UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2015
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ___________to ___________
Commission
File Number: 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.) |
|
|
|
12th
Floor, Building F, Phoenix Plaza
No.
A5ShuguangXili
Chaoyang
District, Beijing
People’s
Republic of China |
|
100028 |
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: +86 10 84554001
N/A
(Former
name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
(Do
not check if a smaller reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
☒
The
registrant had 20,596,546 shares of common stock, $0.0001 per share, outstanding at May 26, 2015.
KIRIN
INTERNATIONAL HOLDING, INC.
QUARTERLY
REPORT ON FORM 10-Q
March
31, 2015
TABLE
OF CONTENTS
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PART I |
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FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements (Unaudited) |
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4 |
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Item 2. |
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations |
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31 |
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Item 3. |
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Quantitative and Qualitative Disclosures
About Market Risk |
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47 |
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Item 4. |
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Controls and Procedures |
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47 |
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PART II |
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OTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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47 |
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Item 1A. |
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Risk Factors |
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47 |
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Item 2. |
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Unregistered Sales of Equity Securities
and Use of Proceeds |
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48 |
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Item 3. |
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Defaults Upon Senior Securities |
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48 |
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Item 4. |
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Mine Safety Disclosures |
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48 |
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Item 5. |
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Other Information |
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48 |
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Item 6. |
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Exhibits |
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48 |
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SIGNATURES |
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49 |
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Financial Statements: |
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SPECIAL
NOTE REGARDING VOLUNTARY FILER STATUS
Kirin
International Holding, Inc. is a “voluntary filer” with the U.S. Securities and Exchange Commission. This means that
the Company is not required to file Current and Periodic Reports with the U.S. Securities and Exchange Commission. Furthermore,
the Company is not subject to the going private rules and certain tender offer regulations, and the beneficial holders of the
Company’s securities do not need to report on acquisitions or depositions of the Company’s securities or their plans
regarding their influence and control over the Company. Therefore the Company’s status a voluntary filer reduces investors’
rights to access significant information regarding the Company and its controlling shareholders.
The
Company’s voluntary filer status may lead to its removal from the over the counter bulletin board, as Rule 6530 of the Financial
Industry Regulatory Authority provides that issuers must be required to file reports pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 in order to remain listed.
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements”. 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
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 and Variable Interest Entities.
PART
I—FINANCIAL INFORMATION
Item1. |
Financial Statements. |
KIRIN
INTERNATIONAL HOLDING, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
ASSETS | |
| |
| |
| | |
| |
Cash and cash equivalents | |
$ | 10,214,161 | | |
$ | 22,004,479 | |
Restricted cash | |
| 19,226,283 | | |
| 6,785,042 | |
Short-term Investment | |
| 2,123,975 | | |
| 487,527 | |
Accounts receivable | |
| 456,021 | | |
| 58,202 | |
Notes receivable | |
| 600,000 | | |
| 600,000 | |
Revenue in excess of billings | |
| 10,679,072 | | |
| 13,586,442 | |
Prepayments | |
| 27,589,195 | | |
| 26,448,654 | |
Other receivables | |
| 34,305,198 | | |
| 28,549,244 | |
Receivable from a trust equity owner | |
| 5,784,881 | | |
| 5,415,488 | |
Loan to related parties | |
| 49,745,039 | | |
| 48,353,101 | |
Real estate property completed | |
| 5,683,996 | | |
| 1,441,194 | |
Real estate properties and land lots under development | |
| 177,942,355 | | |
| 187,445,154 | |
Long-term Investments | |
| 7,888,838 | | |
| 7,850,402 | |
Property and equipment, net | |
| 6,392,871 | | |
| 7,477,607 | |
Deferred tax assets | |
| 4,876,988 | | |
| 5,525,048 | |
Total assets | |
$ | 363,508,873 | | |
$ | 362,027,584 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Notes payable | |
$ | 2,800,000 | | |
$ | - | |
Accounts payable | |
| 103,231,575 | | |
| 102,265,749 | |
Income taxes payable | |
| 1,692,906 | | |
| 1,904,666 | |
Other taxes payable | |
| 404,322 | | |
| 2,263,163 | |
Other payables and accrued liabilities | |
| 18,125,441 | | |
| 23,455,757 | |
Customer deposits | |
| 84,021,907 | | |
| 83,522,070 | |
Loans payable | |
| 98,160,128 | | |
| 92,313,136 | |
| |
| | | |
| | |
Total liabilities | |
| 308,436,279 | | |
| 305,724,541 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
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; 20,596,546 shares issued and outstanding | |
| 2,060 | | |
| 2,060 | |
Additional paid-in capital | |
| 37,149,630 | | |
| 37,149,630 | |
Statutory reserve | |
| 1,403,154 | | |
| 1,403,154 | |
Retained earnings | |
| 7,581,253 | | |
| 8,967,841 | |
Accumulated other comprehensive income | |
| 8,337,922 | | |
| 8,110,120 | |
Total Kirin International Holding, Inc.’s equity | |
| 54,474,019 | | |
| 55,632,805 | |
Non-controlling interest | |
| 598,575 | | |
| 670,238 | |
Total Stockholders' equity | |
| 55,072,594 | | |
| 56,303,043 | |
Total liabilities and stockholders’ equity | |
$ | 363,508,873 | | |
$ | 362,027,584 | |
See
notes to the unaudited condensed consolidated financial statements
Certain
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 3).
KIRIN
INTERNATIONAL HOLDING, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| |
Three months ended March 31 | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited)
(Revised) | |
| |
| | |
| |
Revenue, net | |
$ | 22,033,063 | | |
$ | 7,412,177 | |
Cost of sales | |
| 19,771,195 | | |
| 5,765,986 | |
Gross profit | |
| 2,261,868 | | |
| 1,646,191 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling expenses | |
| 734,553 | | |
| 779,828 | |
General and administrative expenses | |
| 1,882,013 | | |
| 2,936,614 | |
| |
| | | |
| | |
Total operating expenses | |
| 2,616,566 | | |
| 3,716,442 | |
| |
| | | |
| | |
Loss from operations | |
| (354,698 | ) | |
| (2,070,251 | ) |
| |
| | | |
| | |
Other income (expenses) | |
| | | |
| | |
Investment income | |
| 665,972 | | |
| 506,548 | |
Interest income | |
| 1,480,955 | | |
| 1,232,907 | |
Interest expense | |
| (2,079,682 | ) | |
| (2,711,866 | ) |
Other non-operating income | |
| 469,593 | | |
| 211,111 | |
| |
| | | |
| | |
Total other income (expenses) | |
| 536,838 | | |
| (761,300 | ) |
| |
| | | |
| | |
Income (loss) before income taxes | |
| 182,140 | | |
| (2,831,551 | ) |
| |
| | | |
| | |
Income taxes expense (benefit) | |
| 1,639,552 | | |
| (582,520 | ) |
| |
| | | |
| | |
Net loss | |
| (1,457,412 | ) | |
| (2,249,031 | ) |
Less: net loss attributable to non-controlling interest | |
| (70,825 | ) | |
| (8,577 | ) |
Net loss attributable to stockholder of Kirin International Holding, Inc. | |
$ | (1,386,587 | ) | |
$ | (2,240,454 | ) |
| |
| | | |
| | |
Net loss | |
$ | (1,457,412 | ) | |
$ | (2,249,031 | ) |
| |
| | | |
| | |
Other comprehensive income (loss) | |
| | | |
| | |
Foreign currency translation adjustment | |
| 227,802 | | |
| (395,416 | ) |
Total comprehensive loss | |
| (1,229,610 | ) | |
| (2,644,447 | ) |
Less: other comprehensive loss attributable to non-controlling interest | |
| (70,825 | ) | |
| (8,577 | ) |
Comprehensive loss attributable to stockholder of Kirin International Holding, Inc. | |
$ | (1,158,785 | ) | |
| (2,635,870 | ) |
| |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.07 | ) | |
| (0.11 | ) |
Basic and diluted weighted average shares outstanding | |
| 20,596,546 | | |
| 20,596,546 | |
See
notes to the unaudited condensed consolidated financial statements
KIRIN
INTERNATIONAL HOLDING, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
Three months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited)
(Revised) | |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (1,457,412 | ) | |
$ | (2,249,031 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Depreciation | |
| 39,721 | | |
| 46,361 | |
Gain on disposal of equipment | |
| (452,952 | ) | |
| (211,111 | ) |
Deferred tax | |
| 675,133 | | |
| (815,972 | ) |
| |
| | | |
| | |
Changes in operating assets and liabilities | |
| | | |
| | |
Restricted cash | |
| (12,356,721 | ) | |
| 211,152 | |
Accounts receivable | |
| (395,966 | ) | |
| 130,264 | |
Notes receivable | |
| - | | |
| (1,503,305 | ) |
Revenue in excess of billings | |
| 2,968,857 | | |
| 4,198,373 | |
Prepayments | |
| (994,505 | ) | |
| (1,143,461 | ) |
Other receivables | |
| (5,589,098 | ) | |
| (11,204,465 | ) |
Receivable from a trust equity owner | |
| (304,495 | ) | |
| 1,190,894 | |
Real estate property completed | |
| (4,218,651 | ) | |
| 474,019 | |
Real estate properties and land lots under development | |
| 10,416,444 | | |
| (2,938,917 | ) |
Accounts payable | |
| 414,506 | | |
| (21,197,653 | ) |
Income taxes payable | |
| (221,138 | ) | |
| (72,243 | ) |
Other taxes payable | |
| (1,863,759 | ) | |
| (438,215 | ) |
Other payables and accrued liabilities | |
| (5,433,470 | ) | |
| (133,842 | ) |
Customer deposits | |
| 50,706 | | |
| 20,830,105 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (18,722,800 | ) | |
| (14,827,047 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of equipment | |
| (147,209 | ) | |
| (10,822 | ) |
Proceeds from disposal of equipment | |
| 1,647,595 | | |
| 623,407 | |
Repayment of loans from related parties | |
| 13,815,832 | | |
| 1,143,819 | |
Loans to related parties | |
| (14,943,474 | ) | |
| (1,232,907 | ) |
Repayment of short-term loan from related parties | |
| - | | |
| 12,238,862 | |
Payment for short-term investment | |
| (1,627,499 | ) | |
| - | |
Cash paid for investment at cost | |
| - | | |
| (110,002 | ) |
| |
| | | |
| | |
Net cash provided by (used in) investing activities | |
| (1,254,755 | ) | |
| 12,652,357 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from financial institution loans | |
| 10,212,551 | | |
| 1,634,027 | |
Repayment of financial institution loans | |
| (4,882,495 | ) | |
| (2,777,846 | ) |
Proceeds from Notes payable | |
| 2,800,000 | | |
| - | |
Distribution to non-controlling stockholder of Greenfield | |
| (838 | ) | |
| - | |
| |
| | | |
| | |
Net cash provided by (used in) financing activities | |
| 8,129,218 | | |
| (1,143,819 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents | |
| 58,019 | | |
| (142,629 | ) |
Net decrease in cash and cash equivalents | |
| (11,790,318 | ) | |
| (3,461,138 | ) |
| |
| | | |
| | |
Cash and cash equivalents - beginning of the period | |
| 22,004,479 | | |
| 23,407,551 | |
| |
| | | |
| | |
Cash and cash equivalents - end of the period | |
$ | 10,214,161 | | |
$ | 19,946,413 | |
| |
| | | |
| | |
Supplementary cash flow information | |
| | | |
| | |
Cash paid for income tax | |
$ | 855,749 | | |
$ | 286,197 | |
Cash paid for interest expense | |
$ | 1,923,911 | | |
$ | 2,545,143 | |
See
notes to the unaudited condensed consolidated financial statements
KIRIN
INTERNATIONAL HOLDING, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note
1 – Organization and Description of Business
Kirin
International Holding, Inc. (the “Company”) was incorporated on December 23, 2009 under the laws of the State of Nevada.
The Company and its subsidiaries, Variable Interest Entities (“VIEs”) and VIEs’ subsidiaries are engaged in
the development and sales of residential and commercial real estate properties, and development of land lots in Xingtai city,
Hebei province, People’s Republic of China (“China”, or the “PRC”).
As
at March 31, 2015, the Company had following wholly-owned entities, VIEs and VIEs’ subsidiaries:
|
|
Place
of Incorporation |
|
Date
of Incorporation |
|
Principal
Activities |
|
|
|
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
Kirin China Holding Limited (“Kirin
China”) |
|
British Virgin Islands |
|
July 6, 2010 |
|
Investment holding |
Kirin Huaxia Development Limited (“Kirin
Development”) |
|
Hong Kong, China |
|
July 27, 2010 |
|
Investment holding |
Shijiazhuang Kirin Management Consulting
Co., Ltd. (“Kirin Management”) |
|
Shijiazhuang, Hebei province, China |
|
December 22,
2010 |
|
Primary beneficiary of VIEs |
Spectrum International Enterprise, LLC |
|
State of California, United States of
America. |
|
January 11,
2013 |
|
Property holding |
Brookhollow Lake, LLC |
|
State of California, United States of
America |
|
February 8,
2013 |
|
Property holding |
Greenfield International Corporation * |
|
State of California, United States of
America |
|
August 12,
2013 |
|
Whole sale Agent of Food & Grocery |
Kirin Hopkins Real estate |
|
State of California, United States of
America |
|
July 23,
2013 |
|
Real estate development |
Newport Property Holding, LLC |
|
State of California, United States of
America |
|
July 11,
2013 |
|
Real estate investment and management |
Kirin Alamo, LLC |
|
State of California, United States of
Amercia |
|
December 09,
2013 |
|
Real Estate development |
Archway Development Group LLC |
|
State of California, United States of
America |
|
April 30,
2014 |
|
Real Estate development |
HHC-6055 Centre Drive LLC |
|
State of California, United States of
America |
|
April 30,
2014 |
|
Real Estate development |
Applecrate LLC |
|
State of California, United States of
America |
|
November 11,
2014 |
|
E-Commerce Retail/Wholesale |
VIEs |
|
|
|
|
|
|
HebeiZhongding Real Estate Development
Co., Ltd. (“Hebei Zhongding”) |
|
Xingtai, Hebei province, China |
|
July 16,
2007 |
|
Real estate development |
XingtaiZhongdingJiye Real Estate Development
Co., Ltd. (“Zhongding Jiye”, “Xingtai Zhongding”) |
|
Xingtai, Hebei province, China |
|
August 7,
2008 |
|
Real estate development |
|
|
|
|
|
|
|
Subsidiaries
of VIEs
Subsidiaries
of Hebei Zhongding |
|
|
|
|
|
|
XingtaiZhongding Construction Project
Management Co., Ltd. |
|
Xingtai, Hebei province, China |
|
September 3,
2007 |
|
Dormant
|
Subsidiaries of Xingtai Zhongding |
|
|
|
|
|
|
XingtaiZhongding Kirin Real Estate Development
Co., Ltd. (formerly known as XingtaiZhongding Business Service Co., Ltd., “Business Service”, “Zhongding
Kirin”) |
|
Xingtai, Hebei province, China |
|
July 29,
2008 |
|
Real estate development |
Huaxia Kirin (Beijing) Garden Project
Co., Ltd. |
|
Beijing, China |
|
January 19,
2010 |
|
Garden design and planting |
Xingtai Hetai Real Estate Development
Co., Ltd. |
|
Xingtai, Hebei province, China |
|
December 6,
2010 |
|
Real estate development |
Huaxia Kirin (Beijing) Property Management
Co., Ltd. |
|
Beijing, China |
|
December 19,
2011 |
|
Property management |
Hebei Zhongding Property Service Co.,
Ltd. |
|
Xingtai, Hebei province, China |
|
December 19,
2011 |
|
Property management |
*In
January 2015, Greenfield International Corporation was closed.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2015 and 2014
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been omitted pursuant to such rules and regulations. Accordingly, the reader
of this Form 10-Q is referred to Kirin International Holding, Inc. (“the Company”) Form 10-K for the year ended
December 31, 2014 for further information. In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position at March 31, 2015, the results of operations for the three month periods
ended March 31, 2015 and 2014, and cash flows for the three month periods ended March 31, 2015 and 2014. The results of
operations for the three month periods ended March 31, 2015 are not necessarily indicative of the operating results for the
year. The unaudited condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014, and the unaudited
condensed consolidated statements of operations and comprehensive loss and cash flows for the three month periods ended March
31, 2015 and 2014 include those of the Company, its subsidiaries and VIEs, and subsidiaries of VIEs. All material
intercompany transactions and balances have been eliminated in consolidation.
