Edgar Filing: China Housing & Land Development, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

¨ 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.)

1008, Liuxue Road, Baqiao District

Xi'an, Shaanxi Province

China 710038

(Address of principal executive offices)

86-029-8258-2632

(Issuer's telephone number)

N/A

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

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

Yes x No ¨

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

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

(Do not check if a smaller reporting company )

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

The number of shares of Common Stock outstanding on November 19, 2013 was 35,849,204 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

	Special Note Regarding Forward Looking Statements

PART I	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION	36

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mining Safely Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

SIGNATURES		37

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

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

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

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding our future financial position, business strategy and plans and objectives of management for future operations. When used in this filing, the words believe, may, will, estimate, continue, anticipate, intend, expect, and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Risk Factors” in Part II, Item 1A of this report and those discussed in other documents we file with the Securities and Exchange Commission (SEC). Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Balance Sheets

As of September 30, 2013 and December 31, 2012

(Unaudited)

				December 31,
				2012
	September 30, 2013			(Restated - Note 2)
ASSETS
Cash	$	85,721,169		$	6,121,448
Cash - restricted		116,602,187			110,576,248
Accounts receivable, net of allowance for doubtful accounts of $588,106 and $577,713, respectively		37,413,820			26,429,332
Construction in excess of billing		956,447			1,484,626
Other receivables, prepaid expenses and other assets		9,149,087			6,854,325
Real estate held for development or sale		218,980,559			212,371,875
Property and equipment, net		36,493,568			33,837,346
Advance to suppliers		786,453			1,363,817
Deposits on land use rights		43,517,062			42,748,017
Intangible assets, net		55,292,952			54,482,252
Goodwill		1,948,622			1,914,186
Deferred financing costs		149,778			194,162
Total assets	$	607,011,704		$	498,377,634

LIABILITIES
Accounts payable	$	45,033,491		$	55,142,928
Advances from customers		56,123,221			49,297,915
Accrued expenses		13,985,716			22,229,514
Income and other taxes payable		30,739,765			23,727,064
Other payables		12,037,734			11,228,553
Loans from employees		22,871,639			27,868,785
Loans payable		278,747,427			174,749,368
Deferred tax liability		14,657,144			14,521,613
Total liabilities		474,196,137			378,765,740

SHAREHOLDERS’EQUITY
Common stock: $.001 par value, authorized 100,000,000 shares
Issued 35,849,204 and 35,438,079, respectively		35,849			35,438
Additional paid in capital		51,211,828			49,972,174
Treasury stock at cost 351,480 shares and 351,480 shares, respectively		(434,240	)		(434,240	)
Statutory reserves		9,903,457			9,903,457
Retained earnings		46,461,434			38,573,966
Accumulated other comprehensive income		25,637,239			21,561,099
Total shareholders’ equity		132,815,567			119,611,894

Total liabilities and shareholders’ equity	$	607,011,704		$	498,377,634

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of (Loss) Income

For The Three and Nine Months Ended September 30, 2013 and 2012

(Unaudited)

				3 Months						9 Months
				September 30,						September 30,
	3 Months September 30, 2013			2012 (Restated - Note 2)			9 Months September 30, 2013			2012 (Restated - Note 2)
REVENUES
Real estate sales	$	21,042,396		$	23,931,025		$	112,091,843		$	74,170,706
Other income		3,788,434			4,798,239			21,884,031			12,811,638
Total revenues		24,830,830			28,729,264			133,975,874			86,982,344

COST OF SALES
Cost of real estate sales		17,480,961			18,140,372			86,517,123			53,458,120
Cost of other revenue		2,423,455			4,134,356			16,192,275			10,166,314
Total cost of revenues		19,904,416			22,274,728			102,709,398			63,624,434

Gross margin		4,926,414			6,454,536			31,226,476			23,357,910

OPERATING EXPENSES
Selling, general, and administrative expenses		3,784,742			3,717,178			11,844,682			10,696,590
Stock-based compensation		135,792			96,438			1,240,065			909,434
Other (income) expenses		(91,766	)		(22,503	)		358,783			42,385
Financing expense		1,762,724			63,764			6,016,604			394,712
Accretion expense on convertible debt		-			254,023			-			728,174
Total operating expenses		5,591,492			4,108,900			19,460,134			12,771,295

CHANGES IN FAIR VALUE OF DERIVATIVES
Change in fair value of embedded derivatives		-			(109,344	)		-			(330,628	)
Change in fair value of warrants		-			(976	)		-			(4,162	)
Total changes in fair value of derivatives		-			(110,320	)		-			(334,790	)

(Loss) income before provision for income taxes		(665,078	)		2,455,956			11,806,342			10,921,405

Provision for current taxes		185,950			1,201,523			4,044,863			3,984,823
Recovery of deferred taxes		(11,341	)		(310,834	)		(125,989	)		(96,210	)
Provision for income taxes		174,609			890,689			3,918,874			3,888,613

NET (LOSS) INCOME	$	(839,687	)	$	1,565,267		$	7,887,468		$	7,032,792

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		35,497,724			35,086,599			35,277,047			34,911,173

Diluted		35,497,724			35,086,599			35,277,047			34,911,173

NET (LOSS) INCOME PER SHARE
Basic		(0.02	)		0.04			0.22			0.20

Diluted		(0.02	)		0.04			0.22			0.20

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Comprehensive (Loss) Income

For The Three and Nine Months Ended September 30, 2013 and 2012

(Unaudited)

				3 Months				9 Months
				September 30,				September 30,
	3 Months September 30, 2013			2012 (Restated - Note 2)		9 Months September 30, 2013		2012 (Restated - Note 2)

NET INCOME	$	(839,687	)	$	1,565,267	$	7,887,468	$	7,032,792

OTHER COMPREHENSIVE INCOME
Gain in foreign exchange		656,539			1,969,140		4,076,140		397,512

COMPREHENSIVE (LOSS) INCOME	$	(183,148	)	$	3,534,407	$	11,963,608	$	7,430,304

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

CHINA HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Cash Flows

For The Nine Months Ended September 30, 2013 and 2012

(Unaudited)

				September 30,
				2012
	September 30, 2013			(Restated - Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period	$	7,887,468		$	7,032,792
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation		1,940,103			1,559,229
Stock-based compensation		1,240,065			909,434
Gain on disposal of property and equipment		-			(70,097	)
Amortization of deferred financing costs		55,326			117,155
Amortization of intangible assets		167,609			163,290
Recovery of deferred income taxes		(125,989	)		(96,210	)
Change in fair value of embedded derivatives		-			(330,628	)
Change in fair value of warrants		-			(4,162	)
Accretion expense on convertible debt		-			728,174
(Increase) decrease in assets:
Accounts receivable		(10,322,423	)		5,126,977
Construction in excess of billing		559,202			-
Other receivable and prepaid expense		(1,937,372	)		(2,877,068	)
Real estate held for development or sale		(3,011,051	)		(66,525,427	)
Advances to suppliers		597,004			(1,611,109	)
Deposit on land use right		-			22,754,848
Increase (decrease) in liabilities:
Accounts payable		(10,956,225	)		(17,485	)
Advances from customers		5,986,114			(5,569,449	)
Accrued expense		(8,669,217	)		9,816,101
Other payables		602,031			265,942
Income and other taxes payable		6,345,305			2,807,134
Net cash used in operating activities		(9,642,050	)		(25,820,559	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(3,982,755	)		(7,995,987	)
Proceeds from sale of property and equipment		-			63,476
Net cash used in investing activities		(3,982,755	)		(7,932,511	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash		(4,036,463	)		20,968,025
Loans from banks		98,841,999			30,111,889
Loans from Days Hotel and Dinghui		42,985,007			34,367,627
Payments on loans payable		(40,142,194	)		(68,685,407	)
Loans (repayment to) or from employees		(5,524,219	)		4,963,786
Purchase of treasury stock		-			(14,142	)
Net cash provided by financing activities		92,124,130			21,711,778

INCREASE (DECREASE) IN CASH		78,499,325			(12,041,292	)

Effects on foreign currency exchange		1,100,396			(27,729	)

CASH, beginning of period		6,121,448			22,014,953

CASH, end of period	$	85,721,169		$	9,945,932

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Shareholders’ Equity

As of September 30, 2013 and December 31, 2012

(Unaudited)

	Common Stock				Common Stock to be Issued			Treasury Stock			Paid in Capital		Statutory Reserve		Retained Earning (Restated - Note 2)			Accumulated Comprehensive Income (Restated - Note 2)		Total (Restated - Note 2)
BALANCE, December 31, 2012		35,438,079	$	35,438	$	-		$	(434,240	)	$	49,972,174	$	9,903,457	$	38,573,966		$	21,561,099	$	119,611,894
Stock-based compensation		-		-		-			-			97,537		-		-			-		97,537
Net income for the period		-		-		-			-			-		-		2,873,266			-		2,873,266
Foreign currency translation adjustment		-		-		-			-			-		-		-			728,045		728,045
BALANCE, March 31, 2013		35,438,079		35,438		-			(434,240	)		50,069,711		9,903,457		41,447,232			22,289,144		123,310,742
Stock-based compensation		-		-		-			-			106,372		-		-			-		106,372
Common stock to be issued for directors’ compensation		-		-		900,364			-			-		-		-			-		900,364
Net income for the period		-		-		-			-			-		-		5,853,889			-		5,853,889
Foreign currency translation adjustment		-		-		-			-			-		-		-			2,691,556		2,691,556
BALANCE, June 30, 2013		35,438,079	$	35,438	$	900,364		$	(434,240	)	$	50,176,083	$	9,903,457	$	47,301,121		$	24,980,700	$	132,862,923
Stock-based compensation		-		-		-			-			135,792		-		-			-		135,792
Common stock issued for previous granted directors’ compensation		411,125		411		(900,364	)		-			899,953		-		-			-		-
Net loss for the period		-		-		-			-			-		-		(839,687	)		-		(839,687	)
Foreign currency translation adjustment		-		-		-			-			-		-		-			656,539		656,539
BALANCE, September 30, 2013		35,849,204	$	35,849	$	-		$	(434,240	)	$	51,211,828	$	9,903,457	$	46,461,434		$	25,637,239	$	132,815,567

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

CHINA HOUSING & LAND DEVELOPMENT, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

September 30, 2013 and 2012 and December 31, 2012

(Unaudited)

Note 1 – Organization and Basis of Presentation

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

The accompanying unaudited interim condensed consolidated financial statements include the accounts of CHLN and its subsidiaries, Xi’an Tsining Housing Development Company Inc. (“Tsining”), Xi’an New Land Development Co. (“New Land”), Manstate Assets Management Limited (“Manstate”), Success Hill Investments Limited (“Success Hill”), Puhua (Xi’an) Real Estate Development Co., Ltd. (“Puhua”), Xi’an Xinxing Property Management Co., Ltd. (“Xinxing Property”), Suodi Co., Ltd. (“Suodi”), Shaanxi Xinxing Construction Co., Ltd. (“Xinxing Construction”), Xinxing Fangzhou Housing Development Co., Ltd. (“Fangzhou”), Wayfast Holdings Limited (“Wayfast”), Clever Advance Limited (“Clever Advance”), Gracemind Holdings Limited (“Gracemind”), Treasure Asia Holdings Limited (“Treasure Asia”) and Ankang Jiyuan Real Estate Development Co., Ltd. (“Jiyuan”) (collectively, the “Subsidiaries”). 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.

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

Principles of Consolidation and Basis of Presentation

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 presentation of the Company’s interim condensed consolidated balance sheet as at September 30, 2013, the Company’s interim condensed consolidated statements of (loss) income and comprehensive (loss) income for the three and nine months ended September 30, 2013 and 2012 and the Company’s interim condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012. 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 Restated Annual Report on Form 10-K/A filed on November 19, 2013 for the year ended December 31, 2012 (“Restated 2012 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 Restated 2012 Annual Report.

Accounting Principles Recently Adopted

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards update (“ASU”) No. 2011-10, “Derecognition of in Substance Real Estate - a Scope Clarification” (“ASU 2011-10”) which relates to deconsolidation events. Under this amendment, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of the default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20, Property, Plant and Equipment - Real Estate Sales, to determine whether it should derecognize the in substance real estate. ASU 2011-10 was effective for the Company on January 1, 2013. The adoption of ASU 2011-10 had no material impact on the Company’s interim condensed consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet” (“ASU 2011-11”). The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. ASU 2011-11 was effective for the Company on January 1, 2013. The adoption of ASU 2011-11 had no material impact on the Company’s interim condensed 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”). 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. ASU 2012-02 was effective for the Company on January 1, 2013. The adoption of ASU 2012-02 had no material impact on the Company’s interim condensed consolidated financial statements.

