UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

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



For the quarterly period ended June 30, 2012



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



For the transition period from ________________ to _______________



000-51429

(Commission file number)



CHINA HOUSING & LAND DEVELOPMENT,
INC.

(Exact name of registrant as specified in
its charter)

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



6 Youyi Dong Lu, Han Yuan 4 Lou

Xi'An, Shaanxi Province

China 710054

(Address of principal executive offices)



86-029-8258-2632

(Issuer's telephone number)



N/A

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



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

Yes x No ̈



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



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





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





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 of Common Stock outstanding on August 14,
2012 was 35,086,599 shares.



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

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

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

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

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

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

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

“GFA” means gross floor area.













|CHINA HOUSING & LAND DEVELOPMENT, INC.
|--------------------------------------





|Index
|-----





|.          |    |                                                                                       | Page
        Number
|---------- | -- | ------------------------------------------------------------------------------------- | -------------------
|           |    |                                                                                       |                    
|PART I     |    | FINANCIAL INFORMATION                                                                 |                    
|           |    |                                                                                       |                    
|Item 1.    |    | Financial Statements                                                                  | 3                  
|           |    |                                                                                       |                    
|Item 2.    |    | Management's Discussion and Analysis of Financial Condition and Results of Operations | 22                 
|           |    |                                                                                       |                    
|Item 3.    |    | Quantitative and Qualitative Disclosures About Market Risk                            | 40                 
|           |    |                                                                                       |                    
|Item 4.    |    | Controls and Procedures                                                               | 40                 
|           |    |                                                                                       |                    
|PART II.   |    | OTHER INFORMATION                                                                     |                    
|           |    |                                                                                       |                    
|Item 1.    |    | Legal Proceedings                                                                     | 41                 
|           |    |                                                                                       |                    
|Item 1A.   |    | Risk Factors                                                                          | 41                 
|           |    |                                                                                       |                    
|Item 2.    |    | Unregistered Sales of Equity Securities and Use of Proceeds                           | 41                 
|           |    |                                                                                       |                    
|Item 3.    |    | Defaults Upon Senior Securities                                                       | 41                 
|           |    |                                                                                       |                    
|Item 4.    |    | Mining Safely Disclosures                                                             | 41                 
|           |    |                                                                                       |                    
|Item 5.    |    | Other Information                                                                     | 41                 
|           |    |                                                                                       |                    
|Item 6.    |    | Exhibits                                                                              | 41                 
|           |    |                                                                                       |                    
|SIGNATURES | 42
|           |    |                                                                                       |                    
|EX-31.1    |    | (Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002)         | 43                 
|           |    |                                                                                       |                    
|EX-31.2    |    | (Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002)         | 44                 
|           |    |                                                                                       |                    
|EX-32.1    |    | (Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002)         | 45                 
|           |    |                                                                                       |                    
|EX-32.2    |    | (Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002)         | 46                 



















PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



CHINA HOUSING & LAND DEVELOPMENT, INC.
AND SUBSIDIARIES



Unaudited Interim Condensed Consolidated
Balance Sheets

As of June 30, 2012 and December 31, 2011





|                                                                                                        |  | June 30, |             |   | December 31, |  
|------------------------------------------------------------------------------------------------------- |  | -------- | ----------- | - | ------------ | -
|                                                                                                        |  | 2012     |             |   | 2011         |  
|ASSETS                                                                                                  |  |          |             |   |              |  
|Cash and cash equivalents                                                                               |  | $        | 12,394,253  |   |              | $
|Cash - restricted                                                                                       |  |          | 83,809,061  |   |              |  
|Accounts receivable, net of allowance for doubtful      accounts of $566,537 and $571,857, respectively |  |          | 16,069,860  |   |              |  
|Other receivables, prepaid expenses and other assets, net                                               |  |          | 3,108,756   |   |              |  
|Real estate held for development or sale                                                                |  |          | 217,163,574 |   |              |  
|Property and equipment, net                                                                             |  |          | 34,691,813  |   |              |  
|Advance to suppliers                                                                                    |  |          | 2,179,083   |   |              |  
|Deposits on land use rights                                                                             |  |          | 41,921,048  |   |              |  
|Intangible assets, net                                                                                  |  |          | 53,536,752  |   |              |  
|Goodwill                                                                                                |  |          | 1,877,156   |   |              |  
|Deferred tax asset                                                                                      |  |          | -           |   |              |  
|Deferred financing costs                                                                                |  |          | 189,586     |   |              |  
|Total assets                                                                                            |  | $        | 466,940,942 |   |              | $
|                                                                                                        |  |          |             |   |              |  
|LIABILITIES                                                                                             |  |          |             |   |              |  
|Accounts payable                                                                                        |  | $        | 39,665,399  |   |              | $
|Advances from customers                                                                                 |  |          | 49,053,224  |   |              |  
|Accrued expenses                                                                                        |  |          | 7,697,765   |   |              |  
|Income and other taxes payable                                                                          |  |          | 15,374,676  |   |              |  
|Other payables                                                                                          |  |          | 7,049,958   |   |              |  
|Loans from employees                                                                                    |  |          | 18,872,973  |   |              |  
|Loans payable                                                                                           |  |          | 149,015,279 |   |              |  
|Deferred tax liability                                                                                  |  |          | 14,621,291  |   |              |  
|Warrants liability                                                                                      |  |          | 976         |   |              |  
|Fair value of embedded derivatives                                                                      |  |          | 109,345     |   |              |  
|Convertible debt                                                                                        |  |          | 9,639,742   |   |              |  
|Mandatorily redeemable non-controlling interests in Subsidiaries                                        |  |          | 23,658,219  |   |              |  
|Total liabilities                                                                                       |  |          | 334,758,847 |   |              |  
|                                                                                                        |  |          |             |   |              |  
|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                                                                              |  |          | 49,774,295  |   |              |  
|Treasury stock at cost 351,480 shares and 337,800 shares, respectively                                  |  |          | (434,240    | ) |              |  
|Statutory reserves                                                                                      |  |          | 7,857,612   |   |              |  
|Retained earnings                                                                                       |  |          | 54,697,621  |   |              |  
|Accumulated other comprehensive income                                                                  |  |          | 20,251,369  |   |              |  
|Total shareholders’ equity                                                                              |  |          | 132,182,095 |   |              |  
|                                                                                                        |  |          |             |   |              |  
|Total liabilities and shareholders’ equity                                                              |  | $        | 466,940,942 |   |              | $



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





3







CHINA HOUSING & LAND DEVELOPMENT, INC.
AND SUBSIDIARIES



Interim Condensed Consolidated Statements
of Income

For The Three and Six Months Ended June
30, 2012 and 2011

(Unaudited)



|                                                  |  | 3 Months              |            |  | 3 Months              |   |            | 6 Months              |  |   | 6 Months              | 
|------------------------------------------------- |  | --------------------- | ---------- |  | --------------------- | - | ---------- | --------------------- |  | - | --------------------- | 
|                                                  |  | June 30,
        2012 |            |  | June 30,
        2011 |   |            | June 30,
        2012 |  |   | June 30,
        2011 | 
|REVENUES                                          |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Real estate sales                                 |  | $                     | 30,069,549 |  |                       | $ | 15,573,256 |                       |  | $ | 50,503,892            | 
|Other income                                      |  |                       | 4,945,971  |  |                       |   | 4,678,936  |                       |  |   | 8,013,399             | 
|Total revenues                                    |  |                       | 35,015,520 |  |                       |   | 20,252,192 |                       |  |   | 58,517,291            | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|COST OF SALES                                     |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Cost of real estate sales                         |  |                       | 23,115,905 |  |                       |   | 13,150,640 |                       |  |   | 37,348,769            | 
|Cost of other revenue                             |  |                       | 3,792,088  |  |                       |   | 1,987,855  |                       |  |   | 6,031,958             | 
|Total cost of revenues                            |  |                       | 26,907,993 |  |                       |   | 15,138,495 |                       |  |   | 43,380,727            | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Gross margin                                      |  |                       | 8,107,527  |  |                       |   | 5,113,697  |                       |  |   | 15,136,564            | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|OPERATING EXPENSES                                |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Selling, general, and administrative expenses     |  |                       | 3,956,069  |  |                       |   | 3,321,725  |                       |  |   | 6,979,754             | 
|Stock-based compensation                          |  |                       | 690,390    |  |                       |   | 17,820     |                       |  |   | 812,996               | 
|Other expenses                                    |  |                       | 58,455     |  |                       |   | 348,901    |                       |  |   | 64,888                | 
|Interest expense                                  |  |                       | 100,676    |  |                       |   | 365,460    |                       |  |   | 330,948               | 
|Accretion expense on convertible debt             |  |                       | 241,665    |  |                       |   | 206,813    |                       |  |   | 474,151               | 
|Total operating expenses                          |  |                       | 5,047,255  |  |                       |   | 4,260,719  |                       |  |   | 8,662,737             | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|NET INCOME FROM BUSINESS OPERATIONS               |  |                       | 3,060,272  |  |                       |   | 852,978    |                       |  |   | 6,473,827             | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|CHANGES IN FAIR VALUE OF DERIVATIVES              |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Change in fair value of embedded derivatives      |  |                       | (150,181)  |  |                       |   | (409,478)  |                       |  |   | (221,284)             | 
|Change in fair value of warrants                  |  |                       | (3,554)    |  |                       |   | (263,623)  |                       |  |   | (3,186)               | 
|Total changes in fair value of derivatives        |  |                       | (153,735)  |  |                       |   | (673,101)  |                       |  |   | (224,470)             | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Income before provision for income taxes          |  |                       | 3,214,007  |  |                       |   | 1,526,079  |                       |  |   | 6,698,297             | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Provision for income taxes                        |  |                       | 1,372,027  |  |                       |   | 985,101    |                       |  |   | 2,341,512             | 
|(Recovery of) provision for deferred income taxes |  |                       | (64,768)   |  |                       |   | (33,922)   |                       |  |   | 214,624               | 
|                                                  |  |                       | 1,307,259  |  |                       |   | 951,179    |                       |  |   | 2,556,136             | 
|NET INCOME                                        |  | $                     | 1,906,748  |  |                       | $ | 574,900    |                       |  | $ | 4,142,161             | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|WEIGHTED AVERAGE SHARES OUTSTANDING               |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Basic                                             |  |                       | 34,914,731 |  |                       |   | 35,078,639 |                       |  |   | 34,822,496            | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Diluted                                           |  |                       | 34,914,731 |  |                       |   | 36,694,348 |                       |  |   | 34,822,496            | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|NET INCOME PER SHARE                              |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Basic                                             |  | $                     | 0.05       |  |                       | $ | 0.02       |                       |  | $ | 0.12                  | 
|                                                  |  |                       |            |  |                       |   |            |                       |  |   |                       | 
|Diluted                                           |  | $                     | 0.05       |  |                       | $ | 0.01       |                       |  | $ | 0.12                  | 



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





4







CHINA HOUSING & LAND DEVELOPMENT,
INC. AND SUBSIDIARIES



Interim Condensed Consolidated Statements
of Comprehensive Income

For The Three and Six Months Ended June
30, 2012 and 2011

(Unaudited)





|                                  |  | 3 Months |            |   | 3 Months |   |           | 6 Months |  |   | 6 Months   |  
|--------------------------------- |  | -------- | ---------- | - | -------- | - | --------- | -------- |  | - | ---------- | -
|                                  |  | June 30, |            |   | June 30, |   |           | June 30, |  |   | June 30,   |  
|                                  |  | 2012     |            |   | 2011     |   |           | 2012     |  |   | 2011       |  
|                                  |  |          |            |   |          |   |           |          |  |   |            |  
|NET INCOME                        |  | $        | 1,906,748  |   |          | $ | 574,900   |          |  | $ | 4,142,161  |  
|                                  |  |          |            |   |          |   |           |          |  |   |            |  
|OTHER COMPREHENSIVE (LOSS) INCOME |  |          |            |   |          |   |           |          |  |   |            |  
|(Loss) gain in foreign exchange   |  |          | (1,763,412 | ) |          |   | 1,721,118 |          |  |   | (1,869,825 | )
|                                  |  |          |            |   |          |   |           |          |  |   |            |  
|COMPREHENSIVE INCOME              |  | $        | 143,336    |   |          | $ | 2,296,018 |          |  | $ | 2,272,336  |  