The
condensed consolidated balance sheets are presented unclassified because the time required to complete real estate projects
and the Company’s working capital considerations usually stretch for more than one-year period.
Reclassifications
Certain
amounts in the March 31, 2014 unaudited condensed consolidated financial statement have been reclassified to conform to
the March 31, 2015 presentation.
Use of Estimates
The preparation
of the condensed 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 condensed 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, recoverability of deferred tax assets, and the assessment of impairment of long-lived assets. The current economic environment
has increased the degree of uncertainty inherent in those estimates and assumptions.
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.
Reporting
Currency and Foreign Currency Translation
The
functional currency of the Company, Kirin China, Kirin Development and Kirin Management is the United States dollar (“US$”).
The functional currency of the Company’s VIEs and subsidiaries of VIEs in the PRC is Renminbi (“RMB”). The Company’s
reporting currency is US$. The assets and liabilities of the Company’s VIEs and subsidiaries of VIEs 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 condensed consolidated statements of operations and comprehensive
income (loss) in accordance with ASC 220, comprehensive income.
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 for 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.
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. Changes to total estimated contract costs or losses, if any, are recognized in the period in which
they are determined. 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 transactions are recognized in the period in which the losses are identified.
Except
for the down payment, the remaining contract price can be settled by several installments or financed by mortgage. The
Company requires customers to pay a 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 will be approved. The Company provides guarantees for mortgage loans
from financial institutions to customers (see “Restricted cash”). Such guarantees expire when customers
have obtained a House Ownership Certificate for 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 the 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.
A
project’s revenue and cost estimates have an inherent nature of uncertainty throughout its multiple-year development period. Factors
that potentially affect a project’s total revenue and cost estimates (including a salable unit’s allocated cost),
include, but are not limited to: (1) changes in government’s land-use planning, building density, plot ratio and other quotas;
which lead to changes of total gross floor area available for sale and per-unit cost estimate; (2) the Company’s voluntary
modification of design to enhance attractiveness and competiveness of an on-going project; (3) fluctuation of commodity prices
and government-regulated labor cost rates; (4) contractors’ request to renegotiate consideration of fixed-price agreements,
for which the Company’s preference of complete the discussion early to avoid unfavorable impact on construction progress;
(5) unforeseeable geological and engineering difficulties causing modifications of a project’s construction plan; (6) government
agencies’ compliance inspections in the late stage of the construction, which may lead to modification of design; (7) major
prospective property buyers’ request to alter specifications of the property to be delivered; and (8) contractors’
claims throughout the construction period.
The
Company enters into non-cancellable, fixed-price pre-sale contracts with homebuyers. Under certain circumstances, for
example, changes in floor size or floor plan of a property due to legal compliance requirements, or change of deliverable standards
upon request of major customers, we may agree to revise the pre-sale contract price to match conditions of the properties to be
delivered to customers. Furthermore, the Company is subject to a penalty payable to homebuyers in the event the property
is delivered later than the date specified in the pre-sale contracts, and usually such penalty constitutes only an insignificant
amount compared to the contract value. These adjustments to contract price are recorded as a reduction of revenue in
the current period on a cumulative catch-up basis.
With
regard to a project’s cost estimate, the Company’s in-house cost estimators work in collaboration with a committee
also comprising the Company’s engineers, project managers, financial professionals, and senior management staff, to prepare
at least two versions of the cost estimate. The first version is a Preliminary Cost Estimate, prepared in schematic
design stage, which is before commencement of excavation and recognition of revenue. Preliminary Cost Estimate utilizes
top-down approach. It projects major cost components at higher level using a project’s planned parameters (e.g., building
density, by-category gross floor area) and standard per-unit cost from past experience (e.g., concrete cost, measured at US$ per
square meter). Preliminary Cost Estimate is intrinsically less accurate; it heavily relies on the Company’s historical
information accumulated in the development of similar types of construction in similar municipal region. The second
version is Detailed Cost Estimate, prepared after receiving construction documents from the architect. Ideally Detailed
Cost Estimate can be available before commencement of excavation and recognition of revenue; however, in order to suit the pre-sale
progress and to maximize flexibility, construction documents are provided in several batches as the construction processes. It
is likely that a project’s Detailed Cost Estimate is finalized only in late stage of the construction. Detailed
Cost Estimate utilizes bottom-up approach. Based on construction documents and assisted by the Company’s computerized
Building Information Modeling system, Detailed Cost Estimate is able to sum up cost at element level of a real estate property,
taking into consideration of quantitative consumption and on-going rate of materials, labor, machinery and overheads. For the
purpose of preparing the Company’s condensed consolidated financial statements, a project’s cost estimate is reviewed
by in-house cost estimators at each year-end and adjusted for material developments in the interval. Changes in estimates
of a project’s revenue and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the current
period the cumulative effect of the changes on current and prior periods based on a project’s percentage of completion.
When a project’s total cost estimate to be incurred exceeds total estimated revenue to be earned, a provision for the entire
loss on the project is recorded in the period the loss is determined. In addition to our existing monthly detailed cost estimate
upon receiving construction data from the architects, we have hired additional competent professionals to ensure early identification
of variances from prior estimated project revenue and cost, to reduce the likelihood of significant changes to the estimates.
Real
Estate Capitalization and Cost Allocation
Real
estate property completed and Real estate properties and land lots under development consist of residential and commercial units
under construction and units completed. Properties under development or completed 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.
Government
Grant
Government
grants related 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 RMB 160,000,000 (approximately $22,981,000 translated at historical
exchange rate) related to Kirin County project to subsidize the modernization of the neighborhood where the real estate project
is 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, 2015 and 2014, the Company did not recognize any grant income, respectively. All government grants
related to Kirin County have been recognized through 2009 to 2012 as the construction of Kirin County goes on during the
years. The local government has arranged a lump sum payment of the grant to Xingtai Jiye Business Investment Co., Ltd.
(“Business Investment”), a related party of the Company, 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 of March
31, 2015, the Company didn’t receive any request from the 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 the 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, 2015 and the year ended December 31, 2014, $43,961 (unaudited) and $124,921
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 the majority of its bank accounts in the PRC. 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 is limited because the Company conducts transactions and deposits balances
with several state-owned banks with high credit ratings assigned by international credit rating agencies.
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 $19,226,283 (unaudited) and $6,785,042 as of March 31, 2015 and December 31, 2014, 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. Besides this, deposits for bank acceptance notes required by PRC banks are also disclosed
as restricted cash.
Short-term
Investments
The
classification of investment securities is based on the Company’s intent, which is re-evaluated at each balance sheet date,
with respect to those securities. Short-term investments refer to the securities that the Company has positive intent and ability
to hold to maturity and stated at amortized cost.
Long-term
Investments
Investments
in securities of private companies the Company does not have a controlling interest and is unable to exercise significant influence
are accounted for using cost method of accounting. The Company evaluates at each period end whether an event or change in circumstances
has occurred in that period that may have a significant adverse effect on the fair value of the investments. If a decline in fair
value is determined to be other than temporary, an impairment loss is recognized to reduce an investment’s cost to its fair
value. The Company received $665,972 and $506,548 as dividend for the three months ended March 31, 2015 and 2014, respectively.
Property
and Equipment, Net
Property
and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of
the assets as follows:
| |
Estimated
Useful Lives |
Fixtures,
furniture and office equipment | |
5
years |
Property
in US | |
39
years |
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the financial statements or tax returns. 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.
Subsidiaries,
VIEs and subsidiaries of VIEs of the Company 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 new 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. The Company includes any interest and penalties in general and administrative expenses.
Unrecognized
tax benefits represent the difference the benefits recognized for the financial statement purposes and tax positions taken or
expected to be taken in a tax return.
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.
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 borrowing 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. LAT was included in Income tax expense in the condensed consolidated statements of operations
and comprehensive income (loss).
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 component of other comprehensive income (loss) during the three months ended March 31, 2015
and 2014 was the foreign currency translation adjustment.
Earnings
per Share
The
Company reports earnings per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of basic
and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted
average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that
could occur if securities or other contracts, such as warrants and convertible preferred stock, were exercised or converted into
common stock. Dilutive securities having an anti-dilutive effect on diluted earnings 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, 2015 and 2014, the Company recorded an advertising expense of $300,924 and $479,963, 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 of March 31, 2015 and December 31, 2014, the Company
retained $111,313 (unaudited) and $117,218 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 as prospective expenditure amount on property warranty by the Company is insignificant. For
the three months ended March 31, 2015 and 2014, the Company didn’t incur incidental costs in addition to the amount retained
from contractors.
Impairment
Losses
Completed
real estate 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 or 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, a property that is considered
impaired is written down to its fair value less costs to sell. Impairment losses are recognized through a charge to expense. No
impairment of completed real estate properties or land lots was recognized for the three months ended March 31, 2015 and 2014.
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.
Recently
Issued Accounting Pronouncements
The
Company does not believe recently issued but not yet effective accounting standards from ASU 2015-01 through ASU 2015-08, if currently
adopted, would have a material effect of the condensed consolidated financial position, results of operation and cash flows.
Correction
of Prior Period Financial Statements
During the three months ended March 31, 2015, management determined that service
fee incurred in connection with obtaining the loans should be deferred and amortized over the period of the related loans under
straight-line method. In prior years, the Company had deferred the service fee and expensed when the loans are due.. The Company
has adjusted its December 31, 2014 consolidated balance sheet and its income statement for the three months ended March 31, 2014.
The following tables detail the corrections and impact to condensed consolidated balance
sheet at December 31, 2014:
| |
December 31, 2014 | |
| |
As
Previously | | |
| | |
As
Currently | |
| |
Reported | | |
Adjustment | | |
Reported | |
Assets | |
| | |
| | |
| |
| |
| | |
| | |
| |
Prepayments | |
$ | 25,983,191 | | |
$ | 465,463 | | |
$ | 26,448,654 | |
Other receivables | |
| 30,206,838 | | |
| (1,657,594 | ) | |
| 28,549,244 | |
Deferred tax assets | |
| 5,227,015 | | |
| 298,033 | | |
| 5,525,048 | |
| |
| | | |
| | | |
| | |
Total assets | |
| 362,921,682 | | |
| (894,098 | ) | |
| 362,027,584 | |
| |
| | | |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Retained earnings | |
| 9,857,778 | | |
| (889,937 | ) | |
| 8,967,841 | |
Accumulated other comprehensive income | |
| 8,114,281 | | |
| (4,161 | ) | |
| 8,110,120 | |
| |
| | | |
| | | |
| | |
Total Stockholders' equity | |
$ | 57,197,141 | | |
$ | (894,098 | ) | |
$ | 56,303,043 | |
The
following tables detail the corrections and impact to the condensed income statements for the three months ended March 31, 2014
| |
For the Three Months Ended March 31, 2014 | |
| |
As
Previously | | |
| | |
As
Currently | |
| |
Reported | | |
Adjustment | | |
Reported | |
| |
| | |
| | |
| |
Interest expense | |
$ | (2,564,025 | ) | |
$ | (147,841 | ) | |
$ | (2,711,866 | ) |
Total other income (expense) | |
| (613,459 | ) | |
| (147,841 | ) | |
| (761,300 | ) |
Loss before income taxes | |
| (2,683,710 | ) | |
| (147,841 | ) | |
| (2,831,551 | ) |
Income taxes expense (benefit) | |
| (545,560 | ) | |
| (36,960 | ) | |
| (582,520 | ) |
Net loss | |
| (2,138,150 | ) | |
| (110,881 | ) | |
| (2,249,031 | ) |
Net loss attributable to stockholder of Kirin International Holding, Inc. | |
| (2,129,573 | ) | |
| (110,881 | ) | |
| (2,240,454 | ) |
Foreign currency translation adjustment | |
| (399,909 | ) | |
| (4,493 | ) | |
| (395,416 | ) |
Total comprehensive loss | |
| (2,538,059 | ) | |
| (106,388 | ) | |
| (2,644,447 | ) |
Comprehensive loss attributable to stockholder of Kirin International Holding, Inc. | |
| (2,529,482 | ) | |
| (106,388 | ) | |
| (2,635,870 | ) |
| |
| | | |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.10 | ) | |
$ | (0.01 | ) | |
$ | (0.11 | ) |
In
accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and “SAB 108”), the Company has
evaluated these errors, based on an analysis of quantitative and qualitative factors, as to whether they were material to each
of the prior reporting periods affected and if amendments of previously filed registration statements with the SEC are required.
The Company has determined that the impact is not material to prior periods and the understatement of expenses would not have influenced
an investor’s decision making process. In accordance with SAB 108, the Company will include this revised financial information
when it files subsequent reports on Form 10-Q and Form 10-K or files a registration statement under the Securities Act of 1933,
as amended.