Note 1 – Organization, Basis of Presentation and New Accounting Pronouncements (continued)

Accounting Principles Recently Adopted (continued)

In October 2012, the FASB issued ASU No. 2012-04, “Technical Amendments and Corrections” (“ASU 2012-04”). The updates to current guidance make the codification easier to understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and providing needed clarification. ASU 2012-04 was effective for the Company on January 1, 2013. The adoption of ASU 2012-04 had no material impact on the Company’s interim condensed consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”), which clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with ASU Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 was effective for the Company on January 1, 2013. The adoption of ASU 2013-01 had no material impact on the Company’s interim condensed consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). This standard requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, companies are required to present, either on the face of the statement where net income is presented or in the accompanying notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, companies are required to cross-reference to other disclosures that provide additional detail on those amounts. ASU 2013-02 was effective prospectively for the Company on January 1, 2013. The adoption of this ASU had no material impact on the Company’s interim condensed consolidated financial statements.

New Accounting Pronouncement Not Yet Adopted

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

In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). This guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s interim condensed consolidated financial statements.

Foreign exchange rates used:

	September30, 2013		December 31, 2012		September 30, 2012
Period end RMB/U.S. Dollar exchange rate		6.1200		6.2301		6.2848
Average RMB/U.S. Dollar exchange rate		6.1251		6.3084		6.3503

Note 2 - Restatement of Previously Issued Financial Statements

On November 5, 2008, the Company and Prax Capital (“Prax”) entered into a joint venture agreement to develop 79 acres within China Housing’s Baqiao project located in Xi’an. Prax invested $29.3 million for a 25% interest in Puhua through obtaining 1,000 Class A shares of Success Hill (“Class A Shares”) with various distribution rights. Prax’s initial investments were recorded as non-controlling interests in the consolidated financial statements in 2008 and 2009.

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

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

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

These consolidated financial statements have been restated to correct for this error. As a result of this restatement, on the measurement day (May 24, 2010), the amount charged to retained earnings has been increased by $34,740,918 from $14,229,043 to $48,969,961 and the recorded liability has been increased from $42,600,511 to $77,341,429. The subsequent accretion expense capitalized to the Company’s project costs were reduced by $7,280,670 from $8,822,709 to $1,542,039 during fiscal 2012; reduced by $12,341,566 from $15,483,050 to $3,141,484 during fiscal 2011; and reduced by $17,118,008 from $19,855,876 to $2,737,868 during fiscal 2010. Because the liability was fully repaid as at December 31, 2012, there was no accretion during the nine months ended September 30, 2013. The accretion expense capitalized to the Company’s project costs were reduced by $1,934,072 from $2,319,688 to $385,616 during the three months ended September 30, 2012 and were reduced by $5,171,382 from $6,315,569 to $1,144,187 during the nine months ended September 30, 2012.

The following is a summary of the effects of restatement using the Revised Interest Rate on the Company's consolidated balance sheets as at December 31, 2012, interim condensed consolidated balance sheets, and the interim condensed consolidated statements of income, comprehensive income and cash flows for the three and nine months ended September 30, 2012. The effects of the restatement also reflect other immaterial changes related to income taxes and earnings per share. The revisions had no impact on total cash flow for the restated periods and had no impact on the Company's compliance with debt covenants in any period presented.

As of December 31, 2012
Consolidated Balance Sheet	As Previously Reported		Restatement Impact			As Restated
Accounts receivable		26,897,958		(468,626	)		26,429,332
Real estate held for development or sale		238,111,545		(25,739,670	)		212,371,875
Total assets		524,585,930		(26,208,296	)		498,377,634
Advances from customers		48,829,289		468,626			49,297,915
Income and other taxes payable		20,929,485		2,797,579			23,727,064
Total liabilities		375,499,535		3,266,205			378,765,740
Retained earnings		65,057,333		(26,483,367	)		38,573,966
Accumulated other comprehensive income		24,552,233		(2,991,134	)		21,561,099
Total shareholders' equity		149,086,395		(29,474,501	)		119,611,894
Total liabilities and shareholders' equity		524,585,930		(26,208,296	)		498,377,634

For the three months ended September 30, 2012
	As Previously Reported		Restatement Impact			As Restated
Consolidated Statement of Income
Real estate sales		24,119,326		(188,301	)		23,931,025
Total revenues		28,917,565		(188,301	)		28,729,264
Cost of real estate sales		19,231,940		(1,091,568	)		18,140,372
Total costs of revenues		4,134,356		18,140,372			22,274,728
Selling, general, and administrative expenses		3,717,423		(245	)		3,717,178
Total operating expenses		4,109,145		(245	)		4,108,900
Income before provision for income taxes		1,552,444		903,513			2,455,957
Provision for current income taxes		975,645		225,878			1,201,523
Net income		887,633		677,633			1,565,266
EARNINGS PER SHARE
Basic		0.03		0.01			0.04
Diluted		0.03		0.01			0.04
Consolidated Statement of Comprehensive Income
Net income		887,633		677,633			1,565,266
Foreign currency translation adjustment		2,303,737		(334,597	)		1,969,140
Comprehensive income		3,191,370		343,037			3,534,407

For the nine months ended September 30, 2012
	As Previously Reported			Restatement Impact			As Restated
Consolidated Statement of Income
Real estate sales		74,623,218			(452,512	)		74,170,706
Total revenues		87,434,856			(452,512	)		86,982,344
Cost of real estate sales		56,580,709			(3,122,589	)		53,458,120
Total costs of revenues		66,747,023			(3,122,589	)		63,624,434
Selling, general, and administrative expenses		10,697,177			(587	)		10,696,590
Total operating expenses		12,771,882			(587	)		12,771,295
Income before provision for income taxes		8,250,741			2,670,664			10,921,405
Provision for current income taxes		3,317,157			667,666			3,984,823
Net income		5,029,794			2,002,998			7,032,792
EARNINGS PER SHARE
Basic		0.14			0.06			0.20
Diluted		0.14			0.06			0.20
Consolidated Statement of Comprehensive Income
Net income		5,029,794			2,002,998			7,032,792
Foreign currency translation adjustment		433,912			(36,400	)		397,512
Comprehensive income		5,463,706			1,966,598			7,430,304
Consolidated Statement of Cash Flows
Net income		5,029,794			2,002,998			7,032,792
Accounts receivable		4,900,721			226,256			5,126,977
Real estate held for development or sale		(63,434,967	)		(3,090,460	)		(66,525,427	)
Advances from customers		(5,795,705	)		226,256			(5,569,449	)
Income and other taxes payable		(2,172,184	)		4,979,318			2,807,134

Note 3 – Mandatorily Redeemable Preferred Stock and Non-controlling Interest (As restated, see note 2)

The Company recorded accretion cost on the mandatorily redeemable non-controlling interest using the effective interest method based on an effective interest rate of 5.85%. The related accretion cost incurred for the three and nine months ended September 30, 2013 were $Nil and $Nil, respectively (September 30, 2012 - $385,616 and $1,144,187, respectively) and was capitalized in real estate construction in progress.

The Company repaid the mandatorily redeemable non-controlling interests in full as at December 31, 2012.

Note 4 – Supplemental Disclosure of Cash Flow Information

Income taxes paid amounted to $1,885,166 and $1,389,777 for the nine months ended September 30, 2013 and 2012, respectively. Interest paid for the nine months ended September 30, 2013 and 2012 amounted to $29,462,325 and $12,116,185, respectively.

Note 5 – Real Estate Held for Development or Sale

The following summarizes the components of real estate inventories as at September 30, 2013 and December 31, 2012:

	September 30, 2013		December 31, 2012 (Restated - Note 2)
Real estate projects completed and held for sale
Junjing I	$	1,823,440	$	2,065,376
Junjing II		-		175,326
Tsining 24G		-		45,370
Gangwan		9,732		19,117
Tsining Home IN		-		60,943
Junjing III		1,169,026		1,309,347
Puhua Phase I		7,118,134		9,205,681
Puhua Phase II - West Region		4,419,557		7,834,598
Real estate completed and held for sale		14,539,889		20,715,758

Real estate projects held for development
Puhua Phase II (East Region), III and IV		90,673,668		80,834,955
Park Plaza		68,783,202		77,765,333
Golden Bay (the Company is in the process of obtaining the land use right – see note 21)		19,139,136		12,415,111
Jiyuan		19,404,241		16,500,575
Other		6,086,885		3,941,746
Construction Materials		353,538		198,397
Real estate held for development		204,440,670		191,656,117

Total real estate held for development or sale	$	218,980,559	$	212,371,875

Note 6 - Accounts Receivable

Accounts receivable consisted of the following as at September 30, 2013 and December 31, 2012:

				December 31,
				2012
	September 30, 2013			(Restated - Note 2)
Accounts receivable	$	38,001,926		$	27,007,045
Allowance for doubtful accounts		(588,106	)		(577,713	)
Accounts receivable, net	$	37,413,820		$	26,429,332

Note 7 – Other Receivables, Prepaid Expenses and Deposits

Other receivables and prepaid expenses consisted of the following at September 30, 2013 and December 31, 2012:

	September 30, 2013			December 31, 2012
Government reimbursement for Tangdu project (a)	$	205,904		$	3,795,916
Interest receivable (b)		5,014,857			-
Other receivable (c)		2,394,980			1,289,958
Allowance for bad debts		(148,375	)		(145,753	)
Prepaid expenses		1,661,502			415,368
Prepaid other tax expenses		20,219			1,498,836

Other receivables and prepaid expenses	$	9,149,087		$	6,854,325

(a)

The Company’s Tangdu project was essentially a land use right plus miscellaneous preconstruction costs. During fiscal year 2011, the PRC government was in the process of negotiating with the Company regarding a potential transfer back of the land use right to the government agency. During the fiscal year 2012, the government agreed to reimburse the Company for the costs incurred on the land use right and required the Company to transfer the land use right back to the government. The carrying value of the land use right was reclassified to other receivables, prepaid expenses and other assets and the balances as at September 30, 2013 and December 31, 2012 represent the remaining balance of the settlement amount.

(b)	Interest receivable represents interest income accrued on the restricted cash pledged as security for the loans obtained from Bank of Communications offshore branch, Bank of China Macau Brach, Bank of China Singapore branch and LUSO International Bank.

(c)	Other receivable mainly represents various deposits made to government agencies and/or utility companies as securities or guarantees during the project constructions. The amounts will be refunded when the projects are completed.

Note 8 – Property and Equipment

Property and equipment consisted of the following at September 30, 2013 and December 31, 2012:

	September 30, 2013			December 31, 2012
Income producing properties and improvements	$	19,929,990		$	19,577,784
Buildings and improvements		21,981,492			17,913,261
Electronic equipment		1,107,139			918,209
Vehicles		782,209			734,678
Computer software		332,868			319,012
Office furniture		915,110			863,132
Total		45,048,808			40,326,076
Accumulated depreciation		(8,555,240	)		(6,488,730	)
Property and equipment, net	$	36,493,568		$	33,837,346

Depreciation expense for the three months ended September 30, 2013 and 2012 amounted to $632,679 and $504,912, respectively. Depreciation expenses for the nine months ended September 30, 2013 and 2012 amounted to $1,940,103 and $1,559,229, respectively. The depreciation expense was included in selling, general and administrative expenses and cost of other revenue.

Note 9 – Intangible Assets

The intangible assets consisted of the following at September 30, 2013 and December 31, 2012:

	September 30, 2013			December 31, 2012
Development right acquired (a)	$	52,767,189		$	51,835,211
Land use rights acquired (b)		8,782,736			8,627,525
Construction license acquired (c)		1,230,093			1,208,354
		62,780,018			61,671,090
Accumulated amortization		(7,487,066	)		(7,188,838	)
Intangible assets, net	$	55,292,952		$	54,482,252

(a)

The development right for 487 acres of land in Baqiao Park was obtained from the acquisition of New Land in fiscal 2007. The intangible asset has a finite life. In accordance with accounting standard, “Goodwill and Other Intangible Assets”, the intangible asset is subject to amortization every time a land use right in connection with this development right is obtained and based on the percentage of realized profit margin of the land use right over the total expected profit margin to be realized from the 487 acres of land in the Baqiao project. This method is intended to match the pattern of amortization with the income-generating capacity of the asset. The development right will expire on June 30, 2016. There was no amortization on development right during the nine months ended June 30, 2013 and 2012. Upon the acquisition of Puhua’s land use right in 2009, the Company recorded a $4,665,592 amortization on the development right and capitalized the amount in the real estate held for development or sale. The capitalized amortization amount is expensed as part of the cost of real estate sales as Puhua recognizes its real estate sales revenues under the percentage of completion method were recognized. During the three and nine months ended September 30, 2013, $56,505 and $424,880 (September 30, 2012 - $153,701 and $441,680) of amortized development right capitalized in the Puhua project were expensed through cost of real estate sales, respectively.

