss) per common share - Basic   |  |                    | 0.58    |  |                    |   | 0.36    |                                       | 
|Net eraning (loss) per common share - Diluted |  |                    | 0.57    |  |                    |   | 0.32    |                                       | 



Financial data

(US$ in thousands, except per share
amounts)



|                                          |  | 2012 |         |  | 2011 |  
|----------------------------------------- |  | ---- | ------- |  | ---- | -
|Total assets                              |  | $    | 498,378 |  |      | $
|Total shareholders’ equity                |  |      | 119,612 |  |      |  
|Basic weighted average shares outstanding |  |      | 34,955  |  |      |  
|Diluted weighted average shares           |  |      | 36,548  |  |      |  



32







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



Management’s Discussion and Analysis



FORWARD LOOKING STATEMENTS



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



Critical Accounting Policies and Estimates



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



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



Warrants and derivative liability



As of December 31, 2012, the Company has
approximately $Nil of warrants liability and $Nil of fair value of embedded derivatives on its balance sheet, representing
approximately 0.0% and 0.0% of the total liabilities of the Company, respectively.



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



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



Prior to June 10, 2010, the date of the
Amendment to the Convertible Debt, the Company used the CRR Binomial Lattice Model to assess the fair value of warrants and
embedded derivatives at each reporting period. After the Amendment, since the investor could exercise the warrants on a cashless
basis and receive one common share for every two warrants held, if the investor converts at least 55% of face amount of Convertible
Debt held, in addition to the CRR Binomial Lattice Model, the Company also uses an alternative valuation method (the “Alternative
Model”) to assess the fair value of the warrants. The Alternative Model is based on the share price of the Company at valuation
date and the number of common shares that could result from the two for one cashless exercise. The Company records the warrant
liability based on the higher valuation resulted from either CRR Binomial Lattice Model or Alternative Model at each valuation
date. 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 Company repaid all the convertible debt on December 31, 2012.



33







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



|                                   |  | 2012 |   |  | 2011 |  
|---------------------------------- |  | ---- | - |  | ---- | -
|                                   |  |      |   |  |      |  
|Fair value of warrants liability   |  | $    | - |  |      | $
|Fair value of embedded derivatives |  | $    | - |  |      | $



All of the warrants expired during year 2012 and following
is a summary of the warrant activity:



|                  |  | Number of Warrants Outstanding |            |   | Weighted Average Exercise Price |  
|----------------- |  | ------------------------------ | ---------- | - | ------------------------------- | -
|December 31, 2008 |  |                                | 4,381,980  |   |                                 | $
|Exercised         |  |                                | (370,810   | ) |                                 |  
|Expired           |  |                                | (34,287    | ) |                                 |  
|December 31, 2009 |  |                                | 3,976,883  |   |                                 | $
|Exercised         |  |                                | (35,936    | ) |                                 |  
|Expired           |  |                                | -          |   |                                 |  
|December 31, 2010 |  |                                | 3,940,947  |   |                                 | $
|Exercised         |  |                                | (1,239,816 | ) |                                 |  
|Expired           |  |                                | -          |   |                                 |  
|December 31, 2011 |  |                                | 2,701,131  |   |                                 | $
|Exercised         |  |                                | -          |   |                                 |  
|Expired           |  |                                | (2,701,131 | ) |                                 |  
|December 31, 2012 |  |                                | -          |   |                                 | $



Effect of Change in Estimated Total Contract Sales and Costs



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. During 2012, real estate development projects in gross profits recognized in 2011 had
changes in their estimated gross profit margins. As a result of these changes in gross profit, net income for the year ended
December 31, 2012 increased by $347,706 (2011- decreased by $7,435,711; 2010 – decreased by $2,229,470) and basic and
diluted earnings per share for the year ended December 31, 2012 increased by $0.01 and $0.01, respectively (2011 –
decreased by $0.214 and $0.205, 2010 – decreased by $0.068 and $0.063 in both basic and diluted earnings per
share).



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



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



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



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



When real estate costs are determined
to be impaired, they are written down to their estimated fair value less cost to sell. The Company evaluates the carrying value
for impairment based on the undiscounted future cash flows of the assets. Write-downs of real estate costs deemed impaired would
be recorded as adjustments to the cost basis. There has been no impairment on the real estate inventories and no impairment loss
has been recorded for the years ended December 31, 2012, 2011 and 2010.



The following table summarizes the components
of real estate inventories as of December 31, 2012 and December 31, 2011:



|                                                 |  | 2012 |             |  | 2011 |  
|------------------------------------------------ |  | ---- | ----------- |  | ---- | -
|                                                 |  |      |             |  |      |  
|Real estate projects completed and held for sale |  | $    | 20,715,757  |  |      | $
|Real estate projects held for development        |  |      | 191,656,117 |  |      |  
|Total real estate held for development or sale   |  |      | 212,371,875 |  |      |  



34







Intangible Assets



Intangible asset consists of the following as at December 31,
2012 and 2011:



|                                  |  | 2012 |            |   | 2011 |  
|--------------------------------- |  | ---- | ---------- | - | ---- | -
|Development right acquired (a)    |  | $    | 51,835,211 |   |      | $
|Land use right acquired (b)       |  |      | 8,627,525  |   |      |  
|Construction license acquired (c) |  |      | 1,208,354  |   |      |  
|                                  |  |      | 61,671,090 |   |      |  
|Accumulated amortization          |  |      | (7,188,838 | ) |      |  
|Intangible asset, net             |  | $    | 54,482,252 |   |      | $



| | (a) | The Company purchased the exclusive development
right (the "Intangible") through the acquisition of New Land in 2007. The cost of the Intangible was $51.8 million (323
million RMB) based on the purchase price allocation determined. This Intangible allows the Company to develop projects within a
specified area in the Baqiao District in Xi’an (the “Specified Area”) as defined in the Intangible agreement.
This Specified Area is sub-divided into different land use rights (“LUR”). Under the Intangible agreement, the Company
has preferential right to acquire LURs of land up to 487 acre within this Specified Area from the government. The development right
will expire on June 30, 2016. We expect to acquire the land use right for our Golden Bay project in 2013. A substantial portion
of the 487 acres are not expected to be fully developed until after the 2016 contract expiration date. The actual purchase price
of the LURs to be acquired through the Intangible is also expected to be significantly lower than the fair market value of the
LUR when traded in the open market.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company amortizes the Intangible when
it acquires a LUR within the Specified Area and the amortization of the Intangible is determined by calculating the profit that
the specific LUR may generate over the total estimated profit of the Intangible and applying this percentage to the Intangible.
The Company records the amortized Intangible into real estate held for development or sale as a component of the cost of the related
project and allocates it to each building based on the gross floor area ("GFA") of each building. When the units within
the project are sold, the related capitalized amortization will be expensed as part of cost of real estate sales. This amortization
policy ensures the amortization matches the realization of the economic benefit of the Intangible when the actual LUR is developed
into condo projects and related revenue is recognized with the Company percentage of completion method.                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The following table summarizes the information
and assumptions used by the Company to amortize the Intangible at the time LURs were acquired. The table also includes forward
looking information that may be used by the Company for future amortization when future LURs are obtained:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     





|                                                                                   | 2007      | 2009     | 2013           | 2014         | Beyond 2014
|---------------------------------------------------------------------------------- | --------- | -------- | -------------- | ------------ | -----------
|                                                                                   | Land Sale | Puhua    | Golden Bay (1) | Textile City | Remaining  
|Acre (gross)                                                                       | 31        | 79       | 48 (5)         | 107 (5)      | 222 (5)    
|Gross Profit* from Intangible Agreement
        
        (numerator – in millions) | $16.5     | $63.7    | TBD (5)        | TBD (5)      | TBD (5)    
|Total Estimated Gross Profit*
        
        (Denominator – in millions)         | $701 (2)  | $701 (2) | $190 (4)       | $190 (4)     | $190 (4)   
|Percentage                                                                         | 2.4% (2)  | 9.3% (3) | TBD (5)        | TBD (5)      | TBD (5)    





* Gross profit referred to the price difference
between the estimated fair market value of the LUR and the estimated purchase price.





35









| | 1) | The Company signed the LUR acquisition agreement with the government on November 5, 2013 and expect
to close the acquisition before the end of 2012.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | When the Company entered into the New Land acquisition in March 2007, it was the Company’s
intention to sell part of the land and retain the remaining portion for our own projects. We estimated the total cost and gross
profit based on the then current market conditions and determined that the total estimated profit from utilizing the Intangible
would be approximately $168.9 million. As a result of the dedication by the Xi’an government to develop the Baqiao District,
the real estate price increased substantially. We were able to sell 31 acre of land at $28 million and realized a gross profit
of approximately $16.5 million, representing about 58% gross margin. Based on the high margin that we were able to realize through
the LUR sale, we revised our estimated gross profit from $168.9 million to $701 million at the 2007 year end. The gross profit
from this land sale was calculated as 2.4% of the total estimated gross profit from the whole 487 acre project. $1.2 million (2.4%)
of Intangible was amortized through the Company’s consolidated income statement.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | During 2009, we acquired the LUR of a 79 acre parcel of land for the Puhua project for $46 million
and the estimated fair market value was $109 million. Based on the $30 million invested by Prax on Puhua project for the 25% interest
in Puhua, for which at the time only had the LUR just acquired. The $63 million gross profit was determined as 9.25% of the total
estimated gross profit at the time of Puhua LUR acquisition and $4.6 million (9.25%) of Intangible was amortized and capitalized
into real estate held for development or sale, specifically, the construction in progress (“CIP”) of Puhua. As revenue
is recognized on the percentage of completion basis, the CIP (including the Amortized Intangible) is expensed through cost of real
estate sales based on the same percentage of completion revenue recognition calculation.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In each of years 2010 through
2012, the Amortized Intangible that was included in the cost of real estate sales are as follows:



| | · | 2010 – $461,819 (or 3.12 million RMB)
| | - | -------------------------------------

| | · | 2011 – $547,876 (or 3.54 million RMB)
| | - | -------------------------------------

| | · | 2012 – $645,264 (or 4.07 million RMB)
| | - | -------------------------------------



| | 4) | Since 2010, the Chinese government initiated a series of restriction policies aiming to cool down
the overheated real estate market. The Xi’an local government rolled out the local version of restriction policies. This
increased the uncertainty of securing LUR for potential projects under the intangible agreement. Although it has always been the
Company’s intention to fully utilize the exclusive right, we decided in 2011 to amortize the intangible only over the projects
which we have commenced negotiation and pre-acquisition procedures. Based on the current market conditions and estimates, the total
estimated gross profit from these projects may be revised to approximately $190 million from $700 million when future LURs are
obtained through the Intangible. Future Intangible amortization will be based on the new estimation on a prospective basis.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





36







| | 5) | The information will be determined when the actual acquisition is closed.
| | -- | -------------------------------------------------------------------------



The Company has a $42.7
million deposit on LURs as of December 31, 2012. The Company will utilize this deposit to offset the actual land use right
acquisition price of the LURs of the 48 acre for Golden Bay and the 107 acre for the Textile City projects. We currently do
not have specific development plans for the remaining 222 acre of land under the Intangible agreement. We will continue the
discussion with local government to locate potential projects. As part of our periodic reporting procedures, we review and
update our estimates total gross profit depending on the market conditions. Once we are able to secure a new project under
the Intangible agreement, we will adjust the amortization table accordingly.



The Company did not acquire any new land
use right with the intangible assets during fiscal 2010, 2011 and 2012. The expected development period is between 2009 and 2020.
The company will further negotiate with the government on acquiring more land use rights within this area.



The Company also assesses impairment and
determines that the expected future profit of $109 million from the exclusive right is still well above the carrying value and
concludes no impairment is required.



| | (b) | The land use right was acquired through
                                                            acquisition of Suodi. The land use right certificate will expire at
                                                            November 2048. The Company amortizes the land use right over 39 years
                                                            starting from the date of acquisition. For the year ended December 31, 2012,
the Company has recorded $218,480 amortization expense on land use right (2011 and 2010 - $213,274 and $207,029, respectively).
The amortization was included in selling, general and administrative expenses.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 future.
                                                            The license will be subject to renewal on January 1, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company evaluates its intangible asset
for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Based on the discounted
estimated future cash flows, the Company will record a write-down for impairments if the discounted cash flows are over the carrying
value of the intangible asset. No impairment write-down was recognized for December 31, 2012, 2011 and 2010.



Deposits on land use rights



|                            |  | 2012 |            |  | 2011 | 
|--------------------------- |  | ---- | ---------- |  | ---- | 
|                            |  |      |            |  |      | 
|Deposits on land use rights |  |      | 42,748,017 |  |      | 



The Company conducts regular reviews of
its deposits on land use rights. After review and assessment, the Company concluded that there were no significant decreases in
market prices and therefore no impairment write-downs were required.



Income producing properties



The total rental income (cash inflow)
from leasing the Tsining JunJing I commercial retail property was RMB 5.0 million during 2012 compared with RMB 2.9 million during
2011. Based on the RMB 5.0 million of net cash receipts in 2012, it will take the Company approximately 15 years to recover the
RMB 74 million carrying value of the asset. There was no cash outflow in connection with the maintenance and repair of the property.
The annual amortization of this property is RMB 3 million (non-cash item) per year over 30 years.





We do not believe the property
cannot be sold with reasonable effort. Many potential customers have shown their interest in buying this property. However,
we have signed lease agreements with several parties and the longest term amongst these agreements does not expire until year
2022. We may not be able to sell the property before the expiration date of the lease agreements. In addition, the Company
currently uses this property as  collateral for loans outstanding and due to the nature of our operation, we will likely use
this property as collateral again in the future.



We assess whenever events or changes in
circumstances indicate that the carrying amount of this property may not 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.



During the fourth quarter of 2012, we
sold 7,367 square meters of JunJing I commercial property for RMB 94.3 million. The carrying value of the sold property was only
RMB 52.8 million. Therefore, we believe there is no impairment for the commercial property. The remaining commercial property
has a GFA of 5,371 square meters, with a carrying value of RMB 38.5 million. The market selling price of properties like Tsining
JunJing I commercial retail property was much higher than its cost when we reclassified it from inventory to fixed assets. Thus,
our assessment does not show any impairment to the carrying value of the property.



We are also generating income from other income producing properties.



37







Material trends and uncertainties that
may impact our continuing operations



Changes in national and regional economic
conditions, as well as local economic conditions where we conduct our operations and where prospective purchasers of our homes
live, may result in more caution on the part of homebuyers and consequently fewer home purchases. According to E House (China)
Real Estate Research Institute the average residential sale price in Xi’an city was stable in the fiscal year ended December
31, 2012. The average sale price increased to 7,619 RMB per square meter (approximately US$ 1,209 per square meter) from 7,324
RMB in 2011, representing about 4% year-on-year growth.



Most 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. Additional government 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
average selling price 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 hesitation amongst potential new customers, and could impact
our revenues.



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



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



As of December 31, 2012, we had $6,121,448
of cash, compared to $22,014,953 as of December 31, 2011, a decrease of $15,893,505.



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



CONSOLIDATED OPERATING RESULTS



Fiscal Year Ended December 31, 2012
Compared With 2011



Revenues



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



The revenues from our real estate sales
in the year ended December 31, 2012, increased 10% to $115.3 million from $104.8 million as compared to the same period of 2011.
We believe the primary reasons for the increase were stable sales and increased revenue recognition due to higher percentage of
completion. Our JunJing III project, Puhua Phase One and Phase Two projects continued serving as main revenue contributors during
the year.



|                                             |  | 2012                    |             |  | 2011                    | 
|-------------------------------------------- |  | ----------------------- | ----------- |  | ----------------------- | 
|Revenues by project:                         |  | (Restated – Note
    2) |             |  | (Restated – Note
    2) | 
|US$                                          |  |                         |             |  |                         | 
|Project Under Construction                   |  |                         |             |  |                         | 
|Puhua Phase Two                              |  |                         | 54,683,137  |  |                         | 
|Completed Project                            |  |                         |             |  |                         | 
|JunJing III (Under construction in 2011)     |  |                         | 28,266,126  |  |                         | 
|Puhua Phase One (Under construction in 2011) |  |                         | 27,295,509  |  |                         | 
|Tsining JunJing II Phase Two                 |  |                         | -           |  |                         | 
|Tsining JunJing II Phase One                 |  |                         | 3,256,293   |  |                         | 
|Tsining JunJing I                            |  |                         | 1,779,466   |  |                         | 
|Additional Projects                          |  |                         | 18,897      |  |                         | 
|Revenues from the sale of properties         |  | $                       | 115,299,428 |  |                         | 



38







The following table summarizes details
of our most significant projects:



|Revenues by project:                            |  | 2012
    (Restated –     Note 2) |            |  | 2011 (Restated –
    Note 2) | 
|----------------------------------------------- |  | -------------------------------- | ---------- |  | ---------------------------- | 
|US$                                             |  |                                  |            |  |                              | 
|Puhua Phase One contract sales                  |  |                                  | 15,961,741 |  |                              | 
|Revenue                                         |  |                                  | 27,295,509 |  |                              | 
|Total gross floor area (GFA) available for sale |  |                                  | 137,137    |  |                              | 
|GFA sold during the period                      |  |                                  | 12,024     |  |                              | 
|Remaining GFA available for sale                |  |                                  | 8,471      |  |                              | 
|Percentage of completion                        |  |                                  | 100        |  |                              | 
|Percentage GFA sold during the period           |  |                                  | 8.8        |  |                              | 
|Percentage GFA sold to date                     |  |                                  | 93.9       |  |                              | 
|Average sales price per GFA                     |  |                                  | 1,327      |  |                              | 
|                                                |  |                                  |            |  |                              | 
|Puhua Phase Two contract sales                  |  |                                  | 38,575,942 |  |                              | 
|Revenue                                         |  |                                  | 54,683,137 |  |                              | 
|Total gross floor area (GFA) available for sale |  |                                  | 261,090    |  |                              | 
|GFA sold during the period                      |  |                                  | 41,652     |  |                              | 
|Remaining GFA available for sale                |  |                                  | 141,461    |  |                              | 
|Percentage of completion                        |  |                                  | 72.32      |  |                              | 
|Percentage GFA sold during the period           |  |                                  | 16.0       |  |                              | 
|Percentage GFA sold to date                     |  |                                  | 45.8       |  |                              | 
|Average sales price per GFA                     |  |                                  | 926        |  |                              | 
|                                                |  |                                  |            |  |                              | 
|JunJing III contract sales                      |  |                                  | 19,667,356 |  |                              | 
|Revenue                                         |  |                                  | 28,266,126 |  |                              | 
|Total gross floor area (GFA) available for sale |  |                                  | 52,220     |  |                              | 
|GFA sold during the period                      |  |                                  | 17,350     |  |                              | 
|Remaining GFA available for sale                |  |                                  | 957        |  |                              | 
|Percentage of completion                        |  |                                  | 100        |  |                              | 
|Percentage GFA sold during the period           |  |                                  | 33.2       |  |                              | 
|Percentage GFA sold to date                     |  |                                  | 98.1       |  |                              | 
|Average sales price per GFA                     |  |                                  | 1,134      |  |                              | 



Revenues from projects under construction



Puhua Phase Two



Puhua Phase Two consists of 12 middle-rise
and high-rise buildings and Garden Houses with total expected revenues of approximately $245.6 million. During 2012, we secured
$38.4 million contract sales and recognized $54.7 million revenue.



Revenues from projects completed



During 2012, we recognized
$60,616,291 in revenue from completed projects compared with $10,857,198 in the same period of 2011. Puhua Phase One and
JunJing III project were completed by the end of 2012. Recognized revenue from these two projects are hence classified as
revenues from projects completed. The completed projects also included Tsining JunJing I, and JunJing II Phase One and Phase
Two. Typically we hold and lease commercial units of completed projects to generate rental income. As the market prices for
the retail units go up, we accelerate our marketing plan and liquidate commercial units of completed projects.



Puhua Phase One



Phase One consists of 13 middle-rise and high-rise buildings
and Garden Houses. During 2012, we were able to secure $16 million in contract sales and recognize approximately $27.3 million.



JunJing III



JunJing III is located near our JunJing
II project and the city expressway. It has an expected total GFA of about 52,245 square meters. The project will consist
of three 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 pre-sales began during the fourth quarter of 2011. During 2012, we recognized $28.3 million revenue with contract
sales totaling $19.7 million.



39







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 $34.2 million in other income for
the year ended December 31, 2012 compared with $16.0 million in the same period of 2011. During the fourth quarter of 2012, we
recognized $6.2 million other income from commercial property, which was recorded as part of our building and equipment sale.
Construction of Ankang project also contributed to other income. The 104.3 percent increase is detailed in the following table:



|                                           |  | 2012 |            |  | 2011 |   |            | 2010 | 
|------------------------------------------ |  | ---- | ---------- |  | ---- | - | ---------- | ---- | 
|Interest income                            |  | $    | 160,597    |  |      | $ | 200,136    |      | 
|Rental income                              |  |      | 910,406    |  |      |   | 974,589    |      | 
|Income from property management services   |  |      | 4,209,386  |  |      |   | 3,571,934  |      | 
|Gain on disposal of property and equipment |  |      | 6,086,257  |  |      |   | 2,138,062  |      | 
|Construction contract income               |  |      | 22,321,169 |  |      |   | 7,302,791  |      | 
|Miscellaneous income                       |  |      | 473,463    |  |      |   | 1,804,959  |      | 
|Gain on disposal of assets held for sale   |  |      | -          |  |      |   | -          |      | 
|Total                                      |  | $    | 34,161,458 |  |      | $ | 15,992,471 |      | 



Cost of real estate sales



The cost of properties and land for
the year ended December 31, 2012 decreased 2 percent to $78.6 million compared with $80.2 million in the same period of 2011.
The decrease in cost is due to improved cost control in 2012. We had three projects under construction during 2012, including
Puhua Phase One, Puhua Phase Two, and JunJing III among of which Puhua Phase One and JunJing III were completed at the end of
2012.



Gross profit and profit margin



Gross profit for the year ended December
31, 2012 was $46.7 million, representing an increase of 55.1 percent from $30.1 million in the same period of 2011. The
gross profit margin for the year ended December 31, 2012 was 31.2 percent compared with 24.9 percent in the same period of
2011. The increase in the gross profit margin was due to a number of reasons. Despite a change of estimate in the third quarter
of 2012 that dragged down gross margin, the increase in average selling price in our projects and commercial sales recognition
during the fourth quarter of 2012 boosted our full year gross margin.



Meanwhile, lower gross margin in the fourth
quarter of 2011 was primarily attributed to the following factors: All permits were obtained for JunJing III in the fourth quarter
of 2011. As a result, a substantial amount of revenue was recognized for JunJing III during this quarter. JunJing III has approximately
25.5% margin, which is slightly lower than the historical JunJing II margin. This decrease was due to an increase in general construction
cost and lower expected future sales contracts when compared with our previous projects. Puhua’s gross margin was also lower
in the fourth quarter of 2011. This decrease was primarily due to the sales of parking spaces, which traditionally only have approximately
4% to 6% margins. In addition, the Company lowered its projected amount of future contracts given the current PRC real estate
environment and increased its estimated costs in consideration of cost overruns experienced at JunJing II during the second quarter
of 2011. These factors significantly lowered Puhua’s margin for the fourth quarter of 2011.



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. There was no significant change in estimates during 2012 that would significantly impact the revenue
and cost of goods sold recognized. During 2012, real estate development projects with gross profits recognized in 2011 had changes
in their estimated gross profit margins. As a result of these changes in gross profit, net income for the year ended December
31, 2012 decreased by $347,706 (2011- decreased by $7,435,711; 2010 – decreased by $2,229,470) and basic and diluted earnings
per share for the year ended December 31, 2012 increased by $0.01 and $0.01, respectively (2011 – decreased by $0.214 and
$0.205, 2010 – decreased by $0.068 and $0.063 in both basic and diluted earnings per share).



Selling, general and administrative
expenses



SG&A for the year ended December
31, 2012 increased 26.2 percent to $16.4 million from $13 million in the same period of 2011. The ratio of SG&A to total revenues
for the year increased to 10.98% in 2012 from 10.79% in 2011. The increase in SG&A was mainly due to the increased marketing
and administrative expenses related to the new projects associated with increased sales revenue. Increased employee salaries also
contributed to the higher administrative expenses.



Stock-based compensation



On June 13, 2011, the Company granted
options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options is determined
by 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 optionee’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 Company also issued common stock to
directors and managements to compensate their services. The common stock was valued base on the closing price of the shares on
the grant date.



Compensation expense for stock options
and common stock issued is recognized over the vesting period. During the year ended December 31, 2012, compensation expense was
$1,010,875 compared with $210,696 in the same period of 2011. The expense was recognized in consolidated statements of income.



40







Other expenses



Other expenses consist mainly of
late delivery settlements and maintenance costs and other miscellaneous expenses. Other expenses in the year ended December 31,
2012 decreased 91.1 percent to $122,651 compared with $1,380,517 in the same period of 2011. The high other expense during 2011
was mainly because the government was not able to refund business taxes of approximately $0.59 million as we previously expected,
and we wrote it off during that year.



Finance expense



Interest expense for the year ended December
31, 2012 decreased 54.3 percent to $0.6 million from $1.2 million for the year ended December 31, 2011. This decrease in finance
expense was due to reduction in bank processing fees.



Change in fair value of embedded derivative



Embedded derivatives are related to the
Company’s $20 million convertible debt offering that was completed in January 2008 and paid off at the end of 2012. The
change in the fair value of embedded derivatives is a periodic adjustment to the estimated cost to the Company, which is 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.



The company recorded a gain of $330,628
from the change in the fair value of embedded derivatives for the year ended December 31, 2012 compared with a gain of $1,697,097
in 2011.



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. The Company chose to use
the Cox-Ross-Rubinstein Binomial Lattice valuation model to estimate their fair value.