Note
3 – Variable Interest Entities
In
accordance with the VIE Agreements entered into 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.
Risks
in Relation to the VIE Structure
The
Ministry of Commerce of PRC (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law (the “Draft”)
in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China. The Draft
embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international
practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.
The
MOFCOM is currently soliciting comments on the Draft and substantial uncertainties exist with respect to its enactment timetable,
interpretation and implementation. The Draft, if enacted as proposed, may materially impact the viability of our current corporate
structure, corporate governance and business operations. The Draft expands the definition of foreign investment and introduces
the principle of "actual control" in determining whether a company is considered a Foreign Investment Enterprise (“FIE”).
Under
the Draft, Variable Interest Entities (“VIEs”) that are controlled via contractual arrangement would be deemed as
FIEs, if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in
an industry category that falls under restricted to foreign investment or prohibited from foreign investment, the VIE structure
may be deemed legitimate only if the ultimate controlling persons) is/are of PRC nationality (either PRC companies or PRC citizens).
Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the VIEs will be treated as FIEs and any
operation in the industry category falls under restricted to foreign investment or prohibited from foreign investment, without
market entry clearance may be considered as illegal. Moreover, for the enterprises which are not incorporated under the laws of
China (foreign investors) but are "controlled" by Chinese investors, they may submit documentary evidence to apply for
identifying their investment as the investment by Chinese investors when they applying for the market entry clearance to engage
in any investment as set out in industries restricted to foreign investment or prohibited from foreign investment in China. The
competent authorities of foreign investment will grant the review opinion on whether the said investment is identified as the
investment by Chinese investors.
In
conclusion, if the Draft enacted as proposed, it is possible that the Company's conduct of certain of its operations and businesses
through the VIEs could be found by PRC authorities to be in violation of PRC laws and regulations prohibiting or restricting foreign
ownership of companies that engage in such operations and businesses. If such a finding were made, regulatory authorities with
jurisdiction over the licensing and operation of such businesses would have broad discretion in dealing with such a violation,
including levying fines, confiscating the Company's income, revoking the business or operating licenses of the affected businesses,
requiring the Company to restructure its ownership structure or operations, or requiring the Company to discontinue all or any
portion of its operations. Any of these actions could cause significant disruption to the Company's business operations, and have
a material adverse impact on the Company's cash flows, financial position and operating performance. The Company's management
considers the possibility of such a finding by PRC regulatory authorities to be remote.
These
contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due
to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes
it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests
as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts;
the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders
may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings
to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and
legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company
cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC
law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted
in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in
the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal
system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts
may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and
regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any
of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results
of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's condensed
consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance
would be materially adversely affected.
The
Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such
agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's
operations and contractual relationships would find the agreements to be unenforceable under existing laws.
Summary
information regarding consolidated VIEs is as follows:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
ASSETS |
| |
| | |
| |
Cash and cash equivalents | |
$ | 6,836,551 | | |
$ | 21,084,446 | |
Restricted cash | |
| 19,226,283 | | |
| 6,785,042 | |
Short-term Investment | |
| 2,123,975 | | |
| 487,527 | |
Accounts receivable | |
| 456,021 | | |
| 58,202 | |
Revenue in excess of billings | |
| 10,679,072 | | |
| 13,586,442 | |
Prepayments | |
| 27,589,195 | | |
| 26,448,654 | |
Other receivables | |
| 47,560,154 | | |
| 42,314,953 | |
Receivable from a trust equity owner | |
| 12,222,576 | | |
| 11,853,261 | |
Loan to related parties | |
| 49,745,039 | | |
| 48,353,101 | |
Real estate property completed | |
| 5,683,996 | | |
| 1,441,194 | |
Real estate properties and land lots under development | |
| 167,799,803 | | |
| 178,040,195 | |
Investment at cost | |
| 7,188,838 | | |
| 7,150,402 | |
Property and equipment, net | |
| 446,136 | | |
| 466,557 | |
Deferred tax assets | |
| 4,876,988 | | |
| 5,525,048 | |
Total assets | |
$ | 362,434,627 | | |
$ | 363,595,024 | |
| |
| | | |
| | |
LIABILITIES | |
| |
| | | |
| | |
Accounts payable | |
$ | 103,231,575 | | |
$ | 102,265,749 | |
Income taxes payable | |
| 1,692,906 | | |
| 1,904,666 | |
Other taxes payable | |
| 404,322 | | |
| 2,263,163 | |
Other payables and accrued liabilities | |
| 17,712,665 | | |
| 23,325,237 | |
Customer deposits | |
| 84,021,907 | | |
| 83,507,580 | |
Financial institution loans | |
| 98,160,128 | | |
| 92,313,136 | |
Total liabilities | |
$ | 305,223,503 | | |
$ | 305,579,531 | |
Certain
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.
For
the three months ended March 31, 2015 and 2014, the financial performance of VIEs is as follows:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
(Revised) | |
| |
| | |
| |
Revenue from real estate sales, net | |
$ | 22,033,063 | | |
$ | 7,375,480 | |
Cost of real estate sales | |
$ | 19,771,195 | | |
$ | 5,765,986 | |
Operation expenses | |
$ | 1,818,098 | | |
$ | 3,229,128 | |
Net loss | |
$ | (1,111,896 | ) | |
$ | (2,009,525 | ) |
Note
4 – Short-term Investments
On December 15, 2014 and February 15, 2015, the
Company invested RMB 3,000,000 (approximately $490,000, matured in one year) and RMB 10,000,000 (approximately $1,634,000, matured
in three months), respectively in a financial instrument managed by Xingtai Small and Micro Enterprises Investment Association.
Nil investment income is earned for the three months ended March 31, 2015.
Note
5 – Accounts Receivable
Accounts
receivable consists of property management fee receivable and balances due from completed properties in accordance with full accrual
method, under which the Company recognizes related revenue after customers have made sufficient down payment.
As
of March 31, 2015 and December 31, 2014, accounts receivable due from complete properties represents revenue in excess of billings
balances of Kirin County project and No.79 Courtyard Phase I as the construction is completed and related condominium units are
available for delivery to customers.
Receivables
from sales of condominium units are collateralized by underlying properties’ Ownership Certificates and bear no interest.
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Receivable
from sales of condominium units | |
$ | 455,650 | | |
$ | 55,375 | |
Receivable
from property management | |
| 371 | | |
| 2,827 | |
| |
| | | |
| | |
| |
$ | 456,021 | | |
$ | 58,202 | |
Note
6 – Notes Receivable
| |
March
31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Receivable
from individual (Promissory note) | |
$ | 600,000 | | |
$ | 600,000 | |
The
Promissory note with original principle amount of $600,000 will be due on August 16, 2016, at the rate of 3% per annum.
Note
7 – Revenue in Excess of Billings
Revenue
in excess of billings represents the amount revenue recognized for certain residential and commercial units in Kirin Plaza, No.
79 Courtyard and Kirin Bay 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 12 to 24 months, depending on construction progress of related real estate properties. As of March 31, 2015 and
December 31, 2014, revenue in excess of billings is $10,679,072 (unaudited) and $13,586,442, respectively.
Note
8 – Prepayments
Prepayments
consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
| |
| | |
| |
Advances to suppliers and contractors | |
$ | 1,266,852 | | |
$ | 1,250,734 | |
Prepaid financing service fees | |
| 1,796,956 | | |
| 1,291,465 | |
Excessive business tax and LAT liabilities | |
| 9,495,020 | | |
| 8,873,569 | |
Prepayments-related parties | |
| 15,030,367 | | |
| 15,032,886 | |
| |
$ | 27,589,195 | | |
$ | 26,448,654 | |
Pursuant to financing service contracts
entered into between the Company, Xingtai Rural Commercial Bank 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. Pursuant to
service contracts entered into between the Company and Hebei Pufa Investment Development Co., Ltd (“Pufa”), the Company
paid service fees to Pufa for the origination and extension of several loans from Industrial and Commercial Bank of China, Xingtai
Branch. These financing service fees are regarded as prepaid financing service fees and amortized over the respective terms of
the loans.
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.
The
prepayments to related parties are regarding to construction contract. In certain area, the related parties have more bargain
power with the construction contractors. These related parties will pay contractors on behalf of the Company according to contract
terms. The construction contractors will provide construction service to the Company, and then the prepayments are recorded in
costs over the course of construction period, based on the completion progress of a project. The balance of Prepayments-related
parties represents the amount these related parties are yet to pay to contractors.
Note
9 – Other Receivables
The
components of other receivables were as follows:
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
| |
| | |
| |
Working capital borrowed by contractors | |
$ | 20,195,061 | | |
$ | 20,209,181 | |
Due from a related party supplier | |
| 5,390,331 | | |
| 5,361,511 | |
Due from a third party supplier | |
| 4,901,480 | | |
| - | |
Deposit | |
| 1,699,820 | | |
| 1,693,773 | |
Staff allowance | |
| 1,276,072 | | |
| 1,069,379 | |
Receivables of housing maintenance funds | |
| 175,935 | | |
| 204,651 | |
Others | |
| 666,499 | | |
| 10,749 | |
| |
| | | |
| | |
| |
$ | 34,305,198 | | |
$ | 28,549,244 | |
Working
capital borrowings by contractors 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, 2015 and December 31, 2014.
On
April 10, 2014, the Company entered into a loan agreement with Hebei Yoerma Business Service Co.,Ltd (“Hebei
Yoerma”), a related party ultimately controlled by Jianfeng Guo, Chairman of the Company’s Board of Directors,
and the controlling stockholder of the Company, with no interest, the original amount is RMB 32,992,060 (approximately
$5,390,000 (unaudited) and, $5,362,000 as of March 31, 2015 and December 31, 2014) and has a term of two years. As of
March 31, 2015 and December 31, 2014, there is RMB 18,211,330 (unaudited) (approximately $2,975,000) and RMB 18,211,330
(approximately $2,960,000) working capital borrowed by Hebei Yoerma, respectively
On
February 11, 2015, the Company entered into a loan agreement with Xingtai Dongxinshun Construction decoration Co., Ltd (“Dongxinshun”),
a third party supplier. According to the agreement, the Company made a loan to Dongxinshun of RMB 30,000,000 (approximately $4,901,000),
with no interest and is due on May 30, 2015.
Note
10 – 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, | |
| |
2015 | | |
2014 | |
Properties under
development | |
(Unaudited) | | |
| |
Kirin
County | |
| | |
| |
Costs
of land use rights | |
$ | 1,219,229 | | |
$ | 1,153,179 | |
Other
development costs | |
| 485,704 | | |
| 483,486 | |
No.
79 Courtyard | |
| | | |
| | |
Costs
of land use rights | |
| 43,650,487 | | |
| 45,263,421 | |
Other
development costs | |
| 19,933,819 | | |
| 22,400,751 | |
Kirin
Bay | |
| | | |
| | |
Costs
of land use rights | |
| 22,702,231 | | |
| 24,579,507 | |
Other
development costs | |
| 17,168,950 | | |
| 22,547,288 | |
Archway
HHC Apartment | |
| | | |
| | |
Costs
of land use rights | |
| 8,730,454 | | |
| 8,730,454 | |
Other
development costs | |
| 1,412,098 | | |
| 674,505 | |
| |
| | | |
| | |
Land
lots under development | |
| 62,639,383 | | |
| 61,612,563 | |
| |
| | | |
| | |
| |
$ | 177,942,355 | | |
$ | 187,445,154 | |
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, all related cost are recorded in Costs of land use rights. Other development
costs include direct development costs, interest on indebtedness, construction overhead and indirect project costs.
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 development costs are allocated to units within
a project based on the ratio of the sales value of units to the estimated total sales value.
As
of March 31, 2015, 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. All our land use rights are assigned to real estate
projects.
Part
of Company’s real estate held for development and land lots under development were pledged as collateral for financial institution
loans (Note 18).
The
Residential buildings of Kirin County are fully completed in December, 2012, the Residential building of No.79 Courtyard Phase
I are fully completed in March, 2015. As of March 31, 2015 and December 31, 2014, the account balance of the real estate property
completed is $5,683,996 (unaudited) and $1,441,194 respectively.
Archway
HHC Apartment is a proposed apartment located in Howard Hughes Center Site 4, Los Angeles, California, which will have 109 units
apartment and 187 parking spaces. As of March 31, 2015, the Company paid land cost and incurred some other development cost.
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 auditions 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. As at March 31,
2015 and December 31, 2014, residual expenditures under Kong Village Relocation Program, representing accumulated costs of the
land use rights to be obtained by the Company in the future, were capitalized in land lots under development in amount of $62,639,383
and $61,612,563, respectively.
On
March 31, 2015, Xingtai Qiaoxi District Government filed an application to Xingtai Municipal Government for a refund of RMB 125,512,500
(approximately $20,397,000) on behalf of the Company under the Kong Village Relocation Program, the refund is expected to be approved
and received in 2015.
Note
11 – Long-term Investments
Long
term Investments include the Company’s equity interest in Hebei Xingtai Rural Commercial Bank Co., Ltd. (“Xingtai
RC Bank”), a private financial institution. In June 2011, the Company agreed to become a stockholder of Xingtai RC Bank
and paid RMB 20,000,000, or approximately $3,142,000 to subscribe to 16,000,000 shares, or 6.96%, of the common stock of the financial
institution. The establishment of Xingtai RC Bank is based on restructured business of Xingtai Chengjiao Rural Credit
Cooperative Union Association. On December 12, 2012, Xingtai RC Bank obtained required approvals from China banking
regulatory agencies and completed all registration procedures.
The
Xingtai RC Bank increased paid in capital from RMB 240,000,000, or approximately $38,207,000 to RMB 500,000,000, or approximately
$79,598,000 on April 26, 2013. The Company paid approximately RMB 24,000,000, or approximately $3,841,000 to keep its stockholder
position.
As
of March 31, 2015 and December 31, 2014, the balance of Long term investment for Xingtai RC Bank was $7,188,838 (unaudited) and
$7,150,402, consisting 31,000,000 shares, or 5.03%, of the common stock of Xingtai RC Bank.
The
Company used the cost method of accounting to record its investment in Xingtai RC Bank since the Company does not have the ability
to exercise significant influence over the operating and financing activities of Xingtai RC Bank.
As
of March 31, 2015 and December 31, 2014, the Company has deposit balances (including restricted cash) of $7,201,827 (unaudited)
and $5,818,000 in Xingtai RC Bank, respectively.
In
November 2013, the company invested $700,000 to Hopkins Kirin Facilities Group, LLC (“Hopkins”) to obtain 22.5% share.
The
Company used the equity method of accounting to record its investment in Hopkins.