(b)

The land use right was acquired through the acquisition of Suodi. The land use right certificate will expire in November, 2048. The Company amortizes the land use right over 39 years starting from the date of acquisition. For the three and nine months ended September 30, 2013, the Company has recorded $56,253 and $167,609, respectively, of amortization expense on the land use rights (September 30, 2012 - $54,258 and $163,290, respectively). The amortization was included in selling, general and administrative expenses.

(c)

The construction license was acquired through the acquisition of Xinxing Construction. The construction license, which is subject to renewal every 5 years, is not amortized and has an indefinite estimated useful life because management believes the Company will be able to continuously renew the license in future periods. The license will be subject to renewal on January 1, 2016.

Note 10 – Accrued Expenses

	September 30, 2013		December 31, 2012
Accrued expenses	$	9,661,621	$	19,521,717
Accrued interest on loans		4,324,095		2,707,797
Total	$	13,985,716	$	22,229,514

Note 11 – Loans from Employees

The Company has borrowed monies from certain employees to fund the Company’s construction projects. These unsecured loans bear interest at 15% (2012 - 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:

	September 30, 2013		December 31, 2012
Chairman	$	-	$	1,637,213
Chief executive officer		-		160,511
Chief financial officer		653,595		963,066
Chief operating officer		1,044,118		642,044
	$	1,697,713	$	3,402,834

Note 12 – Loans Payable

	September 30,		December 31,
	2013		2012
Bank of Beijing, Xi’an Branch
The Company signed an agreement for a line of credit of approximately $32.6 million (RMB 200 million). Originally due on November 30, 2014 with annual interest rate of 130% of People’s Bank of China prime rate. The loan was fully repaid in April 2013.	$	-	$	22,471,549

China Construction Bank
Originally due on March 6, 2015, annual interest is People’s Bank of China prime rate plus 1%. The loan is secured by the Junjing III project and land use right. The loan was fully repaid during the first quarter of fiscal 2013.		-		1,605,111

China Construction Bank
Annual interest is 105% of People’s Bank of China prime rate (6.4%). The loan is secured by the Park Plaza Phase I project and land use right. The repayment schedule is as follows: November 30, 2013 - $4,084,967 (RMB 25 million); May 30, 2014 - $4,084,967 (RMB 25 million); November 30, 2014 - $6,535,948 (RMB 40 million); May 30, 2015 - $6,535,948 (RMB 40 million); November 30, 2015, $8,169,935 (RMB 50 million). The loan is also subject to certain repayment requirements based on percentage of sales contracts signed over total estimated sales amount of Park Plaza Phase I.		29,411,765		-

Bank of Communications offshore branch
Due on November 13, 2015, annual interest rate is 2.9%, secured by $36,764,706 (RMB 225 million) of restricted cash.		30,000,000		30,000,000

Bank of China, Macau Branch Due December 16, 2013, annual interest is based on the 3-month London Interbank offered Rate (“LIBOR”) rate plus 3.6%. The 3-month LIBOR rate for September 2013 was 0.2532% (December 31, 2012 – 0.3095%). The loan is secured by $32,679,739 (RMB 200 million) of restricted cash.		31,000,000		31,000,000

Bank of China, Singapore Office Due November 22, 2014, annual interest is based on the 3-month LIBOR rate plus 1.55%. The 3-month LIBOR rate at September 30, 2013 was 0.2532% (December 31, 2012 - 0.3095%). The loan is secured by $32,679,739 (RMB 200 million) of restricted cash.		31,800,000		31,800,000

LUSO International Bank
The Company signed an agreement for a line of credit of $9.7 million with LUSO International Bank. The amount that can be withdrawn is limited to 97% of the restricted cash securing the line of credit. The total amount will be due on March 27, 2015. As of September 30, 2013, the Company had drawn $7,761,153 from the line of $9.7 million which is 95.0% of $8,169,935 (RMB 50 million) restricted cash. Annual interest is based on the 12-month LIBOR rate at the inception of the loan, updated annually, plus 2.7%. The 12-month LIBOR applicable as at September 30, 2013 is 0.6527%.		7,761,153		7,761,153

Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”) (Note 20)
There are several loans from Days Hotel, including: $8,006,536 (RMB 49 million) due on December 31, 2013; $245,098 due on January 17, 2014 (RMB 1.5 million); $8,169,935 (RMB 50 million) due on November 13, 2014. All Days Hotel loans have an annual interest rate of 20%.		16,421,569		21,219,563

Changcheng Financing Company Limited
Due on November 8, 2014, annual interest rate is 19%, secured by an income producing property of Tsining.		4,901,961		4,815,332

Shanghai Xinying Fund, LLC (“Xinying”)
Annual interest is 9.6% and the effective annual interest rate is 27.16% due to related finance consulting fees (Note 19), secured by 100% ownership of Xinxing Construction’s shares and corporate guarantee from Tsining, Puhua, and the Company (Note 19), and is also subject to a consulting fee agreement (Note 19). The repayment schedule per agreement is as follows: December 1, 2013 - $1,633,987 (RMB 10 million); June 1, 2014 - $1,633,987 (RMB 10 million); August 10, 2014 - $19,607,843 (RMB 120 million).		22,875,817		24,076,660

Shenzhen Qianhai Dinghui Equity Investment Fund Partnership (“Dinghui”)
On March 22, 2013, the Company received $40,252,463 (RMB 250 million) from Dinghui to fund the pending acquisition of the land use right for the Company’s Golden Bay project and/or other construction. In connection with the loan, the Company transferred 49% of Fangzhou’s common shares to Dinghui in December 2012 as security for the loan. Dinghui will not participate in the decision making, operation and profit/loss sharing of Fangzhou. Once the land use right is obtained, the Company will use the common shares as a pledge for the loan and Dinghui will revert the transferred common shares of Fangzhou back to the Company. The loan is also guaranteed by the Company and the Company’s President. The loan is due on March 21, 2015 with an annual interest rate of 20%.		40,849,672		-

Bank of Communications
Annual interest is 120% of People’s Bank of China prime rate (6.4%). The loan is secured by a portion of the Puhua Phase III project. The repayment schedule is as follows: June 20, 2014 - $1,633,987 (RMB 10 million); December 20, 2014 - $6,535,948 (RMB 40 million); June 20, 2015 - $8,169,935 (RMB 50 million); December 20, 2015 - $16,339,869 (RMB 100 million).		32,679,739		-

Bank of Xi’an, Weilai Branch Annual interest is 130% People’s Bank of China prime rate (6.4%). The loan is secured by a portion of the Puhua Phase II project. The repayment schedule is as follows: December 21, 2013 - $1,633,987 (RMB 10 million); June 21, 2014 - $4,901,961 (RMB 30 million); September 21, 2014 - $4,901,961 (RMB 30 million); December 21, 2014 - $8,169,935 (RMB 50 million); April 24, 2015, $11,437,908 (RMB 70 million). The loan is also subject to certain repayment requirements based on percentage of sales contracts signed over total estimated sales amounts of Puhua Phase II.		31,045,751		-
Total	$	278,747,427	$	174,749,368

Except for the loans from Bank of China Macau Branch, Bank of China Singapore Branch and Bank of Communications offshore branch, which were drawn to repay the mandatorily redeemable non-controlling interests in subsidiaries (Note 3) and the loans from LUSO International Bank, which were drawn to repay convertible debt (Note 13), all other loans were drawn to directly finance construction projects and the interest paid was capitalized and allocated to various real estate construction projects or expensed if the interest costs did not meet the capitalization criteria.

The $36.8 million of restricted cash corresponding to a $30 million loan from Bank of Communications offshore Branch, the $32.7 million of restricted cash corresponding to a $31 million loan from Bank of China, Macau Branch, the $32.7 million of restricted cash corresponding to a $31.8 million loan from Bank of China, Singapore Branch, and $8.2 million of restricted cash corresponding to a $7.76 million loan from LUSO International Bank are of the same nature. These borrowings were incurred in Hong Kong to repay the mandatorily redeemable preferred shares of Prax. However, the majority of our cash resided in mainland China and to wire funds from mainland China to Hong Kong is subject to foreign exchange restrictions imposed by the PRC government. Thus, in order for the Company to repay the Hong Kong and overseas counterparties, the Company had to utilize the special lending facilities provided by major PRC banks and foreign financial institutions (i.e. JP Morgan and Bank of China) to allow the Company to borrow outside of mainland China using cash the Company has in mainland China as guarantees.

The loans payable balances were secured by certain of the Company’s real estate held for development or sale with a carrying value of $141,213,677 at September 30, 2013 (December 31, 2012 - $44,920,900) and certain buildings and income producing properties and improvements with a carrying value of $4,228,707 at September 30, 2013 (December 31, 2012 - $4,287,898). The weighted average interest rate on loans payable as at September 30, 2013 was 8.04% (December 31, 2012 - 7.1%).

The loans from Bank of Xi’an, Weilai Branch and China Construction Bank are subject to certain repayment terms based on certain percentage of units sold in Puhua Phase II and Park Plaza projects. Based on these repayment terms, Bank of Xi’an, Weilai Branch and China Construction Bank can demand repayment of all remaining balances outstanding at any time.

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

Due in 1 year	$	124,218,954
1 – 2 years		108,188,604
2 – 3 years		46,339,869
3 – 4 years		-
4 – 5 years		-
After 5 years		-
	$	278,747,427

Note 13 – Convertible Debt

On January 28, 2008, the Company issued Senior Secured Convertible Debt due in 2013 (the “Convertible Debt”) and warrants to subscribe for common shares for an aggregate purchase price of $20 million. Both the warrant and embedded conversion option associated with the Convertible Debt met the definition of a derivative instrument according to the standard “Accounting for Derivative Instruments and Hedging Activities”. Because the warrant and the convertible debt were 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 was not available and therefore the warrant and embedded conversion option were recorded as a derivative instrument liabilities and periodically marked-to-market.

The Convertible Debt was fully repaid as at December 31, 2012. Therefore, for the three and nine months ended September 30, 2013, there were no changes in fair value for the warrants and embedded derivatives recorded. For the three months ended September 30, 2012, the Company recorded decreases in fair value for the warrants and embedded derivatives of $976 and $109,344, respectively. For the nine months ended September 30, 2012, the Company recorded decreases in fair value of the warrants and embedded derivatives of $4,162 and $330,628, respectively, in the unaudited interim condensed consolidated statements of income.

The carrying value of the Convertible Debt was accreted to its stated amount on maturity using the effective interest method. The effective interest rate was determined to be 15.42%. There were no interest and accretion costs for the three and nine months ended September 30, 2013. Related interest and accretion costs for the three months ended September 30, 2012 were $130,806 and $254,023, respectively, and for the nine months ended September 30, 2012 were $389,549 and $728,174, respectively.

Note 14 – Shareholders’ Equity

Common stock

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

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 for 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 were 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 at each reporting date using the Cox-Ross-Rubinstein (“CRR”) Binomial Lattice Model.

These warrants expired during fiscal year 2012. As such, no changes in fair value of the warrants for the three and nine months ended September 30, 2013 were recorded. The gains from the changes in fair value of the warrants for the three and nine months ended September 30, 2012 were $Nil and $1,060, respectively.

Including the fair value of warrants associated with the Convertible Debt (Note 13). The total gains from the change in fair value of warrants for the three and nine months ended September 30, 2012 were $976 and $4,162, respectively.

Stock Options

On June 13, 2011, the Company granted 1,227,755 options to acquire common stock of the Company to employees, officers and directors. The exercise price of the options was determined based on the fair value of the common stock at the grant date.

Options expire on the earlier of ten years from the date of issuance, 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 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.

As of December 31, 2012, 368,326 of the 1,227,755 options had vested. However, the options were not exercisable because the performance conditions of the stock options were not met. This left 859,429 options outstanding as at December 31, 2012 and September 30, 2013. The following table provides information with respect to stock option transactions for the nine months ended September 30, 2013:

	Number of Stock Options Outstanding		Weighted Average Exercise Price
December 31, 2012		859,429	$	1.39
Granted		-		-
Expired		-		-
September 30, 2013		859,429	$	1.39

The following summarizes the weighted-average information about the outstanding stock options as at September 30, 2013:

Outstanding Stock Options
Exercise Price		Number		Average Remaining Contractual Life
$	1.39		859,429	7.71 years

Stock-based compensation

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

Compensation expense is recognized over the vesting period. During the three and nine months ended September 30, 2013, compensation expense of $135,792 and $339,701, respectively (September 30, 2012 - $96,438 and $287,218, respectively) was recognized in the unaudited interim condensed consolidated statements of income.