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





5







CHINA HOUSING & LAND DEVELOPMENT INC.
AND SUBSIDIARIES

Interim Condensed Consolidated Statements
of Cash Flows

For The Six Months Ended June 30, 2012 and
2011

(Unaudited)





|                                                                                        |  | June 30, |             |   | June 30, |  
|--------------------------------------------------------------------------------------- |  | -------- | ----------- | - | -------- | -
|                                                                                        |  | 2012     |             |   | 2011     |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |  |          |             |   |          |  
|Net income for the period                                                               |  | $        | 4,142,161   |   |          | $
|Adjustments to reconcile net income to cash provided by (used in) operating activities: |  |          |             |   |          |  
|Bad debt recovery                                                                       |  |          | -           |   |          |  
|Depreciation                                                                            |  |          | 1,054,317   |   |          |  
|Stock-based compensation                                                                |  |          | 812,996     |   |          |  
|Gain on disposal of property and equipment                                              |  |          | (32,554     | ) |          |  
|Amortization of deferred financing costs                                                |  |          | 77,818      |   |          |  
|Amortization of intangible assets                                                       |  |          | 109,033     |   |          |  
|Provision for (recovery of)deferred income taxes                                        |  |          | 214,624     |   |          |  
|Change in fair value of embedded derivatives                                            |  |          | (221,284    | ) |          |  
|Change in fair value of warrants                                                        |  |          | (3,186      | ) |          |  
|Accretion expense on convertible debt                                                   |  |          | 474,151     |   |          |  
|(Increase) decrease in assets:                                                          |  |          |             |   |          |  
|Accounts receivable                                                                     |  |          | 4,004,136   |   |          |  
|Other receivable and prepaid expense                                                    |  |          | (1,322,379  | ) |          |  
|Real estate held for development or sale                                                |  |          | (55,565,264 | ) |          |  
|Advances to suppliers                                                                   |  |          | (1,316,365  | ) |          |  
|Refund on land use rights, net                                                          |  |          | 22,754,848  |   |          |  
|Increase (decrease) in liabilities:                                                     |  |          |             |   |          |  
|Accounts payable                                                                        |  |          | (4,242,595  | ) |          |  
|Advances from customers                                                                 |  |          | (7,991,869  | ) |          |  
|Accrued expense                                                                         |  |          | 3,315,390   |   |          |  
|Other payables                                                                          |  |          | (355,170    | ) |          |  
|Income and other taxes payable                                                          |  |          | 812,823     | ) |          |  
|Net cash(used in) provided by operating activities                                      |  |          | (33,278,369 | ) |          |  
|                                                                                        |  |          |             |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |  |          |             |   |          |  
|Change in restricted cash                                                               |  |          | 21,058,986  |   |          |  
|Purchase of property and equipment                                                      |  |          | (2,931,657  | ) |          |  
|Proceeds from sale of property and equipment                                            |  |          | 63,248      |   |          |  
|Net cash provided by (used in) investing activities                                     |  |          | 18,190,577  |   |          |  
|                                                                                        |  |          |             |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |  |          |             |   |          |  
|Loans from banks                                                                        |  |          | 30,111,889  |   |          |  
|Loans from external parties                                                             |  |          | 5,707,564   |   |          |  
|Payments on loans payable                                                               |  |          | (34,356,320 | ) |          |  
|Loans from or repayment to employees, net                                               |  |          | 4,138,628   |   |          |  
|Repayment of payables for acquisition of businesses                                     |  |          | -           |   |          |  
|Purchase of treasury stock                                                              |  |          | (14,142     | ) |          |  
|Net cash provided by financing activities                                               |  |          | 5,587,619   |   |          |  
|                                                                                        |  |          |             |   |          |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                                   |  |          | (9,500,173  | ) |          |  
|                                                                                        |  |          |             |   |          |  
|Effects on foreign currency exchange                                                    |  |          | (120,527    | ) |          |  
|                                                                                        |  |          |             |   |          |  
|CASH AND CASH EQUIVALENTS, beginning of period                                          |  |          | 22,014,953  |   |          |  
|                                                                                        |  |          |             |   |          |  
|CASH AND CASH EQUIVALENTS, end of period                                                |  | $        | 12,394,253  |   |          | $





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





6







CHINA HOUSING & LAND DEVELOPMENT, INC.
AND SUBSIDIARIES



Interim Condensed Consolidated Statements
of Shareholders’ Equity

As of June 30, 2012 and December 31, 2011

(Unaudited)





|                                                      |  | Common Stock |            |  | Treasury      |   |        | Paid in |  |   | Statutory |   |  | Retained |            |  | Accumulated Comprehensive |   |           |        | 
|----------------------------------------------------- |  | ------------ | ---------- |  | ------------- | - | ------ | ------- |  | - | --------- | - |  | -------- | ---------- |  | ------------------------- | - | --------- | ------ | 
|                                                      |  | Shares       |            |  | Par
    Value |   |        | stock   |  |   | capital   |   |  | reserves |            |  | earnings                  |   |           | income | 
|BALANCE, December 31, 2011                            |  |              | 35,078,639 |  |               | $ | 35,079 |         |  | $ | (420,098  | ) |  | $        | 48,961,658 |  |                           | $ | 7,857,612 |        | 
|Stock-based compensation                              |  |              | -          |  |               |   | -      |         |  |   | -         |   |  |          | 95,390     |  |                           |   | -         |        | 
|Common
    stock issued for directors’compensation    |  |              | 19,440     |  |               |   | 19     |         |  |   | -         |   |  |          | 27,197     |  |                           |   | -         |        | 
|Treasury
    Stock                                    |  |              | -          |  |               |   | -      |         |  |   | (14,142   | ) |  |          | -          |  |                           |   | -         |        | 
|Net income                                            |  |              | -          |  |               |   | -      |         |  |   | -         |   |  |          | -          |  |                           |   | -         |        | 
|Foreign
    currency translation adjustment           |  |              | -          |  |               |   | -      |         |  |   | -         |   |  |          | -          |  |                           |   | -         |        | 
|BALANCE, March 31, 2012                               |  |              | 35,098,079 |  |               |   | 35,098 |         |  |   | (434,240  | ) |  |          | 49,084,245 |  |                           |   | 7,857,612 |        | 
|Stock-based compensation                              |  |              | -          |  |               |   | -      |         |  |   | -         |   |  |          | 95,390     |  |                           |   | -         |        | 
|Common
    stock issued for managements’ compensation |  |              | 340,000    |  |               |   | 340    |         |  |   | -         |   |  |          | 594,660    |  |                           |   | -         |        | 
|Net
    income                                        |  |              | -          |  |               |   | -      |         |  |   | -         |   |  |          | -          |  |                           |   | -         |        | 
|Foreign
    currency translation adjustment           |  |              | -          |  |               |   | -      |         |  |   | -         |   |  |          | -          |  |                           |   | -         |        | 
|BALANCE, June 30, 2012                                |  |              | 35,438,079 |  |               | $ | 35,438 |         |  | $ | (434,240  | ) |  | $        | 49,774,295 |  |                           | $ | 7,857,612 |        | 



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





7







CHINA HOUSING & LAND DEVELOPMENT,
INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated
Financial Statements

June 30, 2012 and 2011 and December 31,
2011

(Unaudited)



Note 1 – Organization and Basis of Presentation



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



The
accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its
subsidiaries, Xi’an Tsining Housing Development Company Inc. (“Tsining”), Xi’an New Land Development
Co. (“New Land”), Manstate Assets Management Limited (“Manstate”), Success Hill
Investments Limited (“Success Hill”), Puhua (Xi’an) Real Estate Development Co., Ltd.
(“Puhua”), Xi’an Xinxing Property Management Co., Ltd. (“Xinxing Property”), Suodi Co., Ltd.
(“Suodi”), Shaanxi Xinxing Construction Co., Ltd. (“Xinxing Construction”), Xinxing FangZhou Housing
Development Co., Ltd. (“Fangzhou”), Way fast 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”). Wayfast with its 100% subsidiary - Clever Advance
and Gracemind with its 100% subsidiary - Treasure Asia were incorporated as holding companies in March 2009 and they
have been inactive since incorporation.All inter-company balances and transactions have been eliminated on
consolidation. The accompanying unaudited interim condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of America (“GAAP”).



In the opinion of management, the unaudited
interim condensed consolidated financial statements reflect all adjustments necessary for a fair statement of the Company’s
unaudited interim condensed consolidated balance sheets as at June 30, 2012 and the Company’s unaudited interim condensed
consolidated statements of income, and comprehensive income for the three and six months ended June 30, 2012 and 2011 and the Company’s
unaudited interim condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011. These adjustments
consist of normal recurring items. The results of operations for any interim period are not necessarily indicative of results for
the full year.



The unaudited interim condensed consolidated
financial statements are based on accounting principles that are consistent in all material respects with those applied in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 Annual Report”); except as disclosed
below. They do not include certain footnote disclosures and financial information normally included in annual consolidated financial
statements prepared in accordance with GAAP and, therefore, should be read in conjunction with the audited consolidated financial
statements and notes included in the Company’s 2011 Annual Report.



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)”.
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 No. 2011-04 is 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”. 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 No. 2011-05 is 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”. 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 No. 2011-08 is 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.



8











Note 1 – Organization and Basis of Presentation
(continued)



Accounting Principles Recently Adopted
(continued)



In December 2011, the FASB issued ASU 2011-12,
“Comprehensive income”. 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 reporter classifications out of accumulated other comprehensive
income consistent with the presentation requirements in effect before ASU 2011-05.ASU No. 2011-12 will
be 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.



New Accounting Pronouncement Not Yet Adopted



In December 2011, the FASB issued ASU 2011-11,
“Balance Sheet”. 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 No. 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 2012-02
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.



Foreign exchange rates used:

|                                         |  | June 30,  2012 |        |  | December 31,  2011 |  |        | June 30,  2011 | 
|---------------------------------------- |  | -------------- | ------ |  | ------------------ |  | ------ | -------------- | 
|Period end RMB/U.S. Dollar exchange rate |  |                | 6.3530 |  |                    |  | 6.2939 |                | 
|Average RMB/U.S. Dollar exchange rate    |  |                | 6.3306 |  |                    |  | 6.4633 |                | 





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



The Company recorded accretion cost on
the mandatorily redeemable non-controlling interest using the effective interest method based on an effective interest rate of
45%. The related accretion cost incurred for the three and six months ended June 30, 2012 were $2,119,966 and $3,995,881, respectively
(June 30, 2011 - $3,649,005 and $6,928,374) and was capitalized in real estate construction in progress.

|                                                                                               |  | Mandatory Redeemable Non-controlling Interests  in Subsidiaries |           
|---------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ----------
|Mandatory redeemable non-controlling interests in subsidiaries at December 31, 2011            |  | $                                                               | 19,935,482
|Capitalized accretion cost on mandatorily redeemable non-controlling interests in subsidiaries |  |                                                                 | 3,995,881 
|Difference in foreign exchange translation                                                     |  |                                                                 | (273,144  
|Mandatorily redeemable non-controlling interests in subsidiaries at June 30, 2012              |  | $                                                               | 23,658,219



The Company will make the final repayment of $28,366,646 on
December 25, 2012.





9







Note 3 – Supplemental Disclosure of Cash Flow
Information



Income taxes paid amounted to $1,343,144
and $3,369,377 for six months ended June 30, 2012 and 2011, respectively. Interest paid for the six months ended June 30, 2012
and 2011 amounted to $9,670,903 and $7,187,357, respectively.





Note 4 – Other Receivables, Prepaid Expenses
and Deposits



Other receivables and prepaid expenses consisted of the following
at June 30, 2012 and December 31, 2011:



|                                       |  | June 30, 2012 |           |   | December 31, 2011 |  
|-------------------------------------- |  | ------------- | --------- | - | ----------------- | -
|                                       |  |               |           |   |                   |  
|Other receivable                       |  | $             | 730,822   |   |                   | $
|Allowance for bad debts                |  |               | (142,933  | ) |                   |  
|Prepaid expenses                       |  |               | 540,315   |   |                   |  
|Prepaid other tax expenses             |  |               | 1,980,552 |   |                   |  
|Other receivables and prepaid expenses |  | $             | 3,108,756 |   |                   | $





Note 5 – Real Estate Held for Development or Sale



The following summarizes the components of real estate inventories
as at June 30, 2012 and December 31, 2011:

|                                                 |  | June 30, 2012 |             |  | December 31, 2011 |  
|------------------------------------------------ |  | ------------- | ----------- |  | ----------------- | -
|Real estate projects completed and held for sale |  |               |             |  |                   |  
|JunJing I project                                |  | $             | 3,531,312   |  |                   | $
|JunJing II project                               |  |               | 172,687     |  |                   |  
|Tsining 24G project                              |  |               | 44,492      |  |                   |  
|Gangwan project                                  |  |               | 37,495      |  |                   |  
|Tsining Home IN project                          |  |               | 59,764      |  |                   |  
|Real estate completed and held for sale          |  |               | 3,845,750   |  |                   |  
|                                                 |  |               |             |  |                   |  
|Real estate projects held for development        |  |               |             |  |                   |  
|Puhua project                                    |  |               | 117,587,381 |  |                   |  
|Tangdu project                                   |  |               | 4,666,919   |  |                   |  
|JunJing III project                              |  |               | 2,173,190   |  |                   |  
|Park Plaza project                               |  |               | 60,685,376  |  |                   |  
|JiYuan project                                   |  |               | 13,438,562  |  |                   |  
|Golden Bay project                               |  |               | 10,700,885  |  |                   |  
|Other projects                                   |  |               | 3,860,156   |  |                   |  
|Construction materials                           |  |               | 205,355     |  |                   |  
|Real estate held for development                 |  |               | 213,317,824 |  |                   |  
|                                                 |  |               |             |  |                   |  
|Total real estate held for development or sale   |  | $             | 217,163,574 |  |                   | $



The Company’s Tangdu project is
essentially a land use right plus miscellaneous pre-construction costs. The Company still owns the legal title to this land
use right; however, the government is negotiating with the Company regarding a potential transfer back to the government. If
the land use right is transferred back to the government, the Company believes the government will refund all the associated
costs incurred by the Company to date.





10







Note 6 – Property and Equipment



Property and equipment consisted of the following at June 30,
2012 and December 31, 2011:



|                                             |  | June 30, 2012 |            |   | December 31, 2011 |  
|-------------------------------------------- |  | ------------- | ---------- | - | ----------------- | -
|Income producing properties and improvements |  | $             | 29,315,386 |   |                   | $
|Buildings and improvements                   |  |               | 4,399,205  |   |                   |  
|Electronic equipment                         |  |               | 494,680    |   |                   |  
|Vehicles                                     |  |               | 720,466    |   |                   |  
|Computer software                            |  |               | 327,250    |   |                   |  
|Office furniture                             |  |               | 121,017    |   |                   |  
|Office building under construction           |  |               | 6,613,008  |   |                   |  
|Total                                        |  |               | 41,991,012 |   |                   |  
|Accumulated depreciation                     |  |               | (7,299,199 | ) |                   |  
|Property and equipment, net                  |  | $             | 34,691,813 |   |                   | $



Depreciation expense for the three months
ended June 30, 2012 and 2011 amounted to $513,197 and $482,388, respectively. Depreciation expense for the six months ended June
30, 2012 and 2011 amounted to $1,054,317 and $964,972, respectively. The depreciation expense was included in selling, general
and administrative expenses and cost of other revenue.