The change in the fair value of the warrants resulted
in a $4,162 gain for the year ended December 31, 2012, compared to $1.1 million gain during the same period of 2011, which
was a result of the periodic adjustment to the estimated cost to the Company to provide the common shares, assuming that all of
the warrants will be exercised sometime in the future. The basis for estimating the cost to provide the common shares was provided
by the valuation model. The CRR model depends on the following assumptions: the Company’s common stock price underlying
the warrants; strike price; expected life; expected volatility; risk free interest rate; and dividend rate. The change in fair
value of embedded derivatives during 2012 was mainly due to shortened expected life of embedded derivatives, decreased warrants
number and lower volatility. All warrants expired at the end of 2012.



Provision of income taxes



The provision for current income taxes
for the year ended December 31, 2012 was $7.7 million compared with $3.7 million for the year ended December 31, 2011. The increase
was mainly due to the increase in net income from business operations.



Net income



Net income for the year ended December
31, 2012 increased 62.9 percent to $20.2 million from $12.4 million in the same period of 2011. The increase in net income
was mainly due to increased revenue and improved gross margin during the fiscal year ended December 31, 2012. In addition, in
spite of lower gain from change in fair value of embedded derivatives and warrants, the reduction in other expense and financing
expense also contributed to higher net income during 2012.



Basic and diluted earnings per share
(“EPS”) attributable to China Housing & Land Development, Inc.



Basic EPS attributable to China Housing
& Land Development, Inc. was $0.58 for the year ended December 31, 2012, compared to $0.36 in the same period of 2011.
Diluted EPS attributable to China Housing & Land Development, Inc. was $0.57 for the year ended December 31,
2012, compared to $0.32 for 2011. The number of shares outstanding did not change significantly from year to year.



41







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



The weighted average shares outstanding
used to calculate basic EPS attributable to China Housing & Land Development, Inc. was 34,954,909 shares in
the year ended December 31, 2012 and 34,741,511 shares in the same period of 2011. The weighted average shares outstanding used
to calculate the diluted EPS attributable to China Housing & Land Development, Inc. was 36,548,485 shares in the year
ended December 31, 2012 and 36,357,220 shares for 2011.



Foreign exchange



The Company operates in China and the
functional currency is Chinese Renminbi (“RMB”) but the reporting currency is the U.S. dollar, based on the exchange
rates of the two currencies. The fluctuation of the exchange rate during 2012 and the same period of 2011, when translating the
operating results and financial positions at different exchange rates, created the accrued gain (loss) on foreign exchange. The
gain on foreign exchange for the year ended December 31, 2012 was $1,471,275, compared with a gain of $6,764,194 in 2011.



Cash flow discussion



There was a net cash outflow of $15,622,566
for the year ended December 31, 2012 compared with a $27,782,184 cash outflow during the same period of 2011.



The cash inflow amounts in financing activities
decreased to $3.5 million for the year ended December 31, 2012 compared to an inflow of $36.6 million in the same period of 2011.
The decrease was caused by the repayment of bank loans totalling $123.7 million during 2012 and repayment of convertible debts
amounting to $9.6 million in the fourth quarter of 2012.



There was a cash outflow of $9.2 million
from investing activities in 2012, compared with a cash outflow of $70.1 million for the same period of 2011. The decrease was
primarily due to change of restricted cash of $4 million compared with $68.4 million in 2011. Such change in restricted cash was
due to reallocating non-restricted cash to restricted cash as part of loan arrangements in 2011. During 2012, we received $5.5
million from the sale of commercial property of JunJing I which was classified as property and equipment, and had $3.1 million
from proceeds from sales of property and equipment during 2011.



There was a cash outflow of $9.8 million
for operating activities in the year ended December 31, 2012 compared with a $5.7 million inflow in 2011. The difference is primarily
attributable to the $76.7 million of construction costs incurred in our real estate projects compared with $57.2 million during
2011. As we had more projects under construction compared to 2011, we incurred greater cash outflow to fund the construction.
Also during 2011, there was an decrease in advances from customers, which represented a $9.5 million cash inflow compared to a
$3.2 million inflow during 2012. Higher net income of $20.2 million also generated more operating cash during 2012 compared with
a net income of $12.4 million during 2011. Increases in other receivable and prepaid expense also contributed to decreased operating
cash outflow.



The U.S. holding company may require operational
funding, from time to time, to pay various professional fees, such as directors’ compensation, etc. The current PRC government’s
control on convertibility of RMB to U.S. dollars does not apply to paying for the operating expenses so long as the Company can
present valid invoices and/or agreements to the Administration for Foreign Exchange.



Our PRC subsidiaries have never declared
or paid dividends or made other equity distributions to the U.S. holding company.



The ratio of receivables to sales was
23 percent as of December 31, 2012 and 19 percent as of December 31, 2011. The change in ratio of receivables to sales does not
represent the deterioration in the credit quality of our receivables or a change in our revenue recognition policies. In general,
the Company does not recognize revenues until all permits including pre-sales permits are obtained. Other than the down payments
made by customers upon the signing of the sales agreements, most of the balances from the sales are receivable through mortgage
financings. Usually, the mortgage approval process ranges from two month to six months, depending on the bank’s credit limit
and customer credit worthiness. Account receivables are determined by bank mortgage approval process. The longer the banks take
to approve customer mortgages, the greater our account receivables are.



Debt leverage



Total debt consists of loans
payable, loans from employees, convertible debt and mandatorily redeemable non-controlling interests in subsidiaries.



Total debt outstanding as of December
31, 2012 was $202.6 million compared with $198 million in 2011.



Net debt outstanding (total debt
less cash and cash equivalents and restricted cash) as of December 31, 2012 was $85.9 million compared with $71.1
million as of December 31, 2011. The Company’s net debt as a percentage of total capital (net debt plus
shareholders’ equity) was 41.7 percent on December 31, 2012 and 42.3 percent on December 31, 2011.



42







Liquidity and capital resources



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



As of December 31, 2012, we had $6,121,448
of cash compared with $22,014,953 of cash as of December 31, 2011, a decrease of $15,893,505. Our cash flow from financing activities
provided $3,470,923 for the year ended December 31, 2012 compared with an inflow of $36,606,082 for the year ended December
31, 2011. Along with progress in projects, we expect to see positive cash inflows from these internally generated cash flows
be used to fund part of our projects in the pipeline.



By the end of 2012, the Company has repaid various loans as
shown in the following table:



|Loan             |  | Amount      |  | Source
    of repayment                                                                                           
|---------------- |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------
|JP Morgan        |  | $30 million |  | Loans from equity
    fund company and Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”, a related party)
|Convertible debt |  | $9 million  |  | Payment and deposits from real estate sales                                                                       
|Prax Capital     |  | $29 million |  | Payment and deposits from real estate sales                                                                       



Our ordinary payments such as construction
costs, selling and administration expenses are funded by payments and deposits from our real estate sales as well as financing,
and our land acquisition costs are mainly funded through financing. The Company has several new projects in 2013 including Ankang,
XinQinFang and Golden Bay projects and we expect the deposits and payments from the pre-sales and sales of these projects will
be a significant funding source for our operations and up-coming obligations. The Company also borrows from Days Hotel, our management
employees, and some related and unrelated funding companies to fund our daily operations and other obligations. With the above
arrangements, we will be able to meet all our financial obligations over the next 12 months.



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 2013.



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 as well as equity financing mainly from local banking institutions with which
we have done business in the past and fund companies. We believe that our relationships with these banks and fund companies 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.



According to our 2013 business plan, the
total cash inflow for the whole year will be approximately US$489 million (RMB 3.04 billion) and total cash outflow will be approximately
US$420 million (RMB 2.6 billion) with a net cash inflow of approximately US$69 million (RMB 0.43 billion). The cash inflow includes
cash generated from sales and financing from banks and fund companies. Despite the trend of decreasing operating cash flows, we
expect the operating cash flow of the Company will improve during 2013 with the sale of more Puhua project and Park Plaza units
and with the commencement of our Golden Bay project. Under the plan, the Company expects to incur new borrowings amounting to
RMB 1.4 billion while repaying RMB 0.4 billion in loans. The plan was made at the beginning of the year and is adjusted throughout
the year according to actual performance results. We can confirm that additional borrowings will not violate any of our debt covenants.



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.



Commitments



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



In connection to the loans borrowed from
XinYing (see Notes 12 and 23 to our financial statements), the Company also signed a finance consulting agreement with XinYing
where the Company is committed to pay consulting fees on a quarterly basis up to July 2015 for financing services provided.



Additionally, the Company had various
commitments related to land use right acquisition with unpaid balances of approximately $19.8 million. The balances are not due
until the vendor removes the existing building on the land and changes the zoning status of the land use right certificate. Based
on the current condition, the Company estimates that the balances will be paid in two years.



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 |          
|Operating leases              |  | $     | 7,496,711  |  |                  | $ | 1,323,257  |                       |  | $ | 1,229,625 |  |  | $         | 1,229,625
|Consulting fees               |  |       | 6,579,884  |  |                  |   | 2,503,973  |                       |  |   | 2,503,973 |  |  |           | 1,571,938
|Land use rights               |  |       | 16,051,107 |  |                  |   | 16,051,107 |                       |  |   | -         |  |  |           | -        
|Total                         |  | $     | 30,127,702 |  |                  | $ | 19,878,337 |                       |  | $ | 3,733,598 |  |  | $         | 2,801,563



Financial obligations



As of December 31, 2012, we had total
bank loans of $174,749,368 with a weighted average interest rate of 7.1 percent.



Our mortgage debt (total bank loans) is
secured by the assets of the Company, Xinxing Construction’s shares, and corporate guarantee of Tsining, Puhua and the Company.



43







Loans payable



Loans payable represent amounts due to various banks and are
due on demand or within three years. These loans generally can be renewed with the banks when they mature. Loans payable at December
31, 2012 and December 31, 2011 consisted of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 2012 |             |  | 2011 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- |  | ---- | -
|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 JunJing Yuan I building No. 12, Han Yuan and guaranteed
    by the Company`s President, President`s spouse, CEO, Tsining’s general manager and his spouse. This amount was fully
    repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $    | -           |  |      | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Xinhua Trust Investments Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |      |             |  |      |  
|Due February 10, 2012, annual interest is at 10 percent, secured by the 24G project. This
    loan was fully repaid in February 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|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 percent), secured by the Company's JunJing building No. 12. $794,420 is payable on March 31, 2012; $794,420
    is payable on June 30, 2012, and $635,536 is payable on August 29, 2012. The loan was set to expire on August 29, 2012, and
    was fully repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Bank of Beijing, Xi’an Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |      |             |  |      |  
|Due December 10, 2012, annual interest is at the prime rate of People’s Bank of China
    (or 6.56 percent). The Company has restricted cash of $15,888,400 deposited with Bank of Beijing as collateral. The Company
    repaid the loan in November and December 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      | -           |  |      |  
|The Company signed an agreement with a line of credit of approximately $31.8 million (RMB
    200 million). The total amount will be due on November 30, 2014. As of December 31, 2011, the Company drew $11,121,880 (RMB
    70 million) from the line of $31.8 million, and during the year the Company drew the remaining $20,866,439 (RMB 130 million)
    and repaid $9,630,664 (RMB 60 million). Annual interest is at 130% of People’s Bank of China prime rate (or 8 percent).
    The loan is secured by Puhua project’s land use right and construction in progress. The repayment schedule is as follows
    when the total $31.8 million loan is drawn subsequent to December 31, 2012: May 30, 2012 – $1,605,111 (RMB 10 million);
    November 30, 2012–$1,605,111 (RMB 10 million); May 30, 2013 - $9,630,664 (RMB 60 million); November 30, 2013 - $9,630,664
    (RMB 60,000,000); May 30, 2014 - $4,815,332 (RMB 30 million); November 30, 2014 - $4,815,332 (RMB 30 million). The loan is
    also subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount
    of Puhua project. |  |      | 22,471,549  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Construction Bank of China                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |             |  |      |  
|Due on March 6, 2015, annual interest is People’s Bank of China prime rate plus 1% (or
    7.15%). The loan is secured by JunJing III project and land use rights. The repayment schedule per agreement is as follows:
    June 30, 2012 - $1,605,111 (RMB 10 million); Dec 31, 2012 $1,605,111 (RMB 10 million); June 30, 2013 - $2,407,666 (RMB 15
    million); Dec 31, 2013 - $2,407,666 (RMB 15 million); June 30, 2014 - $802,555 (RMB 5 million); Dec 31, 2014 – 802,555
    (RMB 5 million). The loan is also subject to certain repayment requirements based on percentage of sales contract signed over
    total estimated sales amount of JunJing III. The Company repaid $7,865,989 (RMB 50 million) during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      | 1,605,111   |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Tianjin Cube Equity Investment Fund Partnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      |             |  |      |  
|Originally due on January 27, 2012, extended it to July 27, 2012 in November 2011, annual
    interest is 9.6 percent, secured by JunJing II Commercial Units, JunJing I Residential units and part of Company’s Park
    Plaza project. The balance was fully repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|JP Morgan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |      |             |  |      |  
|Originally due on March 13, 2011 and extended to June 14, 2012, annual interest is at 1.97
    percent, secured by $35,590,016 of restricted cash. The loan was fully repaid in December of 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Bank of China, Macau Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |             |  |      |  
|Due December 16, 2013, annual interest is based on 3-month London Interbank offered Rate (“LIBOR”)
    rate plus 3.6%. The 3-month LIBOR rate at December 31, 2012 was 0.4303%, secured by $32,102,213 (RMB $200,000,000) of restricted
    cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | 31,000,000  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Bank of Communication offshore branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |             |  |      |  
|Due on November 13, 2015, annual rate is 2.9 percent, secured by $36,114,990 (RMB $225,000,000)
    of restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      | 30,000,000  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Bank of China, Singapore Office                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      |             |  |      |  
|Due November 22, 2014, annual interest is based on 3-month London Interbank offered Rate (“LIBOR”)
    rate plus 1.55%. The 3-month LIBOR rate at December 31, 2012 was 0.3095%, secured by $32,102,213 (RMB $200,000,000) of restricted
    cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      | 31,800,000  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|LUSO International Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |             |  |      |  
|The Company signed an agreement with a line of credit of $9.7 million with LUSO International
    Bank. The amount that can be withdrawn is limited to 97% of the restricted cash secured for the line of credit. The total
    amount will be due on March 27, 2015. As of December 31, 2012, the Company has drawn $7,761,153 from the line of $9.7 million
    which is 97% of $8,025,213 restricted cash secured. Annual interest is based on 3-month LIBOR rate plus 2.7%. The 3-month
    LIBOR rate at December 31, 2012 was 0.3095%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |      | 7,761,153   |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”) (see Note 23
    to our financial statements)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      | 21,219,563  |  |      |  
|There are several loans from Days Hotel, including: $995,169 (RMB 6.2 million) due on March 13,
    2013 and repaid; $321,022 (RMB 2 million) due on March 31, 2013; $5,136,354 (RMB 32 million) due on April 28, 2013; $4,815,332
    (RMB 30 million) due on June 30,2013; $3,210,221 (RMB 20 million) due on July 2, 2013; $6,741,465 (RMB 42 million) due on
    November 13, 2013. All Days Hotel loans have an annual interest rate of 20%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |             |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Changcheng Financing Company Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      | 4,815,332   |  |      |  
|Due on November 8, 2014, annual interest rate is 19%, secured by an income producing property
    of Tsining.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |      |             |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Shanghai XinYing Fund, LLC (“XinYing”)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |      |             |  |      |  
|Due August 7, 2014, annual interest is 9.6% and the effective annual
    interest rate is 27.16% due to related finance consulting fees (note 22), secured by 100% ownership of Xinxing Construction’s
    shares, corporate guarantee from Tsining, Puhua, and the Company (Note 23 to our financial statements). The repayment schedule
    per agreement was as follows: June 1, 2013 - $1,605,111 (RMB 10 million); December 1, 2013 - $1,605,111 (RMB 10 million);
    June 1, 2014 - $1,605,111 (RMB 10 million); August 7, 2014 – 19,261,328 (RMB 120 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |      | 24,076,660  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $    | 174,749,368 |  |      | $



44







Except the loans from JP Morgan Bank of
China, Macau Branch, Bank of China Singapore Branch, Bank of Communication offshore branch, and LUSO International Bank, which
were drawn to repay mandatorily redeemable non-controlling interest in Subsidiaries (see Note 12 to our financial statements),
all other loans were drawn to directly finance construction projects.



The $36.1 million of restricted cash corresponding
to a $30 million loan from Bank of Communications offshore Branch, the $32.1 million of restricted cash corresponding to a $31
million loan from Bank of China, Macau Branch, the $32.1 million of restricted cash corresponding to a $31.8 million loan from
Bank of China, Singapore Branch, and $8.0 million of restricted cash corresponding to a $7.76 million loan from LUSO International
Bank are of the same nature. These borrowings were incurred in Hong Kong to repay the mandatorily redeemable preferred shares
of Prax. However, the majority of our cash resided in mainland China and to wire funds from mainland China to Hong Kong is subject
to foreign exchange restrictions imposed by the PRC government. Thus, in order for us to repay our Hong Kong and oversea counterparties,
we had to utilize the special lending facilities provided by major PRC banks and foreign financial institutions (i.e. JP Morgan
and Bank of China) to allow us to borrow outside of mainland China using cash we have in mainland China as guarantees.



The majority of 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 $44,920,900 (December 31,
2011 - $48,916,028), certain buildings and income producing properties and improvements with a carrying value of $4,287,898 December
31, 2011 (December 31, 2011 - 20,022,475) and certain land use rights with a carrying value of $ Nil at December 31, 2011 (December
31, 2011 - 3,371,814). The weighted average interest rate on loans payable as at December 31, 2011 was 7.1% (December 31, 2011
– 6.7%).



The loan from Bank of Beijing and Construction
Bank of China is also subject to certain repayment terms based on certain percentage of units sold in JunJing III and Puhua. Based
on this repayment term, the Bank of Beijing and Construction Bank of China can demand repayment of all remaining balance outstanding
at any time.



The principal repayment requirements for
the following 5 years are as follows:



|Due in 1 year |  | $ | 79,506,445  | 
|------------- |  | - | ----------- | 
|1 – 2 years   |  |   | 57,481,770  | 
|2 – 3 years   |  |   | 37,761,153  | 
|3 – 4 years   |  |   | -           | 
|4 – 5 years   |  |   | -           | 
|After 5 years |  |   | -           | 
|              |  | $ | 174,749,368 | 



Liquidity expectation



The Company believes that the combination
of present capital resources, internally generated funds, and unused financing sources are more than adequate to meet cash requirements
for the year 2013.



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 as well as equity financing mainly from local banking institutions with which
we have done business in the past and fund companies. We believe that our relationships with these banks and fund companies 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.



45







ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK



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



General Real Estate Risk



There is a risk that the Company’s
property values could go down due to general economic conditions, a weak market for real estate generally, or changing supply
and demand.



Risk Relating to Property Sales



The Company may not be able to sell a
property at a particular time for 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 the revenue and profit of the Company is denominated in RMB. When the RMB depreciates,
it may adversely affect the Company’s financial performance. Specifically, since the Company’s senior convertible note
interest payment is denominated in U.S. dollars; the depreciation of RMB may incur additional cost to our financial cost. However,
the effect likely would be small.



46







ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY
DATA







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the
Board of Directors and Stockholders of

China Housing & Land Development, Inc.



We
have audited the accompanying consolidated balance sheet ofChina Housing & Land Development, Inc.as of December 31, 2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and
cash flows for the year then ended. These consolidated financial statements are the responsibility ofChina Housing &
Land Development, Inc.’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
ofChina Housing & Land Development, Inc.as of December 31, 2012 and the results
of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the
United States of America.



We
also audited the adjustments described in Note 2 that were applied to restate the December 31, 2011 and 2010 consolidated financial
statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review,
or apply any procedures to the 2011 and 2010 consolidated financial statements of China Housing & Land Development, Inc. other
than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2011
and 2010 consolidated financial statements as a whole.



Signed:







MNP LLP Toronto, Canada March
17, 2014











47











REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors and
Stockholders of China Housing & Land Development, Inc.



We have audited, before the effects of
the adjustments described in Note 2, the accompanying consolidated balance sheet of China Housing & Land Development, Inc.
(the “Company”) as of December 31, 2011, and the related consolidated statements of income, comprehensive income, shareholders’
equity, and cash flows for each of the years ended December 31, 2011 and 2010 (the 2011 and 2010 consolidated financial statements
before the effects of the adjustment described in Note 2 to the consolidated financial statements are not presented herein). These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.



We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We also have
audited, in accordance with the standards of the Public company accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March
29, 2012 expressed a unqualified opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.



In our opinion, the consolidated financial
statements referred to above, except for the effects of the adjustments described in Note 2, present fairly, in all material respects,
the financial position of the Company as of December 31, 2011, and the results of its operations and its cash flows for each of
the years ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of
America.



We were not engaged to audit, review, or
apply any procedures to the adjustments described in Note 2 and, accordingly, we do not express an opinion or any other form of
assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other
auditors.



Signed:“MSCM
LLP”



MSCM LLP
Toronto, Canada
March 29, 2012



701 Evans
Avenue, 8th Floor, Toronto ON M9C 1A3, CanadaT(416) 626-6000F(416) 626-8650 MSCM.CA





48







CHINA HOUSING & LAND DEVELOPMENT, INC.,
AND SUBSIDIARIES



Consolidated Balance Sheets

As of December 31, 2012 and 2011



|                                                                                                                 |  | 2012 (Restated – 
    Note 2) |             |   | 2011 (Restated – 
Note 2) |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ----------- | - | ------------------------- | -
|ASSETS                                                                                                           |  |                               |             |   |                           |  
|Cash                                                                                                             |  | $                             | 6,121,448   |   |                           | $
|Cash - restricted                                                                                                |  |                               | 110,576,248 |   |                           |  
|Accounts receivable, net of allowance for doubtful
    accounts of $577,713 and $571,857, respectively           |  |                               | 26,429,332  |   |                           |  
|Construction in excess of billing                                                                                |  |                               | 1,484,626   |   |                           |  
|Other receivables, prepaid expenses and other assets,
    net                                                    |  |                               | 6,854,325   |   |                           |  
|Real estate held for development or sale                                                                         |  |                               | 212,371,875 |   |                           |  
|Property and equipment, net                                                                                      |  |                               | 33,837,346  |   |                           |  
|Advances to suppliers                                                                                            |  |                               | 1,363,817   |   |                           |  
|Deposits on land use rights                                                                                      |  |                               | 42,748,017  |   |                           |  
|Intangible assets, net                                                                                           |  |                               | 54,482,252  |   |                           |  
|Goodwill                                                                                                         |  |                               | 1,914,186   |   |                           |  
|Deferred tax assets                                                                                              |  |                               | -           |   |                           |  
|Deferred financing costs                                                                                         |  |                               | 194,162     |   |                           |  
|Total assets                                                                                                     |  | $                             | 498,377,634 |   |                           | $
|LIABILITIES                                                                                                      |  |                               |             |   |                           |  
|Accounts payable                                                                                                 |  | $                             | 55,142,928  |   |                           | $
|Advances from customers                                                                                          |  |                               | 49,297,915  |   |                           |  
|Accrued expenses                                                                                                 |  |                               | 22,229,514  |   |                           |  
|Income and other taxes payable                                                                                   |  |                               | 23,727,064  |   |                           |  
|Other payables                                                                                                   |  |                               | 11,228,553  |   |                           |  
|Loans from employees                                                                                             |  |                               | 27,868,785  |   |                           |  
|Loans payable                                                                                                    |  |                               | 174,749,368 |   |                           |  
|Deferred tax liability                                                                                           |  |                               | 14,521,613  |   |                           |  
|Warrants liability                                                                                               |  |                               | -           |   |                           |  
|Fair value of embedded derivatives                                                                               |  |                               | -           |   |                           |  
|Convertible debt                                                                                                 |  |                               | -           |   |                           |  
|Mandatorily redeemable non-controlling
    interests in Subsidiaries                                             |  |                               | -           |   |                           |  
|Total liabilities                                                                                                |  |                               | 378,765,740 |   |                           |  
|SHAREHOLDERS' EQUITY                                                                                             |  |                               |             |   |                           |  
|Common stock: $.001 par value, authorized 100,000,000
    shares; issued 35,438,079 and 35,078,639, respectively |  |                               | 35,438      |   |                           |  
|Additional paid in capital                                                                                       |  |                               | 49,972,174  |   |                           |  
|Treasury stock at cost 351,480 shares and 337,800
    shares, respectively                                       |  |                               | (434,240    | ) |                           |  
|Statutory reserves                                                                                               |  |                               | 9,903,457   |   |                           |  
|Retained earnings                                                                                                |  |                               | 38,573,966  |   |                           |  
|Accumulated other comprehensive
    income                                                                       |  |                               | 21,561,099  |   |                           |  
|Total shareholders' equity                                                                                       |  |                               | 119,611,894 |   |                           |  
|Total liabilities and shareholders'
    equity                                                                   |  | $                             | 498,377,634 |   |                           | $