As
of March 31, 2015 and December 31, 2014, the ending balance in long-term investment was $7,888,838 (unaudited) and
$7,850,402. The Company determined that there was no impairment on its long-term investment at March 31, 2015.
Note
12 – Notes Payable
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
Notes
Payables (Promissory note) | |
$ | 2,800,000 | | |
$ | - | |
The
Promissory note with original principle amount of $2,800,000 will be due at January 22, 2017, at the rate of 10% per annum.
Note
13 – Accounts Payable
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
Payables
in relation to acquisitions of land use rights | |
$ | 3,824,821 | | |
$ | 3,804,371 | |
Construction
contractors | |
| 99,406,754 | | |
| 98,461,378 | |
| |
| | | |
| | |
| |
$ | 103,231,575 | | |
$ | 102,265,749 | |
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 of March 31, 2015, payable to Huada Mining Co., Ltd. was $1,374,081. 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 (translated as historical rate) to compensate additional costs
incurred by Kong Village Committee for the Kong Village Relocation Program. At March 31, 2015, unpaid balance plus
accrued interest was $2,450,740. The Company capitalized the additional consideration in the costs land lots under
development.
Note
14 – Other Payables and Accrued Liabilities
The
components of other payables and accrued liabilities were as follows:
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
Unrecognized
tax benefit (Note 16(2)) | |
$ | 6,535,307 | | |
$ | 6,500,366 | |
Deposits
from customers on behalf of utility operators | |
| 9,058,262 | | |
| 8,195,227 | |
Car
park deposits from customers | |
| 1,053,818 | | |
| 1,732,347 | |
Due
to a related party suppliers | |
| - | | |
| 6,500,366 | |
Deposit
from a contractor | |
| 111,313 | | |
| 117,218 | |
Accrued
loan interest | |
| 176,453 | | |
| 175,510 | |
Estimated
penalty | |
| 657,088 | | |
| - | |
Others | |
| 533,200 | | |
| 234,723 | |
| |
$ | 18,125,441 | | |
$ | 23,455,757 | |
On
December 30, 2014, the Company entered into RMB 40,000,000 (approximately $6,500,000) loan agreement with Hebei Yoerma, a related
party ultimately controlled by Jianfeng Guo, Chairman of the Company’s Board of Directors, and the controlling stockholder
of the Company, with no interest and the loan is due on March 30, 2015, the Company repaid the loan on January 28, 2015.
The
Company enters into non-cancellable, fixed-price pre-sale contracts with homebuyers. The Company is subject to a penalty
payable to homebuyers in the event the property is delivered later than the date specified in the pre-sale contracts, and usually
such penalty constitutes only an insignificant amount compared to the contract value. These adjustments to contract
price are recorded as a reduction of revenue in the current period on a cumulative catch-up basis.As of March 31, 2015, $657,088
estimated penalty is reasonably estimated for Kirin Bay and No. 79 Courtyard and probably will occur in future.
Note
15 – 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, 2015 and December
31, 2014, the Company received $84,021,907 (unaudited) and $83,522,070 deposits from customers, respectively.
Note
16 – Income Taxes
(1) Corporate
income tax
The
Company is incorporated in the State of Nevada in the United States of America (“U.S.”) and is subject to a progressive
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, 2015 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 subsidiaries Spectrum International Enterprise, LLC, Brookhollow Lake, LLC, Greenfield International Corporation
(closed in January 2015), Kirin Hopkins Real Estate Group LLC, Newport Property Holding, LLC, Applecrate LLC, Archway Development
Group LLC, HHC-6055 Centre Drive LLC and Kirin Alamo, LLC were incorporated in State of California, U.S. and are subject to California
taxes.
The
Company’s subsidiaries, VIEs and subsidiaries of VIEs in China are subject to PRC Enterprise Income Tax (EIT) on taxable
income. According to PRC tax laws and regulations, China subsidiary and VIEs 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 10% 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
tax expenses (benefit) for the three months ended March 31, 2015 and 2014 are summarized as follows:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
Current | |
| | |
(Revised) | |
| |
| | |
| |
EIT expense | |
$ | 634,611 | | |
$ | 213,957 | |
LAT expense | |
| 329,808 | | |
| 19,495 | |
Deferred tax expense (benefit)- EIT | |
| 675,133 | | |
| (815,972 | ) |
| |
| | | |
| | |
| |
$ | 1,639,552 | | |
$ | (582,520 | ) |
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, 2015 and 2014
is as follows:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
(Revised) | |
EIT at the PRC statutory rate of 25% | |
$ | 45,535 | | |
$ | (707,888 | ) |
LAT expense | |
| 329,808 | | |
| 19,495 | |
EIT benefit of LAT | |
| (82,452 | ) | |
| (4,874 | ) |
Change in Deferred tax valuation allowance | |
| 828,936 | | |
| 167,178 | |
Permanent items | |
| 517,725 | | |
| (56,431 | ) |
| |
| | | |
| | |
| |
$ | 1,639,552 | | |
$ | (582,520 | ) |
(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, 2015 and 2014 is as follows:
| |
Three
Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
Unrecognized
tax benefit, as the January 1 | |
$ | 6,500,366 | | |
$ | 6,542,362 | |
Movement
in current period due to foreign exchange rate fluctuation | |
| 34,941 | | |
| (53,490 | ) |
| |
| | | |
| | |
Unrecognized
tax benefit, as of March 31 | |
$ | 6,535,307 | | |
$ | 6,488,872 | |
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 benefit 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, 2015 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 2010 to 2014
remains subject to examination by tax authorities.
(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, 2015 and December 31, 2014 are presented below.
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
Deferred tax assets | |
| | |
| |
Operating loss carry forward | |
$ | 5,062,659 | | |
$ | 4,892,926 | |
Excess of interest expense | |
| 4,302,569 | | |
| 3,929,488 | |
Revenue recognized based on percentage-of-completion | |
| 126,158 | | |
| 515,577 | |
Accrued expenses | |
| 340,020 | | |
| 298,033 | |
| |
| 9,831,406 | | |
| 9,636,024 | |
| |
| | | |
| | |
Valuation allowance | |
| (4,954,418 | ) | |
| (4,110,976 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
Net deferred tax assets | |
$ | 4,876,988 | | |
$ | 5,525,048 | |
Deferred
taxes and liabilities are evaluated on individual subsidiary, VIE and subsidiary of VIE basis. In assessing the ability
to realize the deferred tax assets, the Company considers availability of future taxable income during the periods in which those
temporary differences become deductible. The Company records a valuation allowance to reduce deferred tax assets to a net amount
that management believes is more-likely-than-not of being realizable based on the weight of all available evidence.
Deferred
taxes and liabilities associated with application of revenue recognized pursuant to percentage-of-completion will reverse when
the construction progress of related projects proceeds to completion, which is expected to be December 2017 for No. 79 Courtyard
and December 2016 for Kirin Bay projects, when the difference between accumulated revenue and cost of sales recognized based on
percentage-of-completion method and enterprise income tax accrued pursuant to tax laws, converges. Enterprise income
tax comprises multiple interim prepayments determined predominately by periodic customer deposits collected and deemed profit
ratio when a real estate project is under construction, followed by a closing to adjust to actual profit realized, after the construction
is complete. Deferred taxes and liabilities associated with application of revenue recognized pursuant to percentage-of-completion
will also increase or decrease when the Company reevaluates and makes upward or downward adjustments to a project’s total
revenue or cost estimate. The Company believes deferred tax assets related to revenue recognized based on percentage-of-completion
and excess of interest expense will be fully realizable.
Entities
established in the PRC had net operating losses carry forward of $11,359,000 as of March 31, 2015 which will expire on various
dates between December 31, 2015 and December 31, 2019. Entities established out of the PRC had net operation losses carry forward
of $5,614,000 as of March 31, 2015.
Note
17 – Other Taxes Payable
Other
taxes payable consisted of the following:
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Business
tax and related urban construction tax and education surcharge | |
$ | 310,415 | | |
$ | 2,060,115 | |
Land
Appreciation Tax | |
| 93,907 | | |
| 203,048 | |
| |
| | | |
| | |
| |
$ | 404,322 | | |
$ | 2,263,163 | |
Note
18 – Loans Payable
Loans
payable consisted of the following:
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | | |
| | |
Loans
from Industrial and Commercial Bank of China, Xingtai Yejin Branch (“ICBC 2013 Loans”) | |
| | | |
| | |
Original
loan due January 30, 2015; maturity extended to March 30, 2016, at 9.84% per annum | |
| 11,110,026 | | |
| 11,050,621 | |
Original
loan due May 30, 2015, maturity extended to December 30, 2015, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
Due
September 30, 2015, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
Due
January 30, 2016, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
Due
May 30, 2016, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
| |
| 42,479,498 | | |
| 42,252,377 | |
Loans
from Industrial and Commercial Bank of China, Xingtai Yejin Branch (“ICBC 2012 Loans”) | |
| | | |
| | |
Due
September 18, 2015, at 9.225% per annum | |
| 3,267,653 | | |
| 3,250,183 | |
Due
September 18, 2015, at 9.225% per annum | |
| 3,267,653 | | |
| 3,250,183 | |
Due
May 19, 2015, at 9.225% per annum (note(a)) | |
| 4,901,480 | | |
| 4,875,274 | |
Due
January 19, 2015, at 9.225% per annum | |
| - | | |
| 4,875,274 | |
| |
| 11,436,786 | | |
| 16,250,914 | |
Loans
from Hebei Xingtai Rural Commercial Bank | |
| | | |
| | |
Due
April 24, 2015, at 12.56% per annum (“Credit Union 2014 Short-term loan”, note (a)) | |
| 3,267,653 | | |
| 3,250,183 | |
Due
May 8, 2015, at 12.036% per annum (Syndicated Loans 2014”, note(a)) | |
| 8,169,134 | | |
| 8,125,457 | |
Due
July 24, 2015, at 11.46% per annum (“Zhongding Kirin 2014 Loan”) | |
| 7,554,632 | | |
| 7,514,241 | |
Due
June 26, 2015, at 11.46% per annum (“Short-term 2014 Loan”) | |
| 3,267,653 | | |
| 3,250,183 | |
Due
October 16, 2017, at 7.38% per annum (“Garden 2014 Loan”) | |
| 4,901,480 | | |
| 4,875,274 | |
Due
November 12, 2015, at 15.00% per annum (“Entrust Loan 2014”) | |
| 1,929,549 | | |
| 1,919,233 | |
Due
July 3, 2015, at 11.79% per annum (“Zhongding Kirin Loan 2014”) | |
| 4,901,480 | | |
| 4,875,274 | |
Due
February 6, 2016, at 15% per annum (“Entrust Loan 2015”) | |
| 2,083,129 | | |
| - | |
Due
February 8, 2017, at 7% per annum (“Syndicated Loans 2015”) | |
| 8,169,134 | | |
| - | |
| |
| 44,243,844 | | |
| 33,809,845 | |
| |
$ | 98,160,128 | | |
$ | 92,313,136 | |
Note
(a): These loans were repaid in full when they become mature subsequent to balance sheet date.
ICBC
2012 Loans and ICBC 2013 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 2012 Loans, ICBC 2013 Loans and Syndicated Loans 2014. 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. Credit Union 2014 Short-term Loan was guaranteed by
Hebei Yoerma and Zhongding Kirin Loan 2014 was guaranteed by an unrelated party company as arranged by the financial institution. The
Company did not pay for the guarantees.
As
of March 31, 2015 and December 31, 2014, Zhongding Kirin 2014 Loan, Garden 2014 Loan, ICBC 2012 Loans, ICBC 2013 Loans, Short
term 2014 Loan, Syndicated Loans 2014 and Syndicated Loans 2015 were secured by the Company’s real estate held for development
with carrying value of approximately $165,021,000 (unaudited) and $144,640,000, respectively.
On
November 14, 2014, the Company entered into a series of entrust loan agreements with Xingtai Rural Commercial bank and individuals
with amount RMB 11,810,000 (approximately $1,930,000, “Entrust Loan 2014”), and borne an annual effective interest
rate of 15%, including loan of RMB 1,100,000 due to managements of the Company, with the remaining balance due to third party
individuals.
On
February 10, 2015, the Company entered into a series of entrust loan agreements with Xingtai Rural Commercial bank and individuals
with amount RMB 12,750,000 (approximately $2,080,000, “Entrust Loan 2015”), and borne an annual effective interest
rate of 15%, including loan of RMB 1,400,000 due to managements of the Company, with the remaining balance due to third party
individuals.
The
aggregate maturities of loans payable for each of years subsequent to March 31, 2015 are as follows:
Twelve
months Ending March 31 | |
Amount | |
| |
| |
2016 | |
$ | 77,247,146 | |
2017 | |
| 16,011,502 | |
2018 | |
| 4,901,480 | |
Loans
payable | |
$ | 98,160,128 | |
Note
19 – Restricted Stock Compensation
In
accordance with the Employment Agreements approved by the Board of the Directors, the Company granted certain employees restricted
common stock (“Restricted Stock Awards”). Restricted Stock Awards are issued to the employees 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.
There
are 146,120 unvested shares outstanding at March 31, 2015 and December 31, 2014, weighted average grant date fair value per share
is $0.12. The Company did not recognize of share-based compensation expense related to the Restricted Stock Awards for the three
months ended March 31, 2015 and 2014, respectively.
Note
20 – Revenue
The
Company’s revenue is recognized under percentage-of-completion methods for the three months ended March 31, 2015 and 2014
from pre-sale of real estate projects. Revenue recognized for each real estate project, including adjustments made
pursuant to change of estimates for the three months ended March 31, 2015 and 2014 was as follows:
| |
Three
Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
Kirin
County | |
$ | (84,312 | ) | |
$ | 204,032 | |
No.79 Courtyard | |
| 10,710,962 | | |
| 966,026 | |
Kirin
Bay | |
| 11,214,484 | | |
| 6,090,458 | |
Property
Service | |
| 191,929 | | |
| 151,661 | |
| |
| | | |
| | |
| |
$ | 22,033,063 | | |
$ | 7,412,177 | |
Note
21 – Loss per Share
Basic
net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net earnings
per share are 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.