Total stock-based compensation, including the shares granted to directors, recognized for the three and nine months ended September 30, 2013 amounted to $135,792 and $1,240,065, respectively (September 30, 2012 - $96,438 and $909,434).

Note 14 – Shareholders’ Equity (Continued)

Treasury Stock

In 2011, the Company approved a plan to repurchase up to $5 million shares of the Company’s common stock. The repurchases 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 expired on August 11, 2013.

During the first nine months of fiscal year 2013, the Company did not make any repurchases of the Company’s common stock. As at September 30, 2012, the Company had repurchased 351,480 shares of common stock (December 31, 2012 - 351,480).

Note 15 – Other Revenue

	For the three months ended				For the nine months ended
	September 30,		September 30,		September 30,		September 30,
	2013		2012		2013		2012
Interest income	$	1,185,491	$	13,630	$	4,090,313	$	106,005
Rental income		225,036		250,404		667,534		870,322
Income from property management services		912,247		894,414		2,734,441		2,947,985
External construction contracts		1,448,263		3,522,215		14,355,558		8,651,952
Gain on disposal of property and equipment		-		37,544		-		70,098
Miscellaneous income		17,397		80,032		36,185		165,276
Total	$	3,788,434	$	4,798,239	$	21,884,031	$	12,811,638

Note 16 - Segment Reporting

The Company has two reportable segments: Real Estate Development and Sales segment and also the Real Estate Construction segment. The Real Estate Development and Sales segment includes operating subsidiaries, Tsining, Puhua, Newland, Suodi, Fangzhou and Jiyuan, while the Real Estate Construction segment represents Xinxing Construction. These two segments offer different products and services. The reportable segments are managed separately because they produce distinct products and provide different services. The Company and its other subsidiaries, Manstate, Success Hill, Wayfast, Clever Advance, Gracemind, Treasure Asia and Xinxing Property are aggregated as the All Other segment. The All Other segment includes revenue from property management services from Xinxing Property 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 three and nine months of fiscal year 2013 and 2012 are as follows:

For the three months ended September 30, 2013:

	Real Estate Development and Sales			Construction		All Other		Adjustments and Elimination			Consolidated
Revenues from external customers	$	21,042,396			1,448,263	$	912,247	$	-		$	23,402,906
Intersegment revenues		-			14,114,629		-		(14,114,629	)		-
Rental from external customers		203,145			21,892		-		-			225,037
Other miscellaneous income
(Interest and Gain from Property and Equipment)		1,184,211			-		18,676		-			1,202,887
Total Revenue	$	22,429,752			15,584,784	$	930,923	$	(14,114,629	)		24,830,830
Financing expense		1,759,094			-		3,630		-			1,762,724
Segment (loss) profit before taxes		(1,174,784	)		234,810		690,416		(415,520	)		(665,078	)
Total assets	$	744,470,197		$	88,504,337	$	191,316,524	$	(417,279,354	)	$	607,011,704

Note 16 - Segment Reporting (Continued)

For the nine months ended September 30, 2013:

	Real Estate Development and Sales		Construction		All Other			Adjustments and Elimination			Consolidated
Revenues from external customers	$	112,091,843	$	14,355,558	$	2,734,441		$	-		$	129,181,842
Intersegment revenues		-		28,553,773		-			(28,553,773	)		-
Rental from external customers		600,696		66,839		-			-			667,535
Other miscellaneous income
(Interest and Gain from Property and Equipment)		4,099,678		-		26,819			-			4,126,497
Total Revenue		116,792,217		42,976,170		2,761,260			(28,553,773	)		133,975,874
Financing expense		5,996,720		12,869		7,015			-			6,016,604
Segment profit (loss) before taxes		11,172,938		1,611,010		(264,266	)		(713,340	)		11,806,342

For the three months ended September 30, 2012 (Restated - Note 2):

	Real Estate Development and Sales		Construction		All Other		Adjustments and Elimination			Consolidated
Revenues from external customers	$	23,931,025	$	3,522,215	$	894,414	$	-		$	28,347,654
Intersegment revenues		-		5,295,891		-		(5,295,891	)(1)		-
Rental from external customers		224,941		25,463		-		-			250,404
Other miscellaneous income
(Interest and Gain from Property and Equipment)		95,455		35,442		309		-			131,206
Total Revenue	$	24,251,421	$	8,879,011	$	894,723	$	(5,295,891	)		28,729,264
Financing expense		8,478		13,452		41,834		-			63,764
Segment profit before taxes		1,569,684		75,705		576,734		233,834	(1)		2,455,957
Total assets	$	474,234,585	$	61,119,244	$	187,914,465	$	(267,927,923	)(2)	$	455,340,371

For the nine months ended September 30, 2012 (Restated - Note 2):

	Real Estate Development and Sales		Construction		All Other		Adjustments and Elimination			Consolidated
Revenues from external customers	$	74,170,706	$	8,651,952	$	2,947,985	$	-		$	85,770,643
Intersegment revenues		-		14,258,052		-		(14,258,052	)(1)		-
Rental from external customers		676,967		193,355		-		-			870,322
Other miscellaneous income
(Interest and Gain from Property and Equipment)		303,483		35,442		2,454		-			341,379
Total Revenue		75,151,156		23,138,801		2,950,439		(14,258,052	)		86,982,344
Financing expense		229,668		39,756		125,288		-			394,712
Segment profit before taxes		9,804,071		657,734		149,505		310,095	(1)		10,921,405

Note 17 – Effect of Change in Estimates

Revisions in estimated gross profit margins related to revenue recognized under the percentage of completion method for projects under construction and met all revenue recognition criteria are made in the period in which circumstances requiring the revisions become known.

During the three months ended September 30, 2013, real estate development projects with gross profits recognized as at September 30, 2013 had changes in their estimated gross profit margins. As a result of these changes in gross profit, net income for the three months ended September 30, 2013 decreased by $1,637,578 (three months ended September 30, 2012 – decreased by $2,608,462) or a decrease of $0.05 for both basic and diluted earnings per share for the three months ended September 30, 2012 (three months ended September 30, 2012 – decreased by $0.074 in both basic and diluted earnings per share).

During the nine months ended September 30, 2013, real estate development projects with gross profits recognized for the year ended December 31, 2012 had changes in their estimated gross profit margins. As a result of these changes in gross profit, net income for the nine months ended September 30, 2013 decreased by $383,896 (nine months ended September 30, 2012 – decreased by $2,493,484) or a decrease $0.011 for basic and diluted earnings per share for the nine months ended September 30, 2013 (nine months ended September 30, 2012 – decreased by $0.071 and $0.071 in both basic and diluted earnings per share).

Note 18 – Earnings (Losses) per Share

There were no outstanding dilutive instruments during the three and nine months ended September 30, 2013.

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

Note 19 – Commitments and Contingencies

The Company leases part of its office and hotel space under various operating lease agreements which expire in 2019.

In connection with the loans borrowed from Xinying (Notes 12 and 20), the Company also signed a finance consulting agreement with Xinying whereby the Company is committed to pay consulting fees on a quarterly basis up to July 2015 for financing services provided.

Additionally, the Company has various commitments related to land use right acquisitions with unpaid balances of approximately $16.6 million. The balance is not due until the vendor removes the existing building and changes the zoning status of the land use right certificate. Based on the current conditions, the Company estimates that the balances will be paid in a year.

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

	Payment due by period
Commitments and Contingencies	Total		Less than 1 year		1-2 years		2-3 years		3-4 years		4-5 years		After 5 years
Operating leases	$	6,777,193	$	1,431,485	$	1,251,747	$	1,251,747	$	1,251,747	$	1,251,747	$	338,720
Finance consulting		4,786,493		2,549,020		2,237,473		-		-		-		-
Land use rights		16,590,229		16,590,229		-		-		-		-		-
Total	$	28,153,915	$	20,570,734	$	3,489,220	$	1,251,747	$	1,251,747	$	1,251,747	$	338,720

The Company from time to time has to renew certain real estate development licenses in the normal course of business. Management believes the Company will be able to continuously renew these licenses. A license that expired before December 31, 2012 was successfully renewed on April 3, 2013. The renewed license will be effective until December 20, 2015.

Note 20– Related Party Transactions

One of the Company’s executive officers’ spouse owns 37.83% of the common stock of Days Hotel. During the three and nine months ended September 30, 2013, the Company incurred $45,680 and $111,555 (September 30, 2012 - $59,336 and $144,278) in fees to Days Hotel. As at September 30, 2013, the Company had $36,973 (December 31, 2012 - $208,065) payable to Days Hotel recorded as other payables on the financial statements.

The Company also has a $16,421,569 loan payable to Days Hotel as at September 30, 2013 (December 31, 2012 - $21,219,563) (Note 12). For the three and nine months ended September 30, 2013, the Company incurred $807,533 and $3,897,505 (September 30, 2012 - $452,043 and $551,932), respectively, of interest to Days Hotel and capitalized the amounts in real estate held for development or sale. As of September 30, 2013, the Company also had $506,354 (December 31, 2012 - $1,231,316) of interest payable to Days Hotel.

As of September 30, 2013, the Company has a loan payable of $22,875,817 (RMB 140 million) (December 31, 2012 - $24,076,660) from Xinying (Note 12), in which an executive partner is the spouse of one of the Company’s executive officers. The Company incurred a total of $1,228,579 and $5,225,264 (September 30, 2012 - $657,471 and $657,471) of interest and finance consulting fees to Xinying during the three and nine months ended September 30, 2013, respectively, and capitalized the amount in real estate held for development or sale. As of September 30, 2013, the Company also had $1,756,351 (December 31, 2012 - $64,204) of interest payable to Xinying.

Note 21 – Subsequent Events

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

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

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/A for the year ended December 31, 2012, as amended (“2012 Annual Report”). They do not include certain footnote disclosures and financial information normally included in annual consolidated financial statements prepared in accordance with GAAP and, therefore, should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2012 Annual Report.

Warrants and derivative liability

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 derivative instrument liabilities and periodically marked-to-market.

The Convertible Debt was fully repaid as of December 31, 2012. Therefore, for the three and nine months ended September 30, 2013, there were no changes in fair value for the warrants and embedded derivatives. For the three months ended September 30, 2012, the Company recorded decreases in fair value for the warrants and embedded derivatives of $976 and $109,344, respectively. For the nine months ended September 30, 2012, the Company recorded decreases in fair value of the warrants and embedded derivatives of $4,162 and $330,628, respectively, in the unaudited interim condensed consolidated statements of income.

Pursuant to accounting guidance, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settle in a Company’s Own Stock”, the warrants issued contained 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 at each reporting date using the CRR Binomial Lattice Model using the following Assumptions:

These warrants expired during fiscal year 2012. As such, there were no changes in fair value of the warrants issued through private placements in 2007 for the three and nine months ended September 30, 2013. The gains from the change in fair value of the warrants issued through private placements in 2007 for the three and nine months ended September 30, 2012 were $Nil and $1,060, respectively.

Including the fair value of warrants associated with the Convertible Debt, the total gains from the change in fair value of warrants for the three and nine months ended September 30, 2012 were $976 and $4,162, respectively.

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

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

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

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

When real estate costs are determined to be impaired, they are written down to their estimated net realizable value. The Company evaluates the carrying value for impairment based on the undiscounted future cash flows of the assets. Write-downs of real estate costs deemed impaired are recorded as adjustments to the cost basis.