Note 7 – Intangible Assets



The intangible assets consisted of the following at June 30,
2012 and December 31, 2011:



|                                  |  | June 30, 2012 |            |   | December 31, 2011 |  
|--------------------------------- |  | ------------- | ---------- | - | ----------------- | -
|Development right acquired (a)    |  | $             | 50,832,449 |   |                   | $
|Land use rights acquired (b)      |  |               | 8,460,624  |   |                   |  
|Construction license acquired (c) |  |               | 1,184,978  |   |                   |  
|                                  |  |               | 60,478,051 |   |                   |  
|Accumulated amortization          |  |               | (6,941,299 | ) |                   |  
|Intangible assets, net            |  | $             | 53,536,752 |   |                   | $



| | (a) | The development right for 487 acres of land in Baqiao Park 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 over its estimated useful life. This method is intended
to match the pattern of amortization with the income-generating capacity of the asset. The development right was originally set
to expire on June 30, 2011. On November 25, 2010, the Company was able to extend the right to June 30, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



For the three and six months ended June
30, 2012, the Company has recorded $54,427 and $109,033 of amortization expense on the land use rights (June 30, 2011 - $53,016
and $105,388).The amortization was included in selling, general and administrative expenses.





11









Note 8 –
Accrued Expenses



|                          |  | June 30, 2012 |           |  | December 31, 2011 |  
|------------------------- |  | ------------- | --------- |  | ----------------- | -
|Accrued expenses          |  | $             | 6,992,139 |  |                   | $
|Accrued interest on loans |  |               | 705,626   |  |                   |  
|Total                     |  | $             | 7,697,765 |  |                   | $



Note 9 – Loans from Employees



The Company has borrowed money from certain employees to
fund the Company’s construction projects. The loans usually mature after six months. These unsecured loans bear
interest at 15% (December 31, 2011 – 20%) per annum and are available to all employees.



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



|                        |  | June 30, 2012 |           |  | December 31, 2011 |  
|----------------------- |  | ------------- | --------- |  | ----------------- | -
|Chairman                |  | $             | 881,473   |  |                   | $
|Chief executive officer |  |               | 157,406   |  |                   |  
|Chief financial officer |  |               | 708,327   |  |                   |  
|Chief operating officer |  |               | 196,757   |  |                   |  
|                        |  | $             | 1,943,963 |  |                   | $





12







Note 10 – Loans Payable

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | June 30,
2012 |             |  | December 31,
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%, secured by the Company’s Jun Jing Yuan I building No. 12, HanYuan and guaranteed by the Company’s President, President’s spouse, CEO, Tsining’s former general manager and his spouse. This amount was fully repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $             | 2,518,495   |  |                   | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Xinhua Trust Investments Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               |             |  |                   |  
|Due February 10, 2012, annual interest is at 10%, secured by the 24G project. This loan was fully repaid in February, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |               | -           |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Bank of Xi’an                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               |             |  |                   |  
|Annual interest is fixed at 130% of People’s Bank of China prime rate
    at the time of borrowing (or 8.528%), secured by the Company’s JunJing building No.12. The loan expires on August 29,
    2012. This amount was fully repaid on July 5, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               | 1,101,842   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Bank of Beijing, Xi’an Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               |             |  |                   |  
|Due December 10, 2012 and subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount of PuHua Phase I, annual interest is at the prime rate of People’s Bank of China (or 6.65%). The Company has restricted cash of $15,786,423 deposited with Bank of Beijing as collateral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | 15,740,595  |  |                   |  
|Due November 30, 2014 and subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount of PuHua Phase II, annual interest is at the 130% of People’s Bank of China prime rate (or 8.65%). The loan is secured by Puhua project’s land use rights and construction in progress. The repayment schedule is as follows: November 30, 2012 – $1,574,059 (RMB 10 million); May 30, 2013 - $9,444,357 (RMB 60 million); November 30, 2013 - $9,444,357 (RMB 60 million); May 30, 2014 - $4,722,178 (RMB 30 million); November 30, 2014 - $4,722,178 (RMB 30 million).                                                                                                                                                                                                                                                 |  |               | 29,907,130  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Tianjin Cube Equity Investment Fund Partnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |               |             |  |                   |  
|Originally due on January 27, 2012 and extended to July 27, 2012, annual interest is 9.6%, secured by JunJing II Commercial Units, JunJing I Residential units and part of Company’s Park Plaza project as temporary collaterals, 100% ownership of Xi’an Tsinging Housing Development Co. Ltd.’s  shares, corporate guarantee from Xinxing Construction, Newland, Xinxing Property, Wayfast, the Company, personal guarantee from the President of the Company and current and future accounts receivable from Park Plaza project. The temporary collaterals can be replaced with the land use rights and construction in progress of the Park Plaza project once the Company obtained the land use rights for this project and approval from the lender. The land use rights have been obtained during the quarter. The balance was fully repaid in July and August 2012. |  |               | 25,184,952  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|JP Morgan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |               |             |  |                   |  
|Originally due on March 13, 2011 and extended to November 12, 2012, annual interest is at 1.97%, secured by $35,258,933 of restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |               | 30,016,491  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|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 June 30, 2012 was 0.466%, secured by $31,481,190 of restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               | 31,000,000  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Construction Bank of China                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |               |             |  |                   |  
|Due on March 6, 2015 and subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount of JunJing III. Annual interest is 101% of People’s Bank of China prime rate (or 6.72%). The loan is secured by JunJing III’s construction in progress and land use rights. The repayment schedule is as follows: March 2013 - $1,574,059 (RMB10 million); August 2013 - $2,361,089 (RMB 15 million); March 2014 - $2,361,089 (RMB 15 million); August 2014 - $787,030 (RMB 5 million); March 2015 – 787,030 (RMB 5 million).                                                                                                                                                                                                                                                                                             |  |               | 7,870,297   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Third party vendor                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |               |             |  |                   |  
|Due August 8, 2012, renewed subsequently and extended to August 8, 2013, non-interest bearing and unsecured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | 2,055,140   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |               |             |  |                   |  
|Unsecured, due September 29, 2012. Annual interest is 20% (Note 18)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |               | 1,574,060   |  |                   |  
|Unsecured, due December 31, 2012. Annual interest rate is 15% (Note 18)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |               | 2,046,277   |  |                   |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $             | 149,015,279 |  |                   | $





13







Note 10 – Loans Payable (continued)



Except the loans from JP Morgan and Bank
of China, Macau Branch, which were drawn to repay mandatorily redeemable non-controlling interests, all other loans
were drawn to finance construction projects.



The majority of interest incurred was capitalized
and allocated to various real estate construction projects.



The bank loans payable balances were secured
by certain of the Company’s real estate held for development or sale with a carrying value of $95,491,944 at June 30, 2012
(December 31, 2011 - $55,777,318), certain buildings and income producing properties and improvements with a carrying value of
$20,117,731t June 30, 2012 (December 31, 2011 - $20,022,475), certain land use rights with a carrying value of $32,427,963 (December
31, 2011 - $3,371,814). The weighted average interest rate on loans payable as at June 30, 2011 was 6.08% (December 31, 2011 –
6.7%).



Loans from Bank of Beijing
and Construction Bank of China are also subject to certain repayment terms based on certain percentage of sales contract
signed over total estimated sales amount in certain projects under development. Based on these repayment terms, Bank of
Beijing can demand repayment of $15,740,595 (RMB100,000,000) and Construction Bank of China can demand repayment of
$4,092,555 (RMB 26,000,000) as at June 30, 2012.



Note 11 – Fair Value of Financial
Instruments



The following table summarizes the financial
assets and liabilities measured at fair value on a recurring basis as of the measurement date, June 30, 2012, and the basis for
that measurement, by level within the fair value hierarchy:



|Fair Value Measurements Using      |  | Assets/Liabilities |   |  |         |  
|---------------------------------- |  | ------------------ | - |  | ------- | -
|                                   |  | Level 1            |   |  | Level 2 |  
|Warrants liability                 |  | $                  | - |  |         | $
|Fair value of embedded derivatives |  |                    | - |  |         |  
|Total                              |  | $                  | - |  |         | $



The following table summarizes the financial
assets and liabilities measured at fair value on a recurring basis as of the measurement date, December 31, 2011, and the basis
for that measurement, by level within the fair value hierarchy:



|Fair Value Measurements Using      |  | Assets/Liabilities |  
|---------------------------------- |  | ------------------ | -
|                                   |  | Level 1            |  
|Warrants liability                 |  | $                  | -
|Fair value of embedded derivatives |  |                    | -
|Total                              |  | $                  | -



Note 12 – Convertible
Debt



On January 28, 2008, the Company issued
Senior Secured Convertible Debt due in 2013 (the “Convertible Debt”) and warrants to subscribe for common shares for
an aggregate purchase price of $20 million. Both the warrant and embedded conversion option associated with the Convertible Debt
meet the definition of a derivative instrument according to the standard “Accounting for Derivative Instruments and Hedging
Activities”. Because the warrant and the Convertible Debt are denominated in U.S. dollars 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 liabilities and periodically marked-to-market.



On June 10, 2010, the Company and the Investors
entered into an amendment (the “Amendment”), which granted investors the right to convert the $11 million non-convertible
portion of the Convertible Debt. The right expires 5 business days after the effective date that a registration statement is filed
by the Company registering the shares to be issued on the conversion. The warrants issued in 2008 were amended as well to permit
the investors to exercise the warrants on a cashless basis and receive one common share for every two warrants held if the investor
converts at least 55% of face amount of Convertible Debt held.





14







Note 12 – Convertible Debt (continued)



On January 25, 2011, certain investors
requested and the Company’s Board approved allowing certain investors 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 rights to convert the $11 million non-convertible
portion of the Convertible Debt and to exercise the warrants on a cashless basis and receive one common share for every two warrants
expired.



The fair values of the warrants and embedded
conversion option at June 30, 2012 were determined to be $976 and $109,345, respectively (December 31, 2011 - $3,102 and $330,629),
using the Cox-Ross-Rubinstein Binomial Lattice Model (the “CRR Model”) with the following assumptions:







|                        |  | June 30, 2012 |                   |   | December 31, 2011 | 
|----------------------- |  | ------------- | ----------------- | - | ----------------- | 
|Expected life           |  |               | 0.58 – 0.67 years |   |                   | 
|Expected volatility     |  |               | 60                | % |                   | 
|Risk-free interest rate |  |               | 0.17 - 0.18%      |   |                   | 
|Dividend yield          |  |               | 0                 | % |                   | 



For the three months ended June 30, 2012, the Company
recorded a decrease in fair value for the warrants and embedded derivatives of $3,554 and $150,181, respectively (June 30, 2011 –
decrease of $47,389 and $409,478). For the six months ended June 30, 2011, the Company recorded a decrease in fair value
of the warrants and embedded derivatives of $2,126 and $221,284, respectively (June 30, 2011 - $289,926 and $1,462,232),
in the unaudited interim condensed 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 June 30, 2012 was $9,639,742 (December 31, 2011 - $9,165,591). Related
interest and accretion costs for the three months ended June 30, 2012 were $129,384 and $241,665, respectively (June 30, 2011 -
$129,384 and $206,813), and for the six months ended June 30, 2012 were $258,768 and $474,151, respectively (June 30, 2011 - $319,721
and $543,804).



Note 13 – Shareholders’ Equity



Common stock



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.



On May 17, 2012, the Company issued 340,000
shares of common stock as fiscal 2012 compensation to the senior executives including Chairman, Chief Executive Officer, Chief
Financial Officer and Chief Operation Officer. The shares are valued at $595,000 based on the closing price of the shares on the
same date and are recorded as stock-based compensation on the unaudited interim condensed consolidated statements of income.



Warrants



Pursuant to accounting guidance, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settle in a Company’s Own Stock”, the warrants issued
contain a provision permitting the holder to demand payment based on a valuation in certain circumstances. Therefore, the Company
recorded the warrants issued through private placements in 2007 as a liability at their fair value on the date of grant and then
revalued them to $Nil at June 30, 2012 (December 31, 2011 - $1,060) using the CRR Model with the following assumptions. These
warrants expired on May 9, 2012 without being exercised.



The gain from the change in fair value
of warrants for the three months ended June 30, 2012 was $Nil (June 30, 2011 – gain of $216,234), and the gain from the change
in fair value of warrants for the six months ended June 30, 2012 was $1,060 (June 30, 2011 – gain of $824,348).



Including the fair value of warrants
associated with the Convertible Debt (note 12), the total warrant liability as at June 30, 2012 was $976 (December 31,
2011 - $4,162). The total gain from the change in fair value of warrants for the three and six months ended June 30, 2012 was
$3,554 and $3,186, respectively (June 30, 2011 - $263,623 and $1,114,274).



15









Note 13 – Shareholders’ Equity (continued)



Warrants



The following table provides information with respect to warrant
transactions:



|                       |  | Number of Warrants Outstanding |           |  | Weighted  Average Exercise Price |  
|---------------------- |  | ------------------------------ | --------- |  | -------------------------------- | -
|December 31, 2011      |  |                                | 2,701,131 |  |                                  | $
|Expired on May 9, 2012 |  |                                | 2,539,416 |  |                                  |  
|June 30, 2012          |  |                                | 161,715   |  |                                  | $



The following summarizes the weighted-average information about
the outstanding warrants as at June 30, 2012:



|Outstanding Warrants |     
|-------------------- | ----
|Exercise Price       |     
|$                    | 6.07





Stock Options



On June 13, 2011, the Company has granted
options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options 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 following table provides information with respect to stock
option transactions:



|                  |  | Number of Stock Options Outstanding |           |  | Weighted Average Exercise Price |  
|----------------- |  | ----------------------------------- | --------- |  | ------------------------------- | -
|                  |  |                                     |           |  |                                 |  
|December 31, 2011 |  |                                     | 1,227,755 |  |                                 | $
|Granted           |  |                                     | -         |  |                                 |  
|Expired           |  |                                     | -         |  |                                 |  
|June 30, 2012     |  |                                     | 1,227,755 |  |                                 | $



The following summarizes the weighted-average information about
the outstanding stock options as at June 30, 2012:



|               |      |  | Outstanding Stock Options | 
|-------------- | ---- |  | ------------------------- | 
|Exercise Price |      |  | Number                    | 
|               |      |  |                           | 
|$              | 1.39 |  |                           | 



As of June 30, 2012, 368,327 options are
vested. However, the options are not exercisable because the performance conditions of the stock options were not met.