Series
A Warrants, Series B Warrants and Agent Warrants to acquire 392,090 shares of common stock, and 146,120 shares of unvested and
unissued Restricted Stock Award were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
Summary information of Series A Warrants, Series B Warrants and Agent Warrants outstanding as of March 31, 2015 is as follows:
|
|
Unvested
Restricted Stock Awards |
|
|
Series
A Warrants |
|
|
Series
B Warrants |
|
|
Agent
Warrants |
|
Exercise price |
|
|
N/A |
|
|
$ |
6.25 |
|
|
$ |
7.50 |
|
|
$ |
5.00 |
|
Shares of stock awards/warrants |
|
|
146,120 |
|
|
|
169,004 |
|
|
|
169,004 |
|
|
|
54,082 |
|
Note
22 – Non-controlling interest
Non-controlling
interests represent the non-controlling interest stockholders’ proportionate share of the equity of Brookhollow Lake, LLC,Greenfield
International Corporation and Kirin Alamo, LLC. The non-controlling interests in 2015 and 2014 are summarized as below:
| |
March
31, |
|
|
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
Brookhollow
Lake, LLC | |
| 10 | % | |
| 10 | % |
Greenfield
International Corporation | |
| closed | | |
| 30 | % |
Newport
Property Holding, LLC | |
| 50 | % | |
| 50 | % |
Kirin
Alamo, LLC | |
| 40 | % | |
| - | |
The
non-controlling interests in Brookhollow Lake, LLC, Greenfield International Corporation and Kirin Alamo and Newport Property
Holding, LLC that are not owned by the Company are shown as “non-controlling interests” in the condensed consolidated
balance sheets as of March 31, 2015 and December 31, 2014 and “net loss attributable to non-controlling interests”
in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2015
and 2014.
Note
23 – Related Party Transactions and Balances
(1)
Loan to related parties consisted of the following:
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
HuaxiaHuifeng
Ventures Capital Management (Beijing) Co., Ltd(note(a)) | |
| | |
| |
Due
October 14, 2015, at 18% per annum | |
$ | 16,338,267 | | |
$ | 27,626,554 | |
Due
October 14, 2015, no interest | |
| 2,123,975 | | |
| 4,532,380 | |
| |
| 18,462,242 | | |
| 32,158,934 | |
| |
| | | |
| | |
Zhuolu
Huada Real Estate Development Co., Ltd | |
| | | |
| | |
Due
August 5, 2015, at 20% per annum | |
| 4,860,635 | | |
| 4,834,647 | |
| |
| | | |
| | |
Zhenjiang
Huaxia Kirin Real Estate Development Co.,Ltd | |
| | | |
| | |
Due
October 16. 2017, at 7.92% per annum | |
| 4,901,480 | | |
| 4,875,274 | |
Due
February 8, 2017, at 8.90% per annum | |
| 8,169,134 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 81,691 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 81,691 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 506,486 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 2,143,581 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 2,450,740 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 187,890 | | |
| - | |
| |
| 18,522,693 | | |
| 4,875,274 | |
| |
| | | |
| | |
Langfang
Hualin Real Estate Development Co.,Ltd | |
| | | |
| | |
Due
December 31, 2015, at 15% per annum | |
| 13,888 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 24,507 | | |
| - | |
| |
| 38,395 | | |
| - | |
| |
| | | |
| | |
Interest
income receivables | |
| 7,861,074 | | |
| 6,484,246 | |
| |
| | | |
| | |
| |
$ | 49,745,039 | | |
$ | 48,353,101 | |
Note
(a): On February 11, 2015, the Company received RMB 84,890,000 ($13,869,555) from Huaxia Huifeng.
(2)
Government grant escrowed by Business Investment (Receivable from a Trust Equity Owner)
In
2008, a VIE of the Company, XingtaiZhongding, was entitled to a government grant associated with its development of Kirin County
project of RMB 160,000,000 (approximately $22,981,000, translated at historical exchange rate). Cash representing the
grant has been remitted to Business Investment, a trust equity owner of XingtaiZhongding in June 2008. Business Investment
originally acquired the land use rights of Kirin County project, and contributed the land use rights to XingtaiZhongding as paid-in
capital to develop the project. Based on the arrangement between Business Investment and XingtaiZhongding, which has
been sanctioned by local government, the benefit of the government grant is to be transferred from Business Investment to XingtaiZhongding. Specifically,
Business Investment acts as an escrow agent but also is nominally responsible for XingtaiZhongding’s progress. Earned portions
of the government grant become available to XingtaiZhongding based on percentage of completion.
For
the years ended December 31, 2012, 2011, 2010 and 2009, XingtaiZhongding was entitled to receive RMB2,800,000, RMB43,000,000,
RMB63,000,000, and RMB51,200,000, respectively ($443,049, $6,642,455, $9,293,749, and $7,484,417, respectively, translated at
respective years’ historical rates) earned government grant from Business Investment, representing total amount of the government
grant. The Company has the right to determine how to utilize the earned government grant. As at March 31, 2015 and December 31,
2014, accumulated earned government grant of RMB160,000,000 and RMB160,000,000 ($26,141,228 and $26,001,463) was used to repay
working capital provided by Jianfeng Guo for the support of other real estate projects’ development. As at March 31, 2015,
the Company had a remaining $5,784,881 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” in condensed consolidated balance sheet.
(3)
Working capital provided by Jianfeng Guo
Jianfeng
Guo, the controlling stockholder of the Company, through various affiliate companies and individuals, provides working capital
to the VIEs (hereafter, including subsidiaries of VIEs) of the Company. In addition to repaying 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 specific repayment dates.
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 VIEs. XingtaiZhongding 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 condensed consolidated balance sheets.
Gross
amount of working capital provided by and to affiliate companies and individuals designated by Jianfeng Guo as at March 31, 2015
and December 31, 2014 were as follows:
| |
March
31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(unaudited) | | |
| |
Gross
of working capital received from affiliate companies and individuals designated by Jianfeng Guo | |
$ | (42,754,325 | ) | |
$ | (42,278,247 | ) |
Gross
of working capital provided to affiliate companies and individuals designated by Jianfeng Guo | |
| 22,397,978 | | |
| 21,692,272 | |
Gross
earned government grant held by a related party | |
| 26,141,228 | | |
| 26,001,463 | |
Receivable
from a trust equity owner | |
$ | 5,784,881 | | |
$ | 5,415,488 | |
(4)
Prepayment to related party
Please
see Note 8 – Prepayments
(5)
Loan from Related party
Please
see Note 18 Credit Union 2014 Short-term Loan, Entrusted loan 2014 and 2015.
(6)
Balances with a related party supplier
Please
see Note 9 – Other receivable and Note 14 – Other Payable and Accrued liabilities.
(7)
Service fee
For
three months ended March 31, 2015 and 2014, the Company recorded service fee with an amount of RMB 1,200,000 (approximately $196,000)
and RMB 1,200,000 (approximately $195,000) respectively, for the service received from affiliate companies designated by Jianfeng
Guo.
Note
24 – Contingencies and Commitments
As
at March 31, 2015 and December 31, 2014, the Company provided $147,959,677 (unaudited) and $132,308,930 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.
Note
25 – Subsequent Events
On
April 22, 2015, the Company received RMB 20,000,000 loan from Hebei Xingtai Rural Commercial Bank guaranteed by Hebei Yoerma Business
Co., Ltd, and borne an annual effective interest rate of 13.11% with a term of one year.
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, 2015
and 2014 should be read in conjunction with the financial statements and the notes to those financial statements, included in
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, previously filed with the SEC (the
“2014 Form 10-K”). 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
“Forward-Looking Statements.”
We
are a non-state-owned 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, Wancheng New World and Kirin County projects in Xingtai City. Our current projects include
Kirin Plaza, 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, HebeiProvince,
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 relying on: (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
At
March 31, 2015, we have the following projects under development:
| |
POC | | |
Construction
beginning | |
Completion/
Estimated Completion |
Kirin
County | |
| 100 | % | |
September
2011 | |
Late
2012 |
Kirin
Plaza | |
| 85.8 | % | |
September
2011 | |
Late
2015 |
No.79
Courtyard (Phase I) | |
| 100 | % | |
September
2011 | |
Late
2014 |
No.79
Courtyard (Phase II) | |
| 90.1 | % | |
September 2012 | |
Mid-to-late 2015 |
No.79
Courtyard (Phase III) | |
| 91.7 | % | |
April 2013 | |
Mid-to-late 2015 |
No.79
Courtyard (Phase IV) | |
| 45.9 | % | |
July
2014 | |
Late
2017 |
Kirin
Bay (Phase I) | |
| 98.4 | % | |
October
2011 | |
Late
2014 |
Kirin
Bay (Phase II) | |
| 90.3 | % | |
March
2013 | |
Early
2015 |
Kirin
Bay ( Phase III) | |
| 56.2 | % | |
May
2013 | |
Mid-to-late 2015 |
Kirin
Bay (Phase IV) | |
| 25.2 | % | |
April
2014 | |
Late
2016 |
Financial
Performance Highlights
The
following summarizes certain key financial information for the three months ended March 31, 2015.
● |
Total
revenue was $22.0 million for the three months ended March 31, 2015, an increase of $14.6 million, or 197.3%, from $7.4 million
for the same period of 2014. Our revenue stream has shifted from No.79 Courtyard Phase I and
Kirin Bay Phase I, which were completed in late 2014, to No. 79 Courtyard (Phase II, Phase III and Phase IV) and Kirin Bay
(Phase II, Phase III and Phase IV), which are expected to generate the majority of our revenue in the upcoming 12 months; |
● |
Gross
profit was $2.3 million for the three months ended March 31, 2015, an increase of 0.7 million, or 37.4%, from $1.6 million
for the same period of 2014. Gross margin ratio was 10.3% for the three months ended March 31, 2015, a decrease of 11.9% as
compared to the gross margin ratio of 22.2% for the same period of 2014. |
|
|
● |
Net loss was $1.5 million for the three months
ended March 31, 2015, a decrease of $0.7 million, or approximately 35.2%, from net loss of $2.2 million for the same period of
last year.
|
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 7.8%
in 2012, 7.7% in 2013 and 7.4% in 2014. 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. The State Council on March 1, 2013 issued five policies and measures to regulate and
control the country's soaring real estate market, of which the most significant and also the most controversial point is that
20-percent individual income tax would be levied on capital gains by home sellers whose families own more than one apartment.
The
five policies and measures are designed to: 1) Improve and maintain the stability of house prices. Municipalities under
the auspices of central government, cities specifically designated in the State plan, and provincial capital cities excluding
Lhasa must follow the principle of maintaining basic price stability. They must also compile and publish annual new commercial
house price control targets and establish an effective system of accountability for assessing price stability; 2) Curb
speculative investments seen in the housing market and implement strict commercial housing purchase limitation measures. For those
municipalities under the auspices of the central government, cities specifically designated in the State plan and provincial capital
cities that have already implemented housing purchase limitation measures, they must improve limitation measures in the fields
of housing areas, housing types, and purchase qualification examinations according to the unified criteria. As for those cities
where house prices continue to rise too rapidly, provincial-level governments should request that local-level officials implement
purchase limitation measures, as well as enforce differential housing credit policies and expand the range of experimental areas
for individual housing property tax reform. An individual income tax of 20 percent would be levied on capital gains made by those
home sellers whose families own more than one apartment. 3) Increase the supply of ordinary commercial housing
and land and accelerate the supply of land, construction and listing of small- and medium-sized ordinary commercial housing projects,
rapidly ensuring an effective supply. In 2013, the total supply of land for housing is lower than the average supply over the
past five years in principle. 4) Accelerate the planning and construction of affordable housing projects and ensure
the projects to build 4.7 million sets of affordable housing and begin the construction of 6.3 million sets. Supporting facilities
should be planned, constructed, and delivered for use within the same time frame as the affordable housing projects. The entry
and exit system should also be improved in order to ensure equal distribution. By the end of 2013, prefecture-level cities and
above must include into local housing guarantee coverage those migrant workers who meet the requirements. 5)
Strengthen market supervision. Strengthen the management of commercial housing sales in advance, strictly implement a clear house
price system, tighten enterprise credit management, and severely punish any illegal behavior among intermediaries. The urban individual
housing information system should also be promoted and, in addition, market monitoring and publishing management should be strengthened.
The
State Council also emphasized the importance of accelerating the implementation of an enduring and effective mechanism to guide
the healthy development of the real estate market.
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 2.6% in 2012, 2.6% in 2013 and 2.0% in
2014. 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.
Significant
Accounting Policies
There
have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2015
compared with those contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Result of
operations” included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with SEC on April
15, 2015.
Recently
Issued Accounting Pronouncements
The
company does not believe other recently issued but not yet effective accounting standards from ASU 2015-01 through ASU 2015-08,
if currently adopted, would have a material effect of the consolidated financial position, result of operation and cash flows.
Results
of Operations
Comparison
of Three Months Ended March 31, 2015 and 2014
| |
2015 (Unaudited) | | |
2014
(Unaudited)(Revised) | |
| |
| | |
% of Revenue | | |
| | |
% of Revenue | |
Revenue from real estate sales, net | |
$ | 22,033,063 | | |
| 100 | % | |
$ | 7,412,177 | | |
| 100 | % |
Cost of real estate sales | |
| 19,771,195 | | |
| 89.7 | % | |
| 5,765,986 | | |
| 77.8 | % |
Gross profit | |
| 2,261,868 | | |
| 10.3 | % | |
| 1,646,191 | | |
| 22.2 | % |
Selling expenses | |
| 734,553 | | |
| 3.3 | % | |
| 779,828 | | |
| 10.5 | % |
Operating and administrative expenses | |
| 1,882,013 | | |
| 8.5 | % | |
| 2,936,614 | | |
| 39.6 | % |
Loss from operations | |
| (354,698 | ) | |
| -1.6 | % | |
| (2,070,251 | ) | |
| -27.9 | % |
Investment income | |
| 665,972 | | |
| 3.0 | % | |
| 506,548 | | |
| 6.8 | % |
Interest income | |
| 1,480,955 | | |
| 6.7 | % | |
| 1,232,907 | | |
| 16.6 | % |
Interest expense | |
| (2,079,682 | ) | |
| -9.4 | % | |
| (2,711,866 | ) | |
| -36.6 | % |
Other non-operating income | |
| 469,593 | | |
| 2.1 | % | |
| 211,111 | | |
| 2.8 | % |
Total other income (expenses) | |
| 536,838 | | |
| 2.4 | % | |
| (761,300 | ) | |
| -10.3 | % |
Income (Loss) before income taxes expense | |
| 182,140 | | |
| 0.8 | % | |
| (2,831,551 | ) | |
| -38.2 | % |
Income taxes expense (benefit) | |
| 1,639,552 | | |
| 7.4 | % | |
| (582,520 | ) | |
| -7.9 | % |
Net loss | |
| (1,457,412 | ) | |
| -6.6 | % | |
| (2,249,031 | ) | |
| -30.3 | % |
Our net loss for the three months ended
March 31, 2015 was $1.5 million, a decrease of $0.7 million, from net loss of $2.2 million for the three months ended March 31,
2014. Net Loss decreased because gross profit increased $0.6 million, other income increase $1.3 million and the operating
and administrative expense decreased $1.1 million, meanwhile income tax expense increased $2.2 million for the three months ended
March 31, 2015 as compared to the same period of 2014.