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



49







CHINA HOUSING &
LAND DEVELOPMENT, INC., AND SUBSIDIARIES



Consolidated Statements of Income

For The Years Ended December 31, 2012,
2011 and 2010



|                                                                      |  | 2012 (Restated –  Note 2) |             |   | 2011 (Restated –  Note 2) |   |                                                         | 2010 (Restated –  Note 2) | 
|--------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ------------------------- | - | ------------------------------------------------------- | ------------------------- | 
|REVENUES                                                              |  |                           |             |   |                           |   |                                                         |                           | 
|Real estate sales                                                     |  | $                         | 115,299,428 |   |                           | $ | 104,800,783                                             |                           | 
|Other revenue                                                         |  |                           | 34,161,458  |   |                           |   | 15,992,471                                              |                           | 
|Total revenues                                                        |  |                           | 149,460,886 |   |                           |   | 120,793,254                                             |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|COST OF REVENUES                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Cost of real estate sales                                             |  |                           | 78,612,305  |   |                           |   | 80,152,571                                              |                           | 
|Cost of other revenue                                                 |  |                           | 24,168,489  |   |                           |   | 10,543,645                                              |                           | 
|Total costs of revenues                                               |  |                           | 102,780,794 |   |                           |   | 90,696,216                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Gross margin                                                          |  |                           | 46,680,092  |   |                           |   | 30,097,038                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|OPERATING EXPENSES                                                    |  |                           |             |   |                           |   |                                                         |                           | 
|Selling, general, and administrative expenses                         |  |                           | 16,415,255  |   |                           |   | 13,
                                            033,495 |                           | 
|Stock-based compensation                                              |  |                           | 1,010,875   |   |                           |   | 210,696                                                 |                           | 
|Other expenses                                                        |  |                           | 122,651     |   |                           |   | 1,380,517                                               |                           | 
|Financing expense                                                     |  |                           | 557,336     |   |                           |   | 1,218,464                                               |                           | 
|Accretion expense on convertible debt                                 |  |                           | 954,979     |   |                           |   | 987,263                                                 |                           | 
|Total operating expenses                                              |  |                           | 19,061,096  |   |                           |   | 16,830,435                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|CHANGE IN FAIR VALUE OF DERIVATIVES                                   |  |                           |             |   |                           |   |                                                         |                           | 
|Loss on extinguishment of debt                                        |  |                           | -           |   |                           |   | -                                                       |                           | 
|Change in fair value of embedded derivatives                          |  |                           | (330,628    | ) |                           |   | (1,697,097                                              | )                         | 
|Change in fair value of warrants                                      |  |                           | (4,162      | ) |                           |   | (1,138,061                                              | )                         | 
|Total change in fair value of derivatives                             |  |                           | (334,790    | ) |                           |   | (2,835,158                                              | )                         | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Income before provision for income taxes and non-controlling interest |  |                           | 27,953,786  |   |                           |   | 16,101,761                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Provision for income taxes                                            |  |                           | 7,910,373   |   |                           |   | 3,918,190                                               |                           | 
|Recovery of deferred taxes                                            |  |                           | (167,358    | ) |                           |   | (185,411                                                | )                         | 
|Provision for income taxes                                            |  |                           | 7,743,015   |   |                           |   | 3,732,779                                               |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|NET INCOME                                                            |  |                           | 20,210,771  |   |                           |   | 12,368,982                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Charge to noncontrolling interest                                     |  |                           | -           |   |                           |   | -                                                       |                           | 
|Net income attributable to China Housing & Land Development, Inc.     |  | $                         | 20,210,771  |   |                           | $ | 12,368,982                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                         |  |                           |             |   |                           |   |                                                         |                           | 
|Basic                                                                 |  |                           | 34,954,909  |   |                           |   | 34,741,511                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Diluted                                                               |  |                           | 36,548,485  |   |                           |   | 36,357,220                                              |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|EARNINGS (LOSS) PER SHARE                                             |  |                           |             |   |                           |   |                                                         |                           | 
|Basic                                                                 |  | $                         | 0.58        |   |                           | $ | 0.36                                                    |                           | 
|                                                                      |  |                           |             |   |                           |   |                                                         |                           | 
|Diluted                                                               |  | $                         | 0.57        |   |                           | $ | 0.32                                                    |                           | 



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



50







CHINA HOUSING & LAND DEVELOPMENT, INC.,
AND SUBSIDIARIES



Consolidated Statements of Comprehensive
Income

For The Years Ended December 31, 2012,
2011 and 2010



|                                                                                |  | 2012 (Restated – 
    Note 2) |            |  | 2011 (Restated – 
    Note 2) |   |            | 2010 (Restated – 
    Note 2) | 
|------------------------------------------------------------------------------- |  | ----------------------------- | ---------- |  | ----------------------------- | - | ---------- | ----------------------------- | 
|                                                                                |  |                               |            |  |                               |   |            |                               | 
|NET INCOME                                                                      |  | $                             | 20,210,771 |  |                               | $ | 12,368,982 |                               | 
|                                                                                |  |                               |            |  |                               |   |            |                               | 
|OTHER COMPREHENSIVE INCOME                                                      |  |                               |            |  |                               |   |            |                               | 
|Foreign currency translation
    adjustment                                     |  |                               | 1,471,275  |  |                               |   | 6,764,194  |                               | 
|                                                                                |  |                               |            |  |                               |   |            |                               | 
|COMPREHENSIVE INCOME                                                            |  |                               | 21,682,046 |  |                               |   | 19,133,176 |                               | 
|                                                                                |  |                               |            |  |                               |   |            |                               | 
|Less: Comprehensive charge attributable
    to non-controlling interest         |  |                               | -          |  |                               |   | -          |                               | 
|                                                                                |  |                               |            |  |                               |   |            |                               | 
|Comprehensive income attributable
    to China Housing & Land Development, Inc. |  | $                             | 21,682,046 |  |                               | $ | 19,133,176 |                               | 



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



51







CHINA HOUSING & LAND DEVELOPMENT INC.,
AND SUBSIDIARIES



Consolidated Statements of Cash Flows

For The Years Ended December 31, 2012,
2011 and 2010



|                                                                                        |  | December 31,                                                                                                                                                                             |              |   | December 31,                                                                                                                                                                             |   |             | December 31,                                                                                                                                                                             | 
|--------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                        |  | 2012                                                                                                                                                                                     |              |   | 2011                                                                                                                                                                                     |   |             | 2010                                                                                                                                                                                     | 
|                                                                                        |  | (Restated
                                                                                      –
                                                                               Note 2) |              |   | (Restated
                                                                                      –
                                                                               Note 2) |   |             | (Restated
                                                                                      –
                                                                               Note 2) | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Net income                                                                              |  | $                                                                                                                                                                                        | 20,210,771   |   |                                                                                                                                                                                          | $ | 12,368,982  |                                                                                                                                                                                          | 
|Adjustments to reconcile net income to cash provided by (used in) operating activities: |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Bad debt expense (recovery)                                                             |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | 453,048     |                                                                                                                                                                                          | 
|Depreciation                                                                            |  |                                                                                                                                                                                          | 2,065,380    |   |                                                                                                                                                                                          |   | 1,960,702   |                                                                                                                                                                                          | 
|Stock-based compensation                                                                |  |                                                                                                                                                                                          | 1,010,875    |   |                                                                                                                                                                                          |   | 210,696     |                                                                                                                                                                                          | 
|Gain on disposal of property and equipment                                              |  |                                                                                                                                                                                          | (6,086,257   | ) |                                                                                                                                                                                          |   | (2,138,068  | )                                                                                                                                                                                        | 
|Gain on disposal of assets held for sale                                                |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Amortization of deferred financing costs                                                |  |                                                                                                                                                                                          | 156,064      |   |                                                                                                                                                                                          |   | 155,210     |                                                                                                                                                                                          | 
|Amortization of intangible assets                                                       |  |                                                                                                                                                                                          | 218,480      |   |                                                                                                                                                                                          |   | 213,274     |                                                                                                                                                                                          | 
|Recovery of deferred taxes                                                              |  |                                                                                                                                                                                          | (167,358     | ) |                                                                                                                                                                                          |   | (185,411    | )                                                                                                                                                                                        | 
|Loss on extinguishment of debt                                                          |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Change in fair value of embedded derivatives                                            |  |                                                                                                                                                                                          | (330,628     | ) |                                                                                                                                                                                          |   | (1,697,097  | )                                                                                                                                                                                        | 
|Change in fair value of warrants                                                        |  |                                                                                                                                                                                          | (4,162       | ) |                                                                                                                                                                                          |   | (1,138,061  | )                                                                                                                                                                                        | 
|Accretion expense on convertible debt                                                   |  |                                                                                                                                                                                          | 954,979      |   |                                                                                                                                                                                          |   | 987,263     |                                                                                                                                                                                          | 
|Accretion expense on mandatorily redeemable noncontrolling interests                    |  |                                                                                                                                                                                          | (1,542,039   | ) |                                                                                                                                                                                          |   | (3,141,484  | )                                                                                                                                                                                        | 
|(Increase) decrease in assets:                                                          |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Accounts receivable                                                                     |  |                                                                                                                                                                                          | 619,790      |   |                                                                                                                                                                                          |   | (9,615,452  | )                                                                                                                                                                                        | 
|Construction in excess of billing                                                       |  |                                                                                                                                                                                          | (1,481,534   | ) |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Other receivables, prepaid expenses and other assets, net                               |  |                                                                                                                                                                                          | (5,061,576   | ) |                                                                                                                                                                                          |   | 5,408,641   |                                                                                                                                                                                          | 
|Real estate held for development or sale                                                |  |                                                                                                                                                                                          | (76,702,170  | ) |                                                                                                                                                                                          |   | (57,207,863 | )                                                                                                                                                                                        | 
|Advances to suppliers                                                                   |  |                                                                                                                                                                                          | (454,840     | ) |                                                                                                                                                                                          |   | 391,429     |                                                                                                                                                                                          | 
|(Deposit) refund on land use rights                                                     |  |                                                                                                                                                                                          | 22,754,848   |   |                                                                                                                                                                                          |   | 12,794,165  |                                                                                                                                                                                          | 
|Deferred tax assets                                                                     |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | (305,116    | )                                                                                                                                                                                        | 
|Increase (decrease) in liabilities:                                                     |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Accounts payable                                                                        |  |                                                                                                                                                                                          | 10,349,314   |   |                                                                                                                                                                                          |   | 20,338,590  |                                                                                                                                                                                          | 
|Advances from customers                                                                 |  |                                                                                                                                                                                          | (9,459,510   | ) |                                                                                                                                                                                          |   | 3,240,109   |                                                                                                                                                                                          | 
|Accrued expense                                                                         |  |                                                                                                                                                                                          | 22,144,899   |   |                                                                                                                                                                                          |   | 21,420,962  |                                                                                                                                                                                          | 
|Other payables                                                                          |  |                                                                                                                                                                                          | 3,665,900    |   |                                                                                                                                                                                          |   | 1,490,414   |                                                                                                                                                                                          | 
|Income and other taxes payable                                                          |  |                                                                                                                                                                                          | 7,289,569    |   |                                                                                                                                                                                          |   | (352,037    | )                                                                                                                                                                                        | 
|Net cash (used in) provided by operating activities                                     |  |                                                                                                                                                                                          | (9,849,205   | ) |                                                                                                                                                                                          |   | 5,652,896   |                                                                                                                                                                                          | 
|                                                                                        |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Change in restricted cash                                                               |  |                                                                                                                                                                                          | (4,001,058   | ) |                                                                                                                                                                                          |   | (68,410,606 | )                                                                                                                                                                                        | 
|Purchase of property and equipment                                                      |  |                                                                                                                                                                                          | (10,723,887  | ) |                                                                                                                                                                                          |   | (4,753,042  | )                                                                                                                                                                                        | 
|Cash acquired from acquisition of business                                              |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Proceeds from sale of property and equipment                                            |  |                                                                                                                                                                                          | 5,480,530    |   |                                                                                                                                                                                          |   | 3,112,958   |                                                                                                                                                                                          | 
|Proceeds from sale of assets held for sale                                              |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Net cash used in investing activities                                                   |  |                                                                                                                                                                                          | (9,244,415   | ) |                                                                                                                                                                                          |   | (70,050,690 | )                                                                                                                                                                                        | 
|                                                                                        |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Loans from banks                                                                        |  |                                                                                                                                                                                          | 99,673,042   |   |                                                                                                                                                                                          |   | 72,408,605  |                                                                                                                                                                                          | 
|Loans from Days Hotel, Shanghai Xinying Fund LLC, Changcheng Financing Company Limited  |  |                                                                                                                                                                                          | 51,538,584   |   |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Repayments on loans payable                                                             |  |                                                                                                                                                                                          | (123,698,502 | ) |                                                                                                                                                                                          |   | (10,688,769 | )                                                                                                                                                                                        | 
|Loans from employees                                                                    |  |                                                                                                                                                                                          | 12,730,011   |   |                                                                                                                                                                                          |   | 5,547,620   |                                                                                                                                                                                          | 
|Repayment of payables for acquisition of businesses                                     |  |                                                                                                                                                                                          | -            |   |                                                                                                                                                                                          |   | (2,373,232  | )                                                                                                                                                                                        | 
|Repayment for mandatorily redeemable non-controlling interest in Subsidiaries           |  |                                                                                                                                                                                          | (27,112,369  | ) |                                                                                                                                                                                          |   | (27,858,516 | )                                                                                                                                                                                        | 
|Repayment of convertible debt                                                           |  |                                                                                                                                                                                          | (9,645,570   | ) |                                                                                                                                                                                          |   | -           |                                                                                                                                                                                          | 
|Purchase of treasury stock                                                              |  |                                                                                                                                                                                          | (14,142      | ) |                                                                                                                                                                                          |   | (420,098    | )                                                                                                                                                                                        | 
|Net cash provided by financing activities                                               |  |                                                                                                                                                                                          | 3,471,054    |   |                                                                                                                                                                                          |   | 36,615,610  |                                                                                                                                                                                          | 
|                                                                                        |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|(DECREASE) INCREASE IN CASH                                                             |  |                                                                                                                                                                                          | (15,622,566  | ) |                                                                                                                                                                                          |   | (27,782,184 | )                                                                                                                                                                                        | 
|                                                                                        |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Effects on foreign currency exchange                                                    |  |                                                                                                                                                                                          | (270,939     | ) |                                                                                                                                                                                          |   | 2,892,976   |                                                                                                                                                                                          | 
|                                                                                        |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Cash, beginning of year                                                                 |  |                                                                                                                                                                                          | 22,014,953   |   |                                                                                                                                                                                          |   | 46,904,161  |                                                                                                                                                                                          | 
|                                                                                        |  |                                                                                                                                                                                          |              |   |                                                                                                                                                                                          |   |             |                                                                                                                                                                                          | 
|Cash, end of year                                                                       |  | $                                                                                                                                                                                        | 6,121,448    |   |                                                                                                                                                                                          | $ | 22,014,953  |                                                                                                                                                                                          | 



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



52







CHINA HOUSING & LAND DEVELOPMENT, INC.,
AND SUBSIDIARIES



Consolidated Statements of Shareholders'
Equity

For The Years Ended December 31, 2012,
2011 and 2010

(Restated – Note 2)



|                                                                                    |  |              |            |  |                |   |        |                       |  |   |                     |   |  |                      |          |   |                        |   |            | Accumulated           |  |   |                          |  |  |                                   |            
|----------------------------------------------------------------------------------- |  | ------------ | ---------- |  | -------------- | - | ------ | --------------------- |  | - | ------------------- | - |  | -------------------- | -------- | - | ---------------------- | - | ---------- | --------------------- |  | - | ------------------------ |  |  | --------------------------------- | -----------
|                                                                                    |  | Common Stock |            |  | Common         |   |        |                       |  |   | Additional          |   |  |                      |          |   |                        |   |            | other                 |  |   |                          |  |  |                                   |            
|                                                                                    |  | Shares       |            |  | Par 
    Value |   |        | stock 
    subscribed |  |   | Treasury 
    stock |   |  | paid in 
    capital |          |   | Statutory
    reserves |   |            | Retained
    Earnings |  |   | comprehensive
    income |  |  | Non-controlling
    
    interest |            
|BALANCE, December 31, 2009                                                          |  |              | 31,884,969 |  |                | $ | 31,885 |                       |  | $ | 252,118             |   |  | $                    | -        |   |                        | $ | 35,461,706 |                       |  | $ | 4,922,248                |  |  | $                                 | 39,895,179 
|Common stock issued for
    stock-based compensation                                |  |              | 62,014     |  |                |   | 62     |                       |  |   | (252,118            | ) |  |                      | -        |   |                        |   | 252,056    |                       |  |   | -                        |  |  |                                   | -          
|Common stock issued for
    warrants exercise                                       |  |              | 17,968     |  |                |   | 18     |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 41,326     |                       |  |   | -                        |  |  |                                   | -          
|Common stock issued for
    acquisition of Suodi                                    |  |              | 720,380    |  |                |   | 720    |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 3,240,990  |                       |  |   | -                        |  |  |                                   | -          
|Non-controlling interest
    reclassified to mandatorily redeemable preferred stock |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|Charge to noncontolling
    interest                                                |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | (48,969,961
|Stock-based compensation                                                            |  |              | -          |  |                |   | -      |                       |  |   | 59,606              |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|Net income                                                                          |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | 20,050,204 
|Adjustment to statutory
    reserve                                                 |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | 1,732,467                |  |  |                                   | (1,732,467 
|Foreign
    currency translation adjustment                                         |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|BALANCE, December 31, 2010                                                          |  |              | 32,685,331 |  |                |   | 32,685 |                       |  |   | 59,606              |   |  |                      | -        |   |                        |   | 38,996,078 |                       |  |   | 6,654,715                |  |  |                                   | 9,242,955  
|Common stock issued for
    stock-based compensation                                |  |              | 20,625     |  |                |   | 21     |                       |  |   | (59,606             | ) |  |                      | -        |   |                        |   | 59,585     |                       |  |   | -                        |  |  |                                   | -          
|Options issued for stock-based
    compensation                                     |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 210,696    |                       |  |   | -                        |  |  |                                   | -          
|Common stock issued for
    warrants exercise                                       |  |              | 619,905    |  |                |   | 620    |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 1,623,540  |                       |  |   | -                        |  |  |                                   | -          
|Common stock issued for
    conversion of convertible debt                          |  |              | 1,752,778  |  |                |   | 1,753  |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 8,071,759  |                       |  |   | -                        |  |  |                                   | -          
|Treasury Stock                                                                      |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | (420,098 | ) |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|Net income                                                                          |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | 12,368,982 
|Adjustment to statutory
    reserve                                                 |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | 1,202,897                |  |  |                                   | (1,202,897 
|Foreign
    currency translation adjustment                                         |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|BALANCE, December 31, 2011                                                          |  |              | 35,078,639 |  |                |   | 35,079 |                       |  |   | -                   |   |  |                      | (420,098 | ) |                        |   | 48,961,658 |                       |  |   | 7,857,612                |  |  |                                   | 20,409,040 
|Options issued for stock-based
    compensation                                     |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 388,658    |                       |  |   | -                        |  |  |                                   | -          
|Common stock issued for
    stock-based compensation                                |  |              | 359,440    |  |                |   | 359    |                       |  |   | -                   |   |  |                      | -        |   |                        |   | 621,858    |                       |  |   | -                        |  |  |                                   | -          
|Treasury Stock                                                                      |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | (14,142  | ) |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|Net income                                                                          |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | 20,210,771 
|Adjustment to statutory
    reserve                                                 |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | 2,045,845                |  |  |                                   | (2,045,845 
|Foreign
    currency translation adjustment                                         |  |              | -          |  |                |   | -      |                       |  |   | -                   |   |  |                      | -        |   |                        |   | -          |                       |  |   | -                        |  |  |                                   | -          
|BALANCE, December
    31, 2012                                                      |  |              | 35,438,079 |  |                | $ | 35,438 |                       |  | $ | -                   |   |  | $                    | (434,240 | ) |                        | $ | 49,972,174 |                       |  | $ | 9,903,457                |  |  |                                   | 38,573,966 



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



53







Note 1 – Business, Organization and Basis
of Presentation



China Housing & Land Development,
Inc. (“CHLN”) is a Nevada corporation, originally incorporated on July 6, 2004 under the name Pacific Northwest
Productions Inc. (“Pacific”). CHLN and its subsidiaries  (“the “Company”) are 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 consolidated
financial statements include the accounts of CHLN 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 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 in March 2009 and they were inactive
during the year ended December 31, 2012.



The Company’s real estate and development
sales operation is dependent on continuous financing from external sources. The Company has, in the past, been successful in obtaining
financings from financial institutions, third parties and related parties to support the development of their real estate
projects. Management believes they will continue to have an ability to fund and develop their current and future projects.



Note 2- Restatement of Previously Issued Financial
Statements





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 in 2008 and 2009.



During the first quarter of 2010, the Company
agreed to redeem Prax’s 1,000 Class A shares in Success Hill. Both parties then entered into an Amended and Restated Shareholders’
Agreement on May 24, 2010. The Company agreed with Prax to redeem all Prax’s Class A Shares for consideration of the USD
equivalent of $89.94 million (RMB 576 million) over a three-year period ending by December 31, 2012 (the “Amendment”)
(Note 15). According to the Amendment, the redemption obligation was also guaranteed by the Company.



The Company used an effective interest
rate of 45% to determine the fair value of the liability related to the mandatorily redeemable non-controlling interest in subsidiaries
on the day of the Amendment based on the internal rate of return Prax required.





Subsequently, the Company reviewed its
measurement of the liability and determined that in accordance with the US GAAP, the fair value of liability should have been determined
based on the observable inputs instead of internal rate of return. The Company has determined that the observable inputs and other
relevant data support the use of a risk-free interest rate of 5.85% (the “Revised Interest Rate”) on October 18, 2013.



These consolidated financial statements
have been restated to correct for this error. As a result of this restatement, on the measurement day (May 24, 2010), the amount
charged to retained earnings has been increased by $34,740,918 from $14,229,043 to $48,969,961 and the recorded liability has been
increased from $42,600,511 to $77,341,429. The subsequent accretion expenses capitalized to the Company’s project costs were
reduced by $7,280,670 from $8,822,709 to $1,542,039 during fiscal 2012; reduced by $12,341,566 from $15,483,050 to $3,141,484 during
fiscal 2011; and reduced by $17,118,008 from $19,855,876 to $2,737,868 during fiscal 2010.



The following is a summary of the effects
of restatement on the Company's consolidated balance sheets as at December 31, 2012 and 2011, and the consolidated statements of
income, comprehensive income and cash flows for the years ended 2012, 2011 and 2010. The effects of the restatement also reflect
other changes related to income taxes and earnings per share. The revisions had no significant impact on total cash flows for the
restated periods and had no impact on the Company's compliance with debt covenants in any period presented.







54







|Consolidated Balance Sheet                
|------------------------------------------
|As of December 31, 2012                   
|                                          
|                                          
|Accounts receivable                       
|Real estate held for development or sale  
|Total assets                              
|Advances from customers                   
|Income and other taxes payable            
|Total liabilities                         
|Retained earnings                         
|Accumulated other comprehensive income    
|Total shareholders' equity                
|Total liabilities and shareholders' equity



|Consolidated Statement of Income                                     
|---------------------------------------------------------------------
|For the year ended December 31, 2012                                 
|Real estate sales                                                    
|Total revenues                                                       
|Cost of real estate sales                                            
|Total costs of revenues                                              
|Selling, general, and administrative expenses                        
|Total operating expenses                                             
|Income before provision for income taxes and non-controlling interest
|Provision for income taxes                                           
|NET INCOME                                                           
|Net income attributable to China Housing & Land Development, Inc.    
|EARNINGS PER SHARE                                                   
|Basic                                                                
|Diluted                                                              





|Consolidated Statement of Comprehensive Income                               
|-----------------------------------------------------------------------------
|For the year ended December 31, 2012                                         
|Net income                                                                   
|Foreign currency translation adjustment                                      
|Comprehensive income attributable to China Housing & Land                    
|                                                                             
|Consolidated Statement of Cash Flows                                         
|For the year ended December 31, 2012                                         
|Net income                                                                   
|Accretion expense on mandatorily redeemable non-controlling interests        
|Accounts receivable                                                          
|Real estate held for development or sale                                     
|Advances from customers                                                      
|Income and other taxes payable                                               
|Net cash (used in) operating activities                                      
|Repayment for mandatorily redeemable non-controlling interest in Subsidiaries
|Net cash provided by financing activities                                    





55







|Consolidated Balance Sheet                                          
|--------------------------------------------------------------------
|As of December 31, 2011                                             
|                                                                    
|                                                                    
|Accounts receivable                                                 
|Real estate held for development or sale                            
|Total assets                                                        
|Advances from customers                                             
|Income and other taxes payable                                      
|Mandatorily redeemable non-controlling interests
    in Subsidiaries
|Total liabilities                                                   
|Retained earnings                                                   
|Accumulated other comprehensive income                              
|Total shareholders' equity                                          
|Total liabilities and shareholders' equity                          



|Consolidated Statement of Income                                         
|-------------------------------------------------------------------------
|For the year ended December 31, 2011                                     
|Real estate sales                                                        
|Total revenues                                                           
|Cost of real estate sales                                                
|Total costs of revenues                                                  
|Selling, general, and administrative expenses                            
|Total operating expenses                                                 
|Income before provision for income taxes and non-controlling
    interest
|Provision for income taxes                                               
|Net income                                                               
|Net income attributable to China Housing & Land
    Development, Inc.    
|EARNINGS PER SHARE                                                       
|Basic                                                                    
|Diluted                                                                  





|Consolidated Statement of Comprehensive Income                               
|-----------------------------------------------------------------------------
|For the year ended December 31, 2011                                         
|Net income                                                                   
|Foreign currency translation adjustment                                      
|Comprehensive income attributable to China Housing & Land                    
|                                                                             
|Consolidated Statement of Cash Flows                                         
|For the year ended December 31, 2011                                         
|Net income                                                                   
|Accretion expense on mandatorily redeemable non-controlling interests        
|Accounts receivable                                                          
|Real estate held for development or sale                                     
|Advances from customers                                                      
|Income and other taxes payable                                               
|Net cash (used in) provided by operating activities                          
|Repayment for mandatorily redeemable non-controlling interest in Subsidiaries
|Net cash provided by financing activities                                    







56







|                                                                     
|---------------------------------------------------------------------
|Consolidated Statement of Income                                     
|As of December 31, 2010                                              
|                                                                     
|                                                                     
|Real estate sales                                                    
|Total revenues                                                       
|Cost of real estate sales                                            
|Total costs of revenues                                              
|Selling, general, and administrative expenses                        
|Total operating expenses                                             
|Income before provision for income taxes and non-controlling interest
|Provision for income taxes                                           
|NET INCOME                                                           
|Charge to non-controlling interest                                   
|Net income attributable to China Housing & Land Development, Inc.    
|EARNINGS (LOSS) PER SHARE                                            
|Basic                                                                
|Diluted                                                              



|Consolidated Statement of Comprehensive Income                               
|-----------------------------------------------------------------------------
|For the year ended December 31, 2010                                         
|Net income                                                                   
|Foreign currency translation adjustment                                      
|Less: Comprehensive charge attributable to non-controlling
    interest      
|Comprehensive income attributable to China Housing
    & Land                
|                                                                             
|Consolidated Statement of Cash Flows                                         
|For the year ended December 31, 2010                                         
|Net income                                                                   
|Accretion expense on mandatorily redeemable non-controlling interests        
|Accounts receivable                                                          
|Real estate held for development or sale                                     
|Advances from customers                                                      
|Income and other taxes payable                                               
|Net cash (used in) provided by operating activities                          
|Repayment for mandatorily redeemable non-controlling interest in Subsidiaries
|Net cash provided by financing activities                                    



57







Note 3 – Summary of Significant Accounting Policies



Principles of Consolidation and Basis of Presentation



The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”
or the “Standard”). The consolidated financial statements include the accounts of the Company and the Subsidiaries
and have been reported in United States dollars. All inter-company balances and transactions have been eliminated on consolidation.