16







Note 13 – Shareholders’ Equity (continued)



Stock-based compensation



Compensation expense for stock options
is recognized over the vesting period. During the three and six months ended June 30, 2012, compensation expense of $95,390 and
$190,780 (June 30, 2011 - $17,820 and $17,820) was recognized in the unaudited interim condensed 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 unaudited interim condensed
consolidated statements of income. During the three and six months ended June 30, 2012, the Company recorded $594,660 and $611,857
such stock-based compensation (June 30, 2011 - $Nil and $Nil).



Treasury Stock



The Company
approved the plan to repurchase up to $5 million shares of the Company’s common stock. The repurchase will be made from time
to time at prevailing market prices, through open market purchases.There is no guarantee as to the exact number of shares
that will be repurchased by the Company and the Company may discontinue purchases at any time when the Board of Directors determines
additional repurchases are not warranted. The repurchase program is expected to continue until August 11, 2013.



During the first quarter of 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. The Company did
not repurchase any shares of common stock during the second quarter of 2012.





Note 14 – Other Revenue



|                                           |  | For the three months ended |           |  | For the six months ended |  
|------------------------------------------ |  | -------------------------- | --------- |  | ------------------------ | -
|                                           |  | June 30,                   |           |  | June 30,                 |  
|                                           |  | 2012                       |           |  | 2011                     |  
|Interest income                            |  | $                          | 42,733    |  |                          | $
|Rental income                              |  |                            | 256,541   |  |                          |  
|Income from property management services   |  |                            | 1,096,752 |  |                          |  
|External construction contracts            |  |                            | 3,511,320 |  |                          |  
|Gain on disposal of property and equipment |  |                            | 24,353    |  |                          |  
|Miscellaneous income                       |  |                            | 14,272    |  |                          |  
|Total                                      |  | $                          | 4,945,971 |  |                          | $







17









Note 15 - Segment Reporting



The Company has two reportable segments:
Real Estate Development and Sales segment and 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 are 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 these 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 unaudited interim condensed consolidated
financial statements during the first three and six months of fiscal year 2012 and 2011 area follows:



For the three months ended June 30, 2012:

|                                                                                  |  | Real Estate Development and Sales |             |  | Construction |   |            | All other |  |   | Adjustments and elimination |   |  | Consolidated |             
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | --------------------------- | - |  | ------------ | ------------
|Revenues from external customers                                                  |  | $                                 | 30,069,549  |  |              | $ | 3,511,320  |           |  | $ | 1,096,752                   |   |  | $            | -           
|Intersegment revenues                                                             |  |                                   | -           |  |              |   | 6,663,998  |           |  |   |                             |   |  |              | (6,663,998  
|Rental from external customers                                                    |  |                                   | 225,641     |  |              |   | 30,900     |           |  |   | -                           |   |  |              | -           
|Other miscellaneous income (Interest and Gain from Property, Plant and Equipment) |  |                                   | 79,470      |  |              |   | -          |           |  |   | 1,888                       |   |  |              | -           
|Total Revenue                                                                     |  |                                   | 30,374,660  |  |              |   | 10,206,218 |           |  |   | 1,098,640                   |   |  |              | (6,663,998  
|Interest expense                                                                  |  |                                   | 46,236      |  |              |   | 13,040     |           |  |   | 41,400                      |   |  |              | -           
|Segment profit before taxes                                                       |  |                                   | 3,131,386   |  |              |   | 589,871    |           |  |   | (390,284                    | ) |  |              | (66,966     
|Total assets                                                                      |  |                                   | 490,761,587 |  |              |   | 30,080,835 |           |  |   | 186,951,553                 |   |  |              | (240,853,033



For the six months ended June 30, 2012:

|                                                                                  |  | Real Estate Development and Sales |             |  | Construction |   |            | All other |  |   | Adjustments and elimination |   |  | Consolidated |             
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | --------------------------- | - |  | ------------ | ------------
|Revenues from external customers                                                  |  | $                                 | 50,503,892  |  |              | $ | 5,129,737  |           |  | $ | 2,053,571                   |   |  | $            | -           
|Intersegment revenues                                                             |  |                                   | -           |  |              |   | 8,962,161  |           |  |   | -                           |   |  |              | (8,962,161  
|Rental from external customers                                                    |  |                                   | 452,026     |  |              |   | 167,891    |           |  |   | -                           |   |  |              | -           
|Other miscellaneous income (Interest and Gain from Property, Plant and Equipment) |  |                                   | 208,028     |  |              |   | -          |           |  |   | 2,146                       |   |  |              | -           
|Total Revenue                                                                     |  |                                   | 51,163,946  |  |              |   | 14,259,789 |           |  |   | 2,055,717                   |   |  |              | (8,962,161  
|Interest expense                                                                  |  |                                   | 221,190     |  |              |   | 26,304     |           |  |   | 83,454                      |   |  |              | -           
|Segment profit before taxes                                                       |  |                                   | 6,467,236   |  |              |   | 582,029    |           |  |   | (427,230                    | ) |  |              | 76,262      
|Total assets                                                                      |  |                                   | 490,761,587 |  |              |   | 30,080,835 |           |  |   | 186,951,553                 |   |  |              | (240,853,033





18







Note 15 - Segment Reporting (continued)



For the three months ended June 30, 2011:

|                                                                                  |  | Real Estate Development and Sales |             |  | Construction |   |            | All other |  |   | Adjustments and elimination |  |  | Consolidated |             
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | --------------------------- |  |  | ------------ | ------------
|Revenues from external customers                                                  |  | $                                 | 15,573,256  |  |              | $ | 1,327,770  |           |  | $ | 977,093                     |  |  | $            | -           
|Intersegment revenues                                                             |  |                                   | -           |  |              |   | 3,698,131  |           |  |   |                             |  |  |              | (3,698,131  
|Rental from external customers                                                    |  |                                   | 204,680     |  |              |   | 70,363     |           |  |   | -                           |  |  |              | -           
|Other miscellaneous income (Interest and Gain from Property, Plant and Equipment) |  |                                   | 2,097,942   |  |              |   | -          |           |  |   | 1,088                       |  |  |              | -           
|Total revenue                                                                     |  |                                   | 17,875,878  |  |              |   | 5,096,264  |           |  |   | 978,181                     |  |  |              | (3,698,131  
|Interest expense                                                                  |  |                                   | 303,005     |  |              |   | 20,590     |           |  |   | 41,865                      |  |  |              | -           
|Segment profit before taxes                                                       |  |                                   | 798,822     |  |              |   | 37,020     |           |  |   | 734,862                     |  |  |              | (44,625     
|Total assets                                                                      |  |                                   | 421,444,730 |  |              |   | 17,565,933 |           |  |   | 156,352,089                 |  |  |              | (178,362,189



For the six months ended June 30, 2011:

|                                                                                  |  | Real Estate Development and Sales |             |  | Construction |   |            | All other |  |   | Adjustments and elimination |  |  | Consolidated |             
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----------- |  | ------------ | - | ---------- | --------- |  | - | --------------------------- |  |  | ------------ | ------------
|Revenues from external customers                                                  |  | $                                 | 35,230,073  |  |              | $ | 2,763,194  |           |  | $ | 1,792,275                   |  |  | $            | -           
|Intersegment revenues                                                             |  |                                   | -           |  |              |   | 5,947,730  |           |  |   | -                           |  |  |              | (5,947,730  
|Rental from external customers                                                    |  |                                   | 416,988     |  |              |   | 445,332    |           |  |   | -                           |  |  |              | -           
|Other miscellaneous income (Interest and Gain from Property, Plant and Equipment) |  |                                   | 2,160,024   |  |              |   | -          |           |  |   | 2,002                       |  |  |              | -           
|Total revenue                                                                     |  |                                   | 37,807,085  |  |              |   | 9,156,256  |           |  |   | 1,794,277                   |  |  |              | (5,947,730  
|Interest expense                                                                  |  |                                   | 822,981     |  |              |   | 55,254     |           |  |   | 84,373                      |  |  |              | -           
|Segment profit before taxes                                                       |  |                                   | 2,131,278   |  |              |   | 287,072    |           |  |   | 2,359,205                   |  |  |              | (33,950     
|Total assets                                                                      |  |                                   | 421,444,730 |  |              |   | 17,565,933 |           |  |   | 156,352,089                 |  |  |              | (178,362,189



| | (1) | These represent revenues earned from construction services performed by Xinxing
Construction for the 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 eliminated
upon consolidation.
| | --- | ----------------------------------------------------------------------------------------------------------------------------





19









Note 16 – Earnings per Share



Earnings per share for the three and
six months ended June 30, 2012, and 2011 were determined by dividing net income for the periods by the weighted average number
of both basic and diluted shares of common stock and common stock equivalents outstanding.





|                                              |  | 3 months      |            |  | 3 months      |   |            | 6 months      |  |   | 6 months      | 
|--------------------------------------------- |  | ------------- | ---------- |  | ------------- | - | ---------- | ------------- |  | - | ------------- | 
|                                              |  | June 30, 2012 |            |  | June 30, 2011 |   |            | June 30, 2012 |  |   | June 30, 2011 | 
|Numerator                                     |  |               |            |  |               |   |            |               |  |   |               | 
|Net income – basic                            |  | $             | 1,906,748  |  |               | $ | 574,900    |               |  | $ | 4,142,161     | 
|Effect of dilutive securities                 |  |               |            |  |               |   |            |               |  |   |               | 
|Convertible debt                              |  |               | -          |  |               |   | (202,665   | )             |  |   | -             | 
|Net income – diluted                          |  | $             | 1,906,748  |  |               | $ | 372,235    |               |  | $ | 4,142,161     | 
|                                              |  |               |            |  |               |   |            |               |  |   |               | 
|Denominator                                   |  |               |            |  |               |   |            |               |  |   |               | 
|Weighted average shares outstanding – basic   |  |               | 34,914,731 |  |               |   | 35,078,639 |               |  |   | 34,822,496    | 
|Effect of dilutive securities                 |  |               |            |  |               |   |            |               |  |   |               | 
|Convertible debt                              |  |               | -          |  |               |   | 1,615,709  |               |  |   | -             | 
|Weighted average shares outstanding – diluted |  |               | 34,941,731 |  |               |   | 36,694,348 |               |  |   | 34,822,496    | 
|Earnings per share                            |  |               |            |  |               |   |            |               |  |   |               | 
|Basic earnings per share                      |  | $             | 0.05       |  |               | $ | 0.02       |               |  | $ | 0.12          | 
|Diluted earnings per share                    |  | $             | 0.05       |  |               | $ | 0.01       |               |  | $ | 0.12          | 





All outstanding warrants and convertible
debt have an anti-dilutive effect on the earnings per share and are therefore excluded from the determination of the diluted earnings
per share calculations for the three and six months ended June 30, 2012.



The 368,327 options that are vested
but not exercisable because the performance conditions of the stock options were not met are excluded from the determination of
the diluted earnings per share calculations for the three and six months ended June 30, 2012.



Note 17 – Commitments and Contingencies



The Company leases various
premises. These lease agreements expire between 2013 and 2020.



The Company also had various commitments
related to land use right acquisition with unpaid balances of approximately $18.5 million. The balances are not due until the vendor
removes the existing building from 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 one year.



In connection to the loans borrowed subsequently
from a related party (Note 19), the Company also signed a finance consulting agreement with the related party where the Company
would pay the related party consulting fees for the following years for financing services provided.



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



|                              |  | Payment due by period |           
|----------------------------- |  | --------------------- | ----------
|Commitments and Contingencies |  | Total                 |           
|Operating leases              |  | $                     | 8,033,308 
|Finance consulting            |  |                       | 6,990,923 
|Land use rights               |  |                       | 18,526,680
|Total                         |  | $                     | 33,550,911





20







Note 18– Related Party Transactions



One of the Company’s executive
officers’ spouse owns 37.83% of common stock of Days Hotel. During the three and six
months ended June 30, 2012, the Company incurred $58,345and $84,943 (June 30, 2011-$56,408 and $87,714) in fees to Days
Hotel. As at June 30, 2012, the Company had $142,755 (December 31, 2011 - $106,440) payable to Days Hotel recorded as other
payables on the financial statements.



The Company did not sell any real estate
units to Days Hotel during the three and six months ended June 30, 2012. However, the Company sold 14 apartments amounting to $695,439
to Days Hotel during the first quarter of 2011.



The Company also has $3,620,337 loan
payable to Days Hotel as at June 30, 2012 (December 31, 2011 - $Nil) (Note 10). As at June 30, 2012, the Company had $99,889
(December 31, 2011 - $Nil) interest payable to Days Hotel.





Note 19 – Subsequent Events



Subsequent
to the period end, the Company borrowed a $23,610,892 (RMB 150 million) loan from a limited partnership, in which an
executive partner is the spouse ofone of the Company’s executive officers. The loan
bears a fix annual interest rate of 9.6 %. The repayment schedule is as follows: June 1, 2013 – $1,574,059 (RMB
10 million); December 1, 2013 - $1,574,059 (RMB 10 million); June 1, 2014 –
$1,574,059 (RMB 10 million); August 7, 2014 - $18,888,713 (RMB 120 million).





21









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



FORWARD-LOOKING STATEMENTS



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



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



Critical Accounting Policies and Estimates



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



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



The unaudited interim condensed consolidated
financial statements are based on accounting principles that are consistent in all material respects with those applied in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2011(“2011Annual Report”). They do not include
certain footnote disclosures and financial information normally included in annual consolidated financial statements prepared
in accordance with GAAP and, therefore, should be read in conjunction with the audited consolidated financial statements and notes
included in the Company's 2011Annual Report.



Warrants and derivative liability



As of June 30, 2012, the Company had $976
of warrants liability and $109,345 of fair value of embedded derivatives on the balance sheet, representing approximately 0.00%
and 0.03% of total liabilities, respectively.