The following summarizes the components of real estate inventories as at September 30, 2013 and December 31, 2012:

	September 30, 2013		December 31, 2012
Real estate projects completed and held for sale
Junjing I	$	1,823,440	$	2,065,376
Junjing II		-		175,326
Tsining 24G		-		45,370
Gangwan		9,732		19,117
Tsining Home IN		-		60,943
Junjing III		1,169,026		1,309,347
Puhua Phase I		7,118,134		9,205,681
Puhua Phase II - West Region		4,419,557		7,834,598
Real estate completed and held for sale		14,539,889		20,715,758

Real estate projects held for development
Puhua Phase II - East Region, III and IV		90,673,668		80,834,955
Park Plaza		68,783,202		77,765,333
Golden Bay (the Company signed a land use right acquisition agreement subsequent to the peiod)		19,139,136		12,415,111
Jiyuan		19,404,241		16,500,575
Other		6,086,885		3,941,746
Construction Materials		353,539		198,397
Real estate held for development		204,440,670		191,656,117

Total real estate held for development or sale	$	218,980,559	$	212,371,875

Intangible asset

The intangible assets consisted of the following at September 30, 2013 and December 31, 2012:

	September 30, 2013			December 31, 2012
Development right acquired (a)	$	52,767,189		$	51,835,211
Land use rights acquired (b)		8,782,736			8,627,525
Construction license acquired (c)		1,230,093			1,208,354
		62,780,018			61,671,090
Accumulated amortization		(7,487,066	)		(7,188,838	)
Intangible assets, net	$	55,292,952		$	54,482,252

(a)

The Company purchased the exclusive development right (the "Intangible") through the acquisition of New Land in 2007. The cost of the Intangible was $51.8 million (323 million RMB) based on the purchase price allocation determined. This Intangible allows the Company to develop projects within a specified area in the Baqiao District in Xi’an (the “Specified Area”) as defined in the Intangible agreement. This Specified Area is sub-divided into different land use rights (“LUR”). Under the Intangible agreement, the Company has preferential right to acquire LURs of land up to 487 acre within this Specified Area from the government. The development right will expire on June 30, 2016. We expect to acquire the land use right for our Golden Bay project in 2013. A substantial portion of the 487 acres are not expected to be fully developed until after the 2016 contract expiration date. The actual purchase price of the LURs to be acquired through the Intangible is also expected to be significantly lower than the fair market value of the LUR when traded in the open market.

The Company amortizes the Intangible when it acquires a LUR within the Specified Area and the amortization of the Intangible is determined by calculating the profit that the specific LUR may generate over the total estimated profit of the Intangible and applying this percentage to the Intangible. The Company records the amortized Intangible into real estate held for development or sale as a component of the cost of the related project and allocates it to each building based on the gross floor area ("GFA") of each building. When the units within the project are sold, the related capitalized amortization will be expensed as part of cost of real estate sales. This amortization policy ensures the amortization matches the realization of the economic benefit of the Intangible when the actual LUR is developed into condo projects and related revenue is recognized with the Company percentage of completion method.

The following table summarizes the information and assumptions used by the Company to amortize the Intangible at the time LURs were acquired. The table also includes forward looking information that may be used by the Company for future amortization when future LURs are obtained:

	2007		2009		2013		2014		Beyond 2014

	Land Sale		Puhua		Golden Bay (1)		Textile City		Remaining

Acre (gross)		31		79		48 (5)		107 (5)		222 (5)

Gross Profit* from Intangible Agreement (numerator – in millions)	$	16.5	$	63.7		TBD (5)		TBD (5)		TBD (5)

Total Estimated Gross Profit* (Denominator – in millions)		$701 (2)		$701 (2)		$190 (4)		$190 (4)		$190 (4)

Percentage		2.4% (2)		9.3% (3)		TBD (5)		TBD (5)		TBD (5)

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

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

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

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

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

2010 – $461,819 (or 3.12 million RMB)

2011 – $547,876 (or 3.54 million RMB)

2012 – $645,264 (or 4.07 million RMB)

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

The information will be determined when the actual acquisition is closed.

The Company has a $43.5 million deposit on LURs as of September 30, 2013. The Company will utilize this deposit to offset the actual land use right acquisition price of the LURs of the 48 acre for Golden Bay and the 107 acre for the Textile City projects. We currently do not have specific development plans for the remaining 222 acre of land under the Intangible agreement. We will continue the discussion with local government to locate potential projects. As part of our periodic reporting procedures, we review and update our estimates total gross profit depending on the market conditions. Once we are able to secure a new project under the Intangible agreement, we will adjust the amortization table accordingly.

The Company did not acquire any new land use right with the intangible assets during the three and nine months periods ended September 30, 2013. The expected development period is between 2009 and 2020. The company will further negotiate with the government on acquiring more land use rights within this area.

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

(b)

The land use right was acquired through acquisition of Suodi. The land use right certificate will expire in November, 2048. The Company amortizes the land use right over 39 years starting from the date of acquisition. For the three and nine months ended September 30, 2013, the Company recorded $56,253 and $167,609, respectively of amortization expense on the land use rights (September 30, 2012 - $54,258 and $163,290). The amortization was included in selling, general and administrative expenses.

(c)

The construction license was acquired through acquisition of Xinxing Construction. The construction license, which is subject to renewal every 5 years, is not amortized and has an indefinite estimated useful life because management believes the Company will be able to continuously renew the license in future. The license will be subject to renewal on January 1, 2016.

Deposits on land use rights

		September 30, 2013				December 31, 2012
Deposits on land use rights			43,517,062				42,748,017

The Company conducts regular reviews of the deposits on land use rights. After review and assessment, the Company concluded that there was no impairment to the carrying value of the deposits and therefore no write-down was required.

Property, plant and equipment

The total rental income (cash inflow) from leasing the Tsining Junjing I commercial retail property was RMB 1.2 million during third quarter of 2013 is slightly less than the 1.4 million in rental income RMB of the same period of 2012. Based on the RMB 1.2 million of net cash receipts in the third quarter of 2013, it will take the Company approximately 16 years to recover the RMB 79 million carrying value of the asset. There was no cash outflow in connection with the maintenance and repair of the property. The annual amortization of this property is RMB 3 million (non-cash item) per year over 30 years.

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

We assess whenever events or changes in circumstances indicate that the carrying amount of this property may not be recoverable. When these events occur, we measure impairment by comparing the carrying value to the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the total of the expected undiscounted cash flow is less than the carrying amount of the asset, we recognize an impairment loss based on the fair value of the asset. Our judgments and estimates related to impairment include our determination of whether an event has occurred to warrant an impairment test. If a test is required, we will have to make additional judgments and estimations such as our expectations of future cash flows and the calculation of the fair value of the impaired asset.

During the fourth quarter of 2012, we sold 7,367 square meters of Junjing I commercial property for RMB 94.3 million. The carrying value of the sold property was only RMB 52.8 million. Therefore, we believe there is no impairment for the commercial property. The remaining commercial property has a GFA of 5,371 square meters, with a carrying value of RMB 79 million. The market selling price of properties like the Tsining Junjing I commercial retail property was much higher than its cost when we reclassified it from inventory to fixed assets. Thus, our assessment does not show any impairment to the carrying value of the property.

Material trends and uncertainties that may impact continuing operations

Changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations and where prospective purchasers of our homes live, may result in more caution on the part of homebuyers and consequently fewer home purchases. According to E House (China) Real Estate Research Institute the average residential sale price in Xi’an city was stable in the quarter ended September 30, 2013. The average sales price decreased to RMB6,899 per square meter (approximately US$1,126 per square meter) from RMB7,530 in the same period of 2012, representing about a 8% year-to-year decrease.

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 needed to purchase our homes, as well as the ability of prospective upgrading homebuyers to sell their current homes. For example, if mortgage financing became less available, demand for our homes could decline. A reduction in demand could also have an adverse effect on the pricing of our homes because we (and our competitors) may reduce prices in an effort to compete for home buyers. A reduction in pricing could result in a decline in revenues and margins. Additionally, Xi’an’s local government required that the average selling price increase of newly built residential products should be less than 15%, and such an increase must not surpass Xi’an’s GDP growth rate and disposable income growth rate. These new policies could result in buying hesitation amongst potential new customers and could impact our revenues.

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

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

As of September 30, 2013, we had $85,721,169 of cash, compared to $6,121,448 as of December 31, 2012, an increase of $79,599,721.

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

BUSINESS

Our Company

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

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

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

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

Our Strategies

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

Consolidate through Acquisition and Partnership.

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

Expand into Other Tier II and Tier III Cities.

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

Continue to Focus on the Middle Market.

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

Our Competitive Strengths

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

Leading position in our market and industry

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

Attractive market opportunity

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

Our Property Projects

We provide three fundamental types of real estate developments:

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

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

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

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

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

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

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

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

Projects Under Construction

Project
Name

Type of
Projects

Actual or
Estimated
Construction
Period

Actual or
Estimated
Pre-sale
Commencement
Date

Total Site
Area
(m ²)

Total
GFA
(m ²)

Sold GFA
by September 30, 2013
(m ²)

Puhua Phase Two – East Region

Multi-Family Residential & Commercial

Q1/2011 - Q2/2015

Q2/2010

47,300

159,832

49,246

Ankang Project

Multi-Family Residential & Commercial

Q2/2012 - Q3/2015

Q4/2012

74,820

243,152

57,475

Park Plaza

Multi-Family Residential & Commercial

Q1/2012 – Q2/2016

Q1/2013

44,250

149,822

43,501

Puhua Phase Three

Multi-Family Residential & Commercial

Q2/2012 – Q3/2015

Q1/2013

30,600

128,918

61,242

Project Name	Total Number of Units		Number of Units sold by September 30, 2013		Estimated Revenue ($ millions)		Contracted Revenue by September 30, 2013 ($ millions)		Recognized Revenue by September 30, 2013 ($ millions)

Puhua Phase Two – East Region		921		473		170.4		47.8		40.7
Ankang Project		2,121		398		206.3		27.0		8.8
Park Plaza		694		424		154		61.2		44.7
Puhua Phase Three		1,899		501		115.2		50.6		28.4

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 started developing a large mid-upper income residential and commercial project on this site with a GFA of 149,882 square meters. The four-year construction of Park Plaza started in the first quarter 2012. The contract revenue for Park Plaza was $61.2 million as of September 30, 2013, of which we recognized $44.7 million. The total revenue from Park Plaza is estimated to be $154 million.

Puhua Phase Three: The Puhua Phase Three project covers 30,600 square meters with a total GFA of 129,300 square meters. We started pre-sales of Puhua Phase Three during the first quarter of 2013. The contract revenue for Puhua Phase Three was $50.6 million as of September 30, 2013 and, based on the percentage of completion method, we recognized $28.4 million by the end of September 2013.

Projects Under Planning and in Process

Project
Name

Type of Projects

Estimated
Construction
Period

Estimated
Pre-sale
Commencement

Total Site
Area
(m ²)

Total GFA
(m ²)

Total
Number of Units

Baqiao New Development
Zone

Multi-Family Residential
& Commercial

2009- 2020

N/A

Puhua Phase Four

Multi-Family Residential & Commercial

Q2/2014 - Q2/2016

Q3/2014

61,087

263,833

N/A

Golden Bay

Multi-Family Residential & Commercial

Q3/2013 - Q2/2015

Q2/2014

146,099

250,000

N/A

Textile City

Multi-Family Residential & Commercial

Q2/2014 - Q3/2018

Q3/2014

433,014

630,000

N/A

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

Xi’an has designated the Baqiao New Development Zone 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 planned to investments of RMB 50 billion (over $7.6 billion) in infrastructure in the Baqiao New Development Zone. The construction of a large-scale public wetland park is well underway. It will enhance the natural environment adjacent to the Company’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 was the first phase of the Baqiao Project’s development. Prax Capital invested $29.3 million in the joint venture. As of December 31, 2012 the Company has bought out Prax’s investment in the project.

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

After selling 18.4 acres, placing 79 acres in the Puhua project and approximately 42 acres in the Golden Bay project and setting aside 107 acres for a future project, approximately 241 acres remain available for the Company to develop in the Baqiao area. The Company has a $43.4 million deposit on land use rights as of September 30, 2013. The Company will utilize this deposit to offset the actual acquisition price of the land use rights of the 42 acres for Golden Bay, the 107 acres for the future project and the remaining 241 acres of land.

However, the actual acquisition price for these land use rights will be determined at the time of the actual land use right acquisition by negotiating with the government. The Company will pay for any additional amount in excess of the $43.4 million deposit according to the final bidding price.

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

Puhua Phase Four: Puhua Phase Four covers 61,087 square meters with a total GFA of 263,833 square meters. Construction is anticipated to begin in the second quarter of 2014, and we expect to begin accepting pre-sale purchase agreements in the following quarter.

Golden Bay: The Golden Bay project is located within the Baqiao Project, with a total GFA of 252,540 square meters. The Golden Bay project will consist of residential buildings as well as a commercial area. Construction is anticipated to begin in the third quarter of 2013, and we expect to begin accepting pre-sale purchase agreements in the second quarter of 2014. On March 22, 2013, the Company received $40,849,673 (RMB 250 million) from Dinghui to fund the pending acquisition of the land use right for the Company’s Golden Bay project. The estimated price for the land use right will be around $80 million (RMB 500 million). The Company will fund the remaining amount through self-generated operating cash inflows. On November 5, 2013, the Company signed a land acquisition agreement with the government for the Golden Bay project.

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 second quarter of 2014 and the entire project is expected to take five years.