Prior to January 1, 2010, Prax Capital
(“Prax”), a third party, owned 25% of the non-controlling interest of Puhua and through its 40% non-controlling interest
in Success Hill. The ownership interests of Prax were presented as non-controlling interests in the consolidated balance sheets.
In the consolidated statements of income, net income attributable to China Housing & Land Development, Inc. reflects as
net of an adjustment for the non-controlling stockholders’ share of net loss of Puhua and Success Hill.



Effective May 24, 2010, the Company entered
into an Amended and Restated Shareholders’ Agreement (the “Restructure”) with Prax to redeem Prax’s ownership
interest in Puhua and Success Hill. The Company agreed to redeem all of Prax’s ownership interest by December 31,
2012 (Note 15). As a result of the Restructure, the non-controlling interests met the definition of a mandatorily redeemable financial
instrument, and was reported within liabilities as mandatorily redeemable non-controlling interests in subsidiaries on the Company’s
consolidated balance sheets. As at December 31, 2012 the Company has redeemed all of Prax’s ownership interest.



Use of Estimates



The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates, and changes in these
estimates are recorded when known. Significant estimates made by management include: revenue recognition, estimated real estate
project cost and revenue under the percentage of completion method, allowance for doubtful accounts, valuation of real estate
held for development or sale, useful lives of property and equipment, amortization of the intangible assets, value of intangible
assets and goodwill, future cash flows associated with impairment testing for tangible and intangible assets and goodwill, income
taxes, and fair value of warrant liability, embedded derivatives and stock-based compensation.





58







Note 3 –
Summary of Significant Accounting Policies (Continued)



Reporting Currency and Foreign Currency Translation



As of December 31, 2012, the
accounts of CHLN are maintained in their functional currency which is U.S. dollars. The accounts of Subsidiaries are
maintained in their functional currency, the Chinese Yuan Renminbi (“RMB”). The consolidated financial statements
of the Company have been reported in United States (“U.S.”) dollars in accordance with the Standard on
foreign currency translation. All assets and liabilities of the Subsidiaries with RMB as functional currency are translated
at the exchange rate on the balance sheet date, shareholders' equity is translated at the historical rates and the statements
of income and cash flows are translated at the weighted average exchange rate for the year. The resulting
translation adjustments are reported under comprehensive income as a separate component of shareholders’
equity.



Foreign exchange rates used:



|                                         |  | December 31, 2012 |        |  | December 31, 2011 |  |        | December 31, 2010 | 
|---------------------------------------- |  | ----------------- | ------ |  | ----------------- |  | ------ | ----------------- | 
|Period end RMB/U.S. Dollar exchange rate |  |                   | 6.2301 |  |                   |  | 6.2939 |                   | 
|Average RMB/U.S. Dollar exchange rate    |  |                   | 6.3084 |  |                   |  | 6.4633 |                   | 



Revenue Recognition



Real estate sales are reported in accordance
with the provisions of the Standard “Accounting for Sales of Real Estate”. Revenue from the sales of real estate properties
is recognized on the percentage of completion method on the sale of individual units when all the following criteria are met:





| | A. | Construction is beyond
    a preliminary state.                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------
| | B. | The buyer is committed to the extent
    of being unable to require a refund except for non-delivery of the units or interest.
| | C. | Sufficient units have already been
    sold to assure that the entire property will not revert to rental property.            
| | D. | Sales prices are collectible.                                                                                                 
| | E. | Aggregate sales proceeds and costs
    can be reasonably estimated.                                                           





If any of the above criteria are
not met, proceeds will be accounted for as advances from customers until the criteria are met.



Under the percentage of completion method,
revenues from condominium units sold and related costs are recognized over the course of the construction period, based on the
completion progress of a project. In relation to any project, revenue is determined by calculating the ratio of incurred costs,
including land use rights costs and construction costs, to total estimated costs and applying that ratio to the contracted sales
amounts. Cost of sales is recognized by determining the ratio of contracted sales during the period to total estimated sales
value and, then, applying that ratio to the incurred costs. Current period amounts are calculated based on the difference between
the life-to-date project totals and the previously recognized amounts. Any losses incurred or forecast to occur on real estate
transactions are recognized in the period in which the loss is first known.



Significant judgments and estimates related
to applying the percentage of completion method include the Company’s estimates of the time necessary to complete the project,
the total expected revenue and the total expected costs. Fluctuations in sales prices and variances in costs from budgets could
change the percentages of completion and affect the amount of revenue and costs recognized. Changes in total estimated project
costs and estimated project revenues, if any, are recognized in the period in which they are determined. Amounts received from customers in excess of revenue recognized to date are classified as current liabilities under
advances from customers. As of December 31, 2012 and 2011 the related advances from customers were $33,385,633 and $35,629,245,
respectively.



For the Company’s self-financed
sales, the Company recognizes sales based on the full accrual method provided that the buyer's initial and continuing investment
is adequate according to the standard, “Accounting for Sales of Real Estate”. The initial investment is the buyer's
down-payment less the loan amount provided by the Company. Interest on these loans is amortized over the term of the loans.





59







Note 3 – Summary of Significant Accounting Policies
(Continued)



Revenue Recognition (continued)



Other revenue mainly includes property
management fees, real estate lease income, real estate construction services for third parties and disposal of property and equipment.
Both property management fees and real estate lease income are recognized on a straight-line basis over the terms of the service
agreements. Depreciation cost and maintenance cost of the property are recorded as the cost of other revenue.



The Company also constructs various projects
for customers and local governments. Revenues and profits from construction and construction management contracts are recognized
for accounting purposes using the percentage of completion method. The percentage of completion is determined by relating the
actual cost of work performed to date to the current estimated total cost of the respective contracts. When the current estimated
costs to complete indicate a loss, such loss is recognized immediately.



Revisions in costs and income or loss
estimates during the course of the work are reflected during the accounting period in which the facts that cause the revision
become known.



Effect of Change in Estimates



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. During 2012, real estate development projects with gross profits recognized in 2011 had changes in
their estimated gross profit margins. As a result of these changes of gross profit, net income for the year ended December 31,
2012 increased by $347,706 (2011 - decreased by $7,435,711; 2010 – decreased by $2,229,470) or basic and diluted earnings
per share for the year ended December 31, 2012 increased by $0.01 and $0.01, respectively (2011 – decreased by $0.214 and
$0.205, 2010 – decreased by $0.068 and $0.063 in both basic and diluted earnings per share).



Real Estate Held for Development or
Sale



Real estate held for development or sale
consists of residential and commercial units under construction and units completed. The Company leases the land for the residential
and commercial unit sites under land use right leases from PRC.



Real estate held for development or sale
includes the cost of land use rights and land improvements, predevelopment costs, direct construction costs and development costs,
engineering costs, interest on indebtedness, real estate taxes, wages, insurance, construction overhead and indirect project costs.
All costs are capitalized and accumulated by specific projects and allocated to residential and commercial units within the respective
projects based on the area of the project. The construction and development costs are allocated using the specific identification
method. Total estimated costs of multi-unit developments are allocated to individual units based upon the related area method.



Real estate held for development or sale
is recorded at the lower cost or fair value less costs to sell. It is subject to valuation adjustments when the carrying amount
exceeds fair value. Any loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value.
The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the assets.
Estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated
market conditions. The evaluation takes into consideration the current status of the property, various restrictions, carrying
costs, costs of disposition and any other circumstances that may affect fair value, including management’s plans for the
property. These evaluations are made on a property-by-property basis as seen fit by management whenever events or changes in circumstances
indicate that the net carrying value may not be recoverable.





The Company evaluates the carrying value
of the asset for impairment based on the undiscounted future cash flows of the asset. Write-downs of real estate held for development
or sale deemed impaired would be recorded as adjustments to the cost basis. No impairment loss was incurred or recorded for the
years ended December 31, 2012, 2011 and 2010. No depreciation is provided for real estate held for development or sale.





60







Note 3 – Summary of Significant Accounting Policies
(Continued)



Capitalization of Interest



In accordance with the Standard “Capitalization
of Interest Cost”, interest incurred directly related to ongoing projects is capitalized to real estate held for development
or sale during the active development period, which generally commences when borrowings are used to acquire real estate assets
and ends when the properties are substantially complete or the property becomes inactive. A project becomes inactive when development
and construction activities have been suspended indefinitely. Interest is capitalized based on the interest rate applicable to
specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest capitalized
to real estate held for development or sale is expensed as a component of cost of real estate sales when related units are sold.
All other interest is expensed as incurred.



For the year ended December 31, 2012,
interest incurred by the Company was $16,802,386 (2011 - $17,086,379 and 2010 - $9,330,537) and capitalized interest for
the same period was $16,290,271 (2011 - $15,954,343 and 2010 - $9,015,936).



Concentration of Risks



The Company sells residential and commercial
units to residents and small business owners. One customer purchased the Company’s JunJing I shopping mall which was recorded
under property and equipment. The gain from this transaction accounted for 7% of our total revenue in fiscal 2012. There were
no major customers that accounted for more than 5% of revenue for the years ended December 31, 2011 and 2010. The same customer
accounted for 28% of accounts receivable and another customer accounted for 6% of accounts receivable as at December 31, 2012.
There were no customers that individually accounted for more than 5% of accounts receivable in 2011.



The Company is dependent on third-party
sub-contractors, manufacturers, and distributors for all construction services and supply of construction materials. Construction
services or products purchased from the Company's five largest sub-contractors and suppliers accounted for 27% of total services
and supplies for the year ended December 31, 2012 (2011 - 33% and 2010 - 45%). Accounts payable to these subcontractors and
suppliers was 35% of the total accounts payable as at December 31, 2012 (2011 – 33% and 2010 – 41%).



The Company's operations are carried out
in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political,
economic and legal environments in the PRC and by the general state of the PRC’s economy. The Company's business may be
influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, rates and methods of taxation, among other things.



Cash and Cash Equivalents and Concentration
of Risk



Cash and cash equivalents include cash
on hand and highly liquid investments with maturities of three months or less when purchased in accounts maintained with state-owned
banks within the PRC. Total cash (including restricted cash) and cash equivalents in state-owned banks at December 31, 2012 amounted
to $116,131,116 (2011 - $127,546,638) of which no deposits are covered by insurance. The Company has not experienced any losses
in such accounts. The Company did not have cash equivalents as of December 31, 2012 and 2011.



Restricted Cash



The Company has four types of restricted
cash. The first type of restricted cash is imposed by the banks that provide mortgage loans to the home buyers before obtaining
the certificates of ownership of the properties as collateral. In order to provide the banks with the certificates of ownership,
the Company is required to complete certain procedures with the Chinese government, which normally take six to twelve months.
Because the banks provide the loan proceeds to the Company without obtaining certificates of ownership as loan collateral during
this six to twelve month period, the mortgage banks require the Company to maintain restricted cash as security. The banks release
this type of restricted cash once they receive the certificates of ownership.



The second type of restricted cash is
guaranteed deposits for the loans from JP Morgan International Bank Limited Brussels Branch (“JP Morgan”), Bank of
Beijing, Bank of China Macau Branch, Bank of China Singapore Office, LUSO International Banking LTD., and Bank of Communication
Offshore Branch (Note 13). The Company cannot withdraw or transfer the restricted cash until the restriction periods have expired
and the loan amount has been repaid.





61







Note 3 – Summary of Significant Accounting Policies
(Continued)



Restricted Cash (Continued)



The third type of restricted cash is related
to accounts specifically set up for remittances or receipts of government regulatory fees and funds. The accounts are restricted
because they are subject to certain withdrawal limitations.



The fourth type of restricted cash is
related to the loans with Tianjin Cube Equity Investment Fund Partnership (“Cube”) (Note 13). This cash is restricted
as the Company needs approval from Cube before using the funds from the loans.



As of December 31, 2012 and 2011, the
balances of the first type of restricted cash totaled $1,566,783 and $1,075,184, respectively. As of December 31, 2012 and 2011,
the balances of the second type of restricted cash totaled $108,344,970 and $83,255,215, respectively. As of December 31, 2012
and 2011, the balances of the third type of restricted cash totaled $664,495 and $Nil, respectively. As of December 31, 2012 and
2011, the balances of the fourth type of restricted cash totaled $Nil and $21,390,001, respectively.



Accounts Receivable



Accounts receivable includes balances
due from customers for the sale of residential and commercial units in the PRC and construction projects engaged. The Company
provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimated uncollectible
amounts are based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably
possible that the Company's estimate of the allowance for doubtful accounts will change.



Construction in Excess of Billing



Construction in excess of billing represents
the excess of contract revenue recognized to date using the percentage of completion accounting method over the construction billings
to date.



Other Receivables



Other receivables consist of various cash
advances to unrelated companies and individuals. These amounts are not related to the receivables from the customers of the Company,
are unsecured, non-interest bearing and generally short-term in nature.



Advances to Suppliers



Advances to suppliers consist of amounts
paid in advance to contractors and vendors for services and materials.



Property and Equipment



Property and equipment are recorded at
cost. Depreciation is computed using the straight-line method, over the estimated useful lives of these assets. Estimated useful
lives of the assets are as follows:



|                                             |  | Estimated Useful Life
|-------------------------------------------- |  | ---------------------
|Buildings and improvements                   |  | 6 - 30 years         
|Income producing properties and improvements |  | 21 - 30 years        
|Vehicles                                     |  | 6 years              
|Electronic equipment                         |  | 5 years              
|Office furniture                             |  | 5 years              
|Computer software                            |  | 3 years              



Maintenance and repairs are charged directly
to expenses as incurred. Major additions and betterment to property and equipment are capitalized and depreciated over the remaining
useful life of the assets.





62







Note 3 – Summary of Significant Accounting Policies
(Continued)



Impairment of Long-lived Assets

The Company periodically evaluates the carrying value of long-lived assets in accordance with the Standard, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to
be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the
Company believes there were no impairments of its long-lived assets as of December 31, 2012 and 2011.



Deposits on Land Use Rights



Deposits on land use rights consist of
deposits held by the PRC government to purchase land use rights in Xi’an Baqiao District and other projects currently planned.



Goodwill and Intangible Assets



The Company accounts for goodwill and
intangible assets in accordance with the provisions of standard “Intangibles—Goodwill and Other”. Business acquisitions
require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of
the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired
is recorded as goodwill. The majority of the Company’s goodwill has resulted from the acquisition of Xinxing Property in
2009 and the acquisition of Xinxing Construction in 2010. The intangible assets include a land use right acquired from the Suodi
acquisition in 2010, a construction license resulting from the acquisition of Xinxing Construction in 2010, as well as a development
right for 487 acres of land in Baqiao Park obtained from the acquisition of New Land in 2007.



The land use right for the Company’s
own use is amortized over its estimated useful life of 39 years.



The construction license, which is subject
to renewal every 5 years, is not amortized and has an indefinite estimated useful life.



The amortization of the development right
is based on the percentage of profit margin realized over the total expected profit margin to be realized from the 487 acres of
land in the Baqiao project. The Company reviews its business plan for its 487 acres of land in Baqiao Park periodically and
updates its assumptions based on the prevailing market prices and management’s judgment of the profit margins.  The
method of amortization selected reflects the pattern in which the economic benefits of the intangible asset are realized.
This method is intended to match the pattern of amortization with the income-generating capacity of the asset. The amortized
development right is capitalized into the Company’s real estate held for development or sale and allocated to each building
based on the gross floor area (“GFA”) of each building and expensed as cost of real estate sales through the Company’s
percentage of completion revenue recognition method.



The Company is required to test goodwill
and other intangible assets deemed to have indefinite useful lives for impairment annually at the reporting unit level or whenever
events or changes in circumstances indicate that the carrying amount may not be fully recoverable. On January 1, 2012, the Company
adopted the accounting standard update ASC 350, “Intangibles—Goodwill and Other” allowing the Company to first
assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The Company
determines, based on a qualitative assessment, if it is more likely than not that the fair value of the reporting unit is less
than its carrying amount an impairment test will be performed. The impairment test compares the reporting unit’s carrying
value to its fair value and, when appropriate, the carrying value of goodwill and other intangible assets is reduced to fair value.



There were no indicators for impairment
and no impairment loss was recognized for the years ended December 31, 2012, 2011 and 2010.



Deferred Financing Costs



Debt issuance costs are capitalized as
deferred financing costs and amortized on a straight-line basis over the term of the related debt. The amortization expense for
the year ended December 31, 2012 was $156,064 (2011 - $155,210 and 2010 - $155,210). This amortization expense was included in
financing expense.



63







Note 3 – Summary of Significant Accounting Policies
(Continued)



Fair Value of Financial Instruments



The standard,
“Disclosures about Fair Value of Financial Instruments”, defines financial instruments and requires fair value disclosures
for those instruments. The standard, “Fair Value Measurements”, defines fair value and establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The carrying
amounts reported in the balance sheets for cash and cash equivalents, restricted cash, accounts receivable, other receivable,
accounts payable, loans from employees, other payables and accrued expenses qualify as financial instruments and are a reasonable
estimate of fair value because of the short period of time between the origination of such instruments and their expected realization
and their current market rate of interest. For the loans payable, based on the interest rates the Company believes it could obtain
for borrowings with similar terms.



The standard establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs
(Level 3 measurement). The three levels of the fair value hierarchy defined by the standard are as follows:



|Level 1 | Quoted prices
    are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those
    in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
    on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed
    equities and U.S. government treasury securities.
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level 2 | Pricing inputs
    are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
    as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation
    methodologies. These models are primarily industry-standard models that consider various assumptions, including
    quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for
    the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable
    in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported
    by observable levels at which transactions are executed in the marketplace. Instruments in this category include
    non-exchange-traded derivatives such as over the counter forwards, options and repurchase agreements.
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level 3 | Pricing inputs
    include significant inputs that are generally less observable from objective sources. These inputs may be used with internally
    developed methodologies that result in management's best estimate of fair value from the perspective of a market participant. Level
    3 instruments include those that may be more structured or otherwise tailored to customers' needs. At each balance
    sheet date, the Company performs an analysis of all instruments subject to the standard and includes in Level 3 all of
    those whose fair value is based on significant unobservable inputs.
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There were no assets or liabilities measured at fair value
on a recurring basis as of December 31, 2012.



Assets and liabilities measured at fair value on a recurring
basis include the following as of December 31, 2011:



|Fair Value Measurements Using      |  | Level 1 |   |  | Level 2 |   |         | Level 3 |  |   | At Fair 
    Value | 
|---------------------------------- |  | ------- | - |  | ------- | - | ------- | ------- |  | - | ------------------ | 
|Warrants liability                 |  | $       | - |  |         | $ | 4,162   |         |  | $ | -                  | 
|Fair value of embedded derivatives |  |         | - |  |         |   | 330,629 |         |  |   | -                  | 
|Total                              |  | $       | - |  |         | $ | 334,791 |         |  | $ | -                  | 



64







Note 3 – Summary of Significant Accounting Policies
(Continued)



Accounts Payable



Accounts payable consists of balances
due to subcontractors and suppliers for the purchase of construction and other services.



Advances from Customers



Advances from customers represent prepayments
by customers. The Company records such prepayments as advances from customers when the payments are received.



Other Payables



Other payables consist of balances for
non-construction costs with unrelated companies and individuals. These amounts are unsecured, non-interest bearing and short-term
in nature.



Advertising Costs



Advertising and sales promotion costs
are expensed as incurred. Advertising expense for the year 2012 totaled $3,055,882 (2011 - $2,093,002 and 2010 - $3,066,537) was
included in selling, general, and administrative expenses on the consolidated statements of income.



Warranty Costs



Generally, the Company provides all of
its customers with a limited (half a year to 5 years) warranty period for defective workmanship. Any significant material defects
are generally under warranty with the Company's construction contractors. Currently, the Company retains 5% of the total
contract cost from the construction contractors for a period of one to five years after the completion of the construction. Such
retention amounts will be used to pay for any repair expense incurred due to defects in the construction. Any excess amounts are
expensed in the period when they occur. The Company has not historically incurred any significant litigation requiring additional
specific reserves for its product offerings. As of December 31, 2012 and 2011, the Company did not recognize any warranty liability
or incur any warranty costs in excess of the amount retained from construction contractors.



Income Taxes



The Company utilizes the standard, “Accounting
for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns. Under this method, deferred taxes are
recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. At December 31, 2012 and 2011 the significant accounting to tax difference
was related to certain intangible assets and certain real estate held for development or sale that has no corresponding tax value.



The calculation of tax liabilities involves
dealing with uncertainties in the application of complex tax regulations. The Company is required to report income tax returns
in the PRC jurisdictions for the Subsidiaries located in China, The Company recognizes liabilities for anticipated tax audit issues
based on the Company’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts
ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period
when the liabilities are no longer determined to be necessary. If the estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to tax expense would result.



The Company adopted the provisions of
the interpretation, "Accounting for Uncertainty in Income Taxes”, on January 1, 2007. The Company did not have any
material unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of
implementing the interpretation. The Company does not believe there will be any material changes in its unrecognized tax positions
over the next 12 months. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax liability
as a component of selling, general and administrative expense. As of December 31, 2012 and 2011, the Company did not have any
accrued interest or penalties associated with any unrecognized tax rate differences from the federal statutory rate primarily
due to non-deductible expenses, temporary differences and preferential tax treatment. No assessments of income taxes for the
years ended December 31, 2012, 2011 and 2010 have been received by the Company.



65









Note 3 – Summary of Significant Accounting Policies
(Continued)



Basic and Diluted Earnings Per Share



Earnings per share are calculated in accordance
with the standard, “Earnings per Share”. Basic earnings per share are based upon the weighted average number of common
shares outstanding. The computation of diluted earnings per share includes the estimated impact of the exercise of the outstanding
warrants to purchase common stocks using the treasury stock method and the potential shares of converted common stock associated
with the convertible debt using the if-converted method.



Share-Based Compensation



The Company records stock-based compensation pursuant to the
standard, “Share-Based Payments.” The Company measures stock-based compensation cost at the grant date based on the
fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable,
of the stock award using the straight-line method.



Comprehensive Income



Comprehensive income consists of net income
and foreign currency translation gains and losses affecting shareholders' equity that, under GAAP, are excluded from net income.
The gain on foreign exchange translation totaled $1,471,275 for the year ended December 31, 2012 (2011 – $6,764,194 and
2010 – $3,162,147).



Statement of Cash Flows



In accordance with the standard, “Statement
of Cash Flows,” cash flows from the Company's operations are calculated based upon the local currencies translated at the
weighted average exchange rate for the year. As a result, amounts related to assets and liabilities reported on the statements
of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.





Segment reporting

Reportable segments are identified based
on operating segments which are determined based on the Company’s internal organization, management requirements and internal
reporting system. An operating segment is a component of the Company that meets the following respective conditions:



| | a. | Engage
    in business activities from which it may earn revenues and incur expenses;                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Whose operating
    results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resource to
    be allocated to the segment and assess its performance; and
| | c. | For which financial
    information regarding financial position, results of operations and cash flows are available.                                                                                 



Accounting Principles Recently Adopted



In May 2011, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04 “Fair Value
Measurement (Topic 820)” (“ASU 2011-04”). The purpose of these amendments is to achieve common fair value measurement
and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments
in this update change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements. The amendments include the following: (1) those that clarify the
Board’s intent about the application of existing fair value measurement and disclosure requirements (2) those that
change a particular principle or requirement for measuring fair value or for disclosing information about fair value
measurements. ASU 2011-04 was effective for the Company on January 1, 2012. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.



In June 2011, the FASB issued
ASU 2011-05 “Presentation of Comprehensive income” (“ASU 2011-05”). The FASB amended the existing guidance to
require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should
present total net income and its components followed consecutively by a second statement that should present total other
comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU 2011-05
was effective for the Company on January 1, 2012. The adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements.



In September 2011, the FASB
issued ASU 2011-08 “Intangibles-Goodwill and Other” (“ASU 2011-08”). The objective of this update is to simplify how
entities, both public and non-public, test goodwill for impairment. The amendments in the update permit an entity to first
assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment
test described. ASU 2011-08 was effective for the Company on January 1, 2012. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.



66







Note 3 – Summary of Significant
Accounting Policies (Continued)



Accounting Principles Recently Adopted
(Continued)



In December 2011, the FASB issued ASU
2011-12, “Comprehensive income” (“ASU 2011-12”). The amendments are being made to allow FASB time to re-deliberate
whether to present on the face of the financial statements the effects of reclassifications out of accumulated other
comprehensive income on the components of net income and other comprehensive income for all periods presented. While FASB is
considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of
financial statement users for additional information about reclassification adjustments, entities should continue to
report classifications out of accumulated other comprehensive income consistent with the presentation requirements in effect
before ASU 2011-05. ASU 2011-12 was effective for the Company on January 1, 2012. The adoption of this ASU did not have
a material impact on the Company’s consolidated financial statements.