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





22







Several investors converted a total of
$9,763,000 face value of convertible debt and exercised the related warrants using the 2-to-1 cashless exercise feature added
as part of the Amendment. Subsequently, the Company was able to charge $8,073,512 to convertible debt carrying and the fair value
of the conversion features into shareholders’ equity. The fair value of $1,624,159 of the warrants on the day of exercise
was also charged to shareholders’ equity.



After the conversion of the convertible
debt and exercise of the warrants as described above and 5 days after the effectiveness of the registration statement, the 2-to-1
cashless warrants conversion feature expired for those investors who did not exercise their warrants. Therefore, use of the Alternative
Model has been terminated.



During the three months ended June 30,
2012, our common stock price experienced fluctuations with the price increasingly from $1.46 on April 2, 2012 to $1.97 on June 29,
2012. The increase in stock price caused an increase in fair value for warrants liability and embedded derivatives. As a result,
we recognized a change in fair value of warrants of approximately $3,554 and a change in fair value of embedded derivatives of
approximately $150,181, both of which are non-cash gains.



The following table summarizes the fair
value of warrant liability and embedded derivative as of June 30, 2012 and December 31, 2011.



|                                   |  | June 30, 2012 |         |  | December 31, 2011 |  
|---------------------------------- |  | ------------- | ------- |  | ----------------- | -
|Fair value of warrants liability   |  | $             | 976     |  |                   | $
|Fair value of embedded derivatives |  | $             | 109,345 |  |                   | $



The following tables summarize all the
warrants and conversion options outstanding and the assumptions used for their valuations as of June 30, 2012 and December 31,
2011.



|Investor Warrants: |  | 6/30/2012 |           |   | 12/31/2011 | 
|------------------ |  | --------- | --------- | - | ---------- | 
|Strike price       |  |           | 6.07      |   |            | 
|Market price       |  |           | 1.97      |   |            | 
|Valuation date     |  |           | 6/30/2012 |   |            | 
|Expiry date        |  |           | 2/28/2013 |   |            | 
|Volatility         |  |           | 60.00     | % |            | 
|Risk free rate     |  |           | 0.18      | % |            | 
|Option value       |  |           | 0.00603   |   |            | 
|Number of warrants |  |           | 161,715   |   |            | 
|Value              |  |           | 976       |   |            | 





|Investor Warrants: 5-7-2007 |  | 6/30/2012 |           |   | 12/31/2011 | 
|--------------------------- |  | --------- | --------- | - | ---------- | 
|Strike price                |  |           | 4.50      |   |            | 
|Market price                |  |           | 1.97      |   |            | 
|Valuation date              |  |           | 6/30/2012 |   |            | 
|Expiry date                 |  |           | 5/9/2012  |   |            | 
|Volatility                  |  |           | 0.00      | % |            | 
|Risk free rate              |  |           | 0.00      | % |            | 
|Option value                |  |           | 0.00000   |   |            | 
|Number of warrants          |  |           | -         |   |            | 
|Value                       |  |           | -         |   |            | 





|Conversion Option Valuation:  |  | 6/30/2012 |           |   | 12/31/2011 | 
|----------------------------- |  | --------- | --------- | - | ---------- | 
|Strike price                  |  |           | 5.57      |   |            | 
|Market price                  |  |           | 1.97      |   |            | 
|Valuation date                |  |           | 6/30/2012 |   |            | 
|Expiry date                   |  |           | 1/28/2013 |   |            | 
|Volatility                    |  |           | 60.00     | % |            | 
|Risk free rate                |  |           | 0.17      | % |            | 
|Option value                  |  |           | 0.00578   |   |            | 
|Host Value – principal        |  |           | 8,999,500 |   |            | 
|Host Value – interest         |  |           | -         |   |            | 
|Shares issuable on conversion |  |           | 1,615,709 |   |            | 
|Option value – principal      |  |           | 109,345   |   |            | 





23







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 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 significant judgments and estimates
related to impairment include our determination if an event has occurred to warrant an impairment test. If a test is required,
other significant judgments and estimates will include our expectations of future cash flows and the calculation of the fair value
of the impaired assets.



When real estate costs are determined to
be impaired, they are written down to their estimated net realizable value. The Company evaluates the carrying value for impairment
based on the undiscounted future cash flows of the assets. Write-downs of real estate costs deemed impaired are recorded as adjustments
to the cost basis. There has been no impairment on real estate inventories and no impairment loss has been recorded for the
three months ended June 30, 2012 and 2011.



The following summarizes the components of real estate inventories
as at June 30, 2012 and December 31, 2011:



|                                                 |  | June
                                                                                                     30, 2012 |             |  | December 31, 2011 |  
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------ | ----------- |  | ----------------- | -
|Real estate projects completed and held for sale |  |                                                                                                                    |             |  |                   |  
|JunJing I project                                |  | $                                                                                                                  | 3,531,312   |  |                   | $
|JunJing II project                               |  |                                                                                                                    | 172,687     |  |                   |  
|Tsining 24G project                              |  |                                                                                                                    | 44,492      |  |                   |  
|Gangwan project                                  |  |                                                                                                                    | 37,495      |  |                   |  
|Tsining Home IN project                          |  |                                                                                                                    | 59,764      |  |                   |  
|Real estate completed and held for sale          |  |                                                                                                                    | 3,845,750   |  |                   |  
|                                                 |  |                                                                                                                    |             |  |                   |  
|Real estate projects held for development        |  |                                                                                                                    |             |  |                   |  
|Puhua project                                    |  |                                                                                                                    | 117,587,381 |  |                   |  
|Tangdu project                                   |  |                                                                                                                    | 4,666,919   |  |                   |  
|JunJing III project                              |  |                                                                                                                    | 2,173,190   |  |                   |  
|Park Plaza project                               |  |                                                                                                                    | 60,685,376  |  |                   |  
|JiYuan project                                   |  |                                                                                                                    | 13,438,562  |  |                   |  
|Golden Bay project                               |  |                                                                                                                    | 10,700,885  |  |                   |  
|Other projects                                   |  |                                                                                                                    | 3,860,156   |  |                   |  
|Construction materials                           |  |                                                                                                                    | 205,355     |  |                   |  
|Real estate held for development                 |  |                                                                                                                    | 213,317,824 |  |                   |  
|                                                 |  |                                                                                                                    |             |  |                   |  
|Total real estate held for development or sale   |  | $                                                                                                                  | 217,163,574 |  |                   | $



The Company’s Tangdu project is essentially
a land use right plus miscellaneous pre-construction costs. The Company still owns the legal title to this land use right; however,
the government is negotiating with the Company regarding a potential transfer back to the government. If the land use right is
transferred back to the government, the Company believes the government will refund all the costs incurred by the Company.



24











Intangible asset



The intangible asset consists of the following at June 30, 2012 and
December 31, 2011:



|                                  |  | June 30, 2012 |            |   | December 31, 2011 |  
|--------------------------------- |  | ------------- | ---------- | - | ----------------- | -
|Development right acquired (a)    |  | $             | 50,832,448 |   |                   | $
|Land use right acquired (b)       |  |               | 8,460,624  |   |                   |  
|Construction license acquired (c) |  |               | 1,184,978  |   |                   |  
|                                  |  |               | 60,478,050 |   |                   |  
|Accumulated amortization          |  |               | (6,941,298 | ) |                   |  
|Intangible assets, net            |  | $             | 53,536,752 |   |                   | $



| | (a) | The development right for 487 acres of land in Baqiao Park 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 over its estimated useful life. This method is intended
to match the pattern of amortization with the income-generating capacity of the asset. The development right was originally set
to expire on June 30, 2011. On November 25, 2010, the Company was able to extend the right to June 30, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



For the three and six months
ended June 30, 2012, the Company has recorded $54,426 and $109,033 of amortization expense on the land use right (2011 -
$53,016 and $105,388). The amortization was included in selling, general and administrative expenses.



Deposits on land use rights



|                            |  | June 30, 2012 |            |  | December 31, 2011 | 
|--------------------------- |  | ------------- | ---------- |  | ----------------- | 
|Deposits on land use rights |  |               | 41,921,048 |  |                   | 



The Company conducts regular reviews of
the deposits on land use rights. After review and assessment, the Company concluded that there was no significant decrease
in the market price and therefore no impairment write-down was required.



Material trends and uncertainties that may impact continuing
operations



Changes in national and regional
economic conditions, as well as in areas where we conduct our operations and where prospective purchasers of our homes live,
may result in more caution on the part of homebuyers resulting in fewer home purchases. According to E-House (China) Real
Estate Research Institute the average residential sale price in Xi’an city was stable in the fiscal quarter
ended June 30, 2012. The average sale price decreased to 7,431 RMB per square meter (approximately US$1,174 per
square meter) from 7,903 RMB (approximately US$1,254 per square meter) in the first quarter of 2012,
representing a decrease of 6.0 percent quarter-over-quarter. Xi’an city’s real estate transaction volume (in
terms of sq. meter signed) increased about 19.6% in the second quarter of 2012 compared to the same period of 2011. During the second quarter of 2012, our sales of properties increased
approximately 93.1% over same period of 2011, which was mainly due to enhanced sales of Puhua Phase One and Phase Two, as
well as sales from JunJing III project.



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 ASP increases to 15%, restricting third-time home purchases
for local residents and second-time home purchases for non-local residents. These new policies could result in buying
hesitation among potential new customers, and could impact our revenues.





25







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



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



As of June 30, 2012, we had $12,394,253
of cash and cash equivalents, compared to $22,014,953 as of December 31, 2011, a decrease of $9,620,700.



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 2012. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of land
for the development of future projects, through cash provided by operations and additional funds raised by future financings. Upon
acquiring land for future development, we intend to raise funds to develop our projects by obtaining mortgage financing mainly
from local banking institutions with which we have done business in the past. We believe that our relationships with these banks
are in good standing and that our real estate will secure the loans needed. We believe that adequate cash will be available to
fund our operations.



BUSINESS



Our Company



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



We acquire our land reserves and development
sites through primary land development with 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 land acquisition method and
this facilitates our acquisition of the land at a reasonable cost and also in our receiving higher returns on our investments from
our developments. We intend to continue our expansion into other strategically selected cities in western China by leveraging our
brand name and scalable business model.



Our Strategies



We are primarily focused on the development,
construction, 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. We stepped into Ankang city in July 2011 for a residential project. Furthermore, we have identified certain cities
that possess attractive replication dynamics.





26









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 demand 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 these demand
from the middle class.



Our Competitive Strengths



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



Leading position in our market and industry



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



Attractive market opportunity



The real estate market in
western China has grown slower than that of eastern China. We believe the real estate market in 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 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 costs 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 managers have a total of more than 66 years
of experience in developing residential properties. As a result, we have developed extensive core competencies, supplemented by
in-house training and development programs. We believe that our management’s core competencies, extensive industry experience
and long-term vision and strategy will enable us to effectively realize growth opportunities.



Greater access to financing through
multiple channels



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



Our Property Projects



We provide three fundamental types of real estate developments:



| | • | High-rise apartment buildings, typically 19 to 33 stories, usually constructed of steel-reinforced concrete, that are completed within approximately 24 months of securing all required permits.      
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Mid-rise apartment buildings, typically 7 to 18 stories, usually constructed of steel-reinforced concrete, that are completed within approximately 12 to 18 months of securing all required permits.  
| | • | Low-rise apartment buildings and villas, typically 2 to 6 stories, often constructed of steel-reinforced concrete, that are completed within approximately 12 months of securing all required permits.

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



| | • | Projects in planning, which include projects for which we have purchased the development and or land use rights for parcels of land as part of our project development pipeline. The completion of projects on these sites is subject to adequate financing, approval of permits, receipt of licenses and certain market conditions;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Projects in process, which include developments where we have typically secured the development and land use rights, and where the site planning, architecture, engineering and infrastructure work is in progress;                                                                                                                 
| | • | Projects under construction, where the building construction has started but has not yet been completed; and                                                                                                                                                                                                                        
| | • | Completed projects with units available for sale, where the construction has been finished and most of the units in the buildings have been sold or leased.                                                                                                                                                                         





27







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 June 30, 2012
        (m2) | 
|-------------------- |  | ------------------------------------- |  | --------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ------- |  | ------------------------------------ |  | ------ | --------------------------------------------------- |  |  | ---------------------------------------------- | 
|Puhua Phase One      |  | Multi-Family residential & Commercial |  | Q4/2009
        - Q4/2012                                       |  |                                                                        | Q4/2009 |  |                                      |  | 47,600 |                                                     |  |  | 137,046                                        | 
|                     |  |                                       |  |                                                                 |  |                                                                        |         |  |                                      |  |        |                                                     |  |  |                                                | 
|Puhua Phase Two      |  | Multi-Family residential & Commercial |  | Q2/2010
        - Q4/2013                                       |  |                                                                        | Q2/2010 |  |                                      |  | 47,300 |                                                     |  |  | 261,104                                        | 
|                     |  |                                       |  |                                                                 |  |                                                                        |         |  |                                      |  |        |                                                     |  |  |                                                | 
|JunJing III          |  | Multi-Family residential & Commercial |  | Q4/ 2010
        - Q4/2012                                      |  |                                                                        | Q4/2011 |  |                                      |  | 8,094  |                                                     |  |  | 52,245                                         | 





|Project
        name |  | Total
        Number of
        Units |       |  | Number of
        Units sold by
        June 30,
        2012 |  |     | Estimated
        Revenue
        ($million) |  |  | Contracted
        Revenue by
        June 30, 2012
        ($million) |  |  | Recognized
        Revenue by
        June 30, 2012
        ($million) |     
|-------------------- |  | ------------------------------------- | ----- |  | ------------------------------------------------------------- |  | --- | -------------------------------------------- |  |  | ---------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------- | ----
|Puhua Phase One      |  |                                       | 858   |  |                                                               |  | 803 |                                              |  |  | 124.1                                                                  |  |  |                                                                        | 98.2
|                     |  |                                       |       |  |                                                               |  |     |                                              |  |  |                                                                        |  |  |                                                                        |     
|Puhua Phase Two      |  |                                       | 1,587 |  |                                                               |  | 670 |                                              |  |  | 246.7                                                                  |  |  |                                                                        | 83.1
|                     |  |                                       |       |  |                                                               |  |     |                                              |  |  |                                                                        |  |  |                                                                        |     
|JunJing III          |  |                                       | 517   |  |                                                               |  | 505 |                                              |  |  | 52.2                                                                   |  |  |                                                                        | 48.4





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



The construction of the Puhua project began
in June 2009. The whole project, which consists of four phases, is expected to be completed in the third quarter of 2014, with
estimated revenue of $700 million. The Company began accepting pre-sale contracts for units in the Puhua Phase One project on October
24th, 2009. As of June 30, 2012, the contract revenue for the Puhua project was $181.3 million.