A
project’s revenue and cost estimates are of inherent nature of uncertainty throughout its multiple-year development period. Factors
that potentially affect a project’s total revenue and cost estimates (including a salable unit’s allocated cost),
include, but are not limited to: (1) changes in government’s land-use planning, building density, plot ratio and other quotas;
which lead to changes of total gross floor area available for sale and per-unit cost estimate; (2) the Company’s voluntary
modification of design to enhance attractiveness and competiveness of an on-going project; (3) fluctuation of commodity prices
and government-regulated labor cost rates; (4) contractors’ request to renegotiate consideration of fixed-price agreements,
for which the Company’s preference of complete the discussion early to avoid unfavorable impact on construction progress;
(5) unforeseeable geological and engineering difficulties causing modifications of a project’s construction plan; (6) government
agencies’ compliance inspections in the late stage of the construction, which may lead to modification of design; (7) major
prospective property buyers’ request to alter specifications of the property to be delivered; and (8) contractors’
claims throughout the construction period.
The
Company enters into non-cancellable, fixed-price pre-sale contracts with homebuyers. Under certain circumstances, for
example, changes in floor size or floor plan of a property due to legal compliance requirements, or change of deliverable standards
upon request of major customers, we may agree to revise the pre-sale contract price to match conditions of the properties to be
delivered to customers. Furthermore, the Company is subject to a penalty payable to homebuyers in the event the property
is delivered later than the date specified in the pre-sale contracts, and usually such penalty usually constitutes only an insignificant
amount compared to the contract value. These adjustments to contract price are recorded as reduction of revenue in
the current period on a cumulative catch-up basis.
With
regard to a project’s cost estimate, the Company’s in-house cost estimating staffs, work in collaboration with a committee
comprising the Company’s engineers, project managers, financial professionals, and senior management staff, prepare at least
two versions of cost estimate. The first version is Preliminary Cost Estimate, prepared in schematic design stage,
which is before commencement of excavation and recognition of revenue. Preliminary Cost Estimate utilizes top-down
approach. It projects major cost components at higher level using a project’s planned parameters (e.g., building density,
by-category gross floor area) and standard per-unit cost from past experience (e.g., concrete cost, measured at US$ per square
meter). Preliminary Cost Estimate is intrinsically less accurate; it heavily relies on the Company’s historical
information accumulated in the development of similar types of construction in similar municipal region. The second
version is Detailed Cost Estimate, prepared after receiving construction documents from the architect. Ideally Detailed
Cost Estimate can be available before commencement of excavation and recognition of revenue; however, in order to suit the pre-sale
progress and to maximize flexibility, construction documents are provided in several batches as the construction processes. It
is likely that a project’s Detailed Cost Estimate is finalized only in late stage of the construction. Detailed
Cost Estimate utilizes bottom-up approach. Based on construction documents and assisted by the Company’s computerized
Building Information Modeling system, Detailed Cost Estimate is able to sum up cost at element level of a real estate property,
taking into consideration of quantitative consumption and on-going rate of materials, labor, machinery and overheads. For the
purpose of preparing the Company’s condensed consolidated financial statements, a project’s cost estimate is reviewed
by in-house cost estimators at each year-end and adjusted for material developments in the interval. Changes in estimates
of a project’s revenue and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the current
period the cumulative effect of the changes on current and prior periods based on a project’s percentage of completion.
When a project’s total cost estimate to be incurred exceeds total estimated revenue to be earned, a provision for the entire
loss on the project is recorded in the period the loss is determined. In addition to our existing monthly detailed cost estimated
upon receiving construction data from the architects, we have hired additional competent professionals to ensure early identification
of variances from prior estimated project revenue and cost, to reduce the likelihood of significant changes to the estimates.
Revenues
and Gross Profit
| |
Three
Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
%
of Revenue | | |
| | |
%
of Revenue | |
Revenue
from real estate, net | |
$ | 22,033,063 | | |
| 100 | % | |
$ | 7,412,177 | | |
| 100 | % |
-Kirin County | |
| (84,312 | ) | |
| -0.4 | % | |
| 240,729 | | |
| 3.2 | % |
-No.79
Courtyard (Phase I) | |
| 4,358,675 | | |
| 19.8 | % | |
| 103,485 | | |
| 1.4 | % |
-No.79
Courtyard (Phase II) | |
| 764,716 | | |
| 3.5 | % | |
| 43,599 | | |
| 0.6 | % |
-No.79
Courtyard (Phase III) | |
| 3,965,906 | | |
| 18.0 | % | |
| 818,942 | | |
| 11.0 | % |
-No.79
Courtyard (Phase IV) | |
| 1,621,665 | | |
| 7.4 | % | |
| - | | |
| - | |
-Kirin
Bay (Phase I) | |
| 190,778 | | |
| 0.9 | % | |
| 1,629,804 | | |
| 22.0 | % |
-Kirin
Bay (Phase II) | |
| 2,631,838 | | |
| 11.9 | % | |
| 1,855,196 | | |
| 25.0 | % |
-Kirin
Bay (Phase III) | |
| 7,324,827 | | |
| 33.2 | % | |
| 2,605,458 | | |
| 35.2 | % |
-Kirin
Bay (Phase IV) | |
| 1,067,041 | | |
| 4.8 | % | |
| - | | |
| - | |
-Property Service | |
| 191,929 | | |
| 0.9 | % | |
| 114,964 | | |
| 1.6 | % |
Cost
of real estate sales | |
| 19,771,195 | | |
| 89.7 | % | |
| 5,765,986 | | |
| 77.8 | % |
-Kirin County | |
| (28,438 | ) | |
| -0.1 | % | |
| 577,537 | | |
| 7.8 | % |
-No.79
Courtyard (Phase I) | |
| 4,109,605 | | |
| 18.7 | % | |
| 88,259 | | |
| 1.2 | % |
-No.79
Courtyard (Phase II) | |
| 754,177 | | |
| 3.4 | % | |
| 22,620 | | |
| 0.3 | % |
-No.79
Courtyard (Phase III) | |
| 3,009,884 | | |
| 13.7 | % | |
| 637,825 | | |
| 8.6 | % |
-No.79
Courtyard (Phase IV) | |
| 1,390,653 | | |
| 6.3 | % | |
| - | | |
| - | |
-Kirin
Bay (Phase I) | |
| 326,511 | | |
| 1.5 | % | |
| 539,206 | | |
| 7.3 | % |
-Kirin
Bay (Phase II) | |
| 2,906,799 | | |
| 13.2 | % | |
| 1,714,745 | | |
| 23.1 | % |
-Kirin
Bay (Phase III) | |
| 5,935,717 | | |
| 26.9 | % | |
| 2,061,762 | | |
| 27.8 | % |
-Kirin
Bay (Phase IV) | |
| 965,972 | | |
| 4.4 | % | |
| - | | |
| - | |
-Property Service | |
| 400,315 | | |
| 1.8 | % | |
| 124,032 | | |
| 1.7 | % |
Gross
profit | |
| 2,261,868 | | |
| 10.3 | % | |
| 1,646,191 | | |
| 22.2 | % |
-Kirin County | |
| (55,874 | ) | |
| -0.3 | % | |
| (336,808 | ) | |
| -4.5 | % |
-No.79
Courtyard (Phase I) | |
| 249,070 | | |
| 1.1 | % | |
| 15,226 | | |
| 0.2 | % |
-No.79
Courtyard (Phase II) | |
| 10,539 | | |
| 0.1 | % | |
| 20,979 | | |
| 0.3 | % |
-No.79
Courtyard (Phase III) | |
| 956,022 | | |
| 4.3 | % | |
| 181,117 | | |
| 2.4 | % |
-No.79
Courtyard (Phase IV) | |
| 231,012 | | |
| 1.0 | % | |
| - | | |
| - | |
-Kirin
Bay (Phase I) | |
| (135,733 | ) | |
| -0.6 | % | |
| 1,090,598 | | |
| 14.7 | % |
-Kirin
Bay (Phase II) | |
| (274,961 | ) | |
| -1.2 | % | |
| 140,451 | | |
| 1.9 | % |
-Kirin
Bay (Phase III) | |
| 1,389,110 | | |
| 6.3 | % | |
| 543,696 | | |
| 7.3 | % |
-Kirin
Bay (Phase IV) | |
| 101,069 | | |
| 0.5 | % | |
| - | | |
| - | |
-Property Service | |
| (208,386 | ) | |
| -0.9 | % | |
| (9,068 | ) | |
| -0.1 | % |
Profit
margin | |
| 10.3 | % | |
| | | |
| 22.2 | % | |
| | |
-Kirin County | |
| 66.3 | % | |
| | | |
| -139.9 | % | |
| | |
-No.79
Courtyard (Phase I) | |
| 5.7 | % | |
| | | |
| 14.7 | % | |
| | |
-No.79
Courtyard (Phase II) | |
| 1.4 | % | |
| | | |
| 48.1 | % | |
| | |
-No.79
Courtyard (Phase III) | |
| 24.1 | % | |
| | | |
| 22.1 | % | |
| | |
-No.79
Courtyard (Phase IV) | |
| 14.2 | % | |
| | | |
| - | | |
| | |
-Kirin
Bay (Phase I) | |
| -71.1 | % | |
| | | |
| 66.9 | % | |
| | |
-Kirin
Bay (Phase II) | |
| -10.4 | % | |
| | | |
| 7.6 | % | |
| | |
-Kirin
Bay (Phase III) | |
| 19.0 | % | |
| | | |
| 20.9 | % | |
| | |
-Kirin
Bay (Phase IV) | |
| 9.5 | % | |
| | | |
| - | | |
| | |
-Property Service | |
| -108.6 | % | |
| | | |
| -7.9 | % | |
| | |
Revenue,
net. Real estate sales represent revenue from the pre-sale of properties under development. For the three months
ended March 31, 2015 and 2014, revenue was derived from the pre-sale of No.79 Courtyard (Phase I, Phase II, Phase III and Phase
IV), Kirin Bay (Phase I, Phase II, Phase III and Phase IV) and property service. 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 for the three months ended March 31, 2015 was $22.0 million, an increase of $14.6 million, or approximately 197.3%, compared
to $7.4 million for the same period of 2014. The revenue increased because of the following reason: As announced by
Housing and Construction Department of Hebei Province in September 2013, 15 Rules of Construction Dust Control Regulation
(‘Construction Dust Control Regulation’) is applied for construction industry since October 1, 2013 in Hebei Province
of People’s Republic of China. According to the Construction Dust Control Regulation, all construction sites in urban area
must be closed when the weather condition is not favorable as a result of the construction dust, which mostly happens in winter.
No. 79 Courtyard is located in urban area of Xingtai City, Hebei province, besides the impact of Chinese New Year holidays in
the first quarter of 2014, as a result of the Construction Dust Control Regulation, No. 79 Courtyard was not permitted by local
government to return to work until March 25, 2014, thus no progress of the POC for No. 79 Courtyard (Phase I, Phase II, Phase
III) in the first quarter of 2014. The revenue of No.79 Courtyard increased by $9.7 million in the three months ended March 31,
2015 as compared with the same period of 2014. Furthermore, the revenue of Kirin Bay increase by $5.1 million in the three months
ended March 31, 2015 as compared with the same period of 2014.
Revenue
from the pre-sale of No.79 Courtyard (Phase I), No.79 Courtyard (Phase II), No.79 Courtyard (Phase III), No.79 Courtyard (Phase
IV), Kirin Bay (Phase I), Kirin Bay (Phase II), Kirin Bay (Phase III) and Kirin Bay (Phase IV) was $4.4 million, $0.8 million,
$4.0 million, $1.6 million, $0.2 million, $2.6 million, $7.3 million and $1.1 million respectively, representing 19.8%, 3.5%,
18.0%, 7.4%, 0.9%, 11.9%, 33.2% and 4.8% of total revenue earned in the three months ended March 31, 2015. For the three months
ended March 31, 2015, revenue of property service increase by 0.1 million in the three months ended March 31, 2015 as compared
with the same period of 2014.
The
following tables set forth the percentage-of-completion (POC) by project for the period ended March 31, 2015 and 2014 and year
ended December 31, 2014 and 2013:
| |
As
at March 31,
2015 | | |
As
at December 31,
2014 | | |
As
at March 31,
2014 | | |
As
at December 31,
2013 | |
No.79
Courtyard Phase I | |
| 100 | % | |
| 96.1 | % | |
| 95.3 | % | |
| 95.3 | % |
No.79
Courtyard Phase II | |
| 90.1 | % | |
| 88.0 | % | |
| 59.1 | % | |
| 59.1 | % |
No.79
Courtyard Phase III | |
| 91.7 | % | |
| 86.3 | % | |
| 53.6 | % | |
| 53.6 | % |
No.79
Courtyard Phase IV | |
| 45.9 | % | |
| 44.9 | % | |
| - | | |
| - | |
Kirin
Bay Phase I | |
| 98.4 | % | |
| 98.3 | % | |
| 85.1 | % | |
| 85.0 | % |
Kirin
Bay Phase II | |
| 90.3 | % | |
| 88.7 | % | |
| 63.1 | % | |
| 61.0 | % |
Kirin
Bay Phase III | |
| 56.2 | % | |
| 55.4 | % | |
| 38.3 | % | |
| 35.9 | % |
Kirin
Bay Phase IV | |
| 25.2 | % | |
| 22.9 | % | |
| - | | |
| - | |
Kirin
County | |
| 98.5 | % | |
| 98.4 | % | |
| 98.3 | % | |
| 98.1 | % |
Kirin
Bay is a three-phase, master-planned community built on a land area of approximately 660,000 square meters. Positioned as a mid-market
residential development, Kirin Bay also features kindergarten, a primary school, hotel, office buildings and apartments.
As of issuance date of the Company’s Form 10-Q for the quarter ended March 31, 2015, (“the Form 10-Q”), we have
obtained necessary government approvals. For Kirin Bay (Phase I), we acquired 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
II), we acquired Construction Land Planning Permit (issued on June 9, 2011), Construction Work Planning Permit (issued on July
31, 2012), Work Commencement Permit (issued On November 22, 2012) and Pre-Sales Permit (issued on March 26, 2013); for Kirin Bay
(Phase III), we obtained Construction Land Planning Permit (issued On June 9, 2011), Construction Work Planning Permit (issued
on January 15, 2013), Work Commencement Permit (issued on March 26, 2013) and Pre-sales Permit (issued on September
18, 2013); and for Kirin Bay (Phase IV), we obtained Construction Land Planning Permit (issued On June 9, 2011), Construction
Work Planning Permit (issued on January 15, 2013), Work Commencement permit (issued on April 9, 2014) and Pre-sales Permit (issued
on May 27, 2014).