Major Completed Projects with Units Available for Sale

Project name	Type of Projects	Completion Date	Total Site Area (m ² )		Total GFA (m ² )		Total Number of Units		Number of Units sold by September 30, 2013
Puhua Phase Two – West Region	Multi-Family Residential & Commercial	Q4/2012				100,450		666		646
Puhua Phase One	Multi-Family Residential & Commercial	Q4/2012		47,600		137,137		858		843
Junjing III	Multi-Family Residential & Commercial	Q4/2012		8,094		52,220		531		524
Junjing II Phase One	Multi-Family Residential & Commercial	Q4/2009		39,524		142,214		1,215		1,211
Junjing I	Multi-Family Residential & Commercial	Q3/2006		55,588		167,931		1,671		1,668

Puhua Phase One: Puhua Phase One is one of Puhua’s four phases. The total estimated revenue for the project to be $130 million and the Company has generated revenue of $110.8 million as of September 30, 2013.

Puhua Phase Two – West Region: Puhua Phase Two – West Region consists of four buildings. The region was completed in the fourth quarter of 2012. As of September 30, 2013, we have recognized $77.9 million in revenue.

Junjing III: Junjing III is located near our Junjing II project and the city expressway. It has a GFA of about 52,220 square meters. The project consists of three high rise buildings, each 28 to 30 stories high. The project is targeting middle to high income customers who require a high quality living environment and convenient transportation to the city center. We started construction during the fourth quarter of 2010 and pre-sales began during the fourth quarter of 2011. The project was completed in the fourth quarter of 2012. As of September 30, 2013, we have recognized $52.6 million in revenue.

Junjing II Phase One: We started the construction on Junjing II Phase One in the third quarter of 2007 and started the pre-sale campaign in the second quarter of 2007. The project was completed in December 2009 and generated total revenue of $100.8 million. Junjing II Phase One has been mostly sold out.

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

CONSOLIDATED OPERATING RESULTS

Three Months Ended September 30, 2013 Compared With Three Months Ended September 30, 2012

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 New Development Zone. For the three months ended September 30, 2013, most of our revenues came from the Puhua Phase Three, Puhua Phase Two – East Region and Park Plaza projects.

	Three months			Three months
	ended			Ended
Revenues by project:	September 30, 2013			September 30, 2012
US$
Project Under Construction
Puhua Phase Two – East Region		5,898,368			3,813,942
Puhua Phase Three		3,530,615
Park Plaza		6,544,305
Ankang Project		3,304,218
Projects Completed
Puhua Phase Two – West Region (under construction on September 30, 2012)		231,851			11,747,983
Junjing III (under construction on September 30, 2012)		(185,786	)		4,863,938
Puhua Phase One (under construction on September 30, 2012)		642,763
Junjing II Phase One		488,825			3,486,266
Junjing II Phase Two		-
Junjing I		587,237
Other Projects		-			18,896
Revenues from the Sale of Properties	$	21,042,396			23,931,025

The following table summarizes details of our most significant projects:

	Three Months			Three Months
	Ended			Ended
Revenues by project:	September 30, 2013			September 30, 2012
US$
Project Under Construction
Puhua Phase Two – East Region contract sales	$	3,456,340		$	6,573,361
Revenue	$	5,898,368		$	3,813,942
Total gross floor area (GFA) available for sale		159,832			160,640
GFA sold during the period		3,240			7,385
Remaining GFA available for sale		116,137			129,479
Percentage of completion		71.2	%		51	%
Percentage GFA sold during the period		2	%		4.6	%
Percentage GFA sold to date		27.7	%		19.4	%
Average sales price per GFA	$	1,067		$	890

Puhua Phase Three contract sales	$	3,876,644		$
Revenue	$	3,530,615		$
Total gross floor area (GFA) available for sale		129,918
GFA sold during the period		3,675
Remaining GFA available for sale		68,676
Percentage of completion		50.9	%			%
Percentage GFA sold during the period		2.8	%			%
Percentage GFA sold to date		47.1	%			%
Average sales price per GFA	$	1,055		$

Park Plaza contract sales	$	6,078,969		$
Revenue	$	6,544,305		$
Total gross floor area (GFA) available for sale		149,822
GFA sold during the period		4002
Remaining GFA available for sale		106,321
Percentage of completion		68.1	%
Percentage GFA sold during the period		3	%
Percentage GFA sold to date		29.0	%
Average sales price per GFA	$	1,635		$

Ankang Project contract sales	$	4,134,588		$
Revenue	$	3,304,218		$
Total gross floor area (GFA) available for sale		243,152
GFA sold during the period		5,474
Remaining GFA available for sale		185,677
Percentage of completion		27.7	%
Percentage GFA sold during the period		2	%
Percentage GFA sold to date		23.6	%
Average sales price per GFA	$	755		$

*Difference in total GFA available for sale is due to addition of a new building and or modification to floor plans.

Revenues from projects under construction

Puhua Phase Two – East Region: Puhua Phase Two – East Region consists of 8 residential buildings and 3 commercial buildings. Total estimated revenue of Puhua Phase Two – East Region is $170.4 million. Total GFA of East Region is expected to reach 159,832 square meters. Revenue of the project increased from $3.81 million in the third quarter of 2012 to $5.90 million in the third quarter of 2013. The increase is due to the newly released buildings, including two commercial buildings.

Puhua Phase Three: Puhua Phase Three project covers 30,600 square meters with a total GFA of 128,918 square meters. We started pre-sale of Puhua Phase Three during the first quarter of 2013. The contract revenue for Puhua Phase Three was $50.6 million as of September 30, 2013 and we recognized $28.4 million by the end of September 2013 based on the percentage of completion method. The Company started the recognizing revenue in the first quarter of 2013, so there was no revenue in the third quarter of 2012.

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 is developing a large mid-upper income residential and commercial project on this site with a GFA of 149,822 square meters. The four-year construction of Park Plaza started in the second quarter 2012. The contract revenue for Park Plaza was $61.2 million as of September 30, 2013, of which we recognized $44.7 million. The total revenue from Park Plaza is estimated to be $154 million. The Company started recognizing revenue in the first quarter of 2013, so there was no revenue in the third quarter of 2012.

Ankang Project: The Ankang project is located in Ankang city, which is approximately 260 kilometers south of Xi’an in China’s Shaanxi Province. The project consists of residential buildings and a commercial area. Construction started in the second quarter of 2012, and presales started in the fourth quarter of 2012. Total projected revenue is estimated to be $206.3 million. Total GFA of the project is expected to reach 243,152 square meters. The Ankang project commenced revenue recognition for 5 residential buildings in the second quarter of 2013, and one more in the third quarter of 2013. The contract revenue for the Ankang Project was $27 million as of September 30, 2013 and we have recognized $8.8 million in revenue. The Company started the recognizing revenue in the second quarter of 2013, so there was no revenue in the third quarter of 2012.

Revenues from projects completed

The revenue from completed projects totaled $1,764,890 for the three months ended September 30, 2013, compared to $3,505,162 during the same period of 2012. Revenues from projects completed in the third quarter of 2013 were lower than those during the period of 2012, as we had more completed projects generating revenue in the third quarter of 2012. Puhua Phase One generated $642,763 in the third quarter of 2013.

Other income

Other revenue includes property management fees, rental income, revenues from construction of low income residential buildings for the Ankang government, the gain/loss from disposal of fixed assets and construction work for third parties. We recognized $3,788,434 in other income for the three months ended September 30, 2013 compared with $4,798,239 in the same period of 2012. The variance can be explained by the following table, which summarizes the breakdown of the other income and the changes during the three months ended September 30, 2013 and 2012:

	For the three months ended
	September 30,		September 30,
	2013		2012
Interest income	$	1,185,491		13,630
Rental income		225,036		250,404
Income from property management services		912,247		894,414
External construction contracts		1,448,263		3,522,215
Gain on disposal of property and equipment		-		37,544
Miscellaneous income		17,397		80,032
Total	$	3,788,434		4,798,239

The increase of interest income was due to the Company’s recognition of the interest income on deposits we made with several banks as security for borrowing U.S. dollar loans from their overseas banks.

The decrease of construction contract income was caused by the decrease in revenue from construction of low income residential buildings for the Ankang government by Xinxing Construction because the project was substantially complete by the end of second quarter of 2012. Thus, no construction revenue was recognized for that project in the third quarter of 2013.

Cost of properties and land

The cost of properties and land for the three months ended September 30, 2013 decreased 3.6 percent to $17,480,961 compared with $18,140,372 in the same period of 2012. The decrease in cost of properties and land is in line with the decrease in revenue.

Gross profit and profit margin

Gross profit for the three months ended September 30, 2013 was $4,926,414, representing a 23.7 percent decrease from $6,454,536 in the same period of 2012. The gross profit margin for the three months ended September 30, 2013 was 19.8 percent compared with 22.5 percent in the same period of 2012. The decrease in gross profit margin in the third of 2013 was due to the following reasons:

The Company adjusted total estimate cost of Puhua PhaseTwo – East Side, Puhua Phase Three and Park Plaza according to the actual condition of these projects. The Company recorded the accumulated impact in the cost of these projects in the third quarter of 2013, which resulted in lower gross profit margin than in the same period of 2012.

During the three months ended September 30, 2013, real estate development projects with gross profits recognized as at September 30, 2013 had changes in their estimated gross profit margins. As a result of these changes in gross profit, net income for the three months ended September 30, 2013 decreased by $1,637,578 (three months ended September 30, 2012 – decreased by $2,608,462) or a decrease of $0.046 for both basic and diluted earnings per share for the three months ended September 30, 2013 (three months ended September 30, 2012 decreased by $0.074 in both basic and diluted earnings per share).

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2013 increased to $3,784,742 compared with $3,717,178 in the same period of 2012. SG&A accounted for 15.2 percent of total revenue in the third quarter of 2013 compared to 12.9 percent for the same period in 2012. The increase in the ratio of SG&A to total revenue was primarily due to the decrease in revenue.

Stock-based compensation

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

Options expire on the earlier of ten years from the date of issuance, 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 of the company, options granted vest 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.

Compensation expense is recognized over the vesting period. During the three months ended September 30, 2013, compensation expense of $135,792 (September 30, 2012 - $96,438) was recognized in the interim condensed consolidated statements of income.

Other (income) expenses

Other expenses mainly consists of late delivery settlements, maintenance costs and some miscellaneous income. Other expenses in the three months ended September 30, 2013 was $(91,766) compared with $(22,503) in the same period of 2012. This amount was primarily miscellaneous income from projects in Tsining.

Financing expense

Financing expense in the three months ended September 30, 2013 increased to $1,762,724 from $63,764 in the same period of 2012. The increase was primarily due to the interest paid to Bank of China, Macau Branch and Bank of China, Singapore branch for the U.S. dollars borrowed to redeem Prax Capital’s interest in Puhua during 2012 and 2011. Interest expenses on these loans were capitalized before the end of 2012. Since the Company repaid the loans to Prax, we started to expense these interest in 2013. The accumulated cost incurred for the Golden Bay project is about half of the Dinghui loan, so the Company expensed half of the interest of the Dinghui loan during the third quarter of 2013.

Change in fair value of embedded derivative and warrant accretion expense on convertible debt

The Convertible Debt was fully repaid as of December 31, 2012. Therefore, for the three months ended September 30, 2013, there were no changes in fair value for embedded derivatives and no accretion expenses incurred. For the three months ended September 30, 2012, the Company recorded a change in fair value of embedded derivatives of $(109,344) and accretion expense on convertible debenture of $254,023 in the interim condensed consolidated statements of income.

All warrants expired during the 2012 fiscal year. As such, there were no changes in fair value of the warrants issued through private placements in 2007 for the three months ended September 30, 2013.

Including the fair value of warrants associated with the Convertible Debt, the total gain from the change in fair value of warrants for the three months ended September 30, 2012 was $(976).

Provision for income taxes

The $185,950 provision for income taxes for the three months ended September 30, 2013 decreased from $1,201,523 for the three months ended September 30, 2012, which is primarily due to decreased operating income in the third quarter of 2013 compared with that in the third quarter of 2012.

Net income

Net income for the three months ended September 30, 2013 decreased 153.6 percent to a loss of $839,687 compared to an income of $1,565,267 in the same period of 2012. The decrease in net income is due to the significant decrease in revenue.

Basic and diluted earnings per share

Both the basic earnings per share and diluted earnings per share were $(0.02) in the three months ended September 30, 2013, compared to $0.04 in the same period of 2012. The number of shares outstanding did not change significantly from year to year.

