Yangtze River Port & Logistics Ltd - Quarter Report: 2012 March (Form 10-Q)

f10q0312_kirin.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

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

For the transition period from _______________ to __________________

Commission File Number: 333-166343

KIRIN INTERNATIONAL HOLDING, INC.

(Exact name of registrant as specified in its charter)

Nevada		27-1636887
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

South Building of China Overseas Plaza No. 8 Guanghua Dongli Road Chaoyang District, Beijing, 100020 People’s Republic of China		N/A
(Address of principal executive offices)		(Zip Code)

+86 10 6577 2050

(Registrant’s telephone number, including area code)

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, and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 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 o

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 o	Accelerated Filer o	Non-Accelerated Filer o	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 o No x

There were 20,560,016 shares of the Registrant’s common stock outstanding at May 21, 2012.

KIRIN INTERNATIONAL HOLDING, INC.

FORM 10-Q QUARTERLY REPORT

MARCH 31, 2012

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION		PAGE

Item 1.	Financial Statements	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	15

PART II

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	16

SIGNATURES		16

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about the following subjects:

·	business strategies;
·	growth opportunities;

·	competitive position;
·	market outlook;

·	expected financial position;
·	expected results of operations;

·	future cash flows;
·	financing plans;

·	plans and objectives of management;
·	tax treatment of the March 2011 acquisition of Kirin China Holding, Ltd.; and

·	any other statements regarding future growth, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed under “Risk Factors” included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “Commission”) on March 30, 2012.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

In this Report, unless otherwise noted or as the context otherwise requires: “the Company,” “Kirin,” “we,” “us,” and “our” refers to the combined company Kirin International Holding, Inc. and its subsidiaries.

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

KIRIN INTERNATIONAL HOLDING, INC.

CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

TABLE OF CONTENTS

Financial Statements:	PAGE

Consolidated Balance Sheets	F-2

Consolidated Statements of Operations and Comprehensive Income (Loss)	F-3

Consolidated Statements of Cash Flows	F-4

Notes to the Consolidated Financial Statements	F-5

F-1

KIRIN INTERNATIONAL HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2012		2011
	(Unaudited)
ASSETS

Cash and cash equivalents	$	10,030,834	$	10,602,165
Restricted cash		2,111,636		1,750,381
Accounts receivable		1,067,244		1,374,770
Revenue in excess of billings		4,316,186		6,959,199
Prepayments		6,864,580		6,418,807
Other receivables		4,254,884		2,532,185
Receivable from a trust equity owner (Note 16(2))		3,498,403		3,477,052
Real estate properties and land lots under development		191,294,633		190,721,077
Property and equipment, net		319,606		255,878
Deferred tax assets		26,461		26,295

Total assets	$	223,784,467	$	224,117,809

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities
Accounts payable	$	34,318,289	$	36,987,211
Income taxes payable		247,243		70,158
Other taxes payable		10,260,884		9,080,254
Other payables and accrued liabilities		9,700,252		7,933,901
Customer deposits		36,110,275		27,707,267
Loans payable		49,172,293		50,434,427
Deferred tax liabilities		5,626,199		7,724,474
Total liabilities		145,435,435		139,937,692

Commitments and contingencies (Note 17)

Stockholders’ equity
Preferred stock at $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding		-		-
Common stock at $0.0001 par value; 500,000,000 shares authorized; 20,560,016 shares issued and outstanding on March 31, 2012 and December 31, 2011		2,056		2,056
Additional paid-in capital		36,899,450		36,698,450
Statutory reserve		424,833		424,833
Retained earnings		34,426,214		40,982,927
Accumulated other comprehensive income		6,596,479		6,071,851
Total stockholders’ equity		78,349,032		84,180,117
Total liabilities and stockholders’ equity	$	223,784,467	$	224,117,809

See notes to the consolidated financial statements

* None of the assets of the VIEs can be used only to settle obligations of the consolidated VIEs. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 1).

F-2

KIRIN INTERNATIONAL HOLDING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended March 31,
	2012			2011
	(Unaudited)			(Unaudited)

Revenue from real estate sales, net	$	1,386,274		$	3,200,469
Cost of real estate sales		7,223,451			2,247,006
Gross profit (loss)		(5,837,177	)		953,463

Operating expenses
Selling expenses		468,021			300,000
General and administrative expenses		1,248,527			623,981

Total operating expenses		1,716,548			923,981

Income (loss) from operations		(7,553,725	)		29,482

Other income (expenses)
Government grant	-				242,814
Interest expense		(447,106	)		(625,001	)

Total other expenses		(447,106	)		(382,187	)

Loss before income taxes		(8,000,831	)		(352,705	)

Income taxes benefit		(1,444,118	)		(41,608	)

Net loss	$	(6,556,713	)	$	(311,097	)

Other comprehensive income
Foreign currency translation adjustment		524,628			464,157

Comprehensive income (loss)	$	(6,032,085	)	$	153,060

Basic and diluted loss per share	$	(0.32	)	$	(0.02	)
Basic and diluted weighted average shares outstanding		20,560,016			19,031,531

See notes to the consolidated financial statements

F-3

KIRIN INTERNATIONAL HOLDING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2012 (Unaudited)			2011 (Unaudited)

Cash flows from operating activities:
Net loss	$	(6,556,713	)	$	(311,097	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation		22,083			18,571
Stock-based compensation		201,000			-
Deferred tax benefit		(2,148,683	)		(75,606	)
Changes in operating assets and liabilities
Restricted cash		(350,439	)		(2,266,730	)
Accounts receivable		316,450			(19,563	)
Revenue in excess of billings		2,688,973			6,917,701
Prepayments		(405,471	)		306,895
Other receivables		(1,709,762	)		(1,583,760	)
Receivable from a trust equity owner		640			-
Real estate properties and land lots under development		633,101			(30,895,635	)
Accounts payable		(2,904,948	)		17,652,703
Income taxes payable		176,769			(22,227	)
Other taxes payable		1,124,017			(819,426	)
Other payables and accrued liabilities		1,717,428			244,940
Customer deposits		8,233,739			5,130,419

Net cash provided by (used in) operating activities		1,038,184			(5,722,815	)

Cash flows from investing activities:
Purchases of equipment		(84,185	)		(40,906	)

Cash flows from financing activities:
Proceeds from loans		-			11,941,413
Total repayment of a loan		(1,582,248	)		-
Net proceeds from investment units issued		-			498,085
Repayments of due to a stockholder		-			(822,549	)
Net cash provided by (used in) financing activities		(1,582,248	)		11,616,949

Effect of exchange rate changes on cash and cash equivalents		56,918			511,479
Net increase (decrease) in cash and cash equivalents		(571,331	)		6,364,707

Cash and cash equivalents - beginning of the period		10,602,165			6,233,301

Cash and cash equivalents - end of the period	$	10,030,834		$	12,598,008

Supplementary cash flow information
Cash paid for income tax	$	-		$	-
Cash paid for interest expense	$	1,026,367		$	406,573

See notes to the consolidated financial statements

F-4

KIRIN INTERNATIONAL HOLDING, INC.

NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS

(UNAUDITED)

Note 1 – Organization, Variable Interest Entities and Summary of Significant Accounting Policies

(1) Organization

Kirin International Holding, Inc. (the “Company”, formerly known as Ciglarette, Inc.) was incorporated on December 23, 2009 under the laws of the State of Nevada. The Company was a development stage company and has not generated significant revenue since inception to March 1, 2011.

On March 1, 2011 (the “Closing Date”), the Company entered into a Share Exchange Agreement by and among (i) the Company, (ii) the Company’s principal stockholder, (iii) Kirin China Holding Limited, a company established under the laws of British Virgin Islands on July 6, 2010 (“Kirin China”), and (iv) the former shareholders of Kirin China, pursuant to which the former shareholders of Kirin China transferred to the Company all of their shares of Kirin China in exchange for the issuance of 18,547,297 shares of the Company’s common stock, which represented 98.4% of the Company’s total shares outstanding immediately following the closing of the transaction (such transaction, the “Share Exchange”). As a result of the Share Exchange, Kirin China became the Company’s wholly-owned subsidiary.

The Share Exchange has been accounted for as a recapitalization, whereby the Company is deemed to be the legal acquirer and Kirin China is the accounting acquirer (legal acquiree). The financial statements before the date of the Share Exchange are those of Kirin China with the results of the Company being consolidated from the date of the Share Exchange. The equity section and earnings per share has been retroactively restated to reflect the reverse acquisition and no goodwill was recorded.

On the Closing Date, and immediately prior to the Share Exchange, the Company entered into a Contribution and Assumption Agreement with Ciglarette International, Inc., a 80%-owned subsidiary, pursuant to which the Company contributed substantially all of its assets to Ciglarette International, Inc., and Ciglarette International, Inc. assumed all of the Company’s debts and other liabilities (the “Reorganization”). In addition, on the Closing Date, the Company entered into an agreement of sale (the “Agreement of Sale”) with Lisan Rahman, former principal shareholder (“Rahman”), pursuant to which the Company sold to Rahman all of the shares of Ciglarette International, Inc.’s common stock owned by the Company in exchange for the cancellation of 2,500,000 shares of the Company’s common stock owned by Rahman (the “Spin-Out”). Rahman also waived any and all rights and interests he has, had or may have with respect to such cancelled shares. The Reorganization and Spin-Out were consummated immediately prior to the Share Exchange. The Reorganization was consummated immediately prior to the Spin-Out.

Furthermore, immediately prior to the Share Exchange and immediately following the Spin-Out, 3,094,297 shares of the Company's common stock then outstanding were cancelled and retired. Kirin China deposited $50,000 into an escrow account which amount was paid to the former owners of the cancelled shares as a result of the Share Exchange having been consummated.

F-5

On the Closing Date and immediately following the Share Exchange, and on July 15, 2011, the Company completed an initial and the second closing of a private offering (the “Offering”) of investment units (each a “Unit” and collectively, the “Units”) each consisting of four (4) shares of common stock, a three-year series A warrant to purchase one (1) share of common stock of the Company at an exercise price of $6.25 per share (the “Series A Warrants”) and a three-year Series B warrant to purchase one (1) share of common stock of the Company at an exercise price of $7.50 per share (the “Series B Warrants” and collectively with the Series A Warrants, the “Investor Warrants”). An aggregate of 169,004 Units were sold in the Offering for gross proceeds to the Company of $3,380,080. The Company received $2,331,656 net proceeds from the Offering after deducting related issuance costs. As a result of the Offering, the Company issued an aggregate of 676,016 shares of common stock (the “Shares”) and warrants to acquire an aggregate of 338,008 shares of our common stock to the investors in the Offering.

In connection with the Offering, the Company issued 920,000 shares of common stock to the placement agent. The Company also issued warrants to acquire an aggregate of 54,082 shares of the company’s common stock (the “Agent Warrants”) to the placement agent. The Agent Warrants are exercisable for a period of five years from the original issuance date with an exercise price of $5.00 per share.

The exercise prices of both the Investor Warrants and the Agent Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.

Kirin China owns all of the share capital of Kirin Huaxia Development Limited (“Kirin Development”), a Hong Kong company established on July 27, 2010, which owns all of the share capital of Shijiazhuang Kirin Management Consulting Co., Ltd. (“Kirin Management”), a wholly foreign owned enterprise in Shijiazhuang City, Hebei Province, the People’s Republic of China (the “PRC” or “China”).

Kirin China has the following Operating Companies in China:

●

Hebei Zhongding Real Estate Development Co. Ltd., (“Hebei Zhongding”). Hebei Zhongding was incorporated in the name of Xingtai Zhongchao Real Estate Company Limited as a limited liability company under the laws of the PRC on April 7, 2004, and was transformed into a limited liability corporation, changing its name to Hebei Zhongding Real Estate Development Co., Ltd. on July 16, 2007. Hebei Zhongding authorized and issued 45,000,000 shares at Renminbi (RMB) 1 ($0.1207) per share. Share capital of approximately $5,430,517 was fully paid by Jianhe Guo, Jianfei Guo, Li Zhao, Liying Li and Liping Bi (collectively referred to as “Hebei Zhongding Trustees”).

●

Xingtai Zhongding Jiye Real Estate Development Co., Ltd. (“Xingtai Zhongding”). Xingtai Zhongding was established by Xingtai Business Investment Co., Ltd. (“Business Investment”) for a fully paid registered capital of $1,096,187 on August 7, 2008. On March 5, 2009, Xingtai Zhongding increased its registered and paid-in capital to $11,701,936 by contributions in forms of land use rights. Business Investment is wholly owned by Huaxia Kirin (Beijing) Technology Development Co., Ltd., which is subsequently owned by Jianfeng Guo (8%) and Liping Bi (92%, spouse of Jianfeng Guo). On December 31, 2009, Business Investment transferred its ownership in Xingtai Zhongding to Jianfeng Guo (51%), Haifeng Liu (41%) and Yuelai Xie (8%). On June 9, 2010, Haifeng Liu transferred his shareholding in Xingtai Zhongding to Huaxia Kirin (Tianjin) Equity Investment Fund Management Co., Ltd. Huaxia Kirin (Tianjin) Equity Investment Fund Management Co., Ltd. and Yuelai Xie are collectively referred to as “Xingtai Zhongding Trustees”.