JunJingIII: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. The total estimated revenue from this project is about $52.0 million. As
of June 30, 2012, we have recognized $39.4 million in revenue out of  $48.4 million in contract sales.



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 Three                           | Multi-Family residential & Commercial |  | Q2/2012
-
Q2/2014                             |  |  | Q4/2012                                         |  |  |                                      | N/A     |  |                        |  | 177,193 |                                       | 
|Puhua Phase Four                            | Multi-Family residential & Commercial |  | Q2/2013
- Q4/2014                             |  |  | Q3/2013                                         |  |  |                                      | N/A     |  |                        |  | 216,611 |                                       | 
|Park Plaza                                  | Multi-Family residential & Commercial |  | Q1/2012
- Q4/2014                             |  |  | Q4/2012                                         |  |  |                                      | 44,250  |  |                        |  | 141,822 |                                       | 
|Golden Bay                                  | Multi-Family residential & Commercial |  | Q1/2013
        - Q4/2014                     |  |  | Q2/2013                                         |  |  |                                      | 146,099 |  |                        |  | 252,540 |                                       | 
|Textile City                                | Multi-Family residential & Commercial |  | Q3/2013
        -Q3/2018                      |  |  | Q3/2013                                         |  |  |                                      | 433,014 |  |                        |  | 630,000 |                                       | 
|Ankang Project                              | Multi-Family residential & Commercial |  | Q2/2012
        -Q3/2015                      |  |  | Q4/2012                                         |  |  |                                      | 74,820  |  |                        |  | 243,152 |                                       | 





28







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



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



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



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



In 2008, we established a joint venture
with Prax Capital Real Estate Holdings Limited (“Prax Capital”) to develop 79 acres within the Baqiao Project, which
will be the first phase of the Baqiao Project’s development. Prax Capital invested $29.3 million 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 with the intention to acquire a 107 acre tract of land for development of a new real estate
housing project. The new project, with an estimated total GFA of 630,000 square meters, is expected to begin in the third quarter
of 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 the textile city project,
approximately 241 acres remain available for the Company to develop in the Baqiao Project.



Puhua Phase Three: Puhua Phase
Three is located within the Baqiao project, with a total GFA of 177,193 square meters. The project will consist residential
buildings and commercial space. We expect to start presale of Puhua Phase Three in the fourth quarter of 2012.



Puhua Phase Four: Puhua Phase
Four is located within the Baqiao project, with a total GFA of 216,611 square meters. The project will consist residential
buildings and commercial space. We expect to start presale of Puhua Phase Three in the third quarter of 2013.



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 development project on this site, with a gross floor area of 141,822 square meters. The four-year
construction of Park Plaza began in the first quarter 2012. We anticipated accepting pre-sale purchase agreements in the fourth
quarter of 2012, and revenues from pre-sale agreements will begin to be recognized when all revenue recognition criteria have been
met. The total revenue from Park Plaza is estimated to be $154 million.



Golden Bay: The Golden Bay project
is located within the Baqiao project, with a total GFA of 252,540 square meters. The Golden Bay project will consist of residential
buildings as well as a commercial area. Construction is anticipated to begin in the first quarter of 2013, and we expect
to begin accepting pre-sale purchase agreements in the second quarter of 2013.



Textile City: The Textile City project
is located within the Baqiao New Development Zone. The project consists of residential buildings and a commercial area. Construction
is expected to start in the third quarter of 2013, and the entire project will take five years.



Ankang Project: The Ankang
project is located in Ankang city, which is approximately 200 kilometers south of Xi’an in China’s Shanxi
Province, The project consists of residential buildings and a commercial area. Construction is started in the second quarter
of 2012, and presales are expected to start in the fourth quarter. Total GFA is expected to reach 243,152 square meters.
Total projected revenue is estimated to be $171.9 million.



Completed projects with units available
for sale



|Project name         |  | Type of
        Projects                              |  | Completion
        Date |         |  | Total Site
        Area
        (m2) |  |        | Total GFA
        (m2) |  |  | Total
        Number of
        Units |  |  | Number of
        Units sold by
        June 30, 2012 |      
|-------------------- |  | ----------------------------------------------------- |  | ----------------------- | ------- |  | ------------------------------------ |  | ------ | ---------------------- |  |  | ------------------------------------- |  |  | ----------------------------------------------------- | -----
|JunJing II Phase Two |  | Multi-Family residential & Commercial                 |  |                         | Q2/2011 |  |                                      |  | 29,800 |                        |  |  | 121,888                               |  |  |                                                       | 1,015
|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



JunJing II Phase Two: The construction
of JunJing II Phase Two commenced in the second quarter of 2009 and pre-sales started within the same quarter. As of June 30, 2011,
the contract revenue for Phase Two was$ 98.5 million and we have recognized all the contract revenue as the percentage of completion
reached 100%.



JunJing II Phase One: We started
the construction of JunJing II phase one in the third quarter of 2007 and started the pre-sale campaign in the second quarter of
2007. The project was completed in December 2009 and generated total revenue of $92.7 million.



TsiningJunJing Garden I: 369
North Jinhua Road, Xi’an. JunJing Garden I, designed by the world-famous WSP architectural design house,
was the first German style residential & commercial community in Xi’an. 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 Garden features secure parking, cable TV, hot water, heating systems and access to natural gas. Total GFA
available was 167,931 square meters. JunJing Garden I was also a commercial venture that houses small businesses serving
the needs of JunJing Garden I residents and the surrounding residential communities. The project was completed in September
2006.





29







CONSOLIDATED OPERATING RESULTS



Three Months Ended June 30, 2012 Compared
With Three Months Ended June 30, 2011



Revenues



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



Effective January 1, 2008, the Company
adopted the percentage of completion method of accounting for revenue recognition for all building construction projects in progress,
including the JunJing II and PuHua Projects. Before that time, the full accrual method was used for all of our residential,
commercial and infrastructure projects. Infrastructure projects continue to be accounted for using the full accrual method of accounting.



|                                     |  | Three months  |            |   | Three months  |  
|------------------------------------ |  | ------------- | ---------- | - | ------------- | -
|                                     |  | ended         |            |   | ended         |  
|Revenues by project:                 |  | June 30, 2012 |            |   | June 30, 2011 |  
|US dollars                           |  |               |            |   |               |  
|Project Under Construction           |  |               |            |   |               |  
|JunJing III                          |  |               | 4,313,484  |   |               |  
|Puhua Phase One                      |  |               | 12,043,477 |   |               |  
|Puhua Phase Two                      |  |               | 14,541,350 |   |               |  
|                                     |  |               |            |   |               |  
|Projects Completed                   |  |               |            |   |               |  
|JunJing II Phase One                 |  |               | -          |   |               |  
|JunJing II Phase Two                 |  | $             | -          |   |               | $
|JunJing I                            |  |               | (828,763   | ) |               |  
|Gang Wan                             |  |               | -          |   |               |  
|Revenues from the sale of properties |  | $             | 30,069,549 |   |               | $



The following table summarizes details of our most significant
projects:

|                                                |  | Three Months Ended |            |   | Three Months Ended |  
|----------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|Revenues by project:                            |  | June 30, 2012      |            |   | June 30, 2011      |  
|US$                                             |  |                    |            |   |                    |  
|Project Under Construction                      |  |                    |            |   |                    |  
|Puhua Phase One contract sales                  |  | $                  | 6,029,952  |   |                    | $
|Revenue                                         |  |                    | 12,043,477 |   |                    |  
|Total gross floor area (GFA) available for sale |  |                    | 137,046    |   |                    |  
|GFA sold during the period                      |  |                    | 4,980      |   |                    |  
|Remaining GFA available for sale                |  |                    | 14,030     |   |                    |  
|Percentage of completion                        |  |                    | 97.6       | % |                    |  
|Percentage GFA sold during the period           |  |                    | 3.6        | % |                    |  
|Percentage GFA sold to date                     |  |                    | 90         | % |                    |  
|Average sales price per GFA                     |  | $                  | 1,211      |   |                    | $
|                                                |  |                    |            |   |                    |  
|Puhua Phase Two contract sales                  |  |                    | 15,973,143 |   |                    |  
|Revenue                                         |  | $                  | 14,541,350 |   |                    | $
|Total gross floor area (GFA) available for sale |  |                    | 261,104    |   |                    |  
|GFA sold during the period                      |  |                    | 19,343     |   |                    |  
|Remaining GFA available for sale                |  |                    | 161,106    |   |                    |  
|Percentage of completion                        |  |                    | 67.2       | % |                    |  
|Percentage GFA sold during the period           |  |                    | 7.4        | % |                    |  
|Percentage GFA sold to date                     |  |                    | 38.3       | % |                    |  
|Average sales price per GFA                     |  | $                  | 825        |   |                    | $
|                                                |  |                    |            |   |                    |  
|JunJing III contract sales                      |  |                    | 2,285,239  |   |                    |  
|Revenue                                         |  |                    | 4,313,484  |   |                    |  
|Total gross floor area (GFA) available for sale |  |                    | 52,245     |   |                    |  
|GFA sold during the period                      |  |                    | 1,857      |   |                    |  
|Remaining GFA available for sale                |  |                    | 2,277      |   |                    |  
|Percentage of completion                        |  |                    | 82.8       | % |                    |  
|Percentage GFA sold during the period           |  |                    | 3.6        | % |                    |  
|Percentage GFA sold to date                     |  |                    | 95.6       | % |                    |  
|Average sales price per GFA                     |  |                    | 1,231      |   |                    |  





30







Revenues from projects under construction



Puhua Phase One



Puhua Phase One consists of 7 garden
houses, 2 mid-rise and 4 high-rise buildings with total expected revenues of approximately $124.1 million. During the second
quarter of 2012, we were able to secure $6.0 million in contract sales. We also recognized approximately $12.0 million
revenues based on the percentage of completion method.



Puhua Phase Two



Puhua
Phase Two has expected revenues of approximately $246.7million. During the second quarter of 2012, we were able to secure $16.0 million in contract sales. We also recognized
approximately $14.5 million revenues based on the percentage of completion method during the second quarter of 2012.



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. The total estimated revenue from this project is about $52
million. We also recognized approximately $4.3 million revenues based on the percentage of completion method during the
second quarter of 2012.





Please note that the method of percentage of
completion was utilized to recognize revenue from January 1, 2008. Only revenues for Puhua Phase One and Phase Two, JunJing
II and JunJing III are recognized using this method.



Revenues from projects completed



The revenue from completed
projects totaled $(828,763) for the three months ended June 30, 2012, compared to $2,894,046 during the same period
of 2011. Revenue from completed projects was negative since customer exchanged its purchase of JunJing I units with JunJing
III and Puhua units.



Other revenue



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 $4,945,971 in other income for the three
months ended June 30, 2012 compared with $4,678,936 in the same period of 2011. The increase can be explained by the following
table, which summarizes the breakdown of the other income and the changes during the three months ended June 30, 2012 and 2011:



|                                           |  | For the three months ended |          
|------------------------------------------ |  | -------------------------- | ---------
|                                           |  | June 30,                   |          
|                                           |  | 2012                       |          
|Interest income                            |  | $                          | 42,733   
|Rental income                              |  |                            | 256,541  
|Income from property management services   |  |                            | 1,096,752
|Miscellaneous construction contracts       |  |                            | 3,511,320
|Gain on disposal of property and equipment |  |                            | 24,353   
|Miscellaneous income                       |  |                            | 14,272   
|Total                                      |  | $                          | 4,945,971



The increase in miscellaneous construction contracts
was due to additional construction contract from Ankang project during the second quarter of 2012. The decrease in gain on
disposal of property and equipment was due to the sale of part of a shopping mall from JunJing I that was classified as
the Company’s property and equipment during the second quarter of 2011.





31







Cost of real estate sales



The cost of properties and land
in the three months ended June 30, 2012 increased 75.8 percent to $23,115,905 compared with $13,150,640 in the same period
of 2011. The increase was primarily a result of the increased sales in our current selling projects, including JunJing III
and Puhua Phase One and Phase Two during the second quarter of 2012.



Gross profit and profit margin



Gross
profit for the three months ended June 30, 2012 was $8,107,527, representing a 58.5 percent increase from $5,113,697 in
the same period of 2011. The gross profit margin for the three months ended June 30, 2012 was 23.2 percent compared with
25.3 percent in the same period of 2011.The increased gross profit resulted from increased sales from the JunJing III
and Puhua Phase One and Phase Two projects. The decrease in gross profit margin was due to exchange of commercial units in
the JunJing I project with units in JunJing III and Puhua projects. Since the commercial units had higher gross margins, the
exchange decreased our gross margin during the second quarter of 2012. The change of Junjing III estimated revenue and cost
of sales also decreased the overall gross margin.



Selling, general and administrative
expenses



Selling, general and
administrative expenses (SG&A) for the three months ended June 30, 2012 increased 19.1 percent to $3,956,069 from
$3,321,725 in the same period of 2011. SG&A accounted for 11.3% of total revenue in the second quarter of 2012
compared to 16.4% for the same period in 2011. Such increase was primarily due to higher  selling expense associated
with increased  sales revenue during the second quarter of 2012, and increased employee salary, which contributed to the
higher administrative expenses.