Common shares used to calculate basic and diluted EPS

The weighted average shares outstanding used to calculate the basic earnings per share and diluted earnings per share was 35,497,724 and 35,497,724 shares, respectively, in the three months ended September 30, 2013 and 35,086,599 shares in the same period of 2012. The increase in common shares is due to the issuance of 411,125 shares to management and directors during the third quarter of 2013.

Foreign exchange

The Company operates in China and the functional currency is the RMB but our reporting currency is the U.S. dollar, based on the exchange rate of the two currencies. The fluctuation of exchange rates during the three months ended September 30, 2013 and the same period of 2012, when translating the operating results and financial positions at different exchange rates, created the accrued gain (loss) on foreign exchange. The gain on foreign exchange translation in the three months ended September 30, 2013 was $656,539, compared with $1,969,140 in the same period of 2012.

Nine Months Ended September 30, 2013 Compared With Nine Months Ended September 30, 2012

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 New Development Zone. For the nine months ended September 30 2013, most of our revenues came from the Puhua Phase Two – East Region, Puhua Phase Three, Park Plaza and Ankang projects.

	Nine months			Nine months
	ended			Ended
Revenues by project:	September 30, 2013			September 30, 2012
US$
Project Under Construction
Puhua Phase Two – East Region		20,574,880			9,980,684
Puhua Phase Three		28,433,860
Park Plaza		44,693,688
Ankang Project		8,830,509
Projects Completed
Puhua Phase Two – West Region (under construction on March 31, 2012)		5,548,883			24,100,476
Junjing III (under construction on March 31, 2012)		(51,684	)		19,806,525
Puhua Phase One (under construction on March 31, 2012)		2,966,145			17,836,594
Junjing II Phase One		488,825			3,256,293
Junjing II Phase Two		-
Junjing I		587,239			(828,763	)
Other Projects		19,498			18,897
Revenues from the Sale of Properties	$	112,091,843		$	74,170,706

The following table summarizes details of our most significant projects under construction during the nine months ended September 30, 2013:

	Nine Months			Nine Months
	Ended			Ended
Revenues by project:	September 30, 2013			September 30, 2012
US$
Project Under Construction
Puhua Phase Two – East Region contract sales	$	17,182,182		$	17,249,985
Revenue	$	20,574,880		$	9,980,684
Total gross floor area (GFA) available for sale		159,832			160,640
GFA sold during the period		10,991			19,783
Remaining GFA available for sale		116,137			129,479
Percentage of completion		71.20	%		51	%
Percentage GFA sold during the period		6.9	%		12.3	%
Percentage GFA sold to date		27.7	%		19.4	%
Average sales price per GFA	$	1,563		$	872

Puhua Phase Three contract sales	$	50,602,576		$
Revenue	$	28,433,860		$
Total gross floor area (GFA) available for sale		129,918
GFA sold during the period		61,242
Remaining GFA available for sale		68,676
Percentage of completion		50.90	%			%
Percentage GFA sold during the period		47	%			%
Percentage GFA sold to date		47.1	%			%
Average sales price per GFA	$	464		$

Park Plaza contract sales	$	61,269,915		$
Revenue	$	44,693,688		$
Total gross floor area (GFA) available for sale		149,822
GFA sold during the period		43,501
Remaining GFA available for sale		106,321
Percentage of completion		68.1	%
Percentage GFA sold during the period		29	%
Percentage GFA sold to date		29.0	%
Average sales price per GFA	$	1,027		$

Ankang Project contract sales	$	26,978,134		$
Revenue	$	8,830,509		$
Total gross floor area (GFA) available for sale		243,152
GFA sold during the period		57,475
Remaining GFA available for sale		185,677
Percentage of completion		27.7	%
Percentage GFA sold during the period		23.6	%
Percentage GFA sold to date		23.6	%
Average sales price per GFA	$	153		$

Revenues from projects under construction

Puhua Phase Two – East Region: Puhua Phase Two – East Region consists of 8 residential buildings and 3 commercial buildings. Total estimated revenue of Puhua Phase Two – East Region is $170.4 million. Total GFA of East Region is expected to reach 159,832 square meters. Revenue of the project increased from $10.0 million for the nine months ended September 30, 2012 to $20.6 million for the nine months ended September 30, 2013. The increase is due to the newly released buildings and commercial parts.

Puhua Phase Three: Puhua Phase Three project covers 30,600 square meters with a total GFA of 128,918 square meters. We started pre-sale of Puhua Phase Three during the first quarter of 2013. The contract revenue for Puhua Phase Three was $50.6 million as of September 30, 2013 and we recognized $28.4 million by the end of September 2013 based on the percentage of completion method. The Company started revenue recognition in the first quarter of 2013, so there was no revenue in the third quarter of 2012.

Park Plaza: In July 2009, the Company entered into a letter of intent to acquire 44,250 square meters of land in the center of Xi’an for the Park Plaza project. In March 2011, the Company officially acquired the land use right for Park Plaza. The Company intends to develop a large mid-upper income residential and commercial project on this site, with a GFA of 106,687 square meters. The four-year construction of Park Plaza started in the second quarter 2012. The contract revenue for Park Plaza was $61.3 million as of September 30, 2013, of which we recognized $44.7 million. The total revenue from Park Plaza is estimated to be $154 million. The Company just started the revenue recognition in the first quarter of 2013, so there was no revenue in the third quarter of 2012.

Ankang Project: The Ankang project is located in Ankang city, which is approximately 260 kilometers south of Xi’an in China’s Shaanxi Province. The project consists of residential buildings and a commercial area. Construction started in the second quarter of 2012 and pre-sales started in the fourth quarter of 2012. Total projected revenue is estimated to be $206.3 million. Total GFA of the project is expected to reach 243,152 square meters. The Ankang project commenced revenue recognition for 5 residential buildings in the second quarter of 2013, and one more in third quarter of 2013. The contract revenue for the Ankang Project was $27.0 million as of September 30, 2013 and we have recognized $8.8 million in revenue. The Company started revenue recognition in the second quarter of 2013, so there was no revenue in the third quarter of 2012.

Revenues from projects completed

The revenue from completed projects totaled $9,558,908 for the nine months ended September 30, 2013, compared to $2,446,427 during the same period of 2012. Revenues from projects completed in the nine months ended September 30, 2013 were higher than those during the same period of 2012 because we had more completed projects generating revenue in the nine months of 2013 compared with the same period of 2012. The revenue for the nine months ended September 30, 2013 mainly came from Puhua Phase Two – West Region and Puhua Phase One, which generated revenues of $5.5 million and $3 million, respectively.

Other revenue

Other revenue includes property management fees, rental income, revenues from construction of low income residential buildings for the Ankang government, the gain/loss from disposal of fixed assets and construction work for third parties. We recognized $21,884,031 in other income for the nine months ended September 30, 2013 compared with $12,811,638 in the same period of 2012. The increase is explained in the following table, which summarizes the breakdown of the other income and the changes during the nine months ended September 30, 2013 and 2012:

	For the nine months ended
	September 30,		September 30,
	2013		2012
Interest income		4,090,313		106,005
Rental income		667,534		870,322
Income from property management services		2,734,441		2,947,985
External construction contracts		14,355,558		8,651,952
Gain on disposal of property and equipment		-		70,098
Miscellaneous income		36,185		165,276
Total		21,884,031		12,811,638

The increase in interest income was due to the Company’s recognition of the interest income on deposits we made in several banks as security for borrowing U.S. dollar loans from their overseas banks.

The increase in construction contract income was caused by the recognition of revenue from construction of low income residential buildings for the Ankang government by Xinxing Construction.

Cost of properties and land

The cost of properties and land for the nine months ended September 30, 2013 increased 61.8 percent to $86,517,123 compared with $53,458,120 in the same period of 2012. The increase in cost is proportionate to the increase in revenue.

Gross profit and profit margin

Gross profit for the nine months ended September 30, 2013 was $31,266,476, representing an 33.9 percent increase from $23,357,910 in the same period of 2012. The gross profit margin for the nine months ended September 30, 2013 was 23.3 percent compared with 26.9 percent in the same period of 2012. The decrease in gross profit margin was due to the adjustment of total estimate cost. Additionally, during the first quarter of 2013, we initiated a group purchase sale on our Puhua Phase Three project at a discounted selling price to improve our cash position, which also impacted overall gross margins.

During the nine months ended September 30, 2013, real estate development projects with gross profits recognized for the year ended December 31, 2012 had changes in their estimated gross profit margins. As a result of these changes in gross profit, net income for the nine months ended September 30, 2013 decreased by $383,896 (nine months ended September 30, 2012 – decreased by $2,493,484) or a decrease $0.011 for basic and diluted earnings per share for the nine months ended September 30, 2013 (nine months ended September 30, 2012 decreased by $0.071 and$0.017 in both basic and diluted earnings per share).

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) for the nine months ended September 30, 2013 increased to $11,844,682 from $10,696,590 in the same period of 2012. Such increase was primarily due to increased advertising and selling expenses during the nine months of 2013 in connection with additional projects starting pre-sale, and increased employee salary expenses, which contributed to the higher administrative expenses. SG&A accounted for 8.8 percent of total revenue in the nine months ended September 30, 2013 compared to 12.3 percent for the same period in 2012. The decrease in the ratio of SG&A to total revenue was primarily due to the increase in revenue.

Stock-based compensation

Options expire on the earlier of ten years from the date of issuance, 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 of the company, options granted vest 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.

During the nine months ended September 30, 2013, compensation expense of $1,240,065 (September 30, 2012 - $909,434) was recognized in the unaudited interim condensed consolidated statements of income. The increase in this expense was due to the issuance of 411,125 shares to various directors. 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. The total value of shares grants to directors was $900,364 for the nine months ended September 30, 2013.

Other expenses

Other expenses mainly consists of late delivery settlements, maintenance costs and some miscellaneous income. Other expenses in the nine months ended September 30, 2013 was $353,783 compared with $42,385 in the same period of 2012. This amount was primarily miscellaneous expenses from projects in Tsining.

Financing expense

Financing expense in the nine months ended September 30, 2013 increased to $6,016,604 from $394,712 in the same period of 2012. The increase was primarily due to the interest paid to Bank of China, Macau Branch and Bank of China, Singapore branch for the U.S. dollars borrowed to redeem Prax Capital’s interest in Puhua during year 2012 and 2011. Interest expense on these loans was capitalized before the end of 2012. Since the Company repaid the loans to Prax, we started to expense the interest in 2013.

Change in fair value of embedded derivative and warrant accretion expense on convertible debt

The Convertible Debt was fully repaid as of December 31, 2012. Therefore, for the nine months ended September 30, 2013, there were no changes in fair value for embedded derivatives and no accretion expenses were incurred. For the nine months ended September 30, 2012, the Company recorded a change in fair value for the warrants of $(4,162) and a change in fair value of the embedded derivatives of $(330,628) in the interim condensed consolidated statements of income.

All warrants expired during the 2012 fiscal year. As such, there were no changes in fair value of the warrants issued through private placements in 2007 for the nine months ended September 30, 2013. The gain from the change in fair value of the warrants for the nine months ended September 30, 2012 was $4,162.

Including the fair value of warrants associated with the Convertible Debt, the total gain from the change in fair value of warrants for the nine months ended September 30, 2012 was $330,628.

Provision of income taxes

The $4,044,863 provision for income taxes for the nine months ended September 30, 2013 increased from $3,984,823 for the nine months ended September 30, 2012. The increase was mainly due to increased operating income in the first nine months of 2013 compared with the same period of 2012.

Net income

Net income for the nine months ended September 30, 2013 increased 12.2 percent to $7,887,468 compared to $7,032,792 in the same period of 2012. The increase in net income was mainly due to increased total revenue.

Basic and diluted earnings per share

Both the basic earnings per share and diluted earnings per share were $0.22 in the nine months ended September 30, 2013, compared to $0.20 in the same period of 2012.

Common shares used to calculate basic and diluted EPS

The weighted average shares outstanding used to calculate the basic earnings per share and diluted earnings per share were 35,277,047 and 35,277,047 shares, respectively, in the nine months ended September 30, 2013, and 34,911,173 shares in the same period of 2012. The change in the amount of common shares is due to the 411,125 shares the Company issued to directors in the third quarter of 2013.

Foreign exchange

The company operates in China and the functional currency is the RMB but our reporting currency is the U.S. dollar, based on the exchange rate between the two currencies. The fluctuation of exchange rates during the nine months ended September 30, 2013 and the same period of 2012, when translating the operating results and financial positions at different exchange rates, created the accrued gain (loss) on foreign exchange. The gain on foreign exchange translation in the nine months ended September 30, 2013 was $4,076,140, compared with a gain of $397,512 in the same period of 2012.