F-6

Pursuant to trust agreements entered into between Jianfeng Guo and each of Hebei Zhongding Trustees and Xingtai Zhongding Trustees, Jianfeng Guo is deemed to be the beneficiary owner of all the shares of Hebei Zhongding and Xingtai Zhongding.

Hebei Zhongding and Xingtai Zhongding are collectively referred to as the “Operating Companies”.

The Operating Companies have following subsidiaries:

●

Xingtai Zhongding Construction Project Management Co., Ltd. was established on September 3, 2007 by Hebei Zhongding with 80% direct ownership, and Jianhe Guo owning remaining 20% interest. Pursuant to a trust agreement entered into between Jianhe Guo and Xingtai Zhongding, Xingtai Zhongding is deemed to be the owner of all the shares of Xingtai Zhongding Construction Project Management Co., Ltd.;

●

Xingtai Zhongding Business Service Co., Ltd. (“Business Service”) was established as a limited liability corporation on July 29, 2008 in the name of Xingtai Zhongding Business Service Corporation Limited with authorized 6,000,000 shares at RMB1 per share. Share capital was fully paid up by Jianfeng Guo and other 10 individuals (“Other Initial Sponsors”). Business Service subsequently transformed into a limited liability company. Pursuant to trust agreement between Jianfeng Guo and Other Initial Sponsors, Jianfeng Guo is deemed to be the sole beneficiary owner of all the shares of Business Service. On July 1, 2009, Xingtai Zhongding acquired 100% of the equity interests of Business Service, from its predecessor equity holders for a purchase price of RMB 6,000,000 (approximately $876,000). The acquisition is a business combination under common control; therefore the acquisition was accounted for using pooling-of-interest method. The acquired business and net assets were recorded at book value as if the business and the net assets have been owned by the Company from the earliest comparative period presented, the operations are combined from the earliest date. In 2011, Business Service changed its name to Xingtai Zhongding Kirin Real Estate Development Co., Ltd.;

●	On December 24, 2009, Xingtai Zhongding established wholly-owned subsidiary Huaxia Kirin (Beijing) Property Management Co., Ltd.;

●	On January 19, 2010, Xingtai Zhongding established wholly-owned subsidiary Huaxia Kirin (Beijing) Garden Project Co., Ltd.;

●	On December 6, 2010, Business Service established wholly-owned subsidiary Xingtai Hetai Real Estate Development Co., Ltd.;

●	On December 19, 2011, Huaxia Kirin (Beijing) Property Management Co., Ltd. established wholly-owned subsidiary Hebei Zhongding Property Service Co., Ltd.

F-7

Iwamatsu Reien, a Japanese citizen, holds 100% of the shares of Prolific Lion Limited, Valiant Power Limited and Solid Wise Limited, each of which were incorporated in the British Virgin Islands (each a “BVI Company” and collectively the “BVI Companies”) and which respectively own 82%, 9% and 9% of the shares of Kirin China. On November 22, 2010, Iwamatsu Reien entered into Call Option Agreements (collectively, the “Call Option Agreements”) with each of Jianfeng Guo, Longlin Hu and Xiangju Mu (collectively, the “Purchasers”) pursuant to which Jianfeng Guo is entitled to purchase up to 100% shares of Prolific Lion Limited, Longlin Hu is entitled to purchase up to 100% shares of Valiant Power Limited and Xiangju Mu is entitled to purchase up to 100% of the shares of Solid Wise Limited, each at a price of $0.0001 per share for a period of five years if the Operating Companies and their respective subsidiaries achieve certain net income targets for the fiscal years ended December 31, 2009, 2010 and 2011.. The Operating Companies and their respective subsidiaries have achieved specified net income targets. As of May 21, 2012, none of Jianfeng Guo, Longlin Hu or Xiangju Mu exercised this option.

Also pursuant to a Call Option Agreement between Iwamatsu Reien and Jianfeng Guo, Jianfeng Guo has been irrevocably granted the exclusive voting rights with respect to the shares of Prolific Lion Limited held by Iwamatsu Reien. Accordingly, Jianfeng Guo may be deemed to beneficially own the Kirin China’s common stock owned by Prolific Lion Limited. Furthermore, Jianfeng Guo is empowered to appoint directors of Kirin China through Resolution of Shareholders, who manage the business and affairs of Kirin China, pursuant to the Memorandum and Articles of Association of Kirin China, and thereby effectively controls Kirin China, which subsequently controls Kirin Management through its ownership of Kirin Development.

(2) Variable Interest Entities

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through the variable interest entities (“VIEs”). On December 22, 2010, a series of contractual arrangements (the “VIE Agreements”) were entered between Kirin Management and each of Operating Companies and their respective shareholders. As a result of the VIE Agreements, Kirin Management has the power to direct the VIEs’ activities that most significantly impact the VIEs’ economic performance and the obligation to absorb the VIEs’ losses that could be significant to the VIEs and the right to receive benefits from the VIEs that could be significant to the VIEs. Therefore Kirin Management is deemed to have a controlling financial interest in the VIEs, is considered the primary beneficiary of and consolidates with the VIEs.

F-8

The VIE Agreements are summarized below:

Entrusted Management Agreement Pursuant to the Entrusted Management Agreement between Kirin Management, the Operating Companies and the shareholders of the Operating Companies, the Operating Companies and their shareholders agreed to entrust the business operations of the Operating Companies and its management to Kirin Management until Kirin Management acquires all of the assets or equity of the Operating Companies. Kirin Management has the full and exclusive right to manage and control all cash flow and assets of the Operating Companies and to control and administrate the financial affairs and daily operation of the Operating Companies. In exchange, Kirin Management is entitled to the Operating Companies’ earnings before tax as a management fee which depends on the before-tax profit of the Operating Companies and does not have a minimum requirement. No management fee has been paid to date. Kirin Management is also obligated to pay all of the Operating Companies’ debts to the extent the Operating Companies are unable to pay such debts. Specifically, if the Operating Companies do not have sufficient cash to repay their debts when they become due and are unable to obtain any extension of, or borrow new loans to repay, such debts, Kirin Management will be responsible for paying those debts on behalf of the Operating Companies to the extent that the Operating Companies are unable to pay such debts. Likewise, if the Operating Companies’ net assets are lower than their registered capital, Kirin Management will be responsible for funding the deficit. The Entrusted Management Agreement does not specify how Kirin Management and the Operating Companies will determine Operating Company debt and the respective Operating Companies’ ability to pay that debt. There is no existing written or oral arrangement or agreement regarding any aspect of the calculation or payment of the debts of the Operating Companies except the Entrusted Management Agreement. Due to the lack of binding guidance as to such matters, there may be ambiguity in the future regarding Kirin Management’s responsibility to pay the debt obligations of the Operating Companies. To date, Kirin Management has not paid any of the Operating Companies’ respective debts. There is no renewing clause in the Entrusted Management Agreement. Unless otherwise specified or legally prohibited, any newly signed agreement shall be deemed as a new and independent agreement. The term of the Entrusted Management Agreement shall be from the effective date of it to the earlier of the following: (1) the winding up of the Operating Companies, or (2) the date on which Kirin Management completes the acquisition of the Operating Companies. Pursuant to the Entrusted Management Agreement, the Operating Companies and their shareholders have the obligation to not terminate this Agreement unilaterally for any reason whatsoever.

Shareholders’ Voting Proxy Agreement Pursuant to the Shareholders’ Voting Proxy Agreement between Kirin Management and the shareholders of the Operating Companies, the Operating Companies’ shareholders irrevocably and exclusively appointed the board of directors of Kirin Management as their proxy to vote on all matters that require the approval of the Operating Companies shareholders. Mr. Guo is the sole member of the board of directors of Kirin Management. There is no renewing clause in the Shareholders’ Voting Proxy Agreement. Unless otherwise specified or legally prohibited, any newly signed agreement shall be deemed as a new and independent agreement. Pursuant to the Shareholders’ Voting Proxy Agreement, it shall become effective upon the execution by Kirin Management and the shareholders of the Operating Companies and shall not be terminated prior to the completion of acquisition of all of the shares in, or all assets or business of, the Operating Companies by Kirin Management.

F-9

Exclusive Option Agreement Under the Exclusive Option Agreement between Kirin Management, the Operating Companies and the shareholders of the Operating Companies, the Operating Companies’ shareholders granted to Kirin Management an irrevocable exclusive purchase option to purchase all or part of the shares or assets of the Operating Companies to the extent that such purchase does not violate any PRC law or regulations then in effect. If Kirin Management exercises its option, Kirin Management and the Operating Companies’ shareholders shall enter into further agreements regarding the exercise of the option, including the exercise price, which such additional agreements shall take into consideration factors such as the then applicable PRC laws and the then appraisal value of the Operating Companies. The exercise price shall be refunded to Kirin Management or the Operating Companies at no consideration in a manner decided by Kirin Management, in its reasonable discretion. Since Kirin Management controls and receives the economic benefits of the Operating Companies through the Contractual Arrangements, exercising the option at this point will not result in any immediate additional benefit to the Company. Kirin Management will exercise the option when the Company believes that exercising the option would be more beneficial to it. The Exclusive Option Agreement was set up in this manner as currently foreign invested real estate enterprises are strictly controlled and heavily regulated by the PRC authorities. The Company thinks it will be subject to complex procedural requirements if it attempts to obtain approval for the acquisition of share equity or assets of the Operating Companies under the current PRC regulations. There is no renewing clause in the Exclusive Option Agreement. Unless otherwise specified or legally prohibited, any newly signed agreement shall be deemed as a new and independent agreement. Pursuant to the Exclusive Option Agreement, it shall be effective upon the execution by Kirin Management, the Operating Companies and the shareholders of the Operating Companies, and shall remain effective thereafter; the Exclusive Option Agreement may not be terminated without the unanimous consent of Kirin Management, the Operating Companies and the shareholders of the Operating Companies, except that Kirin Management may, by giving thirty days prior notice to the Operating Companies and the shareholders of the Operating Companies, terminate it.

These agreements are governed by the PRC laws and regulations. PRC laws and regulations concerning the validity of the VIE Agreements are uncertain, as many of these laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement by the PRC government may involve substantial uncertainty. Further, these VIE Agreements are governed by PRC laws and provide for the resolution of disputes through arbitration proceedings pursuant to PRC laws. If Hebei Zhongding or Xingtai Zhongding or their respective stockholders fail to perform their obligations under the VIE Agreements, the Company may have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, and there is a risk that the Company may be unable to obtain these remedies. Therefore the VIE Agreements may not be as effective in providing control over Hebei Zhongding and Xingtai Zhongding as direct ownership. Because the Company relies on Hebei Zhongding and Xingtai Zhongding for revenue, any termination of or disruption to these VIE Agreements could detrimentally affect the business of the Company.

F-10

The Company’s revenues are earned by Kirin Management. However, PRC regulations restrict the ability of the PRC subsidiary to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividend by the PRC subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Kirin Management is also required under PRC laws and regulations to allocate at least 10% of the annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in such fund reaches 50% of its registered capital. Kirin Management cannot distribute the profits or pay dividends out of China before it sets aside such statutory fund unless the amounts in such fund reaches 50% of its registered capital. Kirin Management has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Although the statutory reserves can be used to, among other things, increase the registered capital and eliminate future losses in excess of retained earnings of Kirin Management, these reserves are not distributable as cash dividends. These statutory reserves may only be applied to the development of Kirin Management; consequently funds distributable up the corporate structure made available by Kirin Management may be limited. Kirin Management have the discretion to allocate a portion of their after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Since the statutory reserves and the staff welfare and bonus funds cannot be distributed to the shareholder except in the event of liquidation, allocation of the statutory reserves and the staff welfare and bonus funds will limit the funds available to Kirin Management that are distributable up the corporate chain.

In addition, the PRC Income Tax Law also imposes a 10% withholding income tax on dividends generated on or after January 1, 2008 and distributed by a resident enterprise to its foreign investors, if such foreign investors are considered as non-resident enterprise without any establishment or place within China or if the received dividends have no connection with such foreign investors’ establishment or place within China, unless such foreign investors’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

Summary information regarding consolidated VIEs is as follows:

	March 31,		December 31,
	2012 (Unaudited)		2011
ASSETS

Cash and cash equivalents	$	8,669,882	$	8,913,496
Restricted cash		2,111,636		1,750,381
Accounts receivable		1,067,244		1,374,770
Revenue in excess of billings		4,316,186		6,959,199
Prepayments		6,864,580		6,418,807
Other receivables		3,963,978		2,241,279
Receivable from a trust equity owner		3,498,403		3,477,052
Real estate properties and land lots under development		191,294,633		190,721,077
Property and equipment, net		247,144		255,878
Deferred tax assets		26,461		26,295
Total assets	$	222,060,147	$	222,138,234


Accounts payable	$	34,318,289	$	36,987,211
Income taxes payable		247,243		70,158
Other taxes payable		10,260,884		9,080,254
Other payables and accrued liabilities		9,698,094		7,932,058
Customer deposits		36,110,275		27,707,267
Loans payable		49,172,293		50,434,427
Deferred tax liabilities		5,626,199		7,724,474
Total liabilities	$	145,433,277	$	139,935,849

F-11

None of the assets of the consolidated VIEs can be used only to settle obligations of the VIEs and none of the liabilities of the consolidated VIEs are recourse to the general credit of the Company.