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 issuance date
of the Form 10-Q, we have obtained necessary government approvals. For No. 79 Courtyard (Phase I) we acquired 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 No.79 Courtyard (Phase II), we acquired Construction Land Planning Permit (issued on
January 14, 2011), Construction Work Planning Permit (issued on July 20, 2012), Work Commencement Permit (issued on September
1, 2012) and Pre-Sales Permit (issued on September 27, 2012); for No.79 Courtyard (Phase III), Construction Land Planning
Permit (issued on January 14, 2011), Construction Work Planning Permit (issued on January 16, 2013), Work Commencement Permit
(issued on April 3, 2013) and Pre-sales Permit (issued on August 12, 2013); for No.79 Courtyard (Phase IV), Construction Land
Planning Permit (issued on January 14, 2011), Construction Work Planning Permit (issued on December 12, 2013), Work
Commencement Permit (issued on July 1, 2014) and Pre-sales Permit (issued on September 29, 2014).
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, Phase II and Phase
III) and Kirin Bay (Phase I, Phase II and Phase III). We also commenced to construct Kirin County’s shopping arcade from
year 2011, which is supposed to complement Kirin County project, and provide convenience to the residents of Kirin County. However,
due to the regional planning by the local authority, we have 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 in late 2015. Our current design of the shopping arcade,
including but not limited to, salable gross floor area, is not disputed by local government agencies.
The
following table summarizes the key pre-sale information of our projects (in thousands dollars):
| |
Cumulative
contract
value of pre-sale
as of March 31,
2015 | | |
Cumulative
Customer
deposits collected
as of March 31,
2015 | | |
Contract
value of
pre-sale for the three
months ended March 31,
2015 | | |
Customer
deposits
collected for the three
months ended March 31,
2015 | |
No.79
Courtyard Phase I | |
$ | 128,213 | | |
| 133,002 | | |
| 32 | | |
| 250 | |
No.79
Courtyard Phase II | |
| 37,789 | | |
| 38,051 | | |
| 27 | | |
| 34 | |
No.79
Courtyard Phase III | |
| 58,319 | | |
| 53,667 | | |
| 1,805 | | |
| 4,427 | |
No.79
Courtyard Phase IV | |
| 29,457 | | |
| 25,528 | | |
| 3,848 | | |
| 5,887 | |
Kirin
Bay Phase I | |
| 92,658 | | |
| 94,148 | | |
| 44 | | |
| 63 | |
Kirin
Bay Phase II | |
| 71,999 | | |
| 71,909 | | |
| 2,007 | | |
| 2,163 | |
Kirin
Bay Phase III | |
| 95,959 | | |
| 90,816 | | |
| 13,456 | | |
| 11,861 | |
Kirin
Bay Phase IV | |
| 18,062 | | |
| 17,093 | | |
| 2,784 | | |
| 2,301 | |
Kirin
County | |
| 108,044 | | |
| 116,828 | | |
| -113 | | |
| -300 | |
Cost 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, 2015 were $19.8 million, an increase of $14.0 million, or 242.9%, compared to $5.8 million for
the same period of 2014. Our total cost of real estate sales increased in relation to the increase of revenue. As under
the percentage of completion method, revenue from units sold and related costs are recognized over the course of the construction
period, based on the completion progress of a project.
Gross Profit Gross profit was $2.3
million for the three months ended March 31, 2015 (gross profit ratio: 10.3 %), increased by $0.7 million as compared to gross
profit of $1.6 million (gross profit ratio: 22.2%) for the three months ended March 31, 2014. The decrease of gross profit ratio
mainly caused by the penalty fee for late delivery of $0.8 million and the sales of residential units of Kirin Bay Phase IV and
No. 79 Courtyard Phase IV for the three months ended March 31, 2015, residential units generally have a far lower gross profit
ratio than commercial units.
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, 2015 and 2014:
| |
Total
GFA | | |
POC
cumulative accomplished | | |
Contract
value of units sold
for the
three months ended
March 31, | | |
Revenue
recognized
for the
three months ended
March 31, | |
| |
| | |
2015 | | |
2014 | | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
No.79
Courtyard
(Phase I) | |
| 130,067 | | |
| 100 | % | |
| 95.3 | % | |
$ | 32,036 | | |
$ | 135,264 | | |
$ | 4,358,675 | | |
$ | 103,485 | |
No.79
Courtyard
(Phase II) | |
| 45,122 | | |
| 90.1 | % | |
| 59.1 | % | |
| 27,309 | | |
| 105,558 | | |
| 764,716 | | |
| 43,599 | |
No.79
Courtyard
(Phase III) | |
| 47,960 | | |
| 91.7 | % | |
| 53.6 | % | |
| 1,805,090 | | |
| 1,835,192 | | |
| 3,965,906 | | |
| 818,942 | |
No.79
Courtyard
(Phase IV) | |
| 40,767 | | |
| 45.9 | % | |
| - | | |
| 3,848,070 | | |
| - | | |
| 1,621,665 | | |
| - | |
Kirin
Bay (Phase I) | |
| 163,607 | | |
| 98.4 | % | |
| 85.1 | % | |
| 44,409 | | |
| 1,804,987 | | |
| 190,778 | | |
| 1,629,804 | |
Kirin
Bay (Phase II) | |
| 92,043 | | |
| 90.3 | % | |
| 63.1 | % | |
| 2,006,530 | | |
| 1,990,055 | | |
| 2,631,838 | | |
| 1,855,196 | |
Kirin
Bay (Phase III) | |
| 130,734 | | |
| 56.2 | % | |
| 38.3 | % | |
| 13,456,333 | | |
| 4,736,710 | | |
| 7,324,827 | | |
| 2,605,458 | |
Kirin
Bay (Phase IV) | |
| 31,496 | | |
| 25.2 | % | |
| | | |
| 2,783,521 | | |
| | | |
| 1,067,041 | | |
| | |
Kirin
County | |
| 183,209 | | |
| 98.4 | % | |
| 98.3 | % | |
| (113,219 | ) | |
| 217,785 | | |
| (84,312 | ) | |
$ | 240,729 | |
Total | |
| 865,005 | | |
| | | |
| | | |
$ | 23,890,079 | | |
$ | 10,825,551 | | |
$ | 21,841,134 | | |
$ | 7,297,213 | |
The
following tables set forth the consolidated square meters sold and average selling price per square meter by each project for
the three months ended March 31, 2015 and 2014:
| |
2015 | | |
2014 | |
| |
Contract
Sales(1) | | |
Square
Meters
Sold(2) | | |
Average
Selling
Price(3) | | |
Contract
Sales(1) | | |
Square
Meters
Sold(2) | | |
Average
Selling
Price(3) | |
No.79
Courtyard Phase I | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
$ | (3,769 | ) | |
| - | | |
$ | - | | |
$ | (15,216 | ) | |
| - | | |
$ | - | |
-commercial | |
| - | | |
| - | | |
| - | | |
| 18,124 | | |
| - | | |
| - | |
-garage | |
| 35,805 | | |
| 116 | | |
| 309 | | |
| 132,356 | | |
| 318 | | |
| 416 | |
No.79
Courtyard Phase II | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-One
elevator and four suites | |
| 24,705 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
-Parking lots | |
| 2,604 | | |
| - | | |
| - | | |
| 105,558 | | |
| 72 | | |
| 1,466 | |
No.79
Courtyard Phase III | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 2,366,523 | | |
| 1,533 | | |
| 1,544 | | |
| 1,478,744 | | |
| 1,218 | | |
| 1,214 | |
-commercial | |
| (619,518 | ) | |
| (138 | ) | |
| 4,489 | | |
| 144,809 | | |
| 34 | | |
| 4,259 | |
-garage | |
| 58,085 | | |
| 43 | | |
| 1,351 | | |
| 211,639 | | |
| 195 | | |
| 1,085 | |
No.79
Courtyard Phase IV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 3,848,070 | | |
| 3,048 | | |
| 1,262 | | |
| - | | |
| - | | |
| - | |
Kirin
Bay Phase I | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| (7,013 | ) | |
| - | | |
| - | | |
| 344,016 | | |
| 362 | | |
| 950 | |
-garage | |
| 51,422 | | |
| 94 | | |
| 547 | | |
| 1,460,971 | | |
| 2,548 | | |
| 573 | |
Kirin
Bay Phase II | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 1,829,972 | | |
| 1,672 | | |
| 1,094 | | |
| 1,879,244 | | |
| 1,323 | | |
| 1,420 | |
-garage | |
| 176,558 | | |
| 368 | | |
| 480 | | |
| 110,811 | | |
| 185 | | |
| 599 | |
Kirin
Bay Phase III | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 13,173,311 | | |
| 14,765 | | |
| 892 | | |
| 4,413,943 | | |
| 4,814 | | |
| 917 | |
-garage | |
| 283,022 | | |
| 380 | | |
| 745 | | |
| 322,767 | | |
| 435 | | |
| 742 | |
Kirin
Bay Phase IV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 2,703,057 | | |
| 3,044 | | |
| 888 | | |
| - | | |
| - | | |
| - | |
-garage | |
| 80,464 | | |
| 147 | | |
| 547 | | |
| - | | |
| - | | |
| - | |
Kirin
County | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| - | | |
| - | | |
| - | | |
| 2,883 | | |
| | | |
| | |
-commercial | |
| (144,604 | ) | |
| 195 | | |
| (742 | ) | |
| 100,089 | | |
| 116 | | |
| 863 | |
-garage | |
| 31,385 | | |
| 144 | | |
| 218 | | |
| 114,813 | | |
| 484 | | |
| 237 | |
Total | |
$ | 23,890,079 | | |
| 25,411 | | |
$ | 940 | | |
$ | 10,825,551 | | |
| 12,104 | | |
$ | 894 | |
(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. |
Operating Expenses. Operating
expenses for the three months ended March 31, 2015 were $2.6 million, a decrease of $1.1 million, or 29.6%, from $3.7 million for
the three months ended March 31, 2014. The decrease was because our overall operating expenses in staff salaries decreased by $0.3
million and advertising expenses decreased by $0.2 million and professional fee decreased by $0.6 million for the three months
ended March 31, 2015 as compared to the same period of 2014.
| |
Three Months Ended March 31, | |
| |
2015 (Unaudited) | | |
2014
(Unaudited)(Revised) | |
| |
| | |
% of Expenses | | |
| | |
% of Expenses | |
Operating expenses | |
$ | 2,616,566 | | |
| 100 | % | |
$ | 3,716,442 | | |
| 100.0 | % |
Selling expenses | |
| 734,553 | | |
| 28.1 | % | |
| 779,828 | | |
| 21.0 | % |
Advertising expense | |
| 300,924 | | |
| 11.5 | % | |
| 479,963 | | |
| 12.9 | % |
Staff salaries | |
| 191,425 | | |
| 7.3 | % | |
| 81,779 | | |
| 2.2 | % |
Office and Administrative expenses | |
| 242,204 | | |
| 9.3 | % | |
| 218,086 | | |
| 5.9 | % |
General and administrative expenses | |
| 1,882,013 | | |
| 71.9 | % | |
| 2,936,614 | | |
| 79.0 | % |
Staff salaries | |
| 592,401 | | |
| 22.6 | % | |
| 970,914 | | |
| 26.1 | % |
Professional expenses | |
| 574,998 | | |
| 22.0 | % | |
| 1,221,516 | | |
| 32.9 | % |
Office and Administrative expenses | |
| 714,614 | | |
| 27.3 | % | |
| 744,184 | | |
| 20.0 | % |
● |
Advertising Expenses. Our advertising expenses decreased from $0.5 million for the three months ended March 31, 2014 to $0.3 million for the same period of 2015. Such decrease was mainly a result of our No.79 Courtyard and Kirin Bay projects are well-known projects in Xingtai City, no increased advertising fee spent on promoting projects. |
● |
Professional and related Expense. Our professional expense decreased from $1.2 million for the three months ended March 31, 2014 to $0.6 million for the three ended March 31, 2015. |
● |
Staff salaries. Our staff salaries decreased from $1.1 million for the three months ended March 31, 2014 to $0.8 million for the three ended March 31, 2015. |
Interest Expense,
net. Our net interest expense was $0.6 million for the three months ended March 31, 2015, a decrease of $0.9
million, or 59.5%, from $1.5 million for the same period of 2014. The decrease was due to:1) the interest expense
for the three months ended March 31, 2015 decreased from $2.7 million for the same period of 2014 to $2.1 million, decreased
by $0.6 million; 2) the Company recognize interest income from loans to related parties, which was $1.5 million for the three
months ended March 31, 2015, increased by $0.3 million as compared to $1.2 million interest income for the three months ended
March 31, 2014.
Other non – operating income.
Other Non-operating income was $0.5 million for the three months ended March 31, 2015, an increase of $0.3 million, or
122.4%, from $0.2 million for the same period of 2014. Other non-operating income was for the gain from the disposal of building
units, two units was disposed in the first quarter of 2015, while there was one unit was disposed in the first quarter of 2014.
Income Taxes. Income
taxes expense for the three months ended March 31, 2015 totaled $1.6 million, an increase of $2.2 million or 381.5% from income
taxes benefit of $0.6 million for the three months ended March 31, 2014. Income taxes increased because: 1) LAT expense increased
by $0.3 million as the revenue increased; 2) Deferred tax expense increased by $1.5 million as more allowance was accrued for the
deferred tax assets; 3) Current income tax expense increased by $0.4 million.
Net Loss. Net
loss for the three months ended March 31, 2015 was $1.5 million, compared to net loss of $2.2 million for the three months ended
March 31, 2014, there was a decrease of $0.7 million or 35.2%. Net Loss decreased because gross profit increased $0.6 million,
other income increase $1.3 million and the operating and administrative expense decreased $1.1 million, meanwhile income tax expense
increased $2.2 million for the three months ended March 31, 2015 as compared to the same period of 2014.