Cash flow discussion

There was a net cash inflow of $78,499,326 during the nine months ended September 30, 2013 compared to a $12,041,292 net cash outflow during the same period of 2012.

Operating activity cash outflow was $9,642,050 in the nine months ended September 30, 2013, compared to operating cash outflow of $25,820,559 in the same period of 2012. The change in operating cash flow in the nine months ended September 30, 2013 was mainly due to the increased sales that led to a net increase in overall cash inflow from a decrease in real estate held for development or sale.

There was a cash outflow of $3,982,755 for investing activities for the nine months ended September 30, 2013, compared to an investing cash outflow of $7,932,511 for the same period of 2012. The cash outflow resulted from the construction costs associated with the head office located in the Baqiao New Development Zone. Since the construction of the head office is basically completed, the cash outflow in connection with the head office construction has decreased.

There was a cash inflow of $92,124,130 for financing activities for the nine months ended September 30, 2013 compared with $21,711,778 of financing cash inflow in the same period of 2012, due to higher borrowing and a lower amount of loan repayments during the nine months ended September 30, 2013. On March 22, 2013, the Company received $40,252,463 (RMB 250 million) from Dinghui to fund the pending acquisition of the land use right for the Company’s Golden Bay project.

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

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

The ratio of receivables to sales was 35 percent as of September 30, 2013 and 39 percent as of September 30, 2012. The change in ratio of receivables to sales does not represent the deterioration in the credit quality of our receivables or a change in our revenue recognition policies. In general, the Company does not recognize revenues until all permits including pre-sales permits are obtained. Other than the down payments made by customers upon the signing of the sales agreements, most of the balances from the sales are receivable through mortgage financings. Usually, the mortgage approval process ranges from two month to six months, depending on the bank’s credit limit and customer credit worthiness. The collection of receivables depends on the bank mortgage approval process. The longer the banks take to approve customer mortgages, the greater our account receivables are.

Debt leverage

Total debt consists of loans from employees and loans payable.

Total debt outstanding as of September 30, 2013 was $301.7 million compared with $202.6 million on December 31, 2012. Net debt outstanding (total debt less cash and restricted cash) as of September 30, 2013 was $99.2 million compared with $85.9 million on December 31, 2012. The Company’s net debt as a percentage of total capital (net debt plus shareholders’ equity) was 42.6 percent on September 30, 2013 and 41.8 percent on December 31, 2012.

Liquidity and capital resources

Our principal liquidity demands are based on the development of new properties, property acquisitions, and general corporate purposes. As of September 30, 2013, we had $85,721,169 of cash and cash equivalents, compared to $6,121,448 as of December 31, 2012, an increase of $79,599,721. Along with progress in projects, we can use internally generated cash flow to fund daily operations.

Commitments and Contingencies

The Company leases part of its office and hotel space under various operating lease agreements that expire in 2019.

In connection with the loans borrowed from Xinying (Notes 11 and 19), the Company also signed a finance consulting agreement with Xinying whereby the Company is committed to pay consulting fees on a quarterly basis up to July 2015 for financing services provided.

Additionally, the Company had various commitments related to land use right acquisitions with unpaid balances of approximately $16.6 million. The balance is not due until the vendor removes the existing building and changes the zoning status of the land use right certificate. Based on the current condition, the Company estimates that the balances will be paid in a year.

	Payment due by period
Commitments and Contingencies	Total		Less than 1 year		1-2 years		2-3 years		3-4 years		4-5 years		After 5 years
Operating leases	$	6,777,193	$	1,431,485	$	1,251,747	$	1,251,747	$	1,251,747	$	1,251,747	$	338,720
Finance consulting		4,786,493		2,549,020		2,237,473		-		-		-		-
Land use rights		16,590,229		16,590,229		-		-		-		-		-
Total	$	28,153,915	$	20,570,734	$	3,489,220	$	1,251,747	$	1,251,747	$	1,251,747	$	338,720

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

Loans Payable

Loans represent amounts due to various banks. These loans generally can be renewed with the banks when they expire. Loans as of September 30, 2013 and December 31, 2012 consisted of the following:

	September 30,		December 31,
	2013		2012
Bank of Beijing, Xi’an Branch
The Company signed an agreement for a line of credit of approximately $32.6 million (RMB 200 million). Originally due on November 30, 2014 with annual interest rate of 130% of People’s Bank of China prime rate. The loan was fully repaid in April 2013.	$	-	$	22,471,549

China Construction Bank
Originally due on March 6, 2015, annual interest is People’s Bank of China prime rate plus 1%. The loan is secured by the Junjing III project and land use right. The loan was fully repaid during the first quarter of fiscal 2013.		-		1,605,111

China Construction Bank
Due May 12, 2016, annual interest is 105% of People’s Bank of China prime rate (6.4%). The loan is secured by the Park Plaza Phase I project and land use right. The loan is also subject to certain repayment requirements based on percentage of sales contracts signed over total estimated sales amount of Park Plaza Phase I.		29,411,765		-

Bank of Communications offshore branch
Due on November 13, 2015, annual interest rate is 2.9%, secured by $36,764,706 (RMB 225 million) of restricted cash.		30,000,000		30,000,000

Bank of China, Macau Branch Due December 16, 2013, annual interest is based on the 3-month London Interbank offered Rate (“LIBOR”) rate plus 3.6%. The 3-month LIBOR rate for June 2013 was 0.2532% (December 31, 2012 – 0.3095%). The loan is secured by $32,679,739 (RMB 200 million) of restricted cash.		31,000,000		31,000,000

Bank of China, Singapore Office Due November 22, 2014, annual interest is based on the 3-month LIBOR rate plus 1.55%. The 3-month LIBOR rate at September 30, 2013 was 0.2532% (December 31, 2012 - 0.3095%). The loan is secured by $32,679,739 (RMB 200 million) of restricted cash.		31,800,000		31,800,000

LUSO International Bank
The Company signed an agreement for a line of credit of $9.7 million with LUSO International Bank. The amount that can be withdrawn is limited to 97% of the restricted cash securing the line of credit. The total amount will be due on March 27, 2015. As of September 30, 2013, the Company had drawn $7,761,153 from the line of $9.7 million which is 96.4% of $8,169,935 (RMB 50 million) restricted cash. Annual interest is based on the 12-month LIBOR rate at the inception of the loan, updated annually, plus 2.7%. The 12-month LIBOR applicable as at September 30, 2013 is 0.6527%.		7,761,153		7,761,153

Xi’an Xinxing Days Hotel & Suites Co., Ltd. (“Days Hotel”) (Note 19)
There are several loans from Days Hotel, including: $8,006,536 (RMB 49 million) due on December 31, 2013; $245,098 due on January 17, 2014 (RMB 1.5 million); $8,169,935 (RMB 50 million) due on November 13, 2014. All Days Hotel loans have an annual interest rate of 20%.		16,421,569		21,219,563

Changcheng Financing Company Limited
Due on November 8, 2014, annual interest rate is 19%, secured by an income producing property of Tsining.		4,901,961		4,815,332

Shanghai Xinying Fund, LLC (“Xinying”)
Annual interest is 9.6% and the effective annual interest rate is 27.16% due to related finance consulting fees (Note 18), secured by 100% ownership of Xinxing Construction’s shares and corporate guarantee from Tsining, Puhua, and the Company (Note 18), and is also subject to a consulting fee agreement (Note 18). The repayment schedule per agreement is as follows: December 1, 2013 - $1,633,987 (RMB 10 million); June 1, 2014 - $1,633,987 (RMB 10 million); August 10, 2014 - $19,607,843 (RMB 120 million).		22,875,817		24,076,660

Shenzhen Qianhai Dinghui Equity Investment Fund Partnership (“Dinghui”)
On March 22, 2013, the Company received $40,252,463 (RMB 250 million) from Dinghui to fund the pending acquisition of the land use right for the Company’s Golden Bay project and/or other construction. In connection with the loan, the Company transferred 49% of Fangzhou’s common shares to Dinghui in December 2012 as security for the loan. Dinghui will not participate in the decision making, operation and profit/loss sharing of Fangzhou. Once the land use right is obtained, the Company will use the common shares as a pledge for the loan and Dinghui will revert the transferred common shares of Fangzhou back to the Company. The loan is also guaranteed by the Company and the Company’s President. The loan is due on March 21, 2015 with an annual interest rate of 20%.		40,849,672		-

Bank of Communications
Due December 20, 2015, annual interest is 120% of People’s Bank of China prime rate (6.4%). The loan is secured by the Puhua Phase III project. The repayment schedule is as follows: June 20, 2014 - $1,633,987 (RMB 10 million); December 20, 2014 - $6,535,948 (RMB 40 million); June 20, 2015 - $8,169,935 (RMB 50 million); December 20, 2015 - $16,339,869 (RMB 100 million).		32,679,739		-

Bank of Xi’an, Weilai Branch Due April 24, 2015, annual interest is 130% People’s Bank of China prime rate (6.4%). The loan is secured by a portion of the Puhua Phase II project. The repayment schedule is as follows: December 21, 2013 - $1,633,987 (RMB 10 million); June 21, 2014 - $4,901,961 (RMB 30 million); September 21, 2014 - $4,901,961 (RMB 30 million); December 21, 2014 - $8,169,935 (RMB 50 million); April 24, 2015, $11,437,908 (RMB 70 million). The loan is also subject to certain repayment requirements based on percentage of sales contracts signed over total estimated sales amounts of Puhua Phase II.		31,045,751		-
Total	$	278,747,427	$	174,749,368

The $36.8 million of restricted cash corresponding to a $30 million loan from Bank of Communications offshore Branch, the $32.7 million of restricted cash corresponding to a $31 million loan from Bank of China, Macau Branch, the $32.7 million of restricted cash corresponding to a $31.8 million loan from Bank of China, Singapore Branch, and $8.2 million of restricted cash corresponding to a $7.76 million loan from LUSO International Bank are of the same nature. These borrowings were incurred in Hong Kong to repay the mandatorily redeemable preferred shares of Prax. However, the majority of our cash resided in mainland China and to wire funds from mainland China to Hong Kong is subject to foreign exchange restrictions imposed by the PRC government. Thus, in order for us to repay our Hong Kong and overseas counterparties, we had to utilize the special lending facilities provided by major PRC banks and foreign financial institutions (i.e. JP Morgan and Bank of China) to allow us to borrow outside of mainland China using cash we have in mainland China as guarantees.

The loans payable balances were secured by certain of the Company’s real estate held for development or sale with a carrying value of $142,269,543 at September 30, 2013 (December 31, 2012 - $44,920,900) and certain buildings and income producing properties and improvements with a carrying value of $4,228,707 at September 30, 2013 (December 31, 2012 - $4,287,898). The weighted average interest rate on loans payable as at September 30, 2013 was 8.04% (December 31, 2012 - 7.1%).

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

Due in 1 year	$	124,218,954
1 – 2 years		108,188,604
2 – 3 years		46,339,869
3 – 4 years		-
4 – 5 years		-
After 5 years		-
	$	278,747,427

Liquidity Expectation

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

According to our 2013 business plan, the total cash inflow for the whole year will be approximately US$489 million (RMB 3.04 billion) and total cash outflow will be approximately US$420 million (RMB 2.61 billion) with a net cash inflow of approximately US$69 million (RMB 0.43 million). The cash inflow includes cash generated from sales and financing from banks and fund companies. Despite the trend of decreasing operating cash flows, we expect the operating cash flow of the Company will improve during 2013 with the sale of more Puhua project and Park Plaza units. Under the plan, the Company expects to incur new borrowings amounting to RMB 1.4 billion while repaying RMB 0.4 billion in loans. The plan was made at the beginning of the year and is adjusted throughout the year according to actual performance results. We can confirm that additional borrowings will not violate any of our debt covenants.

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 development and sale value, approximately $219 million at the end of September 30, 2013, 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 coveredby this report were effective.

(b) Changes in Internal Control over Financial Reporting.

There were no changes in internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A.Risk Factors.

We have no material changes to the risk factors previously disclosed in our Form 10-K, as amended, for the year ended December 31, 2012.

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)

101.INS‡	XBRL Instance Document
101.SCH‡	XBRL Taxonomy Extension Schema Document
101.CAL‡	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF‡	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB‡	XBRL Taxonomy Extension Label Linkbase Document
101.PRE‡	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

‡ Furnished herewith

SIGNATURES

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

	China Housing & Land Development, Inc.

November 19, 2013	By:	/s/ Xiaohong Feng
		Xiaohong Feng
		Chief Executive Officer
		(Principal Executive Officer)


November 19, 2013	By:	/s/ Cangsang Huang
		Cangsang Huang
		Chief Financial Officer
		(Principal Financial and Accounting Officer)