For the three months ended March 31, 2012 and 2011, the financial performance of VIEs reported in the consolidated statements of income and comprehensive income includes sales of approximately $1.4 million and $3.2 million, respectively, cost of sales of approximately $7.2 million and $2.2 million, respectively; operating expenses of approximately $1.3 million and $0.8 million, respectively; and net loss of approximately $6.2 million and $0.3 million, respectively.

(3) Description of operations

The Company is engaged in the development and sales of residential and commercial real estate properties, and development of land lots in Xingtai city, Hebei province, China.

(4) Basis of Presentation

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Form 10-K filed on March 30, 2012.

The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries and VIEs. All significant inter-company transactions and balances have been eliminated in consolidation.

The unaudited consolidated financial statements as of March 31, 2012 and for the three -month periods ended March 31, 2012 and 2011 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have not been included.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2012, its consolidated results of operations and cash flows for the three-month ended March 31, 2012 and 2011, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

F-12

(5) Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include percentage-of-completion of properties under construction and related revenue and costs recognized, allowance for doubtful accounts, and the assessment of impairment of real estate properties and land lots under development. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

(6) Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC Subtopic 820-10 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC Subtopic 820-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Subtopic 820-10 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company did not have any nonfinancial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011.

F-13

Reporting Currency and Foreign Currency Translation

The Company’s functional currency is the United States dollar (“US$”). The functional currency of Kirin China and Kirin Development is US$. The functional currency of the Company’s subsidiary, VIEs and their subsidiaries in the PRC is Renminbi (“RMB”). The Company’s reporting currency is US$. The assets and liabilities of the Company’s subsidiary, VIEs and their subsidiaries in China are translated at the exchange rate on the balance sheet dates, stockholders’ equity is translated at the historical rates and the revenues and expenses are translated at the weighted average exchange rates for the periods. The resulting translation adjustments are reported under accumulated other comprehensive income in the consolidated statements of operations and comprehensive income (loss) in accordance with ASC 220, Comprehensive Income.

Since July 2005, the RMB is no longer pegged to the US$. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the US$ in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. PRC exchange control regulations may also restrict the Company’s ability to convert RMB into foreign currencies.

Revenue Recognition

Real estate sales are reported in accordance with the provisions of ASC 360-20, Property, Plant and Equipment, Real Estate Sales.

Revenue from the sales of completed properties and properties where the construction period is twelve months or less is recognized by the full accrual method when (a) sale is consummated; (b) the buyer’s initial and continuing involvements are adequate to demonstrate a commitment to pay for the property; (c) the receivable is not subject to future subordination; (d) the company has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a substantial continuing involvement with the property. A sale is not considered consummated until (a) the parties are bound by the terms of a contract or agreement, (b) all consideration has been exchanged, (c) any permanent financing of which the seller is responsible has been arranged, (d) all conditions precedent to closing have been performed. Fair value of buyer’s payments to be received in future periods pursuant to sales contract is classified under accounts receivable. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability.

The Company adopts the percentage-of-completion method of accounting for revenue recognition for all building construction projects in progress in which the construction period was expected to be more than twelve months at that date.

F-14

Revenue and profit from the sale of development properties where the construction period is more than twelve months is recognized by the percentage-of-completion method on the sale of individual units when the following conditions are met: (a) construction is beyond a preliminary stage; (b) the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit; (c) sufficient units have already been sold to assure that the entire property will not revert to rental property; (d) sales prices are collectible and (e) aggregate sales proceeds and costs can be reasonably estimated. If any of these criteria are not met, proceeds are accounted for as deposits until the criteria are met and/or the sale consummated.

Under the percentage of completion method, revenues from units sold and related costs are recognized over the course of the construction period, based on the completion progress of a project. In relation to any project, revenue is determined by calculating the ratio of completion and applying that ratio to the contracted sales amounts. The Company uses a cost-to-cost method to measure the ratio of completion. Qualified construction quality supervision firms are engaged by the Company, as required by relevant laws and regulations in the PRC, to determine that pieces of construction completed by contractors have met predetermined quality and safety standards, and are eligible to be counted towards costs. Cost of sales is recognized by multiplying the ratio by the total budgeted costs. Revenue recognized to date in excess of amounts received from customers is classified under revenue in excess of billings. Amounts received from customers in excess of revenue recognized to date are classified under customer deposits. Any losses incurred or identified on real estate transaction are recognized in the period in which the transaction occurs.

The Company’s real estate projects usually require multiple years to complete. During the course of the construction, total budgeted costs of the Company’s projects are subject to modifications due to invariable factors including change of designs, unforeseen engineering difficulties, revision of government-regulated labor costs, adjustment of commodity prices, and claims initiated by the Company’s contractors. The Company enters into fixed-price pre-sale contracts with homebuyers. Under certain circumstances that characteristics of units to be delivered should be changed, including adjustments of units’ size and decoration standards, the Company and homebuyers will mutually agree to revise the pre-sale contracts’ price. The Company’s engineers, project managers, and financial professionals review a project’s budgeted revenue and costs periodically. Changes to budgeted revenue are recognized when the Company and homebuyers reach an agreement on revised clauses of the pre-sale contracts. Changes to budgeted costs are recognized when additional expenditures are probable and the amount can be measured reliably. The effects of such changes are accounted for in the period of change and cumulative revenue and cost of sales recognized to date are adjusted to reflect the latest estimates.

Except for the down payment, the rest of contract price can be settled by several installments or financed by mortgage. The Company requires customers to pay non-refundable cash down payment equivalent to no less than 20% of the contract price upon the execution of sale or pre-sale contracts prior to recognizing revenue under either full-accrual method or percentage-of-completion method. The cash down payment collected from customers subordinates to no claims. If buyer’s purchase is financed by mortgage the Company does not recognize revenue until the application for the mortgage loan has been filed and the Company reasonably believes the mortgage can be approved. The Company provides guarantees for mortgage loans from financial institutions to customers (see “Restricted cash”). Such guarantees expire when customers have obtained House Ownership Certificate of their purchased properties and the mortgage has been registered in favor of the financial institutions. Because guarantees of mortgage do not cover any portion of non-refundable cash down payment received by the Company from customers, the Company does not consider guarantees when determining recognizing revenues under either full-accrual method or percentage-of-completion method.

Real Estate Capitalization and Cost Allocation

Properties under development or held for sale consist of residential and commercial units under construction and units completed. Properties under development or held for sale are stated at cost or estimated net realizable value, whichever is lower. Costs include costs of land use rights, direct development costs, interest on indebtedness, construction overhead and indirect project costs. The Company acquires land use rights with lease terms ranging from 40 to 70 years through government-organized auctions, private sale transactions or capital contributions from shareholders. Land use rights are divided and transferred to customers after the Company delivers properties. The Company capitalizes payments for obtaining the land use rights, and allocates to specific units within a project based on units’ gross floor area. Costs of land use rights for the purpose of property development are not amortized. Other costs are allocated to units within a project based on the ratio of the sales value of units to the estimated total sales value.

F-15

Government Grants

Government grants relating to real estate projects developed by the Company are recognized as other income when the Company has complied with the conditions attached to the grant and the grant’s collection is reasonably assured.

In 2008, Xingtai Zhongding was entitled to a government grant of approximately $25,138,655 relating to Kirin County project to subsidize modernization of the neighborhood where the real estate project situated, and control of property price volatility. The Company believes the government’s demands associated with the grant are gradually fulfilled as the construction and pre-sale of Kirin County make progress, and accordingly recognizes grant income at the percentage of construction completed during the year of the total grant amount. For the three months ended March 31, 2012 and 2011, the Company recognized $nil and $242,814 grant income. The local government has arranged a lump sum payment of the grant to Business Investment, a trust equity owner on behalf of Jianfeng Guo, prior to the grant’s conditions being met out of financial consideration because it lacked managing staff and concerned that the funds would be re-assigned or invalidated without an immediate recipient. Pursuant to the arrangement, Business Investment provides this grant money to Xingtai Zhongding in proportion to the percentage of the project completed as a measure to ensure that the project satisfies the grant’s guidelines. The grant does not have refund conditions and the Company believes government will not revoke the grant or claw back cash remitted to the escrow account unless the construction and sale of Kirin County project is cancelled by the Company. As at March 31, 2012, the Company didn’t receive any request from government demanding revocation and/or partial refund of the grant previously given, and the Company expects no development relating to the Kirin County project will cause government to request the grant’s refund in next twelve months.

Capitalization of Interest

In accordance with ASC 360, Property, Plant and Equipment, interest incurred during construction is capitalized to properties under development. For the three months ended March 31, 2012 and 2011, $867,908 and $nil were capitalized as properties under development, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company maintains majority of its bank accounts in the PRC. All PRC bank balances are denominated in RMB. Cash includes cash on hand and demand deposits in accounts maintained with state-owned and commercial financial institutions within the PRC. China does not have a deposit insurance system; however, the credit risk on bank balances are limited because the Company conducts transactions and deposits balances with several state-owned banks with high credit ratings assigned by international credit rating agencies.

F-16

Restricted Cash

There are two important timings for mortgage business of PRC banks: (1) Execution of mortgage agreement: PRC banks grant mortgage loans to home purchasers and will credit the full amount to the Company account once the bank and the purchaser enter into mortgage agreement, which generally will be before the completion of the construction of projects. (2) Issuance of House Ownership Certificate to the purchasers. At the time of execution of mortgage agreement, there are no House Ownership Certificate therefore the purchaser has no legal right to the house and therefore they cannot mortgage the house to banks. Banks will ask the developer to provide guarantee to the loan instead. When the House Ownership Certificate is issued, banks will release the guarantee ability of the developer and mortgage the house in question. If the condominiums are not completed and the new homebuyers have no House Ownership Certificate, to secure the loan, as a common practice in China, the banks will release only 95% loan to the Company and will require that the Company open a separate account with the bank and deposit and freeze the remaining 5% of the mortgage amount to further secure the bank’s interests before the mortgage of the house with House Ownership Certificate. Because bank requires the freeze of the 5% deposit, the amount therein shall be classified on the balance sheet as restricted cash. Interest earned on the restricted cash is credited to the Company’s normal bank account. The bank will release the restricted cash after homebuyers have obtained the House Ownership Certificate and mortgage the house to bank. Total restricted cash amounted to $2,111,636 and $1,750,381 as of March 31, 2012 and December 31, 2011, respectively. These deposits are not covered by insurance. The Company has not experienced any losses in such accounts and management believes it is not exposed to any risks on its cash in bank accounts.

Income Taxes

The Company follows ASC 740, Income Taxes, which require the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company’s subsidiary, VIEs and their subsidiaries located in China are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

According to the Income Tax Laws of the PRC for real estate developers, income tax of the Company is calculated by project. When all units of a project are sold, tax authorities will assess the tax due on the project and issue a tax due notification to the Company. The Company has to pay the tax by the due date on the notification. If the Company does not pay the tax by the due date, the tax authorities will charge the Company interest.

F-17

Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and it prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosures and transitions.

The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the PRC government. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current PRC government officials.

Land Appreciation Tax (“LAT”)

In accordance with the relevant taxation laws in the PRC, the Company is subject to LAT based on progressive rates ranging from 30% to 60% on the appreciation of land value, which is calculated as the proceeds of sales of properties less deductible expenditures, including borrowings costs and all property development expenditures. LAT is prepaid at 1% to 2% of the pre-sales proceeds each year as required by the local tax authorities, and is settled generally after the construction of the real estate project is completed and majority of the units are sold. The Company provides LAT as expensed when the related revenue is recognized based on estimate of the full amount of applicable LAT for the real estate projects in accordance with the requirements set forth in the relevant PRC laws and regulations.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s only components of comprehensive income during the three months ended March 31, 2012 and 2011 were net loss and the foreign currency translation adjustment.

F-18

Earnings (loss) per Share

The Company reports earnings (loss) per share in accordance with ASC 260, “Earnings per Share.” ASC 260 requires presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share excludes dilution and is computed by dividing income (loss) available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants and convertible preferred stock, to issue common stock were exercised and converted into common stock. Dilutive securities having an anti-dilutive effect on diluted earnings (loss) per share are excluded from the calculation.

Advertising Expenses

Advertising costs are expensed as incurred, or the first time the advertising takes place, in accordance with ASC 720-35, Advertising Costs. For the three months ended March 31, 2012 and 2011, the Company recorded an advertising expense of $163,269 and $138,765, respectively.