In August 2012,
the FASB issued ASU No. 2012-03, Technical Amendments and Corrections to SEC Sections – Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 114. Technical Amendments Pursuant to SEC Release No. 33-9230, and Corrections Related
to FASB Accounting Standards Update 2010-22, which amends various SEC paragraphs pursuant to the issuance of SAB No. 114. This
ASU became effective on issuance, and the adoption of the ASU had no impact on the Company’s consolidated financial statements.



New Accounting Pronouncement Not Yet
Adopted



In December 2011, the FASB
issued Accounting Standards Update ASU No. 2011-10, “Derecognition of in Substance Real Estate – a
Scope Clarification” (“ASU 2011-10”) which relates to deconsolidation events.   Under this amendment,
when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real
estate as a result of the default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance
in Subtopic 360-20, Property, Plant and Equipment - Real Estate Sales, to determine whether it should derecognize the in
substance real estate. This guidance is effective for the fiscal year ending December 31, 2013 and is not expected to have a
significant impact on the Company’s consolidated financial statements.



In December 2011, the FASB issued
ASU 2011-11, “Balance Sheet” (“ASU 2011-11”). The amendments in this update require an entity to disclose information about
offsetting and related arrangements to enable users of its financial statements to understand the effect of those
arrangements on its financial position. Entities are required to disclose both gross information and net information about
both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions
subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase
agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. ASU 2011-11 will be effective for the Company on January 1, 2013. The adoption of this ASU is not expected to have a material
impact on the Company’s consolidated financial statements.



In July 2012, the FASB issued ASU
2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment”
(“ASU 2012-12”). ASU 2012-02 amends the guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment. Under
the revised guidance, entities testing an indefinite-lived intangible asset for impairment have the option of performing a
qualitative assessment before calculating the fair value of the asset. If entities determine, on the basis of qualitative
factors, that the likelihood of the indefinite-lived intangible asset being impaired is below a "more likely than
not" threshold (i.e., a likelihood of more than 50 percent), the entity would not need to calculate the fair value of
the asset. The ASU does not revise the requirement to test indefinite-lived intangible assets annually for impairment and
does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or
circumstances. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years
beginning after September 15, 2012. Early adoption is permitted. The Company is currently assessing the future impact, if
any, of this new accounting update to the consolidated financial statements.



On October
2012, the FASB issued ASU No. 2012-04, “Technical Amendments and Corrections” (“ASU 2012-04”). The updates
to current guidance make the codification easier to understand and the fair value measurement guidance easier to apply
by eliminating inconsistencies and providing needed clarification. ASU No. 2012-04 is effective for fiscal periods
beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material effect on the
Company’s consolidated financial statements.



In January 2013,
the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and
Liabilities” (“ASU 2013-01”), which clarifies that the scope of ASU 2011-11 applies to derivatives accounted
for in accordance with ASU Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements
and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance
with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. The
adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.



In February 2013,
the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).
This standard requires companies to provide information about the amounts reclassified out of accumulated other comprehensive
income by component. In addition, companies are required to present, either on the face of the statement where net income is presented
or in the accompanying notes, significant amounts reclassified out of accumulated other comprehensive income by the respective
line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in
the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, companies are
required to cross-reference to other disclosures that provide additional detail on those amounts. ASU 2013-02 is effective prospectively
for reporting periods beginning after December 15, 2012. The adoption of this standard is not expected to have a material impact
on the Company’s consolidated financial statements.



In March 2013,
the FASB issued ASU 2013-05, “Foreign Currency Matters (Topic 830) Parent’s Accounting for the Cumulative Translation Adjustment
upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”
(“ASU 2013-05”). ASU 2013-05 updates accounting guidance related to the application of consolidation guidance and
foreign currency matters. This guidance resolves the diversity in practice about what guidance applies to the release of the cumulative
translation adjustment into net income. This guidance is effective for interim and annual periods beginning after December 15,
2013. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.





67







Note 4 – Supplemental Disclosure of Cash Flow
Information



Income taxes paid amounted to $1,962,010,
$4,595,814 and $527,633 for the years ended December 31, 2012, 2011 and 2010, respectively. Interest paid for the years ended
December 31, 2012, 2011 and 2010 amounted to $13,256,327, $13,620,319, and $8,969,051, respectively.



During the year, the Company disposed
of part of its JunJing I shopping mall which was recorded as part of property and equipment before the disposal. Proceeds of $7,376,427
in connection with the disposal remains in accounts receivable as of December 31, 2012 and are excluded from proceeds from sale
of property and equipment in the consolidated statements of cash flows.



During the year ended December 31, 2012,
the Company disposed certain real estate held for development or sale and property with a book value of $1,871,433 (RMB 11,761,582)
to settle $1,888,675 (RMB 12 million) loans from a third party vendor.



No such non-cash items occurred in fiscal
year 2011 and the following non-cash items occurred in fiscal year 2010:



| | (1) | The Company issued 720,380 of common
                                                            stock, which is valued at $3,241,710 in connection with the acquisition
                                                            of Suodi during the first quarter of fiscal 2010.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In accordance with the Amended and
                                                            Restated Shareholders’ Agreement with Prax, the Company reclassified
                                                            Prax’s interest in the consolidated subsidiaries from non-controlling
                                                            interest in equity to liability and recorded $48,969,961, the difference
                                                            between the carrying value of the original non-controlling interest
                                                            and the fair value of redemption amount, as a charge to the non-controlling
                                                            interest.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | During year ended December 31, 2010,
                                                            the Company reclassified the asset held for sale with a net book value
                                                            of $11,942,883 to property and equipment.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 5 – Real Estate Held for Development or
Sale



The following summarizes the components of real estate inventories
as at December 31, 2012 and 2011:



|                                                                           |  | 2012 (Restated – Note2) |             |  | 2011 (Restated – Note2) |  
|-------------------------------------------------------------------------- |  | ----------------------- | ----------- |  | ----------------------- | -
|Real estate projects completed and held for sale                           |  |                         |             |  |                         |  
|JunJing I                                                                  |  | $                       | 2,065,376   |  |                         | $
|JunJing II                                                                 |  |                         | 175,326     |  |                         |  
|Tsining 24G                                                                |  |                         | 45,370      |  |                         |  
|Gangwan                                                                    |  |                         | 19,117      |  |                         |  
|Tsining Home IN                                                            |  |                         | 60,943      |  |                         |  
|JunJing III                                                                |  |                         | 1,309,347   |  |                         |  
|Puhua Phase I                                                              |  |                         | 9,205,681   |  |                         |  
|Puhua Phase II - West Region                                               |  |                         | 7,834,598   |  |                         |  
|Real estate completed and held for sale                                    |  |                         | 20,715,758  |  |                         |  
|                                                                           |  |                         |             |  |                         |  
|Real estate projects held for development                                  |  |                         |             |  |                         |  
|Puhua Phase II, III and IV; Phase I was completed during fiscal 2012       |  |                         | 80,834,955  |  |                         |  
|Tangdu (see note 7(a))                                                     |  |                         | -           |  |                         |  
|JunJing III – completed during fiscal 2012                                 |  |                         | -           |  |                         |  
|Park plaza                                                                 |  |                         | 77,765,333  |  |                         |  
|Golden Bay (The Company is in the process of obtaining the land use right) |  |                         | 12,415,111  |  |                         |  
|Jiyuan                                                                     |  |                         | 16,500,575  |  |                         |  
|Other                                                                      |  |                         | 3,941,746   |  |                         |  
|Construction materials                                                     |  |                         | 198,397     |  |                         |  
|Real estate held for development                                           |  |                         | 191,656,117 |  |                         |  
|                                                                           |  |                         |             |  |                         |  
|Total real estate held for development or sale                             |  | $                       | 212,371,875 |  |                         | $



Note 6 – Accounts Receivable



Accounts receivable consist of the following as at December
31, 2012 and 2011:



|                                |  | 2012 (Restated – Note2) |            |   | 2011 (Restated – Note2) |  
|------------------------------- |  | ----------------------- | ---------- | - | ----------------------- | -
|Accounts receivable             |  | $                       | 27,007,045 |   |                         | $
|Allowance for doubtful accounts |  |                         | (577,713   | ) |                         |  
|Accounts receivable, net        |  | $                       | 26,429,332 |   |                         | $



Note 7 – Other Receivables, Prepaid Expenses
and Other Assets



Other receivables, prepaid expenses and other assets consist
of the following as at December 31, 2012 and 2011:





|                                                          |  | 2012 |           |   | 2011 |  
|--------------------------------------------------------- |  | ---- | --------- | - | ---- | -
|Government reimbursement for Tangdu project (a)           |  | $    | 3,795,916 |   |      | $
|Other receivables                                         |  |      | 1,289,958 |   |      |  
|Allowance for doubtful receivables                        |  |      | (145,753  | ) |      |  
|Prepaid expenses                                          |  |      | 415,368   |   |      |  
|Prepaid other tax expenses                                |  |      | 1,498,836 |   |      |  
|Other receivables, prepaid expenses and other assets, net |  | $    | 6,854,325 |   |      | $





| | (a) | The
                                                                                                                                              Company’s
                                                                                                                                              Tangdu
                                                                                                                                              project
                                                                                                                                              was
                                                                                                                                              essentially
                                                                                                                                              a
                                                                                                                                              land
                                                                                                                                              use
                                                                                                                                              right
                                                                                                                                              plus
                                                                                                                                              miscellaneous
                                                                                                                                              preconstruction
                                                                                                                                              costs.
                                                                                                                                              During
                                                                                                                                              fiscal
                                                                                                                                              year
                                                                                                                                              2011,
                                                                                                                                              the
                                                                                                                                              PRC
                                                                                                                                              government
                                                                                                                                              was
                                                                                                                                              in
                                                                                                                                              the
                                                                                                                                              process
                                                                                                                                              of
                                                                                                                                              negotiating
                                                                                                                                              with
                                                                                                                                              the
                                                                                                                                              Company
                                                                                                                                              regarding
                                                                                                                                              a
                                                                                                                                              potential
                                                                                                                                              transfer.
                                                                                                                                              The
                                                                                                                                              Company
                                                                                                                                              owned
                                                                                                                                              the
                                                                                                                                              legal
                                                                                                                                              title
                                                                                                                                              to
                                                                                                                                              this
                                                                                                                                              land
                                                                                                                                              use
                                                                                                                                              right
                                                                                                                                              as
                                                                                                                                              at
                                                                                                                                              December
                                                                                                                                              31,
                                                                                                                                              2011.
                                                                                                                                              During
                                                                                                                                              the
                                                                                                                                              fiscal
                                                                                                                                              year
                                                                                                                                              2012,
                                                                                                                                              the
                                                                                                                                              government
                                                                                                                                              agreed
                                                                                                                                              to
                                                                                                                                              reimburse
                                                                                                                                              the
                                                                                                                                              Company
                                                                                                                                              for
                                                                                                                                              the
                                                                                                                                              costs
                                                                                                                                              incurred
                                                                                                                                              on
                                                                                                                                              the
                                                                                                                                              land
                                                                                                                                              use
                                                                                                                                              right
                                                                                                                                              and
                                                                                                                                              required
                                                                                                                                              the
                                                                                                                                              Company
                                                                                                                                              to
                                                                                                                                              transfer
                                                                                                                                              the
                                                                                                                                              land
                                                                                                                                              use
                                                                                                                                              right
                                                                                                                                              back
                                                                                                                                              to
                                                                                                                                              the
                                                                                                                                              government.
                                                                                                                                              The
                                                                                                                                              carrying
                                                                                                                                              value
                                                                                                                                              of
                                                                                                                                              the
                                                                                                                                              land
                                                                                                                                              use
                                                                                                                                              right
                                                                                                                                              was
                                                                                                                                              reclassified
                                                                                                                                              to
                                                                                                                                              other
                                                                                                                                              receivable,
                                                                                                                                              prepaid
                                                                                                                                              expenses
                                                                                                                                              and
                                                                                                                                              other
                                                                                                                                              assets
                                                                                                                                              and
                                                                                                                                              the
                                                                                                                                              balance
                                                                                                                                              as
                                                                                                                                              at
                                                                                                                                              December
                                                                                                                                              31,
                                                                                                                                              2012
                                                                                                                                              represents
                                                                                                                                              the
                                                                                                                                              remaining
                                                                                                                                              balance
                                                                                                                                              of
                                                                                                                                              the
                                                                                                                                              settlement
                                                                                                                                              amount.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



68









Note 8 — Property and Equipment



Property and equipment consist of the following as at December
31, 2012 and 2011:



|                                                                                                                   |  | 2012 |            |   | 2011 |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | -
|Income producing properties and improvements                                                                       |  | $    | 19,577,784 |   |      | $
|Buildings and improvements                                                                                         |  |      | 17,913,261 |   |      |  
|Electronic equipment                                                                                               |  |      | 918,209    |   |      |  
|Vehicles                                                                                                           |  |      | 734,678    |   |      |  
|Computer software                                                                                                  |  |      | 319,012    |   |      |  
|Office furniture                                                                                                   |  |      | 863,132    |   |      |  
|Office building under construction
    (completed in December 2012 and reclassified to buildings and improvements) |  |      | -          |   |      |  
|Total                                                                                                              |  |      | 40,326,076 |   |      |  
|Accumulated depreciation                                                                                           |  |      | (6,488,730 | ) |      |  
|Property and equipment, net                                                                                        |  | $    | 33,837,346 |   |      | $



Depreciation expense for the
years ended December 31, 2012, 2011 and 2010 amounted to $2,065,380, $1,960,702 and $3,179,083, respectively. Depreciation expense
was included in selling, general and administrative expenses and cost of other revenue.



Note 9 — Intangible Assets



Intangible assets consist of the following as at December 31,
2012 and 2011:



|                                  |  | 2012 |            |   | 2011 |  
|--------------------------------- |  | ---- | ---------- | - | ---- | -
|Development right acquired (a)    |  | $    | 51,835,211 |   |      | $
|Land use right acquired (b)       |  |      | 8,627,525  |   |      |  
|Construction license acquired (c) |  |      | 1,208,354  |   |      |  
|                                  |  |      | 61,671,090 |   |      |  
|Accumulated amortization          |  |      | (7,188,838 | ) |      |  
|Intangible asset, net             |  | $    | 54,482,252 |   |      | $





| | (a) | The development
    right for 487 acres of land in Baqiao Park was obtained from the acquisition of New Land in fiscal 2007. The intangible
    asset has a finite life. In accordance with accounting standard, "Goodwill and Other Intangible Assets", the intangible
    asset is subject to amortization every time a land use right in connection with this development right is obtained and based
    on the percentage of realized profit margin of the land use right over the total expected profit margin to be realized from
    the 487 acres of land in the Baqiao project. This method is intended to match the pattern of amortization with the income-generating
    capacity of the asset. The development right will expire on June 30, 2016. There was no amortization on development right during fiscal 2012, 2011 and 2010. Upon the acquisition of Puhua's land use right in 2009, the Company recorded a $4,665,592 amortization on the development right and capitalized the amount in the real estate held for development or sale. The capitalized amortization amount is expensed as part of the  cost of real estate sales as Puhua recognizes its real estate sales revenues under the percentage of completion method were recognized. During the three years ended December 31, 2012, 2011 and 2010, $645,264, $547,876 and $461,819 of amortized development right capitalized in the Puhua project were expensed through cost of real estate sales, respectively. The Company also expects to acquire all remaining land use rights in connection with the development right and amortize the balance of the development right by the end of 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The land use right was acquired through
acquisition of Suodi. The land use right certificate will expire at November 2048. The Company amortizes the land use right over
39 years starting from the date of acquisition. For the year ended December 31, 2012,
the Company has recorded $218,480 amortization expense on land use right (2011 and 2010 - $213,274 and $207,029, respectively).
The amortization was included in selling, general and administrative expenses. For the next five years, the Company will
amortize approximately $220,758 annually on the land use right.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 will be able to continuously renew
    the license in future. The license will be subject to renewal on January 1, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company evaluates its intangible assets
for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Based on the discounted
estimated future cash flows, the Company will record a write-down for impairments if the discounted cash flows are greater than
the carrying value of the intangible asset. No impairment write-down was recognized for December 31, 2012, 2011 and 2010.



Note 10 — Goodwill



The following represents changes in goodwill during the years
ended December 31, 2012 and 2011:



|                           |  | 2012 |           |  | 2011 |  
|-------------------------- |  | ---- | --------- |  | ---- | -
|Balance, beginning of year |  | $    | 1,894,782 |  |      | $
|Currency translation       |  |      | 19,404    |  |      |  
|Balance, end of year       |  | $    | 1,914,186 |  |      | $



No impairment was recognized for December 31, 2012, 2011 and
2010.



Note 11 – Accrued Expenses



Accrued expenses consist of the following as of December 31,
2012 and 2011:



|                 |  | 2012 |            |  | 2011 |  
|---------------- |  | ---- | ---------- |  | ---- | -
|Accrued expenses |  | $    | 19,521,717 |  |      | $
|Accrued interest |  |      | 2,707,797  |  |      |  
|Total            |  | $    | 22,229,514 |  |      | $



Note 12 – 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% in 2012 (2011 – 20%) per annum, are
due on demand and are available to all employees.



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



|                        |  | 2012 |           |  | 2011 |  
|----------------------- |  | ---- | --------- |  | ---- | -
|President               |  | $    | 1,637,213 |  |      | $
|Chief executive officer |  |      | 160,511   |  |      |  
|Chief financial officer |  |      | 963,066   |  |      |  
|Chief operating officer |  |      | 642,044   |  |      |  
|                        |  | $    | 3,402,834 |  |      | $



69







Note 13 – Loans Payable



Loans payable represent amounts due to various banks and are
due on demand or within three years. These loans generally can be renewed with the banks when they mature. Loans payable at December
31, 2012 and December 31, 2011 consisted of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 2012 |             |  | 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- |  | ---- | -
|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 was at 8.856%, secured by the Company's JunJing Yuan I building No. 12, Han Yuan and guaranteed by the
    Company’s President, President`s spouse, CEO, Tsining’s general manager and his spouse. This amount was fully
    repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $    | -           |  |      | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Xinhua Trust Investments Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |             |  |      |  
|Due February 10, 2012, annual interest was at 10%, secured by the 24G project. This loan was
    fully repaid in February 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Bank of Xian                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |             |  |      |  
|Annual interest was fixed at 130% of People’s Bank of China prime rate at the time of
    borrowing (or 8.528%), secured by the Company's Junjing building No. 12. $794,420 was payable on March 31, 2012; $794,420
    was payable on June 30, 2012, and $635,536 was payable on August 29, 2012. The loan was set to expire on August 29, 2012,
    and was fully repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Bank of Beijing, Xi’an Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      |             |  |      |  
|Due December 10, 2012, annual interest was at the prime rate of People’s Bank of China
    (or 6.56%). The Company had restricted cash of $15,888,400 deposited with the Bank of Beijing as collateral. The Company repaid
    the loan in November and December 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | -           |  |      |  
|The Company signed an agreement for a line of credit of approximately $31.8 million (RMB 200
    million). The total amount will be due on November 30, 2014. As of December 31, 2011, the Company drew $11,121,880 (RMB 70
    million) from the line of $31.8 million, and during the year ended December 31, 2012 the Company drew the remaining $20,866,439
    (RMB 130 million) and repaid $9,630,664 (RMB 60 million). Annual interest is at 130% of People’s Bank of China prime
    rate (or 8%). The loan is secured by Puhua Phase II project’s land use right and construction in progress. The repayment
    schedule is as follows when the total $31.8 million loan is drawn subsequent to December 31, 2012: – May 30, 2013 -
    $3,210,221 (RMB 20 million); November 30, 2013 - $9,630,664 (RMB 60 million); May 30, 2014 - $4,815,332 (RMB 30 million);
    November 30, 2014 - $4,815,332 (RMB 30 million). The loan is also subject to certain repayment requirements based on percentage
    of sales contract signed over total estimated sales amount of Puhua project. |  |      | 22,471,549  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Construction Bank of China                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |      |             |  |      |  
|Due on March 6, 2015, annual interest is People’s Bank of China prime rate plus 1% (or
    7.15%). The loan is secured by JunJing III project and its land use right. The repayment schedule is as follows: August 2014
    - $802,555 (RMB 5 million); March 2015 –  $802,555 (RMB 5 million). The loan is also subject to certain repayment
    requirements based on percentage of sales contract signed over total estimated sales amount of JunJing III. The Company repaid
    $7,865,989 (RMB 50 million) of the original principal of $9,471,100 (RMB 60 million) during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |      | 1,605,111   |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Tianjin Cube Equity Investment Fund Partnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |             |  |      |  
|Originally due on January 27, 2012, extended it to July 27, 2012 in November 2011, annual
    interest was 9.6%, secured by JunJing II Commercial Units, JunJing I Residential units and part of Company’s Park Plaza
    project. The balance was fully repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|JP Morgan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |      |             |  |      |  
|Originally due on March 13, 2011 and extended to June 14, 2012, annual interest was at 1.97%,
    secured by $35,590,016 of restricted cash. The loan was fully repaid in 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      | -           |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Bank of China, Macau Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      |             |  |      |  
|Due December 16, 2013, annual interest is based on 3-month LIBOR (“LIBOR”) rate
    plus 3.6%. The 3-month LIBOR rate at December 31, 2012 was 0.3095%, secured by $32,102,213 (RMB $200,000,000) of restricted
    cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |      | 31,000,000  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Bank of Communication offshore branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |      |             |  |      |  
|Due on November 13, 2015, annual rate is 2.9%, secured by $36,114,990 (RMB $225,000,000) of
    restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      | 30,000,000  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Bank of China, Singapore Office Due November 22, 2014, annual interest is based on 3-month
    LIBOR rate plus 1.55%. The 3-month LIBOR rate at December 31, 2012 was 0.3095%, secured by $32,102,213 (RMB $200,000,000)
    of restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      | 31,800,000  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|LUSO International Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |             |  |      |  
|The Company signed an agreement for a line of credit of $9.7 million with LUSO International
    Bank. The amount that can be withdrawn is limited to 97% of the restricted cash secured for the line of credit. The total
    amount will be due on March 27, 2015. As of December 31, 2012, the Company has drawn $7,761,153 from the line of $9.7 million
    which is 97% of $ 8,025,213 (RMB 50 million) restricted cash secured. Annual interest is based on 3-month LIBOR rate plus
    2.7%. The 3-month LIBOR rate at December 31, 2012 was 0.3095%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | 7,761,153   |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”) (Note 23)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |             |  |      |  
|There are several loans from Days Hotel, including: $995,169 (RMB 6.2 million) due on March
    13, 2013 and repaid; $321,022 (RMB 2 million) due on March 31, 2013; $5,136,354 (RMB 32 million) due on April 28, 2013; $4,815,332
    (RMB 30 million) due on June 30, 2013; $3,210,221 (RMB 20 million) due on July 2, 2013; $6,741,465 (RMB 42 million) due on
    November 13, 2013. All Days Hotel loans have an annual interest rate of 20%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |      | 21,219,563  |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Changcheng Financing Company Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |             |  |      |  
|Due on November 8, 2014, annual interest rate is 19%, secured by an income producing property
    of Tsining.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      | 4,815,332   |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Shanghai XinYing Fund, LLC (“XinYing”) (Note 23)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |             |  |      |  
|Due August 7, 2014, annual interest is 9.6% and the effective annual
    interest rate is 27.16% due to related finance consulting fees (note 23), secured by 100% ownership of Xinxing Construction’s
    shares, corporate guarantee from Tsining, Puhua, and the Company (Note 24). The repayment schedule per agreement is as follows:
    June 1, 2013 - $1,605,111 (RMB 10 million); December 1, 2013 - $1,605,111 (RMB 10 million); June 1, 2014 - $1,605,111 (RMB
    10 million); August 7, 2014 – 19,261,328 (RMB 120 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |      | 24,076,660  |  |      |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $    | 174,749,368 |  |      | $



70







Note 13 – Loans Payable (Continued)



Except for the loans from JP Morgan Bank of China, Macau Branch,
Bank of China Singapore Branch and Bank of Communication offshore branch, which were drawn to repay mandatorily redeemable non-controlling
interest in Subsidiaries (Note 15) and the loans from LUSO International Bank, which were drawn to repay convertible debt (Note
14), all other loans were drawn to directly finance construction projects.



The $36.1 million of restricted cash corresponding
to a $30 million loan from Bank of Communications offshore Branch, the $32.1 million of restricted cash corresponding to a $31
million loan from Bank of China, Macau Branch, the $32.1 million of restricted cash corresponding to a $31.8 million loan from
Bank of China, Singapore Branch, and $8.0 million of restricted cash corresponding to a $7.76 million loan from LUSO International
Bank are of the same nature. These borrowings were incurred in Hong Kong to repay the mandatorily redeemable preferred shares
of Prax. However, the majority of our cash resided in mainland China and to wire funds from mainland China to Hong Kong is subject
to foreign exchange restrictions imposed by the PRC government. Thus, in order for us to repay our Hong Kong and oversea counterparties,
we had to utilize the special lending facilities provided by major PRC banks and foreign financial institutions (i.e. JP Morgan
and Bank of China) to allow us to borrow outside of mainland China using cash we have in mainland China as guarantees.



The majority of 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 $44,920,900 at December 31,
2012 (December 31, 2011 - $48,916,028, certain buildings and income producing properties and improvements with a carrying value
of $4,287,898 at December 31, 2012 (December 31, 2011- $20,022,475) and certain land use rights with a carrying value of $Nil
at December 31, 2012 (December 31, 2011- $3,371,814). The weighted average interest rate on loans payable as at December 31, 2012
was 7.1% (December 31, 2011 – 6.7%).