Stock-based compensation



On June 13, 2011, the Company has granted
options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options 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 following table provides information with respect to stock
option transactions:



|                  |  | Number of Stock Options Outstanding |           |  | Weighted Average Exercise Price |  
|----------------- |  | ----------------------------------- | --------- |  | ------------------------------- | -
|                  |  |                                     |           |  |                                 |  
|December 31, 2011 |  |                                     | 1,227,755 |  |                                 | $
|Granted           |  |                                     | -         |  |                                 |  
|Expired           |  |                                     | -         |  |                                 |  
|June 30, 2012     |  |                                     | 1,227,755 |  |                                 | $



The following summarizes the weighted-average information about
the outstanding stock options as at June 30, 2012:



|               |      |  | Outstanding Stock Options | 
|-------------- | ---- |  | ------------------------- | 
|Exercise Price |      |  | Number                    | 
|               |      |  |                           | 
|$              | 1.39 |  |                           | 





Compensation expense for stock options
is recognized over the vesting period. During the three months ended June 30, 2012, compensation expense of $95,390 (June 30, 2011
- $17,820) was recognized in the unaudited interim condensed 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 unaudited interim condensed consolidated
statements of income. During the three months ended June 30, 2012, the Company recorded $594,660 on such stock-based
compensation. No such shares were granted during the three months ended June 30, 2011.



Other expenses



Other expenses mainly consist of late delivery
settlements and maintenance costs. Other expenses in the three months ended June 30, 2012was $58,455 compared with $348,901
in the same period of 2011.



Operating profit and operating profit
margin



Operating profit is defined as gross
profit minus operating expenses but before change in fair value of derivatives and income taxes. Operating profit in the
three months ended June 30, 2012 was $3,060,272 compared with $852,978 in the same period of 2011, primarily due to the
increased revenues in the second quarter of 2012. The operating profit margin increased to 8.7 percent for the second quarter
of 2012 compared with 4.2 percent for the same period of 2011. The increase in operating profit margin resulted from
increased revenues, while we had higher level SG&A expenses and interest expenses in the three months ended on June
30, 2012 compared with the same period of 2011.





32







Financing expense



Financing
expense in the three months ended June 30, 2012 decreased 72.5 percent to $100,676 from $365,460 in the same period of
2011. The decrease is primarily due to reducion in bank processing fees.



Change in fair value of embedded derivative



The embedded derivative is related to the
Company’s $20 million convertible debt offering completed in January 2008. The change in the fair value of embedded derivatives
was a periodic adjustment to the estimated cost to the Company thatwas provided by the Cox-Ross-Rubinstein Binomial Lattice
valuation model (the “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
$150,181 in the change in fair value of embedded derivatives in the three months ended June 30, 2012 compared
with a gain of $409,478 in the same period of 2011. The change in fair value of embedded derivatives during the second
quarter of 2012 was mainly due to shortened expected life of embedded derivatives.



Change in fair value of warrants



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



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



In addition, the Company was required to
estimate the fair value of its remaining warrants outstanding and adjust the value as appropriate, and it chose to use the CRR
model to estimate their fair value.



The change in fair value of warrants
was a gain of $3,554 in the three months ended June 30, 2012, compared to a gain of $263,623 during the same period of 2011,
which consisted of the periodic adjustment to the estimated cost to the company to provide the common shares, assuming that
all of the warrants will be exercised sometime in the future. The basis for estimating the cost to provide the common
shares was provided by the valuation model. The CRR model depends on the following assumptions: the Company’s common
stock price underlying the warrants; strike price; expected life; expected volatility; risk free interest rate; and dividend
rate. The change in fair value of warrants during the second quarter of 2012 was mainly due to shortened expected life of
warrants.



Provision for income taxes



The $1,372,027 provision for income taxes
for the three months ended June 30, 2012 increased from $985,101 for the three months ended June 30, 2011 due to the increase in
income from business operations.



Net income



Net income for the three months
ended June 30, 2012 increased 231.7 percent to $1,906,748 compared to $574,900 in the same period of 2011. The
increase in net income was mainly due to increased total revenue.



Basic and diluted earnings per share



Basic earnings per share was $0.05
in the three months ended June 30, 2012, compared to $0.02 in the same period of 2011. Diluted earnings per share
was $0.05 in the three months ended June 30, 2012, compared to $0.01 in the same period of 2011. The number of
shares outstanding did not change significantly from year to year. Earnings available for  distribution increased to
$1.9 million in the second quarter of 2012 from $0.6 million in the second quarter of 2011.



Common shares used to calculate basic
and diluted EPS



The weighted average
shares outstanding used to calculate basic earnings per share was 34,914,731 shares in the three months ended June 30,
2012 and 35,078,639 shares in the same period of 2011. The weighted average shares outstanding used to calculate the diluted
earnings per share was 31,914,731 shares in the three months ended June 30, 2012 and 36,694,348 shares in the same period
of 2011.





33







Foreign exchange



The company operates in China and the functional
currency is Chinese Renminbi (RMB) but the reporting currency is the U.S. dollar, based on the exchange rate of the two currencies.
The fluctuation of exchange rates during the three months ended June 30, 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
loss on foreign exchange in the three months ended June 30, 2012 was $1,763,412, compared with a gain of $1,721,118 in the same
period of 2011.



Six Months Ended June 30, 2012 Compared
With Six Months Ended June 30, 2011



Revenues



Our revenues are mainly derived from the
sale of residential and commercial units and buildings, infrastructure work we perform for the local government and land development
projects in the Baqiao area.



In the six months ended June 30, 2012,
most of our revenues came from JunJing III, PuhuaPhase One and Puhua Phase Two projects.



|                                     |  | 6 months      |            |   | 6 months     |  
|------------------------------------ |  | ------------- | ---------- | - | ------------ | -
|                                     |  | ended         |            |   | ended        |  
|Revenues by project:                 |  | June 30, 2012 |            |   | June30, 2011 |  
|US dollars                           |  |               |            |   |              |  
|Project Under Construction           |  |               |            |   |              |  
|JunJing III                          |  | $             | 14,942,587 |   |              | $
|PuhuaPhase One                       |  |               | 16,821,628 |   |              |  
|PuhuaPhase Two                       |  |               | 16,312,147 |   |              |  
|                                     |  |               |            |   |              |  
|Projects Completed                   |  |               |            |   |              |  
|JunJing II Phase Two                 |  |               | -          |   |              |  
|JunJing II Phase One                 |  |               | 3,256,293  |   |              |  
|JunJing I                            |  |               | (828,763   | ) |              |  
|24G                                  |  |               | -          |   |              |  
|Gang Wan                             |  |               | -          |   |              |  
|Revenues from the sale of properties |  | $             | 50,503,892 |   |              | $



Revenues from the sale of properties



The following table summarizes details of our most significant
projects:

|                                                |  | 6 Months Ended |            |   | 6 Months Ended |  
|----------------------------------------------- |  | -------------- | ---------- | - | -------------- | -
|Revenues by project:                            |  | June 30, 2012  |            |   | June 30, 2011  |  
|US$                                             |  |                |            |   |                |  
|Project Under Construction                      |  |                |            |   |                |  
|Puhua Phase One contract sales                  |  | $              | 7,275,297  |   |                | $
|Revenue                                         |  |                | 16,821,628 |   |                |  
|Total gross floor area (GFA) available for sale |  |                | 137,046    |   |                |  
|GFA sold during the period                      |  |                | 6,374      |   |                |  
|Remaining GFA available for sale                |  |                | 14,030     |   |                |  
|Percentage of completion                        |  |                | 97.6       | % |                |  
|Percentage GFA sold during the period           |  |                | 4.7        | % |                |  
|Percentage GFA sold to date                     |  |                | 90         | % |                |  
|Average sales price per GFA                     |  | $              | 1,141      |   |                | $
|                                                |  |                |            |   |                |  
|Puhua Phase Two contract sales                  |  |                | 18,321,356 |   |                |  
|Revenue                                         |  | $              | 16,312,146 |   |                | $
|Total gross floor area (GFA) available for sale |  |                | 260,810    |   |                |  
|GFA sold during the period                      |  |                | 22,021     |   |                |  
|Remaining GFA available for sale                |  |                | 161,106    |   |                |  
|Percentage of completion                        |  |                | 67.2       | % |                |  
|Percentage GFA sold during the period           |  |                | 8.4        | % |                |  
|Percentage GFA sold to date                     |  |                | 38.3       | % |                |  
|Average sales price per GFA                     |  | $              | 832        |   |                | $
|                                                |  |                |            |   |                |  
|JunJing III contract sales                      |  |                | 15,528,095 |   |                |  
|Revenue                                         |  |                | 14,942,587 |   |                |  
|Total gross floor area (GFA) available for sale |  |                | 52,245     |   |                |  
|GFA sold during the period                      |  |                | 16,055     |   |                |  
|Remaining GFA available for sale                |  |                | 2,277      |   |                |  
|Percentage of completion                        |  |                | 82.8       | % |                |  
|Percentage GFA sold during the period           |  |                | 30.7       | % |                |  
|Percentage GFA sold to date                     |  |                | 95.6       | % |                |  
|Average sales price per GFA                     |  |                | 967        |   |                |  





34







Revenues from projects under construction



Puhua Phase One and Phase Two



Puhua Phase One consists of 7 garden
houses, 2 mid-rises and 4 high-rises buildings with total expected revenues of approximately $126.8 million. Puhua Phase Two
consists of 11 mid-rises and high-rises. The pre-sale of Phase One began in the fourth quarter of 2010 and we were able
to secure $7.3 million in contract sales for the 6 months ended June 30, 2012. We recognized approximately $16.8
million for the six  months ended June 30, 2012. For Phase Two we were able to secure $18.3 million in contract sales
for the six months ended June 30, 2012. We also recognized approximately $16.3 million in revenues based on the
percentage of completion method during the six months ended June 30, 2012.



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. The total estimated revenue from this project is about
$51 million. We have recognized $14.9 million out of $15.5 million in contract sales during the six months ended June 30, 2012.



Revenues from projects completed



The revenue from completed projects totaled
$2,427,530 for the six months ended June 30, 2012, compared to $7,436,702 during the same period of 2011. Due to its
completion, JunJing II Phase Two was reclassified to completed projects during the second quarter of fiscal 2011.



Other revenue



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 $8,013,399 in other income for the six months
ended June 30, 2012 compared with $7,579,815 in the same period of 2011. The 5.7 percent increase can be explained by the following
table which summarizes the breakdown of the other income and their changes during the six months ended June 30, 2012 and 2011:

|                                           |  | For the six months ended |          
|------------------------------------------ |  | ------------------------ | ---------
|                                           |  | June 30,                 |          
|                                           |  | 2012                     |          
|Interest income                            |  | $                        | 92,375   
|Rental income                              |  |                          | 619,917  
|Income from property management services   |  |                          | 2,053,571
|External construction contracts            |  |                          | 5,129,737
|Gain on disposal of property and equipment |  |                          | 32,554   
|Miscellaneous income                       |  |                          | 85,245   
|Total                                      |  | $                        | 8,013,399



The increase
in external construction contracts was due to additional construction contract from Ankang project during the six months
ended June 30, 2012. The decrease in gain on disposal of property and equipment was due to the sale of part of a shopping
mall from JunJing I project that was classified as property and equipment during the six months ended June 30, 2011.



Cost of real estate sales



The cost of properties and land in
the six months ended June 30, 2012increased 34.4 percent to $37,348,769 compared with $27,789,214 in the same period of 2011.
The increase was primarily a result of increased sales volume during the period, as we had more projects on sale during the
six months ended June 30, 2012, including JunJing III, Puhua Phase One and Phase Two, and the increase in percentage of
completion in these projects.



Gross profit and profit margin



Gross profit for the six months ended June
30, 2012 was $15,136,564, representing an increase of 39.7 percent from $10,836,250 in the same period of 2011. The gross profit
margin for the six months ended June 30, 2012 was 25.9 percent compared with 25.3 percent in the same period of 2011. The increase
in gross profit margin was mainly due to increased average  selling price from JunJing III project.



Selling, general and administrative
expenses



Selling, general and administrative
expenses (SG&A) for the six months ended June 30, 2012 increased 3.3 percent to $6,979,754 from $6,754,441 in the same
period of 2011. SG&A accounted for 11.9 percent of total revenue for the six months ended June 30, 2012 compared to
15.8 percent for the same period in 2011. Such increase was primarily due to higher selling expense associated with
higher sales revenues during the second quarter of 2012 and increased employee salary, which contributed to the increased
administrative expenses.





35







Stock-based compensation



On June 13, 2011, the Company has granted
options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options is determined
by the fair value of the common stock on 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 to 30%, 30% and 40%
on each of the first, second and third anniversary dates of the option grants, respectively. 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, 2011 |  |                                     | 1,227,755 |  |                                 | $
|Granted           |  |                                     | -         |  |                                 |  
|Expired           |  |                                     | -         |  |                                 |  
|June 30, 2012     |  |                                     | 1,227,755 |  |                                 | $



The following summarizes the weighted-average information about
the outstanding stock options as at June 30, 2012:



|               |      |  | Outstanding Stock Options | 
|-------------- | ---- |  | ------------------------- | 
|Exercise Price |      |  | Number                    | 
|               |      |  |                           | 
|$              | 1.39 |  |                           | 



Compensation expense for stock options
is recognized over the vesting period. During the six months ended June 30, 2012, compensation expense of $190,780 (June 30, 2011
- $17,820) was recognized in the unaudited interim condensed 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 unaudited interim condensed consolidated
statements of income. During the six months ended June 30, 2012, the Company recorded $611,857 on such stock-based
compensation. No such shares were granted during the six months ended June 30, 2011.



Other expenses



Other expenses consist mainly of
late delivery settlements and maintenance costs. Other expenses in the six months ended June 30, 2012 decreased to
$64,888 compared with $390,478 in the same period of 2011.