Property Warranty

The Company provides customers with warranties which cover major defects of building structure and certain fittings and facilities of properties sold as stipulated in the relevant sales contracts. The warranty period varies from two to five years, depending on different property components the warranty covers.

The Company constantly estimates potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a property. Reserves are determined based on historical data and trends with respect to similar property types and geographical areas. The Company monitors the warranty reserve and makes adjustments to its pre-existing warranties, if any, in order to reflect changes in trends and historical data as information becomes available. The Company may seek further recourse against its contractors or any related third parties if it can be proved that the faults are caused by them. In addition, the Company withholds up to 5% of the contract total payment from contractors for periods of two to five years. These amounts are included in liabilities, and are only paid to the extent that there have been no warranty claims against the Company relating to the work performed or materials supplied by the contractors. As at March 31, 2012 and December 31, 2011, the Company retained $137,714 and $144,037 contract payment to contractors, and the Company didn’t experience any incidences where the withheld amounts were less than the amounts the Company had to pay for the defects of properties. The Company didn’t provide any warranty reserve. For the three months ended March 31, 2012 and 2011, the Company incurred $nil and $nil incidental costs in addition to the amount retained from contractors.

Impairment Losses

Completed properties and land lots are reported in the balance sheet at the lower of their carrying amount or fair value less costs to sell. Land to be developed and land or property under development is assessed for impairment when management believes that events or changes in circumstances indicate that its carrying amount may not be recoverable. Based on this assessment, land lot or property that is considered impaired is written down to its fair value. Impairment losses are recognized through a charge to expense. No impairment of completed or in-development land lot or property was recognized for the three months ended March 31, 2012 and 2011.

F-19

Stock-Based Compensation

The Company adopted ASC 718 Stock Compensation. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. The fair value estimate is based on the share price and other pertinent factors. The Company estimates forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company used a mix of historical data and future assumptions to estimate pre-vesting forfeitures and to record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized over the requisite service periods of the awards, which are generally the vesting periods.

Distribution of Earnings and Reserve Funds

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions from its subsidiaries established in China. The earnings reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries, and PRC legal restrictions permit payments of dividends out of PRC subsidiaries’ statutory accumulated after-tax profits.

In accordance with the PRC Company Law, the subsidiaries of the Company established in China are required to transfer 10% of their profit after tax, as determined in accordance with PRC accounting standards and regulations, to the statutory reserves until such reserves reach 50% of the registered capital or paid-in capital of the subsidiaries. Subject to certain restrictions set out in the PRC Company Law, the statutory reserves may be distributed to stockholders or owners in the form of share bonus issues to increase share capital, provided that the remaining balance after the capitalization is not less than 25% of the registered capital. These reserves are not distributable as cash dividends.

Seasonality

The Company typically experience seasonal variations in quarterly operating results and capital requirements. Historically, unfavorable weather conditions for construction and interruptions of labor supplies caused by Lunar New Year in the first quarter of a calendar year slow the construction progress of the Company’s real estate projects, reduce the operating income and demand for working capital. The construction progress returns to normal in the second, third and fourth quarters of a year. We expect this seasonal pattern to continue.

Recently Issued Accounting Pronouncements

There are no recent accounting pronouncements that are expected to have an impact on the consolidated financial statements.

F-20

Note 2 – Accounts Receivable

	March 31,		December 31,
	2012 (Unaudited)		2011

Receivable from sales of condominium units	$	490,142	$	487,061
Receivable from sales of land use rights		577,102		887,709

	$	1,067,244	$	1,374,770

Accounts receivable consists of balances due from customers for the sales of land use rights and completed properties in accordance with full accrual method. After customers made sufficient down payment, the Company recognizes related revenue. These receivable balances are unsecured and bear no interest.

Note 3 – Revenue in Excess of Billings

Revenue in excess of billings represents the amount revenue recognized for certain residential and commercial units in Kirin County project in accordance with the percentage-of-completion method over the cumulative payments received from respective customers. Pursuant to sales contracts, customers are required to pay a minimum 20% of the full contract amount as a down payment, and pay the remaining balances before delivery of the properties by the Company, which is expected to be within the next twelve months.

Note 4 – Prepayments

Prepayments consisted of the following:

	March 31,		December 31,
	2012 (Unaudited)		2011

Advances to suppliers and contractors	$	1,746,279	$	1,658,920
Financing service fees charged as prepaid interests		477,578		684,426
Prepaid stock subscription for a prospective investee		3,162,205		3,142,332
Excessive business tax and LAT liabilities		1,478,518		933,129

	$	6,864,580	$	6,418,807

Pursuant to financing service contracts entered into between the Company, Xingtai Chengjiao Rural Credit Cooperative Union Association, and Industrial and Commercial Bank of China, Xingtai Branch, the Company paid service fees for the origination of several long-term loans before they were released to the Company. The financing service fees are regarded as prepaid loan interest and amortized over the respective terms of the loans.

F-21

In June 2011, the Company agreed to become an investor of Hebei Xingtai Rural Commercial Bank Co., Ltd. (“Xingtai RC Bank”) The Company prepaid $3,162,205 (RMB20,000,000) to purchase 16,000,000 shares, or 6.96% of Xingtai RC Bank’s common stock. The establishment of Xingtai RC Bank will be based on restructured business of Xingtai Chengjiao Rural Credit Cooperative Union Association, which provides several loans to the Company (see Note 13), and is subject to the approval by China banking regulatory agencies.

Business tax and LAT are payable each year at 5% and 1% - 2% of customer deposits received. The Company recognizes sales-related business tax and LAT in the income statement to the extent that they are proportionate to the revenue recognized each period. Any excessive amounts of business and LAT liabilities recognized at period-end pursuant to tax laws and regulations over the amounts recognized in the income statement are capitalized in prepayments and will be expensed in subsequent periods.

Note 5 – Other Receivables

The components of other receivables were as follows:

		March 31,		December 31,
		2012		2011
	(Unaudited)
Working capital borrowed by contractors		$	3,514,244	$	2,184,535
Others			740,640		347,650

		$	4,254,884	$	2,532,185

Working capital borrowings by contractors and Kong Village Relocation Program are unsecured, bear no interest and become payable before the completion of the related construction and program. There was no allowance for doubtful accounts as at March 31, 2011 and December 31, 2011.

Note 6 – Real Estate Properties and Land Lots under Development

The components of real estate properties and land lots under development were as follows:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Properties under development
Kirin County (including adjacent shopping arcade)
Costs of land use rights	$	7,706,563	$	7,528,534
Other development costs		9,393,589		11,146,624
No. 79 Courtyard
Costs of land use rights		85,142,489		80,957,717
Other development costs		4,437,446		7,557,463
Kirin Bay
Costs of land use rights		44,611,717		42,446,312
Other development costs		2,504,123		4,239,332

Land lots under development		37,498,706		36,845,095

	$	191,294,633	$	190,721,077

F-22

As at March 31, 2011, the Company has obtained certificates representing titles of the land use rights used for the development of Kirin County, No.79 Courtyard, Kirin Plaza and Kirin Bay projects. The Company did not have land use rights not assigned to a real estate development project.

Part of Company’s real estate held for development and land lots under development were pledged as collateral for financial institution loans (Note 12).

Kong Village Relocation Program

Pursuant to incentive policies issued by Xingtai local government encouraging modernization of villages situated in urban vicinity, the Company participated in Kong Village Relocation Program in which the Company constructs a real property and transfers to local government at no costs, and reimburses costs incurred by local government compensating villagers and zoning and developing vacated land lots. In exchange for the financing, the Company will be invited to bid for vacated land parcels for residential and commercial use at public auction at market price, and majority of the proceeds received by local government will be refunded to the Company. The Company capitalizes all expenditures attributable to Kong Village Relocation Program under land lots under development. The Company expects to secure land use rights through the auctions and will use acquired land use rights for the development of Kirin Bay and other project. In July 2011 the Company obtained the certificate of land use rights for a piece of land covered by the program through the aforementioned public auction, and used it for the development of Kirin Bay project. Other land lots covered by the program are expected to be auctioned and obtained by the Company in the near future.

Note 7 – Accounts Payable

	March 31,		December 31,
	2012 (Unaudited)		2011

Payables in relation to acquisitions of land use rights	$	16,297,699	$	17,609,322
Construction contractors		18,020,590		19,377,889

	$	34,318,289	$	36,987,211

F-23

In March 2011, the Company entered into a supplementary agreement with Huada Mining Co., Ltd. in relation to the acquisition of land use rights for the development of No. 79 Courtyard project. The Company agreed to increase the land use rights’ purchase price in the original contract, to compensate Huada Mining Co., Ltd. for its inability to realize the appreciation of the transferred land use rights during the substantially prolonged contract closing period of three years. The Company has unconditionally received the title of the land use rights in 2010 before the commencement of the supplementary agreement negotiation. In accordance with the supplementary agreement, the Company and Huada Mining Co., Ltd. will not pursue any adjustments of the land use rights’ transfer price. As at March 31, 2012, payable to Huada Mining Co., Ltd. was $13,926,352. The Company and Huada Mining Co., Ltd. have agreed that remaining balance will be repaid in an unspecific near future period, taking into accounts of the Company’s liquidity. Unpaid balance does not bear interest.

In May 2011, the Company entered into an agreement with Xingtai Kong Village Real Properties Co., Ltd., a company controlled by Kong Village Committee. The Company agreed to pay $22,649,880 to compensate additional costs incurred by Kong Village Committee for the Kong Village Relocation Program. At March 31, 2012, unpaid balance plus accrued interest was $2,371,347. The Company capitalized the additional consideration in the costs land lots under development.

Note 8 – Other Payables and Accrued Liabilities

The components of other payables and accrued liabilities were as follows:

	March 31,		December 31,
	2012 (Unaudited)			2011

Unrecognized tax benefit (Note 10(2))	$	6,213,733		$	6,174,682
Utility deposits from customers		3,015,560			1,507,034
Others		470,959			252,185

	$	9,700,252		$	7,933,901

Note 9 – Customer Deposits

Customer deposits consist of amounts received from customers relating to the sale of residential and commercial units. In the PRC, customers generally obtain financing for the purchase of their residential unit prior to the completion of the project. The lending institutions will provide the funds to the Company upon the completion of the financing rather than the completion of the project. The Company receives these funds and recognizes them as a liability until the revenue can be recognized. As of March 31, 2012 and December 31, 2011, the Company received $36,110,275 and $27,707,267 deposits from customers, respectively.

F-24

Note 10 – Income Taxes

(1) Corporate income tax

The Company is incorporated in the State of Nevada in the U.S., and is subject to a gradual U.S. federal corporate income tax of 15% to 35%. The State of Nevada does not impose any corporate state income tax. Kirin China is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Kirin China is not subject to tax on income or capital gains. In addition, no British Virgin Islands withholding tax is imposed upon payments of dividends by Kirin China. Kirin Development is incorporated in Hong Kong. Kirin Development did not earn any income that was derived in Hong Kong for the period from its date of incorporation to March 31, 2012 and therefore was not subject to Hong Kong Profits Tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

The Company’s subsidiary and VIEs in China are subject to PRC Enterprise Income Tax (EIT) on taxable income. According to PRC tax laws and regulations, China subsidiary, VIEs and their subsidiaries are subject to EIT with the tax rate 25% since January 1, 2008, except that deemed profit method is applied to Xingtai Zhongding Construction Project Management Co., Ltd., which local tax authorities levy income tax based on deemed profit of 8% of revenue. A withholding income tax rate of 5% is applied if Kirin Management, the wholly-owned foreign enterprise, distributes dividends to its immediate holding company, Kirin Development. The Company has not recorded tax provision for U.S. tax purposes as they have no assessable profits arising in or derived from the United States and intends to permanently reinvest accumulated earnings in the PRC operations in the foreseeable future.

Income taxes benefit for the three months ended March 31, 2012 and 2011 are summarized as follows:

	Three Months Ended March 31,
	2012 (Unaudited)			2011 (Unaudited)

Current
EIT expense	$	176,769		$	-
LAT expense		527,796			33,998
Deferred tax benefit - EIT		(2,148,683	)		(75,606	)

	$	(1,444,118	)	$	(41,608	)

A reconciliation between taxes computed at the PRC statutory rate of 25% and the Company’s effective tax rate for the three months ended March 31, 2012 and 2011 is as follows:

	Three Months Ended March 31,
	2012 (Unaudited)			2011 (Unaudited)


EIT at the PRC statutory rate of 25%	$	(2,000,208	)	$	(77,774	)
LAT expense		527,796			33,997
EIT benefit of LAT		(131,949	)		(8,498	)
Changes in valuation allowance		140,548			-
Permanent items		19,695			10,667

	$	(1,444,118	)	$	(41,608	)

F-25

(2) Liability for unrecognized tax benefit

A reconciliation of the beginning and ending amount of liability associated with unrecognized tax benefit for the three months ended March 31, 2012 and 2011 is as follows:

	Three Months Ended March 31,
	2012 (Unaudited)		2011 (Unaudited)


Unrecognized tax benefit, as the January 1	$	6,174,682	$	4,318,008
Movement in current year due to foreign exchange rate fluctuation		39,051		27,436

Unrecognized tax benefit, as of March 31	$	6,213,733	$	4,345,444

The liability for unrecognized tax benefit is related to the government grant earned by the Company for the development of Kirin County project. Because the grant is given by local government which received proceeds of the related land use rights through public auction, it is prevailing practice that the entities receive such grants do not include earned grant in taxable income. The Company believes that the possibility exists for local or higher tax authorities re-evaluate this tax position and reverse current practice. The unrecognized tax benefit, if ultimately recognized, will impact the effective tax rate. The Company did not accrue potential penalties and interest related to the unrecognized tax befit on the basis that tax authorities would unlikely levy penalties and interest. The Company does not expect changes in unrecognized tax benefit as of March 31, 2012 to be material in the next twelve months.