The loan from Bank of Beijing and Construction
Bank of China are also subject to certain repayment terms based on certain percentage of units sold in Puhua project and JunJing
III. Based on this repayment term, the Bank of Beijing and Construction Bank of China can demand repayment of all remaining balance
outstanding at any time (Bank of Beijing – $22,471,549; Construction Bank of China – $1,605,111).



The principal repayment requirements for
the following 5 years are as follows:



|Due in 1 year |  | $ | 79,506,445  | 
|------------- |  | - | ----------- | 
|1 – 2 years   |  |   | 57,481,770  | 
|2 – 3 years   |  |   | 37,761,153  | 
|3 – 4 years   |  |   | -           | 
|4 – 5 years   |  |   | -           | 
|After 5 years |  |   | -           | 
|              |  | $ | 174,749,368 | 



Note 14 – Convertible Debt



On January 28, 2008, the Company issued
Senior Secured Convertible Debt (the "Convertible Debt") and warrants to subscribe for common shares for an aggregate
purchase price of $20 million. The Convertible Debt bears interest at 5% per annum (computed based on the actual days elapsed
in a period of 360 days) of the RMB nominal principle amount, payable quarterly in arrears in U.S. dollars on the first business
day of each calendar quarter and on the maturity date. In addition, 1,437,467 five-year warrants were granted with a strike
price of $6.07 per common share and are callable if certain stock price thresholds are met. Approximately 215,620 warrants are
also available as a management incentive if certain milestones are met. If the aggregate principal amount of the Convertible Debt
is reduced to $10 million or less as a result of repayment by the Company or as a result of any optional conversion
by the investors or mandatory conversion by the Company of the Convertible Debt, then each investor agrees to surrender to
the Company warrants for an aggregate number of shares of common stock equal to such investors’ pro rata share of 107,810
shares. If the aggregate principal amount of the Convertible Debt is reduced to $Nil as a result of repayment by the Company
or as a result of any optional conversion by the investors or mandatory conversion by the Company of the Convertible Debt, then
each investor agrees to surrender to the Company warrants in addition to the 107,810 warrants surrendered pursuant to the $10 million
reduction noted above for an aggregate number of shares of common stock equal to such investor’s pro rata share of 107,810
shares.



The Company may hold in treasury and reissue
to the officers and directors of the Company any warrants surrendered by the investors.



The investors have the right to convert
up to 45% ($9 million) of the principal amount of the Convertible Debt into common shares at an initial conversion price of
$5.57, subject to an upward adjustment. The Company, at its discretion, may redeem the remaining non-convertible portion
of Convertible Debt ($11 million) (the “Non-convertible Portion”) at 100% of the principal amount, plus any accrued
and unpaid interest. The warrants associated with the Convertible Debt grant the investors the right to acquire shares of
common stock at $6.07 per share, subject to customary anti-dilution adjustments.



On June 10, 2010, the Company and debenture
investors entered into an amendment (the “Amendment”), which granted investors the right to convert the $11 million
Non-convertible Portion of the Convertible Debt at a conversion price of $5.57. The rights expire 5 business days after the effective
date that a registration statement is effective. The Company gave written notice thereof to the investors that unless by the end
of such 5 business day period the holder and its affiliates have converted in aggregate at least 55% of the aggregate face amount
of Convertible Debt held by holders and affiliates into common stock of the Company.



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



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



On January 25, 2011, certain investors
requested and the Company’s Board approved the request to convert $9,763,000 Non-convertible Portion of the Convertible
Debt into 1,752,778 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 on February 25, 2011, 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 as of December
31, 2011.



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



Both the 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 but 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.



Prior to June 10, 2010, the date of Amendment,
the Company used the Cox-Ross-Rubinstein Binomial Lattice Model (the “CRR Model”) to assess the fair value of warrants
embedded derivatives at each reporting period. After the Amendment, since the investor might exercise the warrants on a cashless
basis and receive one common share for every two warrants held if the investor converts at least 55% of face amount of Convertible
Debt held, in addition to the CRR Model, the Company also uses an alternative valuation method (the “Alternative Model”)
to assess the fair value of the warrants. The Alternative Model is based on the share price of the Company at valuation date and
the number of common shares that could result from a two for one cashless exercise. The Company records the warrant liability
based on the higher valuation resulted from either CRR Model or Alternative Model at each valuation date. Due to the substantive
change of the conversion feature on the Non-convertible Portion, the Amendment is treated as a debt extinguishment on the Non-convertible
portion. The deemed proceeds of the revised $11 million Non-convertible Portion are allocated to the embedded derivative and to
the cost associated with the change in the terms of the outstanding warrants. The remaining proceeds were then allocated to the
carrying value of the Convertible Debt.



71







Note 14 – Convertible Debt (Continued)



During the year ended December 31, 2010, the Company recorded
a loss on extinguishment of debt of $2,180,492, which consists of:



|                                   |  | Immediately before the Amendment date
    of June 10, 2010 |           |  | Immediately after the Amendment date
    of June 10, 2010 |   |           | Loss on extinguishment of debt recognized | 
|---------------------------------- |  | ---------------------------------------------------------- | --------- |  | --------------------------------------------------------- | - | --------- | ----------------------------------------- | 
|Fair value of warrants liability   |  | $                                                          | 1,370,585 |  |                                                           | $ | 1,631,525 |                                           | 
|Fair value of embedded derivatives |  |                                                            | 1,570,542 |  |                                                           |   | 3,490,094 |                                           | 
|Total                              |  | $                                                          | 2,941,127 |  |                                                           | $ | 5,121,619 |                                           | 



There was no such loss on extinguishment of debt recorded in
2012 and 2011.



The fair value change on the debt portion was not material.
The fair value of warrants and embedded derivatives immediately before and after the Amendment date were assessed using both Alternative
Model and CRR Model with the following assumptions:



|Expected life           |  |  | 2.64
                                            – 2.72 years | 
|----------------------- |  |  | ------------------------------------------------------------- | 
|Expected volatility     |  |  | 105%                                                          | 
|Risk-free interest rate |  |  | 1.10
                                            - 1.14%      | 
|Dividend yield          |  |  | 0%                                                            | 



The fair values of the warrants and embedded
conversion option at December 31, 2012 were determined to be $Nil (December 31, 2011 - $3,102 and $330,629), using both Alternative
Model and CRR Model with the following assumptions:



|                        |  | December 31, 2012 |  | December 31, 2011 |                                                              
|----------------------- |  | ----------------- |  | ----------------- | -------------------------------------------------------------
|Expected life           |  | N/A               |  |                   | 1.08
                                            – 1.16 years
|Expected volatility     |  | N/A               |  |                   | 85%                                                          
|Risk-free interest rate |  | N/A               |  |                   | 0.13-
                                            0.14%      
|Dividend yield          |  | N/A               |  |                   | 0%                                                           



For year ended 2012, the Company recorded
a decrease in fair value for the warrants and embedded derivatives of $3,102 and $330,629, respectively (December 31, 2011 –
decrease of $292,935 and $1,697,097), in the consolidated statements of income.



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 December 31, 2012 was $Nil as a result of early repayment during
the year (December 31, 2011 - $9,165,591). Related interest and accretion costs for the year ended 2012 were $528,354 and $954,979,
respectively (2011 - $581,333 and $987,263 and 2010 - $1,062,954 and $1,416,871).



The Company repaid all the convertible
debt on December 31, 2012.



72







Note 15 – Mandatorily redeemable non-controlling
interests in Subsidiaries(As restated, see note 2)



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 agreed to redeem Prax’s 1,000 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
24, 2010. The Company agreed with Prax to redeem all Prax’s Class A Shares within three years by December 31, 2012 for
consideration of the USD equivalent of $89.94 million (RMB 576 million). According to the Amendment, the redemption
obligation was also guaranteed by the Company.



As Prax’s interest in the consolidated
subsidiaries met the definition of a mandatorily redeemable financial instrument, it was reported within liabilities as mandatorily
redeemable non-controlling interests in subsidiaries of the Company’s consolidated balance sheets and initially measured
at the fair value of cash that would be due and payable to Prax under the Amended and Restated Shareholders Agreement over three-year
period.



The Company recorded a liability of $77,341,429
on May 24, 2010 reflecting the fair value of the redemption amount of Prax’s interest and eliminated the original non-controlling
interest in the equity on the consolidated balance sheets. The difference of $48,969,961 between the carrying value of the original
non-controlling interests and the fair value of redemption amount of Prax’s interest was reflected as a charge to retained
earnings. Subsequently, the Company recorded accretion cost on these redeemable non-controlling interests using the effective
interest method based on the risk free rate of 5.85%, an independent observational input. The related accretion cost incurred
for the year ended December 31, 2012 was $1,542,039 (2011 and 2010 - $3,141,484 and $2,741,683, respectively) and was capitalized
in real estate held for development or sale – Puhua project.



|                                                                               |  | Mandatory Redeemable Non-controlling Interests  in Subsidiaries |            
|------------------------------------------------------------------------------ |  | --------------------------------------------------------------- | -----------
|Non-controlling interest at December 31, 2009                                  |  | $                                                               | 28,371,468 
|Reclassify to mandatorily redeemable non-controlling interests in Subsidiaries |  |                                                                 | (28,371,468
|Non-controlling interest at December 31, 2010                                  |  | $                                                               | -          



|                                                                                               |  | Mandatory Redeemable Non-controlling Interests  in Subsidiaries
    (Restated – Note2) |            
|---------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------- | -----------
|Mandatory redeemable non-controlling interests in subsidiaries at December 31,
    2010        |  | $                                                                                      | 52,428,827 
|Capitalized accretion cost on mandatorily redeemable non-controlling interests in Subsidiaries |  |                                                                                        | 3,141,484  
|Repayments made in fiscal 2010                                                                 |  |                                                                                        | (31,000,000
|Difference in foreign exchange translation                                                     |  |                                                                                        | 1,847,813  
|Mandatorily redeemable non-controlling interests in subsidiaries at December 31, 2011          |  |                                                                                        | 26,418,124 
|Capitalized accretion cost on mandatorily redeemable non-controlling interests in subsidiaries |  |                                                                                        | 1,542,039  
|Repayments made during the year                                                                |  |                                                                                        | (28,654,408
|Difference in foreign exchange translation                                                     |  |                                                                                        | 694,245    
|Mandatorily redeemable non-controlling interests in Subsidiaries at
    December 31, 2012      |  | $                                                                                      | -          



As at December 31, 2012, the Company has repaid Prax in full
and redeemed all Prax’s ownership interest in Puhua. The actual legal transfer to revert the ownership interest in Puhua
back to the Company was completed in January 2013.



Note 16 - Income Taxes(As restated, see note 2)



The subsidiaries of the Company are governed by the Income
Tax Laws of the PRC concerning Chinese registered limited liability companies. Under the Income Tax Laws of the PRC, Chinese enterprises
are generally subject to income tax at a statutory rate of 25% on income reported in the statutory financial statements after
appropriate tax adjustments, unless the enterprise is located in a specially designated region for which more favorable effective
tax rates are applicable.



73







Note 16 - Income Taxes(As restated, see note 2)(Continued)



Reconciliation of income tax expense to the amount computed
by applying the current statutory tax rate to income before income taxes is as follows:



|                                               |  | 2012 |             |   | 2011 |   |            | 2010 | 
|---------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- | 
|Income before provision for income taxes       |  | $    | 27,953,785  |   |      |   | 16,101,762 |      | 
|U.S. statutory rate of 34%                     |  | $    | 9,504,287   |   |      | $ | 5,474,599  |      | 
|                                               |  |      |             |   |      |   |            |      | 
|Non-taxable income  (non-deductible expense)   |  |      | 554,563     |   |      |   | (556,648   | )    | 
|Foreign income not subject to tax rate in U.S. |  |      | (10,246,824 | ) |      |   | (5,340,697 | )    | 
|                                               |  |      |             |   |      |   |            |      | 
|Foreign income taxed at 25%                    |  |      | 7,256,244   |   |      |   | 3,598,184  |      | 
|Foreign non-deductible expenses                |  |      | 101,092     |   |      |   | 131,761    |      | 
|Change in valuation allowance                  |  |      | 573,653     |   |      |   | 425,580    |      | 
|Provision for income taxes                     |  | $    | 7,743,015   |   |      | $ | 3,732,779  |      | 





The tax effects of temporary differences that give rise to
the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:



|                                                                                         |  | 2012 |            |   | 2011 |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Deferred tax assets                                                                      |  |      |            |   |      |  
|Non-capital losses                                                                       |  | $    | 4,277,912  |   |      | $
|Valuation allowance                                                                      |  |      | (4,277,912 | ) |      |  
|Net deferred tax assets                                                                  |  | $    | -          |   |      | $
|                                                                                         |  |      |            |   |      |  
|Deferred tax liabilities                                                                 |  |      |            |   |      |  
|Temporary difference related to certain real estate held for development or sale         |  | $    | 835,058    |   |      | $
|Temporary difference related to intangible asset                                         |  |      | 11,327,507 |   |      |  
|Temporary difference related to Xinxing Construction properties and construction license |  |      | 753,528    |   |      |  
|Temporary difference related to Suodi LUR                                                |  |      | 1,605,520  |   |      |  
|Net deferred tax liabilities                                                             |  | $    | 14,521,613 |   |      | $



As at December 31, 2012, the Company had
PRC subsidiaries that were in loss positions and had net operating loss carry forwards of approximately $11,012,491 that
began to expire in 2012. The Company also has a U.S. net operating loss carry forward of approximately $4,482,673 from
the holding company, which will begin to expire in 2016.



74







Note 17 – Shareholders' Equity



Common stock



From time to time, the Company has sold
common stock and warrants, as described below.  All warrants were denominated in U.S. dollars.  Because the
Company’s functional currency is the Chinese RMB, the warrants were accounted for as derivative instrument liabilities at
fair value and marked-to-market each period.



| | 1. | As
    at July 8, 2010, the Company issued a total of 17,968 shares of common stock upon the exercise of 35,936 warrants on a non-cash
    basis. The fair value of these warrants of $41,344 was recorded in share capital and additional paid in capital upon exercise.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 2. | During
    fiscal 2010, the Company issued 720,380 shares of common stock in connection to the acquisition of Suodi. The fair value of
    common shares issued was determined to be $3,241,710 based on a price per share of $4.50 which was the closing price of the
    Company’s common stock on the Nasdaq on January 15, 2010, the measurement date of the acquisition.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | As
    at December 31, 2010, the Company 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.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | During
    fiscal 2011, the Company issued 619,905 shares of common stock for warrants exercised. The warrants were valued at $1,624,160
    at the time of exercise.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | On
    January 25, 2011, 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 6. | On
    March 21, 2012, the Company issued 19,440 shares of common stock valued at $27,216 based on the closing price of the shares
    on the same date to compensate the services provided by the independent directors.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | On
    May 29, 2012, the Company issued 340,000 shares of common stock as fiscal 2012 compensation to the senior executives including
    the Chairman, Chief Executive Officer, Chief Financial Officer and Chief Operation Officer. The shares were valued at $595,000
    based on the closing price of the shares on the same date.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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, expired during 2012, as a liability at their fair value on the date of
grant and then revalued them at each reporting period end (December 31, 2012 – expired and $Nil; December 31, 2011 –
$1,060) using the CRR Binomial Lattice Model with the following Assumptions:



|                        |  | December 31, 2012 |  | December 31, 2011 |                                                       
|----------------------- |  | ----------------- |  | ----------------- | ------------------------------------------------------
|Expected life           |  | N/A               |  |                   | 0.36
                                            years
|Expected volatility     |  | N/A               |  |                   | 85                                                    
|Risk-free interest rate |  | N/A               |  |                   | 0.04                                                  
|Dividend yield          |  | N/A               |  |                   | 0                                                     



The gain from the change in fair value
of the warrants issued through private placements in 2007 for the year ended December 31, 2012 was $1,060 (2011 – gain of
$845,126 and 2010 – gain of $720,906).



Including the fair value of warrants associated
with the convertible debenture (Note 14), the total warrant liability as at December 31, 2012 was $Nil (December 31, 2011 - $4,162).
The total gain from the change in fair value of warrants for the year ended December 31, 2012 was $4,162 (2011 – gain of
$1,138,061 and 2010 – gain of $2,527,423).





75







Note 17 – Shareholders' Equity (Continued)



Warrants (Continued)



All of the warrants expired during fiscal year 2012 and following
is a summary of the warrant activity:



|                  |  | Number of Warrants Outstanding |            |   | Weighted Average Exercise Price |  
|----------------- |  | ------------------------------ | ---------- | - | ------------------------------- | -
|December 31, 2009 |  |                                | 3,976,883  |   |                                 | $
|Exercised         |  |                                | (35,936    | ) |                                 |  
|Expired           |  |                                | -          |   |                                 |  
|December 31, 2010 |  |                                | 3,940,947  |   |                                 | $
|Exercised         |  |                                | (1,239,816 | ) |                                 |  
|Expired           |  |                                | -          |   |                                 |  
|December 31, 2011 |  |                                | 2,701,131  |   |                                 | $
|Exercised         |  |                                | -          |   |                                 |  
|Expired           |  |                                | (2,701,131 | ) |                                 |  
|December 31, 2012 |  |                                | -          |   |                                 | $



Stock Options



On June 13, 2011, the Company granted
options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options is determined
by 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 from 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 |   |                                       |  
|Expired           |  |                                         | -         |   |                                       |  
|December 31, 2011 |  |                                         | 1,227,755 |   |                                       |  
|Forfeited         |  |                                         | (368,326  | ) |                                       |  
|December 31, 2012 |  |                                         | 859,429   |   |                                       | $



The following summarizes the weighted-average information about
the outstanding stock options as at December 31, 2012:



|Outstanding Stock Options
|-------------------------
|Exercise 
    Price      
|$                        



As of December 31, 2012, 368,326 options are vested. However,
the options are not exercisable because the performance condition of the stock options were not met.



76







Note 17 – Shareholders' Equity (Continued)



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 at the time of grant.



Compensation expense for stock options
is recognized over the vesting period. For the year ended 2012, compensation expense of $388,658 (2011 - $210,696, 2010 - $Nil)
was recognized in the consolidated statements of income.



In addition, the Company also grants shares
to various directors or executives for services provided. The common stock granted was valued based on the closing price of the
shares on the grant date. The fair value of the shares was recognized as stock-based compensation in the consolidated statements
of income. For the year ended December 31, 2012, the Company recorded $622,217 of such stock-based compensation (2011 - $Nil and
2010 - $59,606).



Treasury Stock



The Company approved a plan to repurchase
up to $5 million 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 until August 11, 2013.



During 2012, the Company repurchased 13,680
shares at average price of $1.03 and the total cost of $14,142 was recorded as treasury stock.



During 2011, the Company repurchased 337,800
shares at an average price of $1.22 per share and the total cost of $420,098 was recorded as treasury stock.



Note 18 – Statutory Reserves



In accordance with the laws and regulations
of the PRC, a wholly-owned Foreign Invested Enterprises' income, after the payment of the PRC income taxes, shall be allocated
to the statutory surplus reserves. The proportion of allocation for reserve funds is no less than 10 percent of the profit after
tax until the accumulated amount of allocation for statutory surplus reserve funds reaches 50 percent of the registered capital.
Statutory reserves represent restricted retained earnings. The use of statutory reserves is restricted for set off against losses,
expansion of production and operation or increase in registered capital. These reserves are not available for distribution except
on liquidation.



Total registered capital of all the PRC
subsidiaries at December 31, 2012 is approximately $98.3 million (2011 - $97.4 million). As of December 31, 2012, the Company
appropriated $2,045,845 (2011 - $1,202,897 and 2010 - $1,732,467) to this surplus reserve.



77







Notes 19 – Other Revenue



Other revenue consists of the following for the years ended
December 31, 2012, 2011 and 2010.



|                                           |  | 2012 |            |  | 2011 |   |            | 2010 | 
|------------------------------------------ |  | ---- | ---------- |  | ---- | - | ---------- | ---- | 
|Interest income                            |  | $    | 160,597    |  |      | $ | 200,136    |      | 
|Rental income                              |  |      | 910,406    |  |      |   | 974,589    |      | 
|Income from property management services   |  |      | 4,209,386  |  |      |   | 3,571,934  |      | 
|Gain on disposal of property and equipment |  |      | 6,086,257  |  |      |   | 2,138,068  |      | 
|Construction contract income               |  |      | 22,321,169 |  |      |   | 7,302,791  |      | 
|Miscellaneous income                       |  |      | 473,643    |  |      |   | 1,804,953  |      | 
|Gain on disposal of assets held for sale   |  |      | -          |  |      |   | -          |      | 
|Total                                      |  | $    | 34,161,458 |  |      | $ | 15,992,471 |      | 



Note 20 – Employee Welfare Plan



Regulations in the PRC require the Company
to contribute to a defined contribution retirement plan for all permanent employees. The Company established a retirement pension
insurance, unemployment insurance, health insurance and house accumulation fund for the employees during the term they are employed.
For the years ended December 31, 2012, 2011 and 2010, the Company made contributions in the amount of $145,917, $178,788 and $119,038,
respectively.



Note 21– Earnings (Losses)
Per Share(As restated, see note 2)



Earnings (losses) per share for the
years ended December 31, 2012, 2011 and 2010 were determined by dividing net income (loss) attributable to China Housing
& Land Development, Inc. for the years by the weighted average number of both basic and diluted shares of common stock
and common stock equivalents outstanding.



|                                                                                       |  | 2012 (Restated – Note 2) |            |   | 2011 (Restated – Note 2) |   |            | 2010 (Restated – Note 2) | 
|-------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ------------------------ | - | ---------- | ------------------------ | 
|Numerator                                                                              |  |                          |            |   |                          |   |            |                          | 
|Net income attributable to China Housing & Land Development,
    Inc. - basic          |  | $                        | 20,210,771 |   |                          | $ | 12,368,982 |                          | 
|Effect of dilutive securities                                                          |  |                          |            |   |                          |   |            |                          | 
|Convertible debt - Accretion expense                                                   |  |                          | 954,979    |   |                          |   | 839,422    |                          | 
|Convertible debt - Change in fair value of embedded
    derivatives                    |  |                          | (330,628   | ) |                          |   | (1,697,097 | )                        | 
|Income (loss) attributable to China Housing & Land
    Development,     Inc. - diluted |  | $                        | 20,835,122 |   |                          | $ | 11,511,307 |                          | 
|Denominator                                                                            |  |                          |            |   |                          |   |            |                          | 
|Weighted average shares outstanding - basic                                            |  |                          | 34,954,909 |   |                          |   | 34,741,511 |                          | 
|Effect of dilutive securities                                                          |  |                          |            |   |                          |   |            |                          | 
|Warrants                                                                               |  |                          | -          |   |                          |   | -          |                          | 
|Convertible debt                                                                       |  |                          | 1,593,576  |   |                          |   | 1,615,709  |                          | 
|Weighted average shares outstanding - diluted                                          |  |                          | 36,548,485 |   |                          |   | 36,357,220 |                          | 
|Earnings per share                                                                     |  |                          |            |   |                          |   |            |                          | 
|Basic earnings (losses) per share                                                      |  | $                        | 0.58       |   |                          | $ | 0.36       |                          | 
|Diluted earnings (losses) per share                                                    |  | $                        | 0.57       |   |                          | $ | 0.32       |                          | 



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 calculation.





78







Note 22 – Segmented Reporting(As restated,
see note 2)



The Company has two reportable segments:
the Real Estate Development and Sales segment and the Real Estate Construction segment. The Real Estate Development and Sales
segment includes operating subsidiaries, Tsining, Puhua, NewLand, 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, Way fast, Clever Advance, Grace mind, Treasure Asia and Property Management is aggregated as All Other
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 the other companies
has ever met any of the quantitative thresholds for determining reporting segments.



The accounting policies of the segments
are the same as those described in the summary of significant accounting policies. The Company accounts for intersegment sales
and transfers as if the sales or transfers were to third parties, that is, at current market prices. The Company's reportable
segments are strategic business units that offer different products and services. They are managed separately because each business
requires different skills and marketing strategies.