Operating profit and operating profit
margin



Operating profit is defined as gross profit
minus operating expenses but before change in fair value of derivatives and income taxes. Operating profit in the six months
ended June 30, 2012 was $6,473,827 compared with $2,167,099 operating profit in the same period of 2011, primarily due to the increased
revenue during the six months ended June 30, 2012. The operating profit margin was 11.1 percent for the six months ended June 30,
2012 compared with 5.1 percent for the same period of 2011, primarily due to increased sales revenue.





36







Financing expense



Financing expense in the six months
ended June 30, 2012 decreased 65.6 percent to $330,948 from $962,608 in the same period of 2011. This decrease was
primarily due to reduction in bank processing fees.



Change in fair value of embedded derivative



The embedded derivative is related to the
Company’s $20 million convertible debt offering completed in January 2008. The change in the fair value of embedded derivatives
was a periodic adjustment to the estimated cost to the Company, which was provided by the Cox-Ross-Rubinstein Binomial Lattice
valuation model (the “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
$221,284 in the change in fair value of embedded derivatives in the six months ended June 30, 2012 compared with a gain
of $1,462,232 in the same period of 2011. The change in the fair value of embedded derivatives during the six months
ended June 30, 2012 was mainly due to shortened expected life of embedded derivatives.





37







Change in fair value of warrants



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



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



In addition, the Company was required to
estimate the fair value of its remaining warrants outstanding and adjust the value as appropriate, and it chose to use the CRR
to estimate their fair value.



The change in fair value of warrants
was a gain of $3,186 in the six months ended June 30, 2012, compared to a gain of $1,114,274 during the same period
of 2011, which consisted of the periodic adjustment to the estimated cost to the company to provide the common shares,
assuming that all of the warrants will be exercised sometime in the future. The basis for estimating the cost to provide
the common shares was provided by the valuation model. The CRR model depends on the following assumptions: the
Company’s common stock price underlying the warrants; strike price; expected life; expected volatility; risk free
interest rate; and dividend rate. The change in fair value of warrants during the six months ended June 30, 2012
 was mainly due to shortened expected life of warrants.



Provision of income taxes



The income tax increased to
$2,341,512 for the six months ended June 30, 2012 from $1,771,590 for the six months ended June 30, 2011 is due to the
increase of income from business operations.



Net income



Net income for the six
months ended June 30, 2012 increased 35.8 percent to $4,142,161 compared to $3,043,983 in the same period of
2011. The increase in net income was mainly due to increased total revenue, and decreased SG&A as a percentage of total
revenue, as well as increase in net margin.



The periodic revaluation of derivatives
and warrants also contributed approximately $0.2 million during the period mainly due to the change of our common stock price and
shortened expected life of the warrants.



Basic and diluted earnings per share



Basic earnings per share was $0.12 in
the six months ended June 30, 2012, compared to $0.09 in the same period of 2011. Diluted earnings per share was
$0.12 in the six months ended June 30, 2012, compared to $0.05 in the same period of 2011. The number of shares
outstanding did not change significantly from year to year. Earnings available for distribution increased from
$3.0 million for the 6 months ended June 30, 2011 to $4.1 million in the same period 2012.



Common shares used to calculate basic
and diluted EPS



The weighted average shares outstanding
used to calculate basic earnings per share was 34,822,496 shares in the six months ended June 30, 2012 and 34,485,897
shares in the same period of 2011. The weighted average shares outstanding used to calculate the diluted earnings per share was
34,822,496 shares in the six months ended June 30, 2012 and 36,101,606 shares in the same period of 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 rate of
the two currencies. The fluctuation of exchange rates during the six months ended June 30, 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 loss on foreign exchange in the six months ended June 30, 2011 was $1,869,825, compared
with a gain of $3,083,989 in the same period of 2011.



Cash flow discussion



There was  a net cash outflow of
$9,500,173 during the six months ended June 30, 2012 compared with a $24,270,216 cash inflow during the same period of
2011.



Operating activity cash outflow was $33,278,369
in the six months ended June 30, 2012, compared with operating cash inflow of $6,442,484 in the same period of 2011 due to
the increase of real estate held for development or sale.



There was a cash inflow of $18,190,577 for
investing activities for the six months ended June 30, 2012, compared with investing cash outflow of $3,289,424 for the same period
of 2011, due to the change in restricted cash.



There was a cash
inflow of $5,587,619 for financing activities for the six months ended June 30, 2012 compared with
$21,117,156 of financing cash inflow in the same period of 2011 due to the increase in repayment of bank loans as
compared to prior year.





38







Debt leverage



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



Total debt outstanding as of June
30, 2012 was $201.2 million compared with $192.4 million on December 31, 2011. Net debt outstanding (total
debt less cash) as of June 30, 2012 was $105.0 million compared with $64.7 million on December 31, 2011. The
company’s net debt as a percentage of total capital (net debt plus shareholders’ equity) was 44.3 percent on June
30, 2012 and 33.4 percent on December 31, 2011 which mainly resulted from additional bank borrowings and employee loans.



Liquidity and capital resources



Our principal liquidity demands are based
on the development of new properties, property acquisitions, and general corporate purposes. As of June 30, 2012, we had $12,394,253
of cash and cash equivalents, compared to $22,014,953 as of December 31, 2011, a decrease of $9,620,700. Along with progress
in projects, we can use the internally generated cash flow to fund daily operations.



The Company leases various
premises. These lease agreements expire between 2013 and 2020.



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 from 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 one year.



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





|                              |  | Payment due by period |           
|----------------------------- |  | --------------------- | ----------
|Commitments and Contingencies |  | Total                 |           
|Operating leases              |  | $                     | 8,033,308 
|Finance consulting            |  |                       | 6,990,923 
|Land use rights               |  |                       | 18,526,680
|Total                         |  | $                     | 33,550,911



Financial obligations



As of June 30, 2012, we had total bank loans of $149,015,279with
a weighted average interest rate of 6.08%, compared with bank loans of $ 148,402,690 as of December 31, 2011, with a
weighted average interest rate of 6.7%.



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



Loans payable



Bank loans represent amounts due to various banks. These loans
generally can be renewed with the banks when they expire. Bank loans as of June 30, 2012 and December 31, 2011 consisted
of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | June 30,
2012 |             |  | December 31,
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%, secured by the Company’s Jun Jing Yuan I building No. 12, HanYuan and guaranteed by the Company’s President, President’s spouse, CEO, Tsining’s former general manager and his spouse. This amount was fully repaid in July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $             | 2,518,495   |  |                   | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Xinhua Trust Investments Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               |             |  |                   |  
|Due February 10, 2012, annual interest is at 10%, secured by the 24G
    project. This loan was fully repaid in February, 2012. This amount was fully repaid on July 5, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               | -           |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Bank of Xi’an                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               |             |  |                   |  
|Annual interest is fixed at 130% of People’s Bank of China prime rate at the time of borrowing (or 8.528%), secured by the Company’s JunJing building No.12. The loan expires on August 29, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               | 1,101,842   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Bank of Beijing, Xi’an Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               |             |  |                   |  
|Due December 10, 2012 and subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount of PuHua Phase I, annual interest is at the prime rate of People’s Bank of China (or 6.65%). The Company has restricted cash of $15,786,423 deposited with Bank of Beijing as collateral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | 15,740,595  |  |                   |  
|Due November 30, 2014 and subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount of PuHua Phase II, annual interest is at the 130% of People’s Bank of China prime rate (or 8.65%). The loan is secured by Puhua project’s land use rights and construction in progress. The repayment schedule is as follows: November 30, 2012 – $1,574,059 (RMB 10 million); May 30, 2013 - $9,444,357 (RMB 60 million); November 30, 2013 - $9,444,357 (RMB 60 million); May 30, 2014 - $4,722,178 (RMB 30 million); November 30, 2014 - $4,722,178 (RMB 30 million).                                                                                                                                                                                                                                                 |  |               | 29,907,130  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Tianjin Cube Equity Investment Fund Partnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |               |             |  |                   |  
|Originally due on January 27, 2012 and extended to July 27, 2012, annual interest is 9.6%, secured by JunJing II Commercial Units, JunJing I Residential units and part of Company’s Park Plaza project as temporary collaterals, 100% ownership of Xi’an Tsinging Housing Development Co. Ltd.’s  shares, corporate guarantee from Xinxing Construction, Newland, Xinxing Property, Wayfast, the Company, personal guarantee from the President of the Company and current and future accounts receivable from Park Plaza project. The temporary collaterals can be replaced with the land use rights and construction in progress of the Park Plaza project once the Company obtained the land use rights for this project and approval from the lender. The land use rights have been obtained during the quarter. The balance was fully repaid in July and August 2012. |  |               | 25,184,952  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|JP Morgan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |               |             |  |                   |  
|Originally due on March 13, 2011 and extended to November 12, 2012, annual interest is at 1.97%, secured by $35,258,933 of restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |               | 30,016,491  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|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 June 30, 2012 was 0.466%, secured by $31,481,190 of restricted cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |               | 31,000,000  |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Construction Bank of China                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |               |             |  |                   |  
|Due on March 6, 2015 and subject to certain repayment requirements based on percentage of sales contract signed over total estimated sales amount of JunJing III. Annual interest is 101% of People’s Bank of China prime rate (or 6.72%). The loan is secured by JunJing III’s construction in progress and land use rights. The repayment schedule is as follows: March 2013 - $1,574,059 (RMB10 million); August 2013 - $2,361,089 (RMB 15 million); March 2014 - $2,361,089 (RMB 15 million); August 2014 - $787,030 (RMB 5 million); March 2015 – 787,030 (RMB 5 million).                                                                                                                                                                                                                                                                                             |  |               | 7,870,297   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Third party vendor                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |               |             |  |                   |  
|Due August 8, 2012, renewed subsequently and extended to August 8, 2013, non-interest bearing and unsecured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |               | 2,055,140   |  |                   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |  |                   |  
|Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |               |             |  |                   |  
|Unsecured, due September 29, 2012. Annual interest is 20%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |               | 1,574,060   |  |                   |  
|Unsecured, due December 31, 2012. Annual interest rate is 15%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |               | 2,046,277   |  |                   |  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $             | 149,015,279 |  |                   | $





39







Except the loans from JP Morgan and Bank
of China, Macau Branch, which were drawn to repay mandatorily redeemable non-controlling interests in subsidiaries, all other loans
were drawn to finance construction projects.



The majority of interest incurred was capitalized
and allocated to various real estate construction projects.



The bank loans payable balances were
secured by certain of the Company’s real estate held for development or sale with a carrying value of $95,491,944 at
June 30, 2012 (December 31, 2011 - $55,777,318), certain buildings and income producing properties and improvements with a
carrying value of $20,117,731 at June 30, 2012 (December 31, 2011 - $20,022,475), certain land use rights with a carrying
value of $32,427,963 (December 31, 2011 - $3,371,814). The weighted average interest rate on loans payable as at June 30,
2011 was 6.08% (December 31, 2011 – 6.7%).



Loans from Bank of Beijing and
Construction Bank of China are also subject to certain repayment terms based on certain percentage of sales contract signed
over total estimated sales amount in certain projects under development. Based on these repayment terms, Bank of Beijing can
demand repayment of $15,740,595 (RMB100,000,000) and Construction Bank of China can demand repayment of $4,092,555 (RMB
26,000,000) as at June 30, 2012. The banks have not demanded repayments based on these clauses.



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



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 2012.



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



Subsequent
to the period end, the Company borrowed a $23,610,892 (RMB 150 million) loan from a limited partnership, in which an
executive partner is the spouse ofone of the Company’s executive officers. The loan
bears a fix annual interest rate of 9.6 %. The repayment schedule is as follows: June 1, 2013 – $1,574,059 (RMB
10 million); December 1, 2013 - $1,574,059 (RMB 10 million); June 1, 2014 –
$1,574,059 (RMB 10 million); August 7, 2014 - $18,888,713 (RMB 120 million).



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.





40







Item 3. Quantitative and Qualitative
Disclosures About Market Risk



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



General Real Estate Risk



There is a risk that the Company’s
property values could go down due to general economic conditions, a weak market for real estate generally, or changing supply and
demand. The Company’s property held for sale value, approximately $217.2 million at the end of June 30, 2012, may change
due to market fluctuations. Currently, it is valued at our cost which is significantly below the market value.



Risk Relating to Property Sales



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



Foreign Currency Exchange Rate Risk



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



Item 4. Controls and Procedures



(a)     Evaluation
of Disclosure Controls and Procedures.



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



(b)     Changes
in Internal Control over Financial Reporting.



During the quarter ended June 30, 2012, there was no change
in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.





41









Part II. OTHER INFORMATION



Item 1. Legal Proceedings



None.



Item 1A.Risk Factors.



We have no material changes to the risk
factors previously disclosed in our Form 10-K, as amended, for the year ended December 31, 2011.



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



None.



Item 3. Defaults Upon Senior Securities



None.



Item 4. Mining Safely Disclosures



Not applicable.



Item 5. Other Information



None.



Item 6. Exhibits



(a) Exhibits



|Exhibit |                                                                                                                                                                |                        | 
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | 
|Number  |                                                                                                                                                                | Description of Exhibit | 
|        |                                                                                                                                                                |                        | 
|31.1    | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended |                       
|        |                                                                                                                                                                |                       
|31.2    | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended |                       
|        |                                                                                                                                                                |                       
|32.1    | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)               |                       
|        |                                                                                                                                                                |                       
|32.2    | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)               |                       





42







SIGNATURES



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





|               | China Housing & Land Development, Inc. |                                             
|-------------- | -------------------------------------- | --------------------------------------------
|               |                                        |                                             
|August14, 2012 | By:                                    | /s/ Xiaohong Feng                           
|               |                                        | Xiaohong Feng                               
|               |                                        | Chief Executive Officer                     
|               |                                        | (Principal Executive Officer)               
|               |                                        |                                             
|               |                                        |                                             
|August14, 2012 | By:                                    | /s/ Cangsang Huang                          
|               |                                        | Cangsang Huang                              
|               |                                        | Chief Financial Officer                     
|               |                                        | (Principal Financial and Accounting Officer)





43