In accordance with PRC tax administration law and regulations, tax authorities generally have up to five years to claw back underpaid tax plus penalties and interests. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the Company’s PRC subsidiary and VIEs tax years from 2007 to 2011 remains subject to examination by tax authorities.

F-26

(3) Deferred tax

The tax effects of temporary differences that give rise to the following approximate deferred tax assets and liabilities as of March 31, 2012 and December 31, 2011 are presented below.

	March 31,			December 31,
	2012 (Unaudited)				2011


Deferred tax assets
Operating loss carry forward	$	483,947			$	327,452
Excess of interest expense		870,640				779,454
		1,354,587				1,106,906

Valuation allowance		(339,790	)			(199,017	)
Offsetting with deferred tax liabilities		(988,336	)			(881,594	)

Net deferred tax assets	$	26,461			$	26,295

Deferred tax liability
Revenue recognized based on percentage-of-completion	$	6,614,535			$	8,606,068
Offsetting with deferred tax assets		(988,336	)			(881,594)

Net deferred tax liabilities	$	5,626,199			$	7,724,474

Note 11 – Other Taxes Payable

Other taxes payable consisted of the following:

	March 31, 2012 (Unaudited)		December 31, 2011


Business tax and related urban construction tax and education surcharge	$	4,948,590	$	4,303,287
Land Appreciation Tax		5,312,294		4,776,967

	$	10,260,884	$	9,080,254

F-27

Note 12 – Loans Payable

Loans payable as of March 31, 2012 and December 31, 2011 consisted of the following:

	March 31,		December 31,
	2012 (Unaudited)		2011

Loans from Industrial and Commercial Bank of China, Xingtai Yejin Branch (“ICBC 2010 Loans”)
Due September 8, 2012, at 7.79% per annum	$	2,687,876	$	2,670,980
Due December 8, 2012, at 7.79% per annum		7,905,513		7,855,830
Due March 8, 2013, at 7.79% per annum		3,478,426		3,456,565
Due March 8, 2013, at 7.79% per annum		4,427,087		4,399,265
		18,498,902		18,382,640

Loans from Industrial and Commercial Bank of China, Xingtai Yejin Branch (“ICBC 2011 Loans”)
Due March 3, 2012, at 10.24% per annum		-		1,571,166
Due June 3, 2012, at 9.635% per annum		4,743,308		4,713,498
Due September 3, 2012, at 9.635% per annum		2,055,433		2,042,516
		6,798,741		8,327,180

Loans from Association of Xingtai Chengjiao Rural Credit Cooperative Union Association (“Credit Union 2011 Loan”)
Due June 18, 2012, at 12.62% per annum		2,371,654		2,356,749
		2,371,654		2,356,749

Syndicated loans arranged by Xingtai Chengjiao Rural Credit Cooperative Union Association (“Syndicated Loans”)
Due December 5, 2012, at 10.58% per annum		10,593,388		10,526,812
Due December 6, 2012, at 10.58% per annum		2,055,433		2,042,516
		12,648,821		12,569,328

Loan from Association of Xingtai Chengjiao Rural Credit Cooperative Union Association (“Credit Union 2011 Short-term Loan”)
Due December 21, 2012, at 13.12% per annum		948,662		942,700
		948,662		942,700

Loan from Kong Village Committee
Due December 29, 2012, at 14.4% per annum		4,743,308		4,713,498
		4,743,308		4,713,498
Loan from an unrelated individual
Due April 11, 2012, at 15.6% per annum		3,162,205		3,142,332
		3,162,205		3,142,332

	$	49,172,293	$	50,434,427

The loans’ terms are between one to three years and are all denominated in RMB.

F-28

Credit Union 2009 Loan, Credit Union 2011 Loan, and Syndicated Loans are fixed interest loans. ICBC 2010 Loans and ICBC 2011 Loans are floating rate loans whose rates are set at 10% above 1-to-3 year base borrowing rate stipulated by the People’s Bank of China at the date of each drawdown, and are subject to revision every 12 months. The Company also paid financing service fees for ICBC 2010 Loans, ICBC 2011 Loans and Syndicated Loans. The financing service fees were paid prior to financial institution releasing loans to the Company as prepaid interest, and have been included in the determination of respective loans’ effective interest rates.

As of March 31, 2012 and December 31, 2011, ICBC 2010 Loans, ICBC 2011 Loans and Syndicated Loans were secured by the Company’s real estate held for development with carrying value of $68,922,806 and $64,671,798, respectively. Credit Union 2011 Short-term Loan was guaranteed by an unrelated company as arranged by the financial institution. The Company did not pay for the guarantee.

Pursuant to covenants of the ICBC 2010 Loans, Xingtai Zhongding is required, among other things, to make no distributions to its equity holders before the loans are fully repaid, and to obtain the lender’s consent for any decrease in registered capital, transfer of material assets or shares of Xingtai Zhongding, and certain other activities which may adversely affect Xingtai Zhongding’s ability to repay the loan. As of March 31, 2012, Xingtai Zhongding was in compliance with the applicable terms of all of ICBC Loans’ covenants.

The aggregate maturities of loans payable for each of twelve months subsequent to March 31, 2012 are as follows:

Twelve Months Ending	Amount

March 31, 2013	$	41,266,779
March 31, 2014		7,905,514

Loans payable	$	49,172,293

Note 13 – Restricted Stock Compensation

On July 29, 2011 and February 20, 2012, respectively, the Board of Directors approved two Employment Agreements with two employees. In accordance with the Employment Agreement, the Company granted the employee in aggregate 791,478 shares of restricted common stock (“Restricted Stock Awards”). Restricted Stock Awards are issued to the employee in five even installments at the beginning or in the interim of each year of five-year employment period. Shares issued under Restricted Stock Awards in each year of the employment period cannot be disposed of or pledged until they are fully vested, which is the last day of the full service year and the employment is not terminated. Unvested shares maybe reacquired by the Company for no consideration following the employee’s termination of service.

The fair value of the Restricted Stock Awards is based on the market value of the Company’s common stock on the date of grant. Pre-vesting forfeiture is expected to be nil. The Company records compensation costs for the Restricted Stock Awards on a straight-line basis over the employment period for the entire award.

F-29

Restricted Stock Awards activity as of and for the three months ended March 31, 2012 is as follows:

	Shares		Weighted Average Grant Date Fair Value Per Share

Outstanding at the beginning of period		608,828	$	6.70
Shares granted		182,650	$	0.60
Outstanding at the end of period		791,478	$	5.29

As of March 31, 2012, there was $3,585,738 of unrecognized compensation cost related to unvested Restricted Stock Awards. This cost is expected to be recognized over a period of 4.25 years. None of Restricted Stock Awards were vested during the three months ended March 31, 2012. The Company recognized $201,000 and $nil of share-based compensation expense related to the Restricted Stock Awards for three months ended March 31, 2012 and 2011.

Note 14 – Revenue

The Company recognized real estate pre-sale revenue under percentage-of-completion method for the three months ended March 31, 2012 and 2011. Revenue or adjustment of revenue by each of the Company’s real estate project was as follows:

	Three Months Ended March 31,
	2012 (Unaudited)				2011 (Unaudited)


Kirin County (including adjacent shopping arcade)		$	(4,240,530	)		$	3,200,469
No.79 Courtyard			3,948,236				-
Kirin Bay			1,678,568				-

		$	1,386,274			$	3,200,469

F-30

In connection with the preparation of the consolidated financial statements for the three months ended March 31, 2012, the Company considered events occurred subsequent to March 31, 2012, or events occurred in the three month period ended March 31, 2012, however their amounts can only be reliably measured after balance sheet date, for their effects on Kirin County’s cumulative revenue recognized as of March 31, 2012. These included changes to several pre-sale contract values based on the Company’s agreements with customers to modify interior decoration conditions of purchased properties, and revisions to Kirin County project’s total expected costs and percentage-of-completion as results of change of the project’s designs, government regulated labor costs adjustment, and constructors’ claims. The Company recognized cumulative effects on Kirin County project’s revenue as a change in accounting estimate in the consolidated financial statements for three months ended March 31, 2012.

Note 15 – Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise of Series A Warrants, Series B Warrants, Agent Warrants and unvested and unissued Restricted Stock Award, using the treasury stock method.

	Three Months Ended March 31,
	2012 (Unaudited)			2011 (Unaudited)

Net loss	$	(6,556,713	)	$	(311,097	)
Basic and diluted loss per share	$	(0.32	)	$	(0.02	)
Basic and diluted weighted average shares outstanding		20,560,016			19,031,531

Series A Warrants, Series B Warrants and Agent Warrants to acquire 392,090 shares of common stock, and unvested and unissued Restricted Stock Award were not included in the computation of diluted EPS because the effect would have been anti-dilutive. Series A Warrants, Series B Warrants and Agent Warrants were still outstanding as of March 31, 2012.

Note 16 – Related Party Transactions and Balances

(1) Government grant escrowed by Business Investment

In 2008, a VIE of the Company, Xingtai Zhongding, was entitled to a government grant associated with its development of Kirin County project of RMB160,000,000 ($22,981,000, translated at historical exchange rate). Cash representing the grant has been remitted to Business Investment, a trust equity owner of Xingtai Zhongding in June 2008. Business Investment originally acquired the land use rights of Kirin County project, and contributed the land use rights to Xingtai Zhongding as paid-in capital to develop the project. Based on the arrangement between Business Investment and Xingtai Zhongding, which has been sanctioned by local government, the benefit of the government grant is to be transferred from Business Investment to Xingtai Zhongding. Specifically, Business Investment acts as an escrow agent but also is nominally responsible for Xingtai Zhongding’s progress. Earned portions of the government grant become available to Xingtai Zhongding based on percentage of completion.

For the years ended December 31, 2011, 2010 and 2009, Xingtai Zhongding was entitled to receive RMB43,000,000, RMB63,000,000, and RMB51,200,000, respectively ($6,642,455, $9,293,749, and $7,484,417, respectively, translated at respective years’ historical rates) earned government grant from Business Investment. The Company has the right to determine how to utilize the earned government grant. As at March 31, 2012 and December 31, 2011, accumulated earned government grant of RMB157,200,000 and RMB157,200,000 ($24,854,933 and $24,283,580, translated at respective period-end’s historical rates) was used to repay working capital provided by Jianfeng Guo for the support of other real estate projects’ development (see Note 16 (2)). As at March 31, 2012 and December 31, 2011, the Company had $3,498,403 and $3,477,052, respectively, earned government grant available for future drawdown after repaid working capital provided by Jianfeng Guo, which is included in “Receivable from a trust equity owner” on balance sheet. No government grant is recorded for the three months ended March 31, 2012 because of the reassessment of percentage-of-completion of Kirin County project. The Company recognized $242,814 government grant for the three months ended March 31, 2011.

(2) Working capital provided by Jianfeng Guo

Jianfeng Guo, the controlling beneficiary owner and the Chairman of the Company, through various affiliate companies and individuals, provided working capital to the VIEs of the Company. In addition to repay borrowings directly, the Company’s VIEs may also provide working capital to affiliate companies and individuals as designated by Jianfeng Guo. Balances received or provided by the Company’s VIEs are unsecured, interest-free and did not have a specific repayment date.

F-31

At each balance sheet date, affiliate companies and individuals who have working capital transactions with the Company’s VIEs assigned their balances to Jianfeng Guo pursuant to the pre-existing arrangements, as recited by multi-party agreements entered into between Jianfeng Guo, related affiliate companies and individuals, and the Company’s VIE. Xingtai Zhongding also chooses to use its accumulated government grant receivable from Business Investment, to repay working capital provided by Jianfeng Guo. Accordingly, the Company is entitled to present netted balance with Jianfeng Guo on its consolidated balance sheets.

As at March 31, 2012 and December 31, 2011, the Company had receivable from a trust equity owner of $3,498,403 and $3,477,052 respectively, representing earned government grant to be utilized in the future. As at December 31, 2010, the Company had a payable balance to Jianfeng Guo of $3,840,111. These balances were unsecured, interest-free and did not have a specific repayment date. The Company repaid $822,549 of this balance to Jianfeng Guo in the three month period ended March 31, 2011, which was included in cash flows from financing activities in the consolidated statement of cash flows for three months ended March 31, 2011.