Financial information with respect to
the reportable segments and reconciliation to the amounts reported in the Company’s consolidated financial statements as
at and for the year ended December 31, 2012 are as follows.





|                                            |  | Real Estate Development and Sales |             |  | Construction |   |            | All other |  |   | Adjustments and elimination |   |  | Consolidated |             
|------------------------------------------- |  | --------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | --------------------------- | - |  | ------------ | ------------
|Revenues from external customers            |  | $                                 | 115,299,428 |  |              | $ | 22,321,169 |           |  | $ | 4,209,386                   |   |  | $            | -           
|Intersegment revenues                       |  |                                   | -           |  |              |   | 22,210,915 |           |  |   | -                           |   |  |              | (22,210,915 
|Rental from external customers              |  |                                   | 802,159     |  |              |   | 108,247    |           |  |   | -                           |   |  |              | -           
|Interest revenue                            |  |                                   | 157,045     |  |              |   | -          |           |  |   | 3,552                       |   |  |              | -           
|Other income other than rental and interest |  |                                   | 6,418,264   |  |              |   | 141,636    |           |  |   | -                           |   |  |              | -           
|Total revenue                               |  |                                   | 122,676,896 |  |              |   | 44,781,967 |           |  |   | 4,212,938                   |   |  |              | (22,210,915 
|Interest expense                            |  |                                   | 335,306     |  |              |   | 54,964     |           |  |   | 167,066                     |   |  |              | -           
|Segment profit before taxes                 |  |                                   | 26,868,968  |  |              |   | 1,283,733  |           |  |   | 127,900                     |   |  |              | (326,815    
|Income taxes                                |  |                                   | 7,296,081   |  |              |   | 321,028    |           |  |   | 169,952                     |   |  |              | (44,046     
|Net income (loss)                           |  |                                   | 19,572,887  |  |              |   | 962,705    |           |  |   | (42,052                     | ) |  |              | (282,769    
|Depreciation                                |  |                                   | 1,862,873   |  |              |   | 180,859    |           |  |   | 21,648                      |   |  |              | -           
|Amortization of intangible                  |  |                                   | 218,480     |  |              |   | -          |           |  |   | -                           |   |  |              | -           
|Capital expenditures                        |  |                                   | 10,561,530  |  |              |   | -          |           |  |   | 10,223                      |   |  |              | 152,134     
|Total assets                                |  |                                   | 514,683,882 |  |              |   | 76,258,528 |           |  |   | 229,415,298                 |   |  |              | (321,980,074



Financial information with respect to
the reportable segments and reconciliation to the amounts reported in the Company’s consolidated financial statements as
at and for the year ended December 31, 2011 are as follows:



|                                            |  | Real Estate Development and Sales |             |  | Construction |   |            | All other |  |   | Adjustments and elimination |   |  | Consolidated |             
|------------------------------------------- |  | --------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | --------------------------- | - |  | ------------ | ------------
|Revenues from external customers            |  | $                                 | 104,800,783 |  |              | $ | 7,302,791  |           |  | $ | 3,571,934                   |   |  | $            | -           
|Intersegment revenues                       |  |                                   | -           |  |              |   | 18,723,533 |           |  |   | -                           |   |  |              | (18,723,533 
|Rental from external customers              |  |                                   | 854,703     |  |              |   | 119,886    |           |  |   | -                           |   |  |              | -           
|Interest revenue                            |  |                                   | 194,907     |  |              |   | -          |           |  |   | 5,229                       |   |  |              | -           
|Other income other than rental and interest |  |                                   | 3,193,344   |  |              |   | 749,677    |           |  |   | -                           |   |  |              | -           
|Total revenue                               |  |                                   | 109,043,737 |  |              |   | 26,895,887 |           |  |   | 3,577,163                   |   |  |              | (18,723,533 
|Interest expense                            |  |                                   | 971,868     |  |              |   | 78,541     |           |  |   | 168,055                     |   |  |              | -           
|Segment profit before taxes                 |  |                                   | 12,518,839  |  |              |   | 861,761    |           |  |   | 2,255,154                   |   |  |              | 466,008     
|Income taxes                                |  |                                   | 3,744,668   |  |              |   | 215,569    |           |  |   | (227,458                    | ) |  |              | -           
|Net income                                  |  |                                   | 8,774,170   |  |              |   | 646,192    |           |  |   | 2,482,612                   |   |  |              | 466,008     
|Depreciation                                |  |                                   | 1,741,300   |  |              |   | 195,766    |           |  |   | 23,636                      |   |  |              | -           
|Amortization of intangible                  |  |                                   | 213,274     |  |              |   | -          |           |  |   | -                           |   |  |              | -           
|Capital expenditures                        |  |                                   | 4,727,291   |  |              |   | 4,496      |           |  |   | 21,255                      |   |  |              | -           
|Total assets                                |  |                                   | 471,813,946 |  |              |   | 23,514,890 |           |  |   | 188,963,201                 |   |  |              | (239,015,677



Financial information with respect to
the reportable segments and reconciliation to the amounts reported in the Company’s consolidated financial statements as
at and for the year ended December 31, 2010 are as follows:





|                                            |  | Real EstateDevelopmentand Sales |             |  | Construction |   |            | All other |  |   | Adjustments andelimination |  |  | Consolidated |             
|------------------------------------------- |  | ------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | -------------------------- |  |  | ------------ | ------------
|Revenues from external customers            |  | $                               | 132,081,125 |  |              | $ | 1,282,292  |           |  | $ | 3,747,220                  |  |  | $            | -           
|Intersegment revenues                       |  |                                 | -           |  |              |   | 4,150,552  |           |  |   | -                          |  |  |              | (4,150,552  
|Rental from external customers              |  |                                 | 1,400,127   |  |              |   | 58,789     |           |  |   | -                          |  |  |              | -           
|Interest revenue                            |  |                                 | 269,546     |  |              |   | -          |           |  |   | 47,324                     |  |  |              | -           
|Other income other than rental and interest |  |                                 | 1,991,025   |  |              |   | -          |           |  |   | -                          |  |  |              | -           
|Total revenue                               |  |                                 | 135,741,823 |  |              |   | 5,491,633  |           |  |   | 3,794,544                  |  |  |              | (4,150,552  
|Interest expense                            |  |                                 | 1,282,324   |  |              |   | 15,522     |           |  |   | 536,476                    |  |  |              | -           
|Segment profit before taxes                 |  |                                 | 22,895,348  |  |              |   | 119,110    |           |  |   | 3,216,563                  |  |  |              | -           
|Income taxes                                |  |                                 | 6,019,999   |  |              |   | 29,778     |           |  |   | 172,087                    |  |  |              | (41,047     
|Net income                                  |  |                                 | 16,875,349  |  |              |   | 89,332     |           |  |   | 3,044,476                  |  |  |              | 41,047      
|Depreciation                                |  |                                 | 3,063,533   |  |              |   | 46,332     |           |  |   | 69,218                     |  |  |              | -           
|Amortization of intangible                  |  |                                 | 207,029     |  |              |   | -          |           |  |   | -                          |  |  |              | -           
|Capital expenditures                        |  |                                 | 1,860,234   |  |              |   | -          |           |  |   | 40,299                     |  |  |              | -           
|Total assets                                |  |                                 | 349,120,104 |  |              |   | 16,877,867 |           |  |   | 155,713,191                |  |  |              | (172,513,499





| | (1) | These
                                                                                                                                              represent
                                                                                                                                              revenues
                                                                                                                                              earned
                                                                                                                                              from
                                                                                                                                              construction
                                                                                                                                              service
                                                                                                                                              performed
                                                                                                                                              by
                                                                                                                                              Xinxing
                                                                                                                                              Construction
                                                                                                                                              for
                                                                                                                                              Real
                                                                                                                                              Estate
                                                                                                                                              Development
                                                                                                                                              and
                                                                                                                                              Sales
                                                                                                                                              segment
                                                                                                                                              and
                                                                                                                                              its
                                                                                                                                              profits.
                                                                                                                                              They
                                                                                                                                              are
                                                                                                                                              eliminated
                                                                                                                                              upon
                                                                                                                                              consolidation.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
                                                                                                                                              adjustment
                                                                                                                                              represents
                                                                                                                                              long-term
                                                                                                                                              investments
                                                                                                                                              in
                                                                                                                                              subsidiaries
                                                                                                                                              and
                                                                                                                                              inter-subsidiary
                                                                                                                                              balances
                                                                                                                                              elimination
                                                                                                                                              upon
                                                                                                                                              consolidation.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



79







Note 23 – Commitments and Contingencies



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



In connection with the loans borrowed
from XinYing (Notes 13 and 24), the Company also signed a finance consulting agreement with XinYing where the Company is committed
to pay consulting fees on a quarterly basis up to July 2015 for financing services provided.



Additionally, the Company had various
commitments related to land use right acquisition with unpaid balances of approximately $16.1 million. The balances are not due
until the vendor removes the existing building on the land and changes the zoning status of the land use right certificate. Based
on the current condition, the Company estimates that the balances will be paid in a year.



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



|                              |  | Payment due by period |           
|----------------------------- |  | --------------------- | ----------
|Commitments and
Contingencies |  | Total                 |           
|Operating leases              |  | $                     | 7,496,711 
|Consulting fees               |  |                       | 6,579,884 
|Land use rights               |  |                       | 16,051,107
|Total                         |  | $                     | 30,127,702



The Company from time to time has to renew
certain real estate development licenses in the normal course of business. Management believes the Company will be able to
continuously renew the construction licenses. As of December 31, 2012, one of the licenses has expired and an application
was submitted for government approval.



Note 24 – Related Party
Transactions



One of the Company’s executive officers’
spouse owns 37.83% of the common stock of Xi’an Xinxing Days Hotel & Suites (“Days Hotel”). During the
year ended December 31, 2012, the Company has incurred fees of $160,377 (2011 - $168,667; 2010 - $120,409) fees to Days Hotel.
As of December 31, 2012, the Company has $12,214 (December 31, 2011 - $106,440) payable to Days Hotel.



The Company did not sell any real estate
units to Days Hotel during the year ended December 31, 2012. However, the Company sold 14 apartments amounting to $695,439 to
Days Hotel during 2011. As of December 31, 2012, the Company has $Nil receivable in connection with these apartment sales (December
31, 2011 - $227,105).



The Company also has a loan payable of
$21,219,563 to Days Hotel as at December 31, 2012 (December 31, 2011 - $Nil) (Note 13). For the year ended December 31, 2012,
the Company incurred $1,373,642 (2011 - $Nil; 2010 - $Nil) in interest to Days Hotel and capitalized the amounts in real estate
held for development or sale. As at December 31, 2012, the Company also had $1,231,316 (December 31, 2011 - $Nil) in interest
payable to Days Hotel.



During the year ended December 31, 2012,
the Company also borrowed a $24,076,660 (RMB 150 million) from XinYing (Note 13), in which an executive partner is the spouse
of one of the Company’s executive officers. The Company incurred a total of $1,646,783 (2011 - $Nil; 2010 - $Nil) in interest
and finance consulting fees to XinYing during the year ended December 31, 2012 and capitalized the amount in real estate held
for development or sales. As at December 31, 2012, the Company also had $64,204 (December 31, 2011 - $Nil) in interest payable
to XinYing.



Note 25 – Subsequent Event



On March 22, 2013, the Company received
$40,127,767 (RMB 250 million) from Shenzhen Qianhai Dinghui Equity Investment Fund Partnership (“DingHui”) to fund
the pending acquisition of the land use right for the Company’s Golden Bay project. In connection with the loan, the Company
transferred 49% of FangZhou’s common shares to DingHui in December 2012 as a security. DingHui will not participate in the
decision making, operation and profit/loss sharing of FangZhou. Once the land use right is obtained, the Company will use it as
a pledge to the loan and DingHui will revert the transferred common shares of FangZhou back to the Company.



The Company borrowed additional
$28,891,992 (RMB 180 million) from China Construction Bank on May 13, 2013, $32,102,213 (RMB 200 million) from Bank
of Communication on April 25, 2013 and $30,497,103 (RMB 190 million) from Bank of Xi’an on April 25, 2013.



The Company repaid the $22,471,549
loan from Bank of Beijin, Xian Branch in April 2013 and repaid $1,605,111 loan from China Construction Bank during
the first quarter of 2013 (note 13).



On May 27, 2013, the Company approved
the issuance of 411,125 shares of common stock to compensate services provided by all the directors. The shares were valued at
$900,364 based on the $2.19 closing price of the shares on the grant date and are recorded as stock-based compensation on the consolidated statements of income. The shares were issued in July 2013.



The Company signed the agreement to acquire
the land use right from the Baqiao government for the Golden Bay project on November 5, 2013. The total purchase price of the
land use right is $68,630,719 (RMB 420,020,000). The Company is expecting to close the transaction during the fourth quarter of
fiscal 2013.



80







ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



There were neither any reportable events
nor any disagreements, as defined in Item 304 (a)(1)(iv) or 304(a)(1)(v) of Regulation S-K during the relevant periods.



ITEM 9A. 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.



Management’s Annual Report on
Internal Control Over Financial Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act. The Company’s internal control over financial reporting is a process that is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:



| | • | pertain to the maintenance of
                                                                  records that, in reasonable detail, accurately and fairly reflect
                                                                  the transactions and dispositions of the assets of the Company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | provide reasonable assurance
                                                                  that transactions are recorded as necessary to permit preparation
                                                                  of financial statements in accordance with accounting principles
                                                                  generally accepted in the United States and that receipts
                                                                  and expenditures of the Company are being made only in accordance
                                                                  with authorizations of management and directors of the Company;
                                                                  and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | provide reasonable assurance
                                                                  regarding prevention or timely detection of unauthorized acquisition,
                                                                  use, or disposition of the Company’s assets that could
                                                                  have a material effect on the financial statements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



Under the supervision and with the participation
of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on framework established in the Internal Control
Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (COSO) as of December
31, 2012. Based on such evaluation, our management, including the CEO and CFO, has concluded that the Company’s internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended)
as of December 31, 2012 is effective.



Changes in Internal Control over Financial
Reporting.



During the year ended December 31, 2012,
there was no major 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.



81







ITEM 9B. OTHER INFORMATION.



Not Applicable.



82







PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.



Executive Officers and Directors



|Name       |  |           |  |    
|---------- |  | --------- |  | ---
|First      |  | Last      |  | Age
|Pingji     |  | Lu        |  | 63 
|Xiaohong   |  | Feng      |  | 49 
|Cangsang   |  | Huang     |  | 35 
|Jing       |  | Lu        |  | 34 
|Heung Sang |  | Fong      |  | 54 
|Yusheng    |  | Lin       |  | 47 
|Suiyin     |  | Gao       |  | 60 
|Albert     |  | McLelland |  | 55 



Officers are elected annually by the Board
of Directors (the “Board”), at the Company’s annual meeting, to hold such office until an officer’s successor
has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board.



Mr. Pingji Lu, Chairman of the
Board of Directors



Mr. Pingji Lu, 63, has served as the Chairman
of the Board since joining the Company in September 1999. In addition, Mr. Lu was the founder of Lanbo Financial Investment Company
Group Limited, where he was the Chairman of the Board and Chief Executive Officer from its formation in September 2003 until its
merger with Lanbo Financial Group, Inc., after which Mr. Lu served as the Chairman of the Board and Chief Executive Officer of
Lanbo Financial Group, Inc. until December 2005. Prior to that Mr. Lu was the Chairman of the Board and Chief Executive Officer
of Xi’an Newstar Real Estate Development Co., Ltd. from 1998 and where he previously served as General Manager from 1992
to 2003. From February 1968 to December 1999, Mr. Lu held various positions in the Chinese military, including soldier, Director
of Barrack Administration, Supervisor, and Senior Colonel. Mr. Lu is a member of the Enterprise Credit Association of Shaanxi
Province. Mr. Lu graduated from Xi’an Army College with a major in architectural engineering. On January 12, 2009, Mr. Lu
resigned as Chief Executive Officer but has remained as Chairman of the Company. We believe Mr. Pingji Lu, the founder of the Company, has
the most extensive knowledge and experience in the real estate industry within the Company and that such knowledge and experience
qualify him for the Chairman position.



Mr. Xiaohong Feng, Chief Executive
Officer & Director



Mr. Xiaohong Feng, 49, has served as the
Chief Operating Officer and a Director of the Company since joining the Company in January 2003. In addition, Mr. Xiaohong Feng
was a Director of Lanbo Financial Group, Inc. from November 2004 until December 2005. Previously, from 2003-2004, Mr. Feng served
as President and a Director of Xi’an Newstar Real Estate Development Co., Ltd. From June 1996 to December 2002, Mr. Feng
was General Manager and President of Xi’an Honghua Industry, Inc. He is a member of the China Architecture Association,
Vice President of the Shaanxi Province Real Estate Association, and Vice Director of the Xi’an Decoration Association.
Mr. Feng received an M.S. in architecture science from Xi’an Architecture & Technology University in 1990. On January
12, 2009, Mr. Feng was appointed as Chief Executive Officer of the Company. We believe Mr. Xiaohong Feng has extensive real estate
knowledge and experience, as well as a strong architecture background. In addition, his role as Chief Executive Officer provides
him with intimate knowledge of our operations and the markets in which we conduct our business. It is for these qualities that
he was selected to serve as a Director of the Company.



Mr. Cangsang Huang, Chief Financial
Officer & Director



Mr. Cangsang Huang, 35, has served as
a Director since October 2009, and beginning in October 2008, served first as Assistant Chief Financial Officer and then Chief
Financial Officer of the Company. Mr. Huang worked at Cantor Fitzgerald from 2006 until 2007 and played an active role in
several public financings for companies in the transportation/shipping sectors as well as several U.S. listed publicly-traded
Chinese companies. In 2007, Mr. Huang worked for Merriman Curhan & Ford Inc.(“Merriman”) followed by Collins
Stewart LLC (“Collins Stewart”). He helped set up Merriman and Collins Stewart’s China banking practice
and participated in several China related financing transactions, including General Steel (NYSE: GSI) and FUQI International (Nasdaq:
FUQI). From 2001 to 2004, Mr. Huang worked in Guangzhou, China with China Communication Construction Company Limited (1800.HK)
as a project manager where he provided financial advisory services to both private and state-owned companies and participated
in multiple multi-billion RMB infrastructure projects. Mr. Huang graduated from Shanghai Maritime University with a degree
in transportation economics and has a master’s degree in statistics from Columbia University. Mr. Huang is a CFA Level
III candidate and has his NASD Series 7 & 63 licenses. We believe Mr. Cangsang Huang is qualified for the position of director
because he has extensive investment banking experience, and extensive knowledge of U.S. capital markets.



83







Mr. Heung Sang Fong, Independent Director



Mr. Fong, 54, has served as an independent
Director of the Company since September of 2010. He also serves as Chief Financial Officer, Corporate Secretary, and Director
of China Electric Motor Inc. (“China Electric”). Mr. Fong has served as China Electric’s Chief Financial Officer
and Corporate Secretary since June 2010 and as a Director of China Electric since January 2010. From February 2009 to March 2010,
Mr. Fong served as the Chief Financial Officer and as a Director of Apollo Solar Energy, Inc. (OTCBB: ASOE). From December 2006
to January 2009, Mr. Fong served as the Executive Vice President of Corporate Development of Fuqi International, Inc. (NASDAQ:
FUQI). From January 2004 to November 2006, Mr. Fong served as the Managing Partner of Iceberg Financial Consultants, a financial
advisory firm based in China that advises Chinese clients in capital raising activities in the United States. From December 2001
to December 2003, Mr. Fong was the Chief Executive Officer of Holley Communications, a Chinese company that engaged in CDMA chip
and cell phone design. From March 2002 to March 2004, he served as Chief Financial Officer of Pacific Systems Control Technology,
Inc. From May 2001 to November 2001, Mr. Fong was the Director of Finance of PacificNet, Inc., a customer relationship management,
mobile internet, e-commerce and gaming technology company based in China. Mr. Fong graduated from the Hong Kong Baptist College
with a diploma in History in 1982. He also received an MBA from the University of Nevada at Reno in 1989 and a master’s
degree in Accounting from the University of Illinois at Urbana Champaign in 1993. Mr. Fong’s long and varied business career,
including service as a CFO and Director of a publicly-traded company, as well as his financial and accounting experience as a
U.S. CPA and knowledge of the capital markets qualify him to serve on the Company’s Board.



Mr. Yusheng Lin, Independent Director



Mr. Yusheng Lin, 47, has served as an
independent Director of our Company since October of 2011. Mr. Lin is currently the Executive Director of Kingworld Medicines
Group Ltd. (01110.HK) (“KMG”). He has been the deputy general manager of SZK since June 2006. He is primarily responsible
for the capital management and the operations of KMG, a company that he joined in August of 2009. He has more than 10 years of
experience in the pharmaceutical industry. From 1999 to 2004, he worked at Xi’an Lijun Pharmaceutical Company Limited (“XLPC”),
which is principally engaged in the manufacture and sale of pharmaceutical products in the PRC. XLPC is a wholly owned subsidiary
of Lijun International Pharmaceutical (Holding) Company Limited (2005.HK) (“XLPC Parent”), a company listed on the
Hong Kong Stock Exchange which, together with its subsidiaries, is engaged in the research, development, manufacture and sale
of finished medicines and bulk pharmaceutical products to hospitals and distributors. Mr. Lin held the position of vice president
of XLPC Parent from 2004 to 2006. From 2005 to 2006, he also held the position of chairman of XLPC. In 1989, he obtained a bachelor’s
degree in philosophy from Yanan University. He received a master’s degree in business administration from Hong Kong Polytechnic
University in 2006. We believe Mr. Lin’s wealth of business experience enable him to effectively contribute as a Director
of the Board.



Mr. Suiyin Gao, Independent Director



Mr. Suiyin Gao, 60, has served as an independent
Director of our Company since October 2007. He has over 30 years of experience in human resources and management consulting. Mr.
Gao is currently the head of the Shaanxi Senior Talent Office, which is affiliated with the Shaanxi Provincial government and
is focused on corporation management, consultation and human resources services. Mr. Gao is the founder and chairman of Shaanxi
Management Member Club, one of the largest manager clubs in Shaanxi province. Mr. Gao is currently an independent director of
six enterprises, and also has acted as a senior consultant to more than twenty enterprises. Previously, beginning in 1973, Mr.
Gao worked in government service. In 1998, Mr. Gao received his MBA from Northwest University in China. We believe Mr. Gao’s
qualifications to serve on the Board include his extensive knowledge and experience in human resources and management consulting
as well as his knowledge of our industry.



84







Mr. Albert McLelland, Independent Director



Mr. Albert McLelland, 54, has served as
an independent Director since February 2009. He also serves as the Chairman of the Board’s Audit Committee.



In 2011 he served as Chairman of the Special
Committee for the sale of for China Fire & Security Group, Inc. to Bain Capital. From 2008 until its sale, Mr. McLelland served
as an independent Director and Chairman of the Audit Committee of the Board of Directors for China Fire & Security Group,
Inc. Mr. McLelland also served as an independent Director of Directors for Yanglin Soybean, Inc.



Since 2001, he has been a Senior Managing
Director of AmPac Strategic Capital, LLC, a boutique merchant bank focusing on originating and executing cross border transactions
in China. Prior to founding AmPac, Albert was a Director of Financial Advisory Services at PricewaterhouseCoopers’ (PwC)
and member of the Chairman’s Key Account Management (KAM) team, responsible for the day-to-day operations of their cross
border transactions group operating during the Asian Financial Crisis. Mr. McLelland, from 1993 to 1998, founded and became the
Managing Director of Pearl Delta Capital Corporation, a specialty investment bank located in Taipei, Taiwan. Pearl Delta Capital
Corporation focused on raising funds and executing cross border transactions from direct investments to mergers and acquisitions
for or with Greater China-based venture capital firms. Prior to that, he was in charge of corporate finance at CEF Taiwan Limited,
the Taiwan branch of a large regional merchant bank that was a joint venture between Canadian Imperial Bank and Cheung Kong (a
leading Hong Kong conglomerate). He began his investment banking career at Shearson Lehman underwriting bond issues.



He has also serves as an Adjunct Professor
teaching “Venturing in China” at the Caruth Institute for Entrepreneurship at the Cox School of business at Southern
Methodist University and as a guest lecturer at the Fudan University School of Management in Shanghai. He holds an MBA from the
University of Chicago and a Master’s Degree in International Affairs from Columbia University. He completed his undergraduate
studies at the University of South Florida and studied Mandarin at the National Normal University in Taiwan. He has also earned
a Certificate of Director Education from the National Association of Corporate Directors.



Ms. Jing Lu, Chief Operating Officer,
and Board Secretary



Ms. Lu, 34, has served as Chief Operating
Officer since January 2009. She previously served as Vice President of the Company from 2004 through 2008. Ms. Lu continues to
serve as Board Secretary, which she has done since 2004, and is the Company’s primary spokeswoman with investors and security
analysts. She received her master’s degree from King’s College in London in September 2004. Ms. Lu is the daughter
of Mr. Pingji Lu.



We chose to separate the positions of
Chairman of Board and CEO because the Chairman, Mr. Lu has extensive experience in business development and as a principal executive
officer, while Mr. Feng is an architect and has deep knowledge of the construction industry. We do not have a lead independent
director.



85







In consideration of diversity for the
composition of the Board, We chose to elect Mr. McLelland and Mr. Fong as our Directors based on their unique experiences with
both the U.S. capital markets and the Chinese capital markets.



Involvement in Certain Legal Proceedings



During the past ten years, no present
or former director, executive officer or person nominated to become a director or an executive officer of our Company:



| | (1) | Was a general partner or executive
                                                            officer of any business against which any bankruptcy petition was
                                                            filed, either at the time of the bankruptcy or two years prior to
                                                            that time;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Was convicted in a criminal proceeding
                                                            or named subject to a pending criminal proceeding (excluding traffic
                                                            violations and other minor offenses);
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Was subject to any order, judgment
                                                            or decree, not subsequently reversed, suspended or vacated, of any
                                                            court of competent jurisdiction, permanently or temporarily enjoining,
                                                            barring, suspending or otherwise limiting his involvement in any type
                                                            of business, securities or banking activities; or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Was found by a court of competent
                                                            jurisdiction (in a civil action), the SEC or the Commodity Futures
                                                            Trading Commission to have violated a federal or state securities
                                                            or commodities law, and the judgment has not been reversed, suspended
                                                            or vacated.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Section 16(a) Beneficial Ownership
Reporting Compliance



Section 16(a) of the Securities Exchange
Act of 1934, as amended (the Exchange Act), requires our executive officers, directors and persons who own more than 10 percent
of our common stock to file initial reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the SEC. Such
executive officers, directors and over 10 percent stockholders are also required by SEC rules to furnish us with copies of all
such forms they file.



Based solely on our review of the copies
of such forms we have received, or written representations from certain reporting persons, we believe that, during the year ended
December 31, 2012, all executive officers, directors and over 10 percent stockholders filed on a timely basis all reports required
to be filed by them under Section 16(a) with respect to our common stock, with the exceptions noted below:



| | • | Late Form 4 reports were filed
                                                                    for Pingji Lu, our Chairman, Xiaohong Feng, our CEO, Cangsang
                                                                    Huang our CFO, and Jing Lu, our COO on June 19, 2012 to report
                                                                    restricted stock grants.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Code of Ethics



On November 8, 2007, the Company’s
Board of Directors adopted a Code of Ethics that applies to the Company’s principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions. A copy of this Code of Ethics is
available on the Company’s website, www.chldinc.com, in the section titled Officers & Directors, which can be found
on our home page. The website and information contained on it or incorporated in it are not intended to be incorporated in this
Annual Report on Form 10-K/A or other filings with the U.S. Securities and Exchange Commission.