Note 17 – Contingent Liabilities

As at March 31, 2012 and December 31, 2011, the Company provided approximately $25,600,000 and $22,400,000 guarantees to mortgage bank loans granted to homebuyers of the Company’s real estate properties. Guarantees commence when the banks release mortgage to the Company and end when House Ownership Certificates are issued and pledged to banks instead. The fair value of the guarantees is insignificant because the possibility of the homebuyers’ default is remote, and in case of default, the Company can repossess the related properties to cover repayments of outstanding principal, interest and penalty to mortgage banks, and accordingly, the Company did not recognize fair value of these guarantees.

F-32

Item 2.

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

The following discussion and analysis of the results of operations and financial condition for the three months ended March 31, 2012 and 2011 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Cautionary Note Regarding Forward Looking Statements.”

Overview

We are a private real estate development company focused on residential and commercial real estate development in “tier-three” cities in the PRC. Our projects are currently concentrated in Xingtai City, Hebei Province.

We have completed our Ming Shi Hua Ting and Wancheng New World projects in Xingtai City. Our current projects include Kirin County, Kirin Bay and No.79 Courtyard, which collectively call for the development of more than 7,000 homes over the next five years in Xingtai City. We intend to expand into the Bohai Sea Surrounding Area, comprised of Beijing, Tianjin, Hebei Province, Liaoning Province and Shandong Province, and begin additional projects in the next three to five years.

We focus on middle-income customers in tier-three cities and strive to offer affordable homes. We believe that we are able to keep up with growth due to: (i) our experience in developing real estate projects; (ii) our experienced management team; (iii) our expertise in conducting real estate sales; (iv) our reputation in the local markets we serve; and (v) our strong working relationship with local government.

Recent Developments

On March 1, 2011, we acquired all of the outstanding equity interests in Kirin China in exchange for shares of our common stock pursuant to a share exchange agreement between us, our former principal stockholder, Kirin China and the former principal shareholders of Kirin China (the “Share Exchange”). As a result of the Share Exchange, Kirin China became our wholly-owned subsidiary and the former shareholders of Kirin China became our controlling stockholders. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Kirin China is considered the acquirer for accounting and financial reporting purposes. In connection with the Share Exchange, we spun out our prior operations to our former principal stockholder. As a result of the Share Exchange, we are now a holding company, which, through contractual arrangements with the Operating Companies in the PRC, engages in the development and operation of real estate in the PRC. On March 10, 2011, we changed our name to “Kirin International Holding, Inc.”

On March 1, 2011 and immediately following the Share Exchange, and on July 15, 2011, the Company completed an initial and the second closing of a private offering (the “Offering”) of investment units (each a “Unit” and collectively, the “Units”) each consisting of four (4) shares of common stock, a three-year series A warrant to purchase one (1) share of common stock of the Company at an exercise price of $6.25 per share (the “Series A Warrants”) and a three-year Series B warrant to purchase one (1) share of common stock of the Company at an exercise price of $7.50 per share (the “Series B Warrants” and collectively with the Series A Warrants, the “Investor Warrants”). An aggregate of 169,004 Units were sold in the Offering for gross proceeds to the Company of $3,380,080. We received $2,331,656 net proceeds from the Offering after deducting related issuance costs. As a result of the Offering, the Company issued an aggregate of 676,016 shares of common stock (the “Shares”) and warrants to acquire an aggregate of 338,008 shares of our common stock to the investors in the Offering (the “Purchasers”). In connection with the Offering, the Company issued 920,000 shares of common stock and warrants to acquire an aggregate of 54,082 shares of the company’s common stock (the “Agent Warrants”) to the placement agent. The Agent Warrants are exercisable for a period of five years from the original issuance date with an exercise price of $5.00 per share. The exercise prices of both the Investor Warrants and the Agent Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.

We have the following projects currently under development: 1) Kirin County Project, a building complex of residential condominiums and commercial areas which we commenced construction from September 2009 (construction of adjacent shopping arcade started in November 2011). As of March 31, 2012, we have completed 90.9% of the construction of the Kirin County project; 2) No.79 Courtyard (Phase I) commenced the construction from September 2011, and reached the 64.7% percentage-of-completion as of March 31, 2012; 3) Kirin Bay (Phase I), met the revenue recognition requisition in December 2011 and reached the percentage-of-completion of 27.9% as of March 31, 2012. Kirin County will be delivered to customers in mid-to-late 2012. No.79 Courtyard and Kirin Bay are large-scale projects, and their development is divided into four phases. We anticipate that No.79 Courtyard (Phase I) will be delivered to customers in mid-to-late 2013. Kirin Bay (Phase I) is scheduled to be delivered to customers in mid-2014.

Financial Performance Highlights

The following summarizes certain key financial information for the three months ended by March 31, 2012.

·	Total revenue were $1.4 million for the three months ended March 31, 2012, a decrease of $1.8 million, or 56.7%, from $3.2 million for the same period last year.
·	Gross loss was $5.8 million for the three months ended March 31, 2012 as compared to gross profit $1.0 million for the same period last year. Gross margin was -421.1% for the three months ended March 31, 2012 as compared to 29.8% for the same period last year.

·	Net loss was $6.5 million for the three months ended March 31, 2012, an increase of $6.2 million, from $0.3 million for the same period of last year.

The following table summarizes the key pre-sale information of our projects.

	Cumulative contract value of pre-sale as of May 10, 2012		Cumulative collection as of May 10, 2012		Contract value of pre-sale in the period from Jan 1, 2012 to May 10, 2012		Collection in the period from Jan 1, 2012 to May 10, 2012		Contract value of pre-sale in the three month period ended March 31, 2012		Collection in the three month period ended March 31, 2012
No.79 Courtyard Phase I		61,316,493		49,448,445		15,341,330		14,101,762		5,265,282		7,651,411
Kirin Bay Phase I		37,880,983		26,853,163		21,264,794		13,429,927		4,919,730		4,011,038
Kirin County		106,133,019		105,600,338		2,164,308		1,209,290		1,757,610		-
Later phases of Kirin Bay and No. 79 Courtyard projects		9,783,469		5,521,026		-		-		-		-

Factors Affecting our Operating Results

Growth of China’s Economy. We operate and derive all of our revenue from sales in China. Economic conditions in China, therefore, affect our operations, including the demand for our properties and the availability and prices of our raw materials among other expenses. China has experienced significant economic growth with recorded Gross Domestic Product growth rates at 9.1% in 2009, 10.3% in 2010 and 9.2% in 2011. China is expected to experience continued growth in all areas of investment and consumption. However, if the Chinese economy were to become significantly affected by a negative stimulus, China’s growth rate would likely to fall and our revenue could correspondingly decline.

Government Regulations. Our business and results of operations are subject to PRC government policies and regulations regarding the following:

Land Use Right — According to the Land Administration Law of the PRC and Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas, individuals and companies are permitted to acquire rights to use urban land or land use rights for specific purposes, including residential, industrial and commercial purposes. We acquire land use rights from local governments and/or other entities for development of residential and commercial real estate projects.

Land Development — According to the Urban Real Estate Development and Operation Administration Regulation, the Urban Real Estate Development and Operation Administration Rules of Hebei Province promulgated by the government of the Hebei Province, and the Real Estate Development Enterprise Qualification Administration Regulation, a real estate development enterprise shall obtain a Real Estate Development Enterprise Qualification Certificate. We obtained the related certificates and seek to ensure that each phase of our projects complies with our certificates.

Project Financing — According to the Land Administration Law and the Property Law of the PRC, the land use rights, residential housing and other buildings still in process of construction may be pledged and mortgaged. From time to time, we pledge and mortgage our land use rights and real properties to lenders in order to obtain project financing.

Property Sales and Transfers — For each project we develop, pursuant to the Commodity Houses Sale Administration Regulation, effective of June 1, 2001, we are required to obtain permits before commencing project sales or presales of such project. Local governments act on the region’s interests by helping private companies streamline such projects and often coordinate with regional housing developers to allow for preliminary presales while Pre-Sales Permits are being processed. The local government in Xingtai has recognized the financial cost the Company assumed in administering the resident removal process and offered us permission to collect non-refundable deposits. This is a local practice enacted by the Xingtai local government to encourage project development. By collecting deposits from this type of buyer, we can offer a contractually fixed price to our consumers and ensure them a preference in housing selection. We may not obtain such approval in other cities if we expand beyond Xingtai.

Government Controls on Real Estate Industry. Since the second half of 2009, the PRC real estate market has experienced strong recovery from the financial crisis and housing prices rose rapidly in certain cities. In response to concerns over the scale of the increase in property investments, the PRC government has implemented measures and introduced policies to curtail property speculation and promote the healthy development of the real estate industry in China. In January 2011, the General Office of State Council issued a Notice of the State Council on Issues Related to Further Enhancing the Regulation and Control of Real Estate Market (the “Notice”), which provided that the purchasers of a second residential property for their households must make down payments of no less than 60% of the purchase price and the interest rate of any mortgage for such property must equal at least the benchmark interest rate plus 10%. The Notice also requested the tax departments to take further measures on the supervision and inspection of the collection and administration of land appreciation tax, and request the local governments to increase the effective supply of low-income housing and ordinary commodity housing. The Notice also provided that in municipalities, the capital city of each province, and other cities where housing prices are too high, a local resident household having one residential household property, or a non-local resident household which is able to provide required certificates as to payment of income tax and social insurance contributions for a certain number of years, may only purchase one additional residential property; for a local resident household already having two or more residential property, or a non-local resident household that already has one or more residential properties or is unable to provide the requisite certificates, the purchase of any residential property in the local area is not permitted. The PRC government’s policies and regulatory measures on the PRC real estate sector could limit our access to required financing and other capital resources, adversely affect the property purchasers’ ability to obtain mortgage financing or significantly increase the cost of mortgage financing, reduce market demand for our properties and increase our operating costs. We cannot be certain that the PRC government will not issue additional and more stringent regulations or measures or that agencies and banks will not adopt restrictive measures or practices in response to PRC governmental policies and regulations, which could substantially reduce pre-sales of our properties and cash flow from operations and substantially increase our financing needs, which would in turn materially and adversely affect our business, financial condition, results of operations and prospects.

Interest Rate and Inflation Challenges. We are subject to market risks due to fluctuations in interest rates and refinancing of mid-term debt. Higher interest rates may also affect our revenues, gross profits and our ability to raise and service debt and to finance our developments.

According to the National Bureau of Statistics of China, China’s national inflation rate was (0.7) % in 2009, 3.3% in 2010 and 5.4% in 2011. Inflation could result in increases in the price of raw materials and labor costs. We do not believe that inflation or deflation has affected our business materially.

Acquisitions of Land Use Rights and Associated Costs. We acquire land for development through the governmental auction process and by obtaining land use rights from third parties through negotiation, acquisition of entities, co-development or other joint venture arrangements.

Our ability to secure sufficient financing for land use rights acquisitions and property development depends on internal cash flows in addition to lenders’ perceptions of our credit reliability, market conditions in the capital markets, investors’ perception of our securities, the PRC economy and the PRC government regulations that affect the availability and cost of financing real estate companies or property purchasers.

Results of Operations

Comparison of Three Months Ended March 31, 2012 and 2011

	Three Months Ended March 31,
	2012						2011
	(Unaudited)			% of Revenue			(Unaudited)			% of Revenue
Revenue from real estate sales, net	$	1,386,274			100.0	%	$	3,200,469			100.0	%
Cost of real estate sales		7,223,451			521.1	%		2,247,006			70.2	%
Gross profit (loss)		(5,837,177	)		-421.1	%		953,463			29.8	%
Selling expenses		468,021			33.8	%		300,000			9.4	%
Operating and administrative expenses		1,248,527			90.1	%		623,981			19.5	%
Income (loss) from operations		(7,553,725	)		-544.9	%		29,482			0.9	%
Government grant		-			-			242,814			7.6	%
Interest expense		(447,106	)		-32.3	%		(625,001	)		-19.5	%
Total other income (expenses)		(447,106	)		-32.3	%		(382,187	)		-11.9	%
Loss before income taxes		(8,000,831	)		-577.1	%		(352,705	)		-11.0	%
Income taxes benefit		(1,444,118	)		-104.2	%		(41,608	)		-1.3	%
Net loss		(6,556,713	)		-473.0	%		(311,097	)		-9.7	%

Our net loss for the three months ended March 31, 2012 was $6.5 million, an increase of $6.2 million, from $0.3 million for the three months ended March 31, 2011. This increase of net loss was mainly due to reassessment of Kirin County project’s total expected revenue, budgeted costs and associated percentage-of-completion, and an overall increase in operating expenses.

In connection with the preparation of consolidated financial statements for the three months ended March 31, 2012, we evaluated various events occurred in the period from January 1, 2012 to May 21, 2012 for their potential impacts on Kirin County project’s total expected revenue, budgeted costs, and related revised percentage-of-completion. These events included:

We reached agreement with several commercial unit buyers to modify delivery conditions of pre-sale contracts. As a result, we were exempted from providing unified interior decoration to these commercial units in exchange for lowered contract prices. The modification of pre-sale contracts is expected to reduce total revenue of Kirin County project by $2,630,000;

Aiming at offering premium quality properties to our customers and establishing market reputation, we further improved our design plans of Kirin County project, enhancing both interior and exterior decoration standards to provide better visual impression, and adding more atrium garden amenities. Several government agency inspections also called for installation of certain safety facilities. Change of Kirin County project’s design plans is expected to increase total estimated costs by $3,543,000;

Continued with the trend in last two quarters of 2011, as the construction of Kirin County drawing to its completion, our contractors submitted to us various claims, representing increased construction costs caused by unforeseen engineering difficulties or un-absorbable material or labor cost rise, which they requested reimbursement from us. These claims, which we have approved, are expected to increase total estimated costs of the project by $1,951,000.

As a result of these events, Kirin County project’s total expected revenue was reduced by $2,630,000, its total estimated costs were increased from $82,563,000 to $88,057,000, and percentage-of-completion as of December 31, 2011 was revised downwardly from 94.3% to 90.9%.

Modification of pre-sale contract terms (especially for those related to commercial units which have substantial higher contract prices), change of property’s design plans, and claims from contractors for a multiple year project are integral part of real estate development business. Our internal team comprising engineers, project managers, cost experts and financial professional reviews these events and evaluate their impact on a project’s total expected revenue and costs periodically, especially in later development stage of a project when such changes occur to us more frequently. The effects of such changes are accounted for in the period of change, which is the three month period ended March 31, 2012, and cumulative revenue and cost of sales recognized to date are adjusted to reflect the latest estimates.

For the three months ended March 31, 2012, Kirin County project recorded an adjustment of revenue of $9.0 million, comprising of $2.2 million reversal of previously recognized revenue caused by modification of commercial unit pre-sale contract terms, and $6.8 million reversal of previously recognized revenue from downward adjustment of percentage-of-completion for pre-sold units, offset by $4.8 million revenue generated from pre-sale of units under percentage-of-completion months, yielding a net reversal of previously recognized revenue of $4.2 million. For the three months ended March 31, 2012, Kirin County project recorded a gross loss of $8.4 million, comprising of $9.0 million reversal of previously recognized revenue discussed before, offset by $0.6 million gross margin generated by construction activities for the pre-sold units in the same period.

On other projects currently developed by us: Kirin Bay (Phase I) contributed revenue of $1.7 million and No.79 Courtyard (Phase I) contributed revenue of $3.9 million for the three months ended March 31, 2012. These two projects both met the requisition of revenue recognition in the fourth quarter of 2011. The percentage-of-completion was 64.7% for No.79 Courtyard (Phase I) and 27.9% for Kirin Bay (Phase I) as of March 31, 2012, respectively.

Together with the construction and pre-sale of the three projects, and preparation work for potential future projects, our overall operating expenses in advertising, staff salaries, and maintenance raised $0.8 million, or 85.8% - a substantial increase - for the three months ended March 31, 2012 compared with the same period of 2011. The decrease in interest expenses was mainly due to we capitalized $0.9 million loan interest for the three months ended March 31, 2012 compared with nil for the same period of 2011.

Revenues and Gross Profit

	Three Months Ended March 31,
	2012						2011
				% of Revenue						% of Revenue
Revenue from real estate, net	$	1,386,274			100.0	%	$	3,200,469			100.0	%
-Kirin County		(4,240,530	)		-305.9	%		3,200,469			100.0	%
-No.79 Courtyard (Phase I)		3,948,236			284.8	%		-			-
-Kirin Bay (Phase I)		1,678,568			121.1	%		-			-
Cost of real estate sales		7,223,451			521.1	%		2,247,006			70.2	%
-Kirin County		4,192,608			302.4	%		2,247,006			70.2	%
-No.79 Courtyard (Phase I)		1,972,251			142.3	%		-			-
-Kirin Bay (Phase I)		1,058,592			76.4	%		-			-
Gross profit		(5,837,177	)		-421.1	%		953,463			29.8	%
-Kirin County		(8,433,138	)		-608.3	%		953,463			29.8	%
-No.79 Courtyard (Phase I)		1,975,985			142.5	%		-			-
-Kirin Bay (Phase I)		619,976			44.7	%		-			-
Profit margin		-421.1	%					29.8	%
-Kirin County		-198.9	%					29.8	%
-No.79 Courtyard (Phase I)		50.0	%					-
-Kirin Bay (Phase I)		36.9	%					-

Revenue from Real Estate, net. Real estate sales represent revenue from the pre-sale of properties under development, and adjustment to revenue recognized in previous periods as a result of change to estimates. Revenues for the three months ended March 31, 2012 derived from the pre-sale of Kirin County (including adjacent shopping arcade), No.79 Courtyard (Phase I) and Kirin Bay (Phase I). Under the percentage-of-completion method, revenue is the percentage of completed construction at a point in time is multiplied by total value of contracts signed up to that same point.

Our revenue from the pre-sale of real estate properties for the three months ended March 31, 2012 was $1.4 million, a decrease of $1.8 million, or approximately 56.7%, compared to $3.2 million for the same period of 2011. Revenue from the pre-sale of No.79 Courtyard (Phase I) and Kirin Bay (Phase I) was $3.9 million and $1.7 million, respectively. The percentage of completion of No.79 Courtyard (Phase I) increased from 62.8% as of December 31, 2011 to 64.7% as of March 31, 2012. The percentage of completion of Kirin Bay (Phase I) increased from 26.9% as of December 31, 2011 to 27.9% as of March 31, 2012. These two projects become our new sources of revenue from the last quarter of year 2011.

As explained in earlier part of this discussion, several developments in Kirin County project have led to a reversal of previously recognized revenue of $9.0 million in the three month period ended March 31, 2012. When excluding this impact, Kirin County recognized $4.8 million revenue from pre-sale of units. Revised percentage-of-completion increased 2.0% in the three month period, from 88.9% as at December 31, 2011 to 90.9% as at March 31, 2012. Comparatively, Kirin County recorded $3.2 million revenue, and achieved 0.9% percentage-of-completion in the three month period ended March 31, 2011.

Kirin County

Kirin County is a mid-market community built on a land area of approximately 66,000 square meters, comprising of more than 1,000 commercial, residential, and hotel-style apartments. The project is situated in a premium location of newly expanded Xingtai City downtown area. We obtained Kirin County’s Land Use Rights Certificates as paid-in capital from our then shareholders, and subsequently obtained necessary government approvals, including Construction Land Planning Permit, Construction Work Planning Permit, Work Commencement Permit and Pre-Sales Permit in 2009 and 2010. The construction commenced in later 2009, and we expect to complete this project and gradually deliver units to our customers in mid-to-late 2012.

We also commenced to construct Kirin County’s shopping arcade, which is supposed to be delivered complementing Kirin County project, and provide convenience to the residents of Kirin County in late 2011. However, due to the regional planning by the local authority, we did not obtain the Construction Land Planning Permits in a timely manner so far, and therefore, the construction shopping arcade part of Kirin County, is suspended temporarily from January 2012. We have communicated with the competent authority and received a notice called “Xingtai City Administrative Notice of Punishment” from the competent authority. According to the Notice, the government will issue the necessary approvals and permits for the shopping arcade in the near future, and we expect to receive the related permits before July 2012. Our current design of the shopping arcade, including but not limited to, salable gross floor area, is not disputed by local government agencies.

Kirin Bay

Kirin Bay is a three-parcel, master-planned community built on a land area of approximately 660,000 square meters. Positioned as a mid-market residential development, Kirin Bay will also feature kindergarten, a primary school, hotel, office buildings and apartments. We have obtained necessary government approvals, including Land Use Rights Certificates (issued on July 7, 2011), Construction Land Planning Permit (issued on June 9, 2011), Construction Work Planning Permit (issued on August 10, 2011), Work Commencement Permit (issued on September 29, 2011) and Pre-Sales Permit (issued on September 30, 2011), for Kirin Bay (Phase I).

We reached framework development agreement with Kong Village Committee in order to acquire land use rights for the development of the Kirin Bay project through Kong Village Relocation program (see later part of this discussion) in 2009, and incurred land use right acquisition costs since then. We also started the land cleanup preparation work such as the demolishment and relocation in 2010 and early 2011, which resulted relevant cost as well. We also incurred cost related to the planning of the project as well as government levied tax and fees prior to the fourth quarter of 2011.

No. 79 Courtyard

No. 79 Courtyard is a project positioned as a high-end residential development with some mixed commercial use, which covers a land area of over 290,000 square meters and a total building area of approximately 520,000 square meters. As of the filing date of this registration, we have obtained necessary government approvals, including Land Use Rights Certificate (issued on November 9, 2010), Construction Land Planning Permit (issued on January 14, 2011), Construction Work Planning Permit (issued on September 1, 2011), Work Commencement Permit (issued on November 2, 2011) and Pre-Sales Permit (issued on November 2, 2011), for 79 Courtyard (Phase I).

We bought the land use right of No. 79 Courtyard in 2007 and incurred land use right acquisition cost from year 2008 to 2011. We also started the land cleanup preparation work such as the demolishment and relocation in 2010 and early 2011, which resulted relevant cost as well. We also incurred cost related to the planning of the project as well as government levied tax and fees prior to the fourth quarter of 2011.

We have obtained necessary government approvals, including Land Use Rights Certificates, Construction Land Planning Permits, Construction Work Planning Permits, Work Commencement Permits and Pre-Sales Permits, for our No. 79 Courtyard (Phase I) and Kirin Bay (Phase I).

Cost of Real Estate Sales. Cost of real estate sales consist of land use rights costs, construction and installation costs. Our costs of real estate sales for the three months ended March 31, 2012 were $7.2 million, an increase of $5.0 million, or approximately 221.5%, compared to $2.2 million for the same period of 2011. Our total cost of real estate sales increased in relation to newly recognized revenue and the associated costs in No.79 Courtyard (Phase I) and Kirin Bay (Phase I).

Gross Profit (loss). Gross loss for the three months ended March 31, 2012 was $5.8 million (gross margin ratio: -421.1 %) compared to $0.9 million (gross margin ratio: 29.8%), for the same period of 2011, because of the Kirin County project’s modification of several pre-sale contracts, and change to the total estimated costs in the first quarter of 2012.

The following tables set forth the aggregate Gross Floor Area (GFA) and the percentage-of-completion (POC) and Contract sold by project for the three months ended March 31, 2012 and 2011:

	Total GFA		POC as of March 31,						Contract sold as of March 31,				Revenue recognized for the three months ended March 31,
			2012			2011			2012		2011		2012			2011
Kirin County(1)		203,516		90.9	%		66.5	%		114,206,463		94,927,271		(4,240,530	)		3,200,469
No.79 Courtyard (Phase I)		126,866		64.7	%		-			51,240,445		-		3,948,236			-
Kirin Bay (Phase I)		141,677		27.9	%		-			21,535,919		-		1,678,568			-
Total		472,059		-			-			186,982,827		94,927,271		1,386,274			3,200,469

(1) Kirin County’s percentage-of-completion as of March 31, 2012 and 2011 has been adjusted from 94.3% and 63.0% taking into accounts the total costs estimate of adjacent shopping arcade.

The following table sets forth the consolidated square meters sold and average selling price per square meter by each project for the three months ended March 31, 2012 and 2011:

	Three Months Ended March 31,
	2012							2011
	Contract Sales(1)		Square Meters Sold(2)		Average Selling Price(3)			Contract Sales(1)		Square Meters Sold(2)		Average Selling Price(3)
Kirin County
-residential	$	1,249,091		1,881		$	664	$	2,925,307		4,016	$	728
-commercial (4)		504,284		456			1,106		-		-		-
-garage		4,235		34			125		589,007		2,024		291
No.79 Courtyard (Phase I)
-residential		3,161,716		2,789			1,134		-		-		-
-commercial		1,243,614		292			4,262		-		-		-
-garage		859,952		1,146			751		-		-		-
Kirin Bay (Phase I)
-residential		4,761,836		6,917			688		-		-		-
-commercial		-		-			-		-		-		-
-garage		157,894		488			324		-		-		-
Total		11,942,622		14,002			853		3,514,314		6,040		582

(1)	This column reflects the aggregate amount of all contracts entered into as of the end of the applicable period.
(2)	This column reflects the total square meters sold during the applicable period.

(3)	This column reflects the average price per square meter for all properties sold during the applicable period.
(4)	These numbers include pre-sale of Kirin County’s adjacent shopping arcade in 2012.