Board Composition and Committees



The following table sets forth all our
Independent Directors of the Board of Directors and their positions at the Compensation, Nominating and Audit Committees:



|Independent Directors |  | Title                |  | Service in committee                                                                                            
|--------------------- |  | -------------------- |  | ----------------------------------------------------------------------------------------------------------------
|Mr. Yusheng Lin       |  | Independent Director |  | Chairman of Compensation Committee;
    Member of Audit Committee; Member of Nominating and Governance Committee
|Mr. Heung Sang Fong   |  | Independent Director |  | Member of Audit Committee; Member of
    Nominating and Governance Committee                                    
|Mr. Albert McLelland  |  | Independent Director |  | Chairman of Audit Committee; Member
    of Compensation Committee                                               
|Mr. Suiyin Gao        |  | Independent Director |  | Chairman of Nominating and Governance
    Committee; Member of Compensation Committee                           



86







The Board of Directors held 5 meetings
in the 2012 fiscal year and the attendance rates for all Board members were over 89%.



Compensation Committee



The Compensation Committee held one meetings
in the 2012 fiscal year and the attendance rates for all committee members were 100%.



Nominating and Governance Committee



The Nominating and Governance Committee
held one meeting in the 2011 fiscal year and the attendance rates for all committee members were over 100%.



Audit Committee



The members of the Audit Committee are
Mr. Albert McLelland, Mr. Yusheng Lin, and Mr. Heung Sang Fong, with Mr. Albert McLelland serving as Chairman of the Audit Committee.
All members of the Audit Committee are independent directors. The Company’s Board of Directors has determined that Mr. Albert
McLelland possesses accounting or related financial management expertise and that he qualifies as an “audit committee financial
expert” as defined in Item 407 of Regulation S-K.



The Audit Committee held four meetings
in the 2012 fiscal year and the attendance rates for all committee members were over 75%.



87







ITEM 11. EXECUTIVE COMPENSATION



Summary Compensation Table



The following table sets forth all compensation
paid in respect of our Chief Executive Officer, Chief Financial Officer and all other executive officers for services rendered
during the preceding two fiscal years. The compensation comprises base salary and bonus.



|Name and                           |  |      |  |  | Base Salary |         |  | Bonus (2) |  |         | Stock Awards (3) |  |  | Option Awards |  |  | Non-Equity Incentive plan |         |  | Non-qualified Deferred |  |   | All other        |  |  |                  | 
|---------------------------------- |  | ---- |  |  | ----------- | ------- |  | --------- |  | ------- | ---------------- |  |  | ------------- |  |  | ------------------------- | ------- |  | ---------------------- |  | - | ---------------- |  |  | ---------------- | 
|Principal Position                 |  | Year |  |  | ($) (1)     |         |  | Cash ($)  |  |         | Stock ($)        |  |  | ($)           |  |  | ($)                       |         |  | Compensation ($)       |  |   | Compensation ($) |  |  | Compensation ($) | 
|Pingji Lu                          |  | 2012 |  |  |             | 302,127 |  |           |  | 123,962 |                  |  |  | -             |  |  |                           | 210,000 |  |                        |  | - |                  |  |  | -                | 
|Chairman of the Board of Directors |  | 2011 |  |  |             | 301,241 |  |           |  | -       |                  |  |  | -             |  |  |                           | -       |  |                        |  | - |                  |  |  | -                | 
|                                   |  |      |  |  |             |         |  |           |  |         |                  |  |  |               |  |  |                           |         |  |                        |  |   |                  |  |  |                  | 
|Xiaohong Feng                      |  | 2012 |  |  |             | 254,254 |  |           |  | 107,847 |                  |  |  | -             |  |  |                           | 175,000 |  |                        |  | - |                  |  |  | -                | 
|CEO &  Director                    |  | 2011 |  |  |             | 225,794 |  |           |  | -       |                  |  |  | -             |  |  |                           | -       |  |                        |  | - |                  |  |  | -                | 
|                                   |  |      |  |  |             |         |  |           |  |         |                  |  |  |               |  |  |                           |         |  |                        |  |   |                  |  |  |                  | 
|Cangsang Huang                     |  | 2012 |  |  |             | 137,273 |  |           |  | 49,118  |                  |  |  | -             |  |  |                           | 105,000 |  |                        |  | - |                  |  |  | -                | 
|CFO &  Director                    |  | 2011 |  |  |             | 133,920 |  |           |  | -       |                  |  |  | -             |  |  |                           | -       |  |                        |  | - |                  |  |  | -                | 
|                                   |  |      |  |  |             |         |  |           |  |         |                  |  |  |               |  |  |                           |         |  |                        |  |   |                  |  |  |                  | 
|Jing Lu                            |  | 2012 |  |  |             | 135,912 |  |           |  | 57,635  |                  |  |  | -             |  |  |                           | 105,000 |  |                        |  | - |                  |  |  | -                | 
|COO & Board Secretary              |  | 2011 |  |  |             | 89,466  |  |           |  | -       |                  |  |  | -             |  |  |                           | -       |  |                        |  | - |                  |  |  | -                | 



| | 1. | The Company pays salaries in RMB to
                                                          all executive officers every month. The actual RMB amount paid is translated
                                                          to US$. The exchange rates used were the average rates of 2012 and 2011.
                                                          They were 0.1585 and 0.1547.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The Company paid a bonus during 2012,
                                                          while it did not pay bonus during 2011.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The Company issued
                                                                            340,000 shares of stock awards to the executives at
                                                                            May 29, 2012 with a fair value of $1.75 per share.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Director Compensation



The table below sets forth the salaries
of our independent directors received for the services performed in the last year. Our directors’ salaries are comprised
of both cash and stock. The cash salary is paid to all directors in US$ every quarter.



The amount that each director receives
from the retainer is different for each director due to his or her role on the Board. Mr. Albert Mclelland receives a larger retainer
because he is the Chairman of Audit Committee and assumes more responsibility than others. The retainer is paid quarterly.



88







|Name and Principal Position                        |  | Year |  |  | Fees Earned  or Paid in
    Cash ($) |        |  | Stock  Awards
    (1) ($) |  |        | Option Awards ($) |  |  | Non-Equity  Incentive Plan
    Compensation ($) |  |  | Change in  Pension Value
    and Nonqualified Deferred Compensation Earnings ($) |   |  | All Other  Compensation
    ($) |  |   | Total ($) | 
|-------------------------------------------------- |  | ---- |  |  | ------------------------------------ | ------ |  | ------------------------- |  | ------ | ----------------- |  |  | ----------------------------------------------- |  |  | -------------------------------------------------------------------------------- | - |  | ------------------------------- |  | - | --------- | 
|Heung Sang Fong Independent director of the Board  |  | 2012 |  |  |                                      | 25,000 |  |                           |  | 10,500 |                   |  |  | -                                               |  |  |                                                                                  | - |  |                                 |  | - |           | 
|                                                   |  |      |  |  |                                      |        |  |                           |  |        |                   |  |  |                                                 |  |  |                                                                                  |   |  |                                 |  |   |           | 
|Albert McLelland Independent director of the Board |  | 2012 |  |  |                                      | 55,000 |  |                           |  | -      |                   |  |  | -                                               |  |  |                                                                                  | - |  |                                 |  | - |           | 
|                                                   |  |      |  |  |                                      |        |  |                           |  |        |                   |  |  |                                                 |  |  |                                                                                  |   |  |                                 |  |   |           | 
|Suiyin Gao Independent director of the Board       |  | 2012 |  |  |                                      | 15,000 |  |                           |  | 7,000  |                   |  |  | -                                               |  |  |                                                                                  | - |  |                                 |  | - |           | 
|                                                   |  |      |  |  |                                      |        |  |                           |  |        |                   |  |  |                                                 |  |  |                                                                                  |   |  |                                 |  |   |           | 
|Yusheng Lin Independent director of the Board      |  | 2012 |  |  |                                      | 15,000 |  |                           |  | 1,611  |                   |  |  | -                                               |  |  |                                                                                  | - |  |                                 |  | - |           | 



| | (1) | The stock awards were valued based
                                                            on the closing price of our common stock on the NASDAQ on March 21,
                                                            2012, which was $1.40.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Outstanding Equity Awards at Fiscal
Year-End



The Board of Directors and the majority
shareholders have adopted the 2007 Stock Incentive Plan (the “2007 Plan”). Since the adoption of the 2007 Plan, we
issued incentive compensation comprised of restricted common shares of the Company, which was disclosed in a current report on
Form 8-K dated July 14, 2008. 750,000 restricted shares were paid in 2008 in consideration of the performance of the employees
in 2007 and were vested immediately upon issuance. No other grants have been made under the Plan.



The Board of Directors and the majority
shareholders have adopted the 2010 Long Term Incentive Plan (the “2010 Plan”). Since the adoption of the 2010 Plan,
on June 13, 2011, we issued incentive compensation comprised of 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.
During 2012, 30% of the options expired because certain performance goals in the stock option agreements between the Company
and employees were not met.



The table below sets forth the outstanding
equity awards as of December 31, 2012.



|               |  |               |  | Option Awards                                                               |   |  | Stock Awards                                                                  | 
|-------------- |  | ------------- |  | --------------------------------------------------------------------------- | - |  | ----------------------------------------------------------------------------- | 
|Name           |  | Grant Date    |  | Number of Securities
    Underlying Unexercised Options (#) Exercisable (b) |   |  | Number of Securities
    Underlying Unexercised Options (#) Unexercisable (c) | 
|Pingji Lu      |  | June 13, 2011 |  |                                                                             | - |  |                                                                               | 
|Xiaohong Feng  |  | June 13, 2011 |  |                                                                             | - |  |                                                                               | 
|Cangsang Huang |  | June 13, 2011 |  |                                                                             | - |  |                                                                               | 
|Jing Lu        |  | June 13, 2011 |  |                                                                             | - |  |                                                                               | 



Compensation Committee Interlocks and
Insider Participation



No member of our Compensation Committee
is, or was an officer or employee, or had any relationship with the Company requiring disclosure under Item 404 of Regulation
S-K. We also do not have any executive officer who served as a member of the Compensation Committee of another entity or as a
Director of another entity, whose executive officers served on our Compensation Committee or served as a Director of our board.



89







ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.



The following table sets forth certain
information, as of March 29, 2013, with respect to the beneficial ownership of the outstanding common stock by (i) any holder
of more than five (5%) percent; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s
directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting
and investment power over the shares beneficially owned.



|Name (1)                                         |  | Title                   |  | Shares Ownership (2) |           |  | Percentage of Owned | 
|------------------------------------------------ |  | ----------------------- |  | -------------------- | --------- |  | ------------------- | 
|Mr. Pingji Lu                                    |  | Chairman                |  |                      | 3,719,499 |  |                     | 
|Mr. Xiaohong Feng                                |  | CEO & Managing Director |  |                      | 745,856   |  |                     | 
|Ms. Jing Lu                                      |  | COO & Board Secretary   |  |                      | 588,570   |  |                     | 
|Mr. Suiyin Gao                                   |  | Independent Director    |  |                      | 20,000    |  |                     | 
|Mr. Heung Sang Fong                              |  | Independent Director    |  |                      | 10,000    |  |                     | 
|Mr. Albert McLelland                             |  | Independent Director    |  |                      | 3,750     |  |                     | 
|Mr. Yusheng Lin                                  |  | Independent Director    |  |                      | 1,151     |  |                     | 
|Mr. Cangsang Huang                               |  | CFO & Director          |  |                      | 60,000    |  |                     | 
|Directors and officers as a group with 8 persons |  |                         |  |                      | 5,148,826 |  |                     | 
|Pope Asset Management, LLC                       |  | N/A                     |  |                      | 3,472,292 |  |                     | 



| | (1) | Except the address of Pope Asset Management,
                                                           LLC is 5100 Poplar Avenue, Suite 805 Memphis, TN 38137, the address
                                                           of other beneficial owners is 1008 Liuxue Road, Baqiao District, Xi’an,
                                                           Shaanxi Province, China 710038
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Applicable percentage ownership is
                                                           based on 35,086,599 shares of common stock outstanding as of March
                                                           31, 2013. Beneficial ownership is determined in accordance with the
                                                           rules of the Securities and Exchange Commission and generally includes
                                                           voting or investment power with respect to securities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



90







ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS



We have four directors that are independent
under the independence standards of S-K Item 407(a)(1). They are: Mr. Yusheng Lin, Mr. Albert McLelland, Mr. Suiyin Gao, and Mr.
Heung Sang Fong.



The Company has borrowed monies from certain
employees to fund the Company’s construction projects. These unsecured loans bear interest at 20% (2010 - 20%) per annum
and are available to all employees.



Included in these loans are loans from
the Company’s executives and immediate family member:



91







|                                    |  | 2012 |           |  | 2011 |  
|----------------------------------- |  | ---- | --------- |  | ---- | -
|President                           |  | $    | 1,637,213 |  |      | $
|Chief executive officer             |  |      | 160,511   |  |      |  
|Chief financial officer             |  |      | 963,066   |  |      |  
|President’s immediate family member |  |      | 642,044   |  |      |  
|                                    |  | $    | 3,402,834 |  |      | $



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 year ended
December 31, 2012, the Company has incurred $160,377 (2011 - $168,667; 2010 - $120,409) fees to Days Hotel. As of December 31,
2012, the Company has $12,214 (December 31, 2011 - $106,440) payable to Days Hotel.



The Company did not sell any real estate units to Days Hotel
during the year ended December 31, 2012. However, the Company sold 14 apartments amounting to $695,439 to Days Hotel during the
first quarter of 2011. As of December 31, 2012, the Company has $0 receivable in connection with these apartment sales (December
31, 2011 - $227,105).



The Company also has a $21,219,563 loan payable to Days Hotel
as at December 31, 2012 (December 31, 2011 - $Nil). For the year ended December 31, 2012, the Company incurred $1,373,642 of interest
to Days Hotel and capitalized the amounts in real estate held for development or sale. As at December 31, 2012, the Company also
had $1,231,316 (December 31, 2011 - $Nil) of interest payable to Days Hotel.



During the year ended December 31, 2012, the Company also borrowed
$24,076,660 (RMB 150 million) from XinYing, in which an executive partner is the spouse of one of the Company’s executive
officers. The Company incurred a total of $1,646,783 of interest and finance consulting fees to XinYing during the year ended
December 31, 2012 and capitalized the amount in real estate held for development or sale. As at December 31, 2012, the Company
also had $64,204 (December 31, 2011 - $Nil) of interest payable to XinYing.



92







ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



MSCM LLP who ceased operations as of June 1, 2013
performed the audits for the years ended December 31, 2012 and 2011.



The following are the services provided by MSCM LLP and
the amount billed:



| | (a) | Audit Fees
| | --- | ----------



The aggregate fees billed and or accrued
for professional services rendered by our principal accountants for the audit of our annual financial statements for the year
ended December 31, 2012 and 2011 were $285,144 and $241,634, respectively.



(b) Audit Related Fees



We incurred $273,138 in fees for the fiscal
year ended December 31, 2012 and $248,509 in fees for the fiscal year ended December 31, 2011 for assurance and related services
from our principal accountant that were reasonably related to the performance of the audit or review of our financial statements,
but were not reported under Audit Fees section above.



Significant audit-related fees are additional
fees charged for three quarter interim review services and extra time incurred to review MD&A disclosures. In addition, the
auditor provides U.S. tax return filing services that were pre-approved by the Audit Committee.



(c) Tax Fees



The aggregate fees billed for professional
services rendered by our principal accountant for tax compliance, tax advice, preparation and filing of tax returns and tax planning
for the fiscal years ended December 31, 2012 and 2011 were $10,432 and $8,088, respectively.



(d) All Other Fees



All other fees billed for the fiscal years
ended December 31, 2012 and 2011 were $73,462 and $0, respectively. All other fees mainly include providing consents on registration
statement, review of responses to SEC comments, travel related expenses and out of pocket expenses.



Our Audit Committee consists of three
Independent Directors. Our Audit Committee is the body to recommend public accounting firms as our independent auditor to the
full Board of Directors for approval.



The audit of the Company’s 2012
and 2011 financial statements was 100% performed by MSCM’s full-time, permanent employees.



MNP LLP (“MNP”)
performed the audit of the restated financial statements for the year ended December 31, 2012 and has not billed any of this
service. MNP’s audit was 100% performed by MNP’s full-time, permanent employees.



93







ITEM 15. EXHIBITS AND REPORTS ON FORM
10-K/A.



|EXHIBITNO. |  | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                            
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           |  |                                                                                                                                                                                                                                                                   
|3.1        |  | Articles of Incorporation (incorporated
    by reference to the exhibits to Registrants Form SB-2 filed on October 27, 2004).                                                                                                                                     
|3.2        |  | Registrant’s By-Laws (incorporated
    by reference to the exhibits to Registrants Form SB-2 filed on October 27, 2004).                                                                                                                                          
|4.1        |  | First Amendment to Securities Purchase
    Agreement between the Company and Investors dated June 11, 2010 incorporated by reference from exhibit 4.1 to Form 10-Q filed
    on August 12, 2010.                                                                  
|4.2        |  | Form of Senior Secured Convertible
    Note Issued by the Company incorporated by reference from exhibit 4.2 to Form 10-Q filed on August 12, 2010.                                                                                                               
|4.3        |  | Form of Stock Purchase Warrant Issued
    by the Company incorporated by reference from exhibit 4.3 to Form 10-Q filed on August 12, 2010.                                                                                                                        
|10.1       |  | Securities Purchase Agreement (incorporated
    by reference to the exhibits to Registrant’s Form 8-K filed on January 30, 2008, File Number 001-34065).                                                                                                          
|10.2       |  | Form of Convertible debt (incorporated
    by reference to the exhibits to Registrant’s Form 8-K filed on January 30, 2008, File Number 001-34065).                                                                                                               
|10.3       |  | Form of Warrant (incorporated by reference
    to the exhibits to Registrant’s Form 8-K filed on January 30, 2008, File Number 001-34065).                                                                                                                        
|10.4       |  | Form of Pledge Agreement (incorporated
    by reference to the exhibits to Registrant’s Form 8-K filed on January 30, 2008, File Number 001-34065).                                                                                                               
|10.5       |  | Form of Registration Rights Agreement
    (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 30, 2008, File Number 001-34065).                                                                                                  
|10.6       |  | Framework Agreement, dated November
    5, 2008, by and between the Registrant and Prax Capital China Real Estate Fund I, Ltd. (incorporated by reference to the exhibits
    to the Registrant’s Form 10-K filed on March 25, 2009).                             
|10.7       |  | Deed of Guarantee, dated November 5,
    2008, made by the Registrant in favor of Success Hill Investments Limited and Prax Capital Real Estate Holding Limited (incorporated
    by reference to the exhibit to Registrant’s Form 8-K filed on January 28, 2009).
|10.8       |  | Employment agreement with Pingji Lu
    (incorporated by reference to the exhibits to Registrant’s Form S-1 Amendment No 2 filed on July 14, 2008).                                                                                                               
|10.9       |  | 2007 Stock Incentive Plan (incorporated
    by reference to the exhibits to Registrant’s Form S-1 Amendment No 8 filed on November 5, 2009).                                                                                                                      
|10.10      |  | Equity Pledge Agreement, dated January
    31, 2011 by and among the Company and the Pledgees (incorporated by reference to the exhibits to Registrant’s Form 8-K
    filed on February 4, 2011).                                                                 
|10.11      |  | Guarantee Agreement, dated January
    31, 2011 by and among the Company and the Lenders (incorporated by reference to the exhibits to Registrant’s Form 8-K
    filed on February 4, 2011).                                                                      
|10.12      |  | Share Charge Deed, dated January 31,
    2011 by and among Wayfast Holdings Limited (as Chargor) and the Lenders (incorporated by reference to the exhibits to Registrant’s
    Form 8-K filed on February 4, 2011).                                              
|10.13      |  | Financial Consultant Agreement, dated
    January 31, 2011 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 4, 2011).                                                                                                        
|10.14      |  | Entrustment Loan Agreements #1, #2,
    #3 and #4, dated January 31, 2011 by and among a subsidiary of the Company and certain lenders (incorporated by reference
    to the exhibits to Registrant’s Form 8-K filed on February 4, 2011).                        



94







|10.15     |  | Project Financing Agreement,
    dated January 31, 2011 by and among a subsidiary of the Company and the Lenders (incorporated by reference to the exhibits
    to Registrant’s Form 8-K filed on February 4, 2011).
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16     |  | 2010 Long-Term Incentive Plan (incorporated
    by reference to the exhibits to Registrant’s Information Statement on Schedule 14C filed on January 20, 2011).                                                      
|10.17     |  | Amendment No. 1 to the Equity Pledge Agreement, dated December
    6, 2011 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                           
|10.18     |  | Amendment No. 1 to Guarantee Agreement, dated December 6, 2011
    (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                                   
|10.19     |  | Amendment No. 1 to Share Charge Agreement, dated December 6, 2011(incorporated
    by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                                 
|10.20     |  | Entrustment Loan Agreement Supplemental Agreement, dated January
    26, 2012 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                        
|1021      |  | Entrustment Loan Agreement Supplemental Agreement, dated January
    26, 2012 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                        
|10.22     |  | Entrustment Loan Agreement Supplemental Agreement, dated January
    26, 2012 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                        
|10.23     |  | Entrustment Loan Agreement Supplemental Agreement, dated January
    26, 2012 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                        
|10.24     |  | Supplemental Agreement to the Project Financing Agreement, dated
    January 26, 2012 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on February 1, 2012)                                
|10.25     |  | Director service agreement for Andy Fong (Incorporated by reference
    to the exhibits to Registrant’s Form 10-K filed on April 1, 2013)                                                                           
|10.26     |  | Director service agreement for Michael Marks (Incorporated by reference
    to the exhibits to Registrant’s Form 10-K filed on April 1, 2013)                                                                       
|10.27     |  | Director service agreement for Yusheng Lin (Incorporated by reference
    to the exhibits to Registrant’s Form 10-K filed on April 1, 2013)                                                                         
|10.28     |  | Director service agreement for Suiyin Gao (Incorporated by reference
    to the exhibits to Registrant’s Form 10-K filed on April 1, 2013)                                                                          
|10.29     |  | Director service agreement for Albert Mclelland (Incorporated by
    reference to the exhibits to Registrant’s Form 10-K filed on April 1, 2013)                                                                    
|21.1*     |  | List of subsidiaries.                                                                                                                                                                                               
|23.1*     |  | Consent of MNP LLP.                                                                                                                                                                                                 
|23.2*     |  | Consent of MSCM LLP.                                                                                                                                                                                                
|31.1*     |  | Certification of Chief Executive Officer
    Pursuant to Section 302 of the Sarbanes-Oxley Act.                                                                                                                     
|31.2*     |  | Certification of Principal Financial
    and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.                                                                                                  
|32.1+     |  | Certification of Chief Executive Officer
    Pursuant to Section 906 of the Sarbanes-Oxley Act.                                                                                                                     
|32.2+     |  | Certification of Chief Accounting Officer
    Pursuant to Section 906 of the Sarbanes-Oxley Act.                                                                                                                    
|101.INS + |  | XBRL Instance Document                                                                                                                                                                                              
|101.SCH + |  | XBRL Taxonomy Extension Schema Document                                                                                                                                                                             
|101.CAL + |  | XBRL Taxonomy Extension Calculation Linkbase Document                                                                                                                                                               
|101.EDF+  |  | XBRL Taxonomy Extension Definition Linkbase Document                                                                                                                                                                
|101.LAB + |  | XBRL Taxonomy Extension Label Linkbase Document                                                                                                                                                                     
|101.PRE + |  | XBRL Taxonomy Extension Presentation Linkbase Document                                                                                                                                                              



* Filed herewith

+Furnished herewith



95







SIGNATURES



Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the
undersigned, thereunto duly authorized.



|               | CHINA HOUSING AND LAND
    DEVELOPMENT, INC. |                                                 
|-------------- | -------------------------------------------- | ------------------------------------------------
|               |                                              |                                                 
|March 17, 2014 | By:                                          | /s/
    Xiaohong Feng                           
|               |                                              | Name: Xiaohong Feng                             
|               |                                              | Title: Chief Executive Officer                  
|               |                                              | (Principal Executive Officer)                   
|               |                                              |                                                 
|March 17, 2014 | By:                                          | /s/
    Cangsang Huang                          
|               |                                              | Name: Cangsang Huang                            
|               |                                              | Title: Chief Financial Officer                  
|               |                                              | (Principal Financial and Accounting
    Officer)



POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints Xiaohong Feng and Cangsang Huang, jointly and severally, his
or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K/A and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute
or substitutes, may do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities
Act of 1933, this Form 10-K/A has been signed by the following persons in the capacities and on the dates indicated.



|SIGNATURE                   |  | TITLE                                            |  | DATE          
|--------------------------- |  | ------------------------------------------------ |  | --------------
|                            |  |                                                  |  |               
|/s/
    Pingji Lu           |  | Chairman of the Board                            |  | March 17, 2014
|Pingji Lu                   |  |                                                  |  |               
|                            |  |                                                  |  |               
|/s/
    Xiaohong Feng       |  | Chief Executive Officer & Managing Director      |  | March 17, 2014
|Xiaohong Feng               |  | (Principal Executive Officer)                    |  |               
|                            |  |                                                  |  |               
|/s/
    Cangsang Huang      |  | Chief Financial Officer                          |  | March 17, 2014
|Cangsang Huang              |  | (Principal Financial and Accounting
    Officer) |  |               
|                            |  |                                                  |  |               
|/s/
    Albert S. McLelland |  | Independent Director                             |  | March 17, 2014
|Albert S. McLelland         |  |                                                  |  |               
|                            |  |                                                  |  |               
|/s/
    Mr. Yusheng Lin     |  | Independent Director                             |  | March 17, 2014
|Yusheng Lin                 |  |                                                  |  |               
|                            |  |                                                  |  |               
|/s/
    Heungsong Fong      |  | Independent Director                             |  | March 17, 2014
|Heungsong Fong              |  |                                                  |  |               
|                            |  |                                                  |  |               
|/s/
    Mr. Suiyi Gao       |  | Independent Director                             |  | March 17, 2014
|Suiyi Gao                   |  |                                                  |  |               



96