Operating Expenses. Operating expenses for the three months ended March 31, 2012 were $1.7 million, an increase of $0.8 million, or 85.8%, from $0.9 million for the three months ended March 31, 2011. Because of sales in our Kirin County, Kirin Bay and No.79 Courtyard projects, our overall operating expenses in advertising, staff salaries, and maintenance increased substantially for the three months ended March 31, 2012 compared with the same period of 2011. As discussed before, we expect our selling and marketing expenses to increase in the near future in connection with pre-sale and construction of Kirin Bay and No.79 Courtyard’s new phases.

	Three Months Ended March 31,
	2012					2011
			% of Expenses					% of Expenses
Operating expenses	$	1,716,548		100.0	%	$	923,981		100.0	%
Selling expenses		468,021		27.3	%		300,000		32.5	%
Advertising expense		163,269		9.5	%		169,585		18.4	%
Staff salaries		186,338		10.9	%		92,921		10.1	%
Office and Administrative expenses		118,414		6.9	%		37,494		4.1	%
General and administrative expenses		1,248,527		72.7	%		623,981		67.5	%
Staff salaries		670,667		39.1	%		205,718		22.3	%
Professional expenses		167,774		9.8	%		106,030		11.5	%
Office and Administrative expenses		410,086		23.9	%		312,233		33.8	%

Advertising Expenses. Our advertising expenses remained at the same level in the three months ended March 31, 2012, compared to the same period of 2011. Our advertising campaigns’ focus in 2011 and 2012 is to promote the pre-sale of our No.79 Courtyard (Phase I) and Kirin Bay (Phase I) projects, which are currently in their construction stage. The advertising expenses may increase in future periods as we advance our No.79 Courtyard and Kirin Bay projects.

Staff Salaries. For the three months ended March 31, 2012 and 2011 our total selling and administrative staff expenses were $0.9 million and $0.3 million respectively. This increase is mostly due to the additional staff hired for our No.79 Courtyard and Kirin Bay projects and our newly established property management companies. As we gradually increase the scope and size of our projects, there is an increasing demand for more administrative and sales staff necessary for meeting satisfactory operation standards. We also recruited several professional managers to help with project management and sales. These expenses are expected to increase in the near future as sales and construction of later phases of the No.79 Courtyard and Kirin Bay projects proceed. To satisfy property management service demand for our soon-to-be-completed Kirin County in the near future, we have started establishing a property management serve line of services, which calls for more hiring in recent periods.

·	Professional Expenses. As the Company became a SEC reporting company in 2011, the professional fees for the audit, legal and other professional services increased. For the three months ended March 31, 2012 and 2011 our professional expenses were $0.2 million and $0.1 million, respectively.

·	Office and Administrative Expenses. Office and administrative expenses increased from $0.3 million to $0.5 million for the three months ended March 31, 2011 and March 31, 2012. This is due to additional expenses such as office supplies costs, traveling, and communications.

Interest Expense. Our interest expense was $0.4 million for the three months ended March 31, 2012, a decrease of $0.2 million, or 28.5%, from $0.6 million for the three months ended March 31, 2011. Additionally, we capitalized $0.9 million to our properties under development for the three months ended March 31, 2012, compared to $nil capitalized during the same period of 2011. We expect there will be an elevated level of interest expense associated with the development of new projects in the future.

Income Taxes Benefit. Income taxes benefit for the three months ended March 31, 2012 totaled $1.5 million, an increase of $1.4 million from $0.1 million for the three months ended March 31, 2011. The increase was mainly due to adjustment to deferred tax liabilities in relation to revenue recognition, caused by reversal of previously recognized revenue.

Net loss. Net loss for the three months ended March 31, 2012 was $6.5 million compared to $0.3 million for the three months ended March 31, 2011, an increase of $6.2 million. This increase was principally due to the decrease of gross profit, and the increases in operating expenses.

Liquidity and Capital Resources

The following table sets forth a summary of our cash flows for the three months ended March 31, 2012 and 2011:

	Three Months Ended March 31,
	2012			2011
Net cash provided by (used in) operating activities	$	1,038,184		$	(5,722,815	)
Net cash used in investing activities		(84,185	)		(40,906	)
Cash flows used in (provided by) financing activities		(1,582,248	)		11,616,949
Effect of exchange rate changes on cash and cash equivalent		56,918			511,479
Net (decrease) increase in cash and cash equivalents		(571,331	)		6,364,707
Cash and cash equivalents - beginning of period		10,602,165			6,233,301
Cash and cash equivalents - end of period		10,030,834			12,598,008

We had a balance of cash and cash equivalents of $10.0 million as at March 31, 2012. We have historically funded our working capital needs through advance payments from customers, bank borrowings, and capital from stockholders. Our working capital requirements are influenced by the state and level of our operations, and the timing of capital needed for projects.

Operating Activities. Net cash provided by operating activities was $0.3 million for the three months ended March 31, 2012, compared to net cash used in operating activities of $5.7 million for the three months ended March 31, 2011, a change of $6.0 million. The change in net cash used for operating activities was primarily due to the following:

·	We laid down $0.4 million in restricted cash in the first three months of 2012, compared to $2.3 million in the same period of 2011. This change in restricted cash increased cash flow from operating activities by $1.9 million;
·	We expended $0.6 million for real properties and land lots under development (net of accounts payable) in the three months ended March 31, 2012. In the same period of 2011, we spent $13.2 million on our projects. This accounted for $12.6 million saving in cash outflow from operating activities;

We received $8.2 million from customers as down payment or subsequent installment (combination of revenue in excess of billings and customer deposits) in the three months ended March 31, 2012, compared to $12.0 million received in the three months ended March 31, 2011, which led to a $3.8 million decrease in net cash inflow from operating activities;

Investing Activities. Net cash used in investing activities was $0.1 million for the three months ended March 31, 2012, compared to net cash of $0.05 million used in investing activities for the three months ended March 31, 2011. Investing activities represent our purchase of office furniture and equipment, and do not constitute a significant part of our cash outflows historically.

Financing Activities. Net cash outflow in financing activities was $1.6 million for the three months ended March 31, 2012, compared to $11.6 million proceeds for the three months ended March 31, 2011. This was mainly due to 1) $1.6 million repayment of loans in the first quarter of 2012, compared with $11.9 million increased in bank loans in the three months ended March 31, 2011; 2) Net proceeds from issuance of investment units increased $0.5 million for the three months ended March 31, 2011.

Contractual Obligations

Long-term debt obligations, costs of land use rights and non-cancellable construction contract obligations as of March 31, 2012.

	Payments due by period
in thousands of US Dollars			less than			13 – 36
	Total		12 months		months
Loans payable	$	49,172	$	41,266	$	7,906
Costs of land use rights		16,298		16,298		-
Non-cancellable construction contract obligations		98,872		78,241		20,631
Total	$	164,342	$	135,805	$	28,537

Customers’ down payments and installments provide a significant portion of our cash inflows. We may also acquire additional cash by raising funds through new borrowings, refinancing of existing borrowings, public or private sales of equity securities, or a combination of one or more of the above; however, there can be no absolute assurance that our internally generated cash flows and external financing will be sufficient to meet our contractual and financing obligations in a timely manner.

As of March 31, 2012, we entered into non-cancellable agreements with several suppliers for our on-going business of constructing residential and commercial properties. The total amount we committed to pay contractors as outlined in these non-cancellable construction agreements aggregates approximately $98.9 million.

Material Financial Obligations

Loans Payable

As at March 31, 2012 our total loan balance was $49.2 million.

On April 2010, one of our VIE, Xingtai Zhongding Jiye Real Estate Development Co., Ltd., entered into a long-term loan contract totaling $18,498,902 with Xingtai Yejin Branch, Industrial and Commercial Bank of China. The loan provides terms ranging from maximums of 29 to 34 months and is designated for propagating the development of the Kirin County Project. The loan is collateralized with the Kirin County land use rights held by Xingtai Zhongding. As of March 31, 2012, these loans’ effective interest rate was 7.79% per annum.

On January 20, 2011, one of our VIE, Xingtai Zhongding Jiye Real Estate Development Co., Ltd., entered into a long-term loan contract totaling $20,425,158 with Xingtai Yejin Branch, Industrial and Commercial Bank of China with maximum terms ranging from 12 to 16 months in maximum. The loan is collateralized with the No.79 Courtyard land use rights as collateral. As of March 31, 2012, $8,379,844 of the loan had been drawn, with effective interest rates ranged from 9.635% to 10.24% per annum. We repaid $1,581,103 of them in the first quarter of year 2012.

On January 11, 2011, one of our VIE, Xingtai Zhongding Jiye Real Estate Development Co., Ltd., entered into a long-term loan contract totaling $12,648,821 with Xingtai Chengjiao Rural Credit Cooperative Union Association with a 23 month maximum term. The loan is collateralized with the No.79 Courtyard land use rights. These loans’ effective interest rate was 10.58% per annum as at March 31, 2012.

On June 19, 2011, one of our VIE, Hebei Zhongding Real Estate Development Co., Ltd., procured a bank loan in the amount of $2,371,654 from Xingtai Chengjiao Rural Credit Cooperative Union Association, and per the request of the lender, the Company asked three individuals (Mr. Guo Jianfeng, Chairman of the Board of Directors, Mr. Hu Longlin, Chief Executive Officer and a former Director) to borrow the said amount from the lender first and then transferred the loan to the Company. The Company will use the loan and will born all the interests cost thereof. The loan was guaranteed by Hebei Zhongding, with an interest rate of 12.62% per annum.

On October 8, 2011, one of our subsidiaries, Xingtai Zhongding Kirin Real Estate Development Co., Ltd., entered into a loan contract to totaling $3,162,205 with an unrelated individual with a 6 month term. This loan’s interest rate was 15.6% per annum. There is no guaranty for this loan. We repaid this loan in April 2012.

On December 22, 2011, one of our VIE, Huaxia Kirin (Beijing) Garden Project Co., Ltd., entered into a loan contract to totaling $948,662 with Xingtai Chengjiao Rural Credit Cooperative Union Association with a 12 month term and 13.12% per annum interest rate. The loan is guaranteed by an unrelated third party designated by the financial institution at no costs.

On December 30, 2011, one of our subsidiaries, Xingtai Zhongding Kirin Real Estate Development Co., Ltd., entered into a loan contract to totaling $4,743,308 with Kong Village Committee with a 12 month term, with an interest rate of 14.4% per annum. There is no guaranty for this loan.

Related Party Transactions and Balances

(1) Government grant escrowed by Business Investment

For the years ended December 31, 2011, 2010 and 2009, Xingtai Zhongding was entitled to receive RMB43,000,000, RMB63,000,000, and RMB51,200,000, respectively ($6,642,455, $9,293,749, and $7,484,417, respectively, translated at respective years’ historical rates) earned government grant from Business Investment. The Company has the right to determine how to utilize the earned government grant. As at March 31, 2012 and December 31, 2011, accumulated earned government grant of RMB157,200,000 and RMB157,200,000 ($24,854,933 and $24,283,580, translated at respective period-end’s historical rates) was used to repay working capital provided by Jianfeng Guo for the support of other real estate projects’ development. As at March 31, 2012 and December 31, 2011, the Company had $3,498,403 and $3,477,052, respectively, earned government grant available for future drawdown after repaid working capital provided by Jianfeng Guo, which is included in “Receivable from a trust equity owner” on balance sheet. No government grant is recorded for the three months ended March 31, 2012 because of the reassessment of percentage-of-completion of Kirin County project. The Company recognized $242,814 government grant for the three months ended March 31, 2011.

(2) Working capital provided by Jianfeng Guo

Relocation Program of Kong Village

Local government did not have enough funds to pay for the relocation and new accommodations of Kong Village’s residents prior to the sale of the village’s land-use right. Consequently, the Company funded the local government by building new complexes and compensating and accommodating the villagers for and during the relocation. The government will repay our costs (a form of financing provided to government) when it sells the land use rights on which the previous villagers were removed. In exchange for such financing, the Company is assured the vacated land use right in public auction; (we will be refunded according to the sale price of the land so the bidding process is noncompetitive). We will construct 1,818 units for Kong Village, or about 280,000 square meters in housing. We will get repaid as the parcels of land use rights are sold. We will attend all the auction and bidding process and acquire the vacated land.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Recently Issued Accounting Pronouncements

There are no recent accounting pronouncements that are expected to have an impact on the consolidated financial statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Smaller reporting companies are not required to provide the information required by this item.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our President and Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of March 31, 2012, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to ensure that information required to be included in our periodic Commission filings is recorded, processed, summarized, and reported within the time periods specified in the Commission rules and forms.

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting

No changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

Currently there are no legal proceedings pending or threatened against the Company. However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Item 1A.

Risk Factors.

Risk Factors are included on the Company’s 10-K filed on March 30, 2012, and do not need to be updated.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

Exhibit Number		Description
31.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

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

	KIRIN INTERNATIONAL HOLDING, INC.

Dated: May 21, 2012	By:	/s/ Longlin Hu
		Longlin Hu
		President and Chief Executive Officer (Principal Executive Officer)

Dated: May 21, 2012	By:	/s/ Cindy Zheng
		Cindy Zheng
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)