Liquidity
and Capital Resources
The
following table sets forth a summary of our cash flows for the periods indicated:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
Net cash used in operating activities | |
$ | (18,722,800 | ) | |
$ | (14,827,047 | ) |
Net cash provided by (used in) investing activities | |
| (1,254,755 | ) | |
| 12,652,357 | |
Cash flows provided by (used in) financing activities | |
| 8,129,218 | | |
| (1,143,819 | ) |
Effect of exchange rate changes on cash and cash equivalent | |
| 58,019 | | |
| (142,629 | ) |
Net decrease in cash and cash equivalents | |
| (11,790,318 | ) | |
| (3,461,138 | ) |
Cash and cash equivalents - beginning of period | |
| 22,004,479 | | |
| 23,407,551 | |
Cash and cash equivalents - end of period | |
| 10,214,161 | | |
| 19,946,413 | |
We
had a balance of cash and cash equivalents of $10.2 million as of March 31, 2015 compared with a balance $19.9 million as of March
31, 2014. 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 outflow from operating activities was $18.7 million for the three months ended March 31, 2015, compared to net cash outflow
from operating activities of $14.8 million for the three months ended March 31, 2014, an increase of $3.9 million. The increase
in net cash outflows used in operating activities was primarily due to the following:
● |
Change in restricted cash provided $12.4 million
cash outflow for the three months ended March 31, 2015, compared to restricted cash generated $0.2 million cash inflow in the same
period of 2014, which led to $12.6 million increase in net cash outflow. |
● |
We had $6.6 million inflow from real properties and land lots under development (combination of accounts payable) in the three months ended March 31, 2015. In the same period of 2014, we invested $23.7 million on our projects, this accounted for $30.3 million increase in the net cash inflow from operating activities; |
|
|
●
|
Changes in other receivable provided $5.6 million cash outflow for the three months ended March 31, 2015. In the same period of 2014, changes in other receivable contributed $11.2 million cash outflow, which led to a $5.6 million decrease in net cash outflow from operating activities. |
|
|
● |
Changes in other payable provided $5.4 million cash outflow for the three months ended March 31, 2015. In the same period of 2014, changes in other payable contributed $0.1 million cash outflow, which led to a $5.3 million decrease in net cash outflow from operating activities. |
|
|
● |
Changes in income tax payable (combination of other taxes payable) provided $2.1 million cash outflow for the three months ended March 31, 2015. In the same period of 2014, changes in tax payable contributed $0.5 million cash outflow, which led to a $1.6 million increase in the net cash outflow from operating activities. |
|
|
● |
Changes in customer deposit provided $0.1
million cash inflow for the three months ended March 31, 2015. In the same period of 2014, changes in customer deposit contributed
$20.8 million cash inflow, which led to a $20.7 million decrease in the net cash inflow from operating activities.
|
● |
Revenue in excess of billing and Accounts receivable provided $2.6 million cash inflow for the three months ended March 31, 2015. In the same period of 2014, Revenue in excess of billing contributed $4.3 million cash inflow, which led to a $1.7 million decrease in the net cash inflow from operating activities. |
Investing Activities. Net cash outflow
generated from investing activities was $1.3 million for the three months ended March 31, 2015, compared to net cash inflow of
$12.7 million provided from investing activities for the three months ended March 31, 2014, represented a decrease of $14.0 million.
Financing
Activities. Net cash inflow from financing activities was $8.1 million for the three months ended March 31, 2015, compared
to $1.1 million cash outflows for the three months ended March 31, 2014, an increase of cash inflows of $9.2 million. This was
mainly due to repayment $4.9 million to financial institution loan in January 2015, the Company repaid $2.8 million loan to financial
institution in the first quarter of 2014, meanwhile, the Company received $10.2 million loan from financial institution in the
first quarter of 2015, the Company received $1.6 million loan from financial institution in the first quarter of 2014, the Company
received $2.8 million from note payable in the first quarter of 2015.
Contractual
Obligations
Long-term
debt obligations, costs of land use rights and non-cancellable construction contract obligations for the three months ended of
March 31, 2015
| |
Payments
due by period | |
| |
| | | |
| less
than | | |
| 1-3 | |
in
thousands of US Dollars | |
| Total | | |
| 1
year | | |
| years | |
Loans
payable | |
$ | 98,160 | | |
$ | 77,247 | | |
$ | 20,913 | |
Costs
of land use rights | |
| 3,825 | | |
| 3,825 | | |
| - | |
Non-cancellable
construction contract obligations | |
| 118,052 | | |
| 118,052 | | |
| - | |
Total | |
| 220,037 | | |
| 199,124 | | |
| 20,913 | |
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, 2015, we entered into non-cancellable agreements with several contractors 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 $118.1 million.
Material
Financial Obligations
Loans
Payable
As
of March 31, 2015 our total loan balance was $98.2 million.
| |
March
31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
Loans from Industrial
and Commercial Bank of China, Xingtai Yejin Branch (“ICBC 2013 Loans”) | |
| | |
| |
Original
loan due January 30, 2015; maturity extended to March 30, 2016, at 9.84%
per annum | |
| 11,110,026 | | |
| 11,050,621 | |
Original
loan due May 30, 2015, maturity extended to December 30, 2015, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
Due
September 30, 2015, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
Due
January 30, 2016, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
Due
May 30, 2016, at 9.84% per annum | |
| 7,842,368 | | |
| 7,800,439 | |
| |
| 42,479,498 | | |
| 42,252,377 | |
Loans
from Industrial and Commercial Bank of China, Xingtai Yejin Branch (“ICBC 2012 Loans”) | |
| | | |
| | |
Due
September 18, 2015, at 9.225% per annum | |
| 3,267,653 | | |
| 3,250,183 | |
Due
September 18, 2015, at 9.225% per annum | |
| 3,267,653 | | |
| 3,250,183 | |
Due
May 19, 2015, at 9.225% per annum (note(a)) | |
| 4,901,480 | | |
| 4,875,274 | |
Due
January 19, 2015, at 9.225% per annum | |
| - | | |
| 4,875,274 | |
| |
| 11,436,786 | | |
| 16,250,914 | |
Loans
from Hebei Xingtai Rural Commercial Bank | |
| | | |
| | |
Due
April 24, 2015, at 12.56% per annum (“Credit Union 2014 Short-term loan”, note(a)) | |
| 3,267,653 | | |
| 3,250,183 | |
Due
May 8, 2015, at 12.036% per annum (“Syndicated Loans 2014”, note(a)) | |
| 8,169,134 | | |
| 8,125,457 | |
Due
July 24, 2015, at 11.46% per annum (“Zhongding Kirin 2014 Loan”) | |
| 7,554,632 | | |
| 7,514,241 | |
Due
June 26, 2015, at 11.46% per annum (“Short-term 2014 Loan”) | |
| 3,267,653 | | |
| 3,250,183 | |
Due
October 16, 2017, at 7.38% per annum (“Garden 2014 Loan”) | |
| 4,901,480 | | |
| 4,875,274 | |
Due
November 12, 2015, at 15.00% per annum (“Entrust Loan 2014”) | |
| 1,929,549 | | |
| 1,919,233 | |
Due
July 3, 2015, at 11.79% per annum (“Zhongding Kirin Loan 2014”) | |
| 4,901,480 | | |
| 4,875,274 | |
Due
February 6, 2016, at 15% per annum (“Entrust Loan 2015”) | |
| 2,083,129 | | |
| - | |
Due February 8, 2017, at 7%
per annum (“Syndicated Loans 2015”) | |
| 8,169,134 | | |
| - | |
| |
| 44,243,844 | | |
| 33,809,845 | |
| |
| | | |
| | |
| |
$ | 98,160,128 | | |
$ | 92,313,136 | |
Note
(a): These loans were repaid in full when they become mature subsequent to balance sheet date.
ICBC
2012 Loans and ICBC 2013 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 2012 Loans, ICBC 2013 Loans and Syndicated Loans 2014. 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. Credit Union 2014 Short-term Loan was guaranteed by
Hebei Yoerma and Zhongding Kirin 2014 Loan was guaranteed by an unrelated party company as arranged by the financial institution. The
Company did not pay for the guarantees.
As
of March 31, 2015 and December 31, 2014, Zhongding Kirin 2014 Loan, Garden 2014 Loan, ICBC 2012 Loans, ICBC 2013 Loans, Short
term 2014 Loan, Syndicated Loans 2014 and Syndicated Loans 2015 were secured by the Company’s real estate held for development
with carrying value of approximately $165,021,000 and $144,640,000, respectively.
On
November 14, 2014, the Company entered into a series of entrust loan agreements with Xingtai Rural Commercial bank and individuals
with amount RMB 11,810,000 ($1,930,000, “Entrust Loan 2014”), and borne an annual effective interest rate of 15%,
including loan of RMB 1,100,000 due to managements of the Company, with the remaining balance due to third party individuals.
On
February 10, 2015, the Company entered into a series of entrust loan agreements with Xingtai Rural Commercial bank and individuals
with amount RMB 12,750,000 (approximately $2,080,000, “Entrust Loan 2015”), and borne an annual effective interest
rate of 15%, including loan of RMB 1,400,000 due to managements of the Company, with the remaining balance due to third party
individuals.
Related
Party Transactions and Balances
(1)
Loan to related parties consisted of the following:
| |
March
31, | | |
December
31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
HuaxiaHuifeng
Ventures Capital Management (Beijing) Co., Ltd | |
| | |
| |
Due
October 14, 2015, at 18% per annum | |
| 16,338,267 | | |
| 27,626,554 | |
Due
October 14, 2015, no interest | |
| 2,123,975 | | |
| 4,532,380 | |
| |
| 18,462,242 | | |
| 32,158,934 | |
| |
| | | |
| | |
Zhuolu
Huada Real Estate Development Co., Ltd | |
| | | |
| | |
Due
August 5, 2015, at 20% per annum | |
| 4,860,635 | | |
| 4,834,647 | |
| |
| | | |
| | |
Zhenjiang
Huaxia Kirin Real Estate Development Co., Ltd | |
| | | |
| | |
Due
October 16. 2017, at 7.92% per annum | |
| 4,901,480 | | |
| 4,875,274 | |
Due
February 8, 2017, at 8.90% per annum | |
| 8,169,134 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 81,691 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 81,691 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 506,486 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 2,143,581 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 2,450,740 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 187,890 | | |
| - | |
| |
| 18,522,693 | | |
| 4,875,274 | |
| |
| | | |
| | |
Langfang
Hualin Real Estate Development Co.,Ltd | |
| | | |
| | |
Due
December 31, 2015, at 15% per annum | |
| 13,888 | | |
| - | |
Due
December 31, 2015, at 15% per annum | |
| 24,507 | | |
| - | |
| |
| 38,395 | | |
| - | |
| |
| | | |
| | |
Interest
income receivables | |
| 7,861,074 | | |
| 6,484,246 | |
| |
| | | |
| | |
| |
| 49,745,039 | | |
| 48,353,101 | |
Note
(a): On February 11, 2015, the Company received RMB 84,890,000 ($13,869,555) from Huaxia Huifeng.
(2)
Government grant escrowed by Business Investment (Receivable from a Trust Equity Owner)
In
2008, a VIE of the Company, XingtaiZhongding, was entitled to a government grant associated with its development of Kirin County
project of RMB 160,000,000 (approximately $22,981,000), translated at historical exchange rate). Cash representing
the grant has been remitted to Business Investment, a trust equity owner of XingtaiZhongding in June 2008. Business
Investment originally acquired the land use rights of Kirin County project, and contributed the land use rights to XingtaiZhongding
as paid-in capital to develop the project. Based on the arrangement between Business Investment and XingtaiZhongding,
which has been sanctioned by local government, the benefit of the government grant is to be transferred from Business Investment
to XingtaiZhongding. Specifically, Business Investment acts as an escrow agent but also is nominally responsible for
XingtaiZhongding’s progress. Earned portions of the government grant become available to XingtaiZhongding based on percentage
of completion.
For
the years ended December 31, 2012, 2011, 2010 and 2009, XingtaiZhongding was entitled to receive RMB2,800,000, RMB43,000,000,
RMB63,000,000, and RMB51,200,000, respectively ($443,049, $6,642,455, $9,293,749, and $7,484,417, respectively, translated at
respective years’ historical rates) earned government grant from Business Investment, representing total amount of the government
grant. The Company has the right to determine how to utilize the earned government grant. As at March 31, 2015 and December 31,
2014, accumulated earned government grant of RMB160,000,000 and RMB160,000,000 ($26,141,228 and $26,001,463) was used to repay
working capital provided by Jianfeng Guo for the support of other real estate projects’ development. As at March 31, 2015,
the Company had a remaining $5,784,881 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” in condensed consolidated balance sheet.
(3)
Working capital provided by Jianfeng Guo
Jianfeng
Guo, the controlling stockholder of the Company, through various affiliate companies and individuals, provides working capital
to the VIEs (hereafter, including subsidiaries of VIEs) of the Company. In addition to repaying 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 specific repayment dates.
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 VIEs. XingtaiZhongding 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 condensed consolidated balance sheets.
Gross
amount of working capital provided by and to affiliate companies and individuals designated by Jianfeng Guo as at March 31, 2015
and December 31, 2014 were as follows:
| |
March
31 | | |
December 31 | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Gross
of working capital received from affiliate companies and individuals designated by Jianfeng Guo | |
$ | (42,754,325 | ) | |
$ | (42,278,247 | ) |
Gross
of working capital provided to affiliate companies and individuals designated by Jianfeng Guo | |
| 22,397,978 | | |
| 21,692,272 | |
Gross
earned government grant held by a related party | |
| 26,141,228 | | |
| 26,001,463 | |
Receivable
from a trust equity owner | |
$ | 5,784,881 | | |
$ | 5,415,488 | |
(4)
Prepayment to related party
Please
see Note 8 – Prepayments
(5)
Loan from Related party
Please
see Note 18 Credit Union 2014 Short-term Loan, Entrusted loan 2014 and 2015.
(6)
Balances with a related party supplier
Please
see Note 9 – Other receivable and Note 14 – Other Payable and Accrued liabilities.
(7)
Service fee
For
three months ended March 31, 2015 and 2014, the Company recorded service fee with an amount of RMB 1,200,000 (approximately $196,000)
and RMB 1,200,000 (approximately $195,000) respectively, for the service received from affiliate companies designated 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
FASB
issued several ASUs during the period, which are not expected to have a material impact on the condensed consolidated financial
statements upon adoption.
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
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out
an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer
(“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s
principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as
defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation,
for the reasons set forth below, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures
were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or
submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s
CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not
be prevented or detected on a timely basis. For the material weakness described below, management concluded that our internal
controls over financial reporting were not effective as of March 31, 2015.
● |
We do not have a functional
audit committee; and |
● |
We have
substantial related party transactions and have no corporate governance policies in place to review, authorize and approve
such transactions. |
The
Company is still determining what steps it will take to remedy these material weaknesses.
Changes
in Internal Controls over Financial Reporting
There
were no changes in our internal controls over financial reporting that occurred during the first quarter of 2015 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART
II—OTHER INFORMATION
Item 1. |
Legal Proceedings. |
To
the best of our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property
is the subject. 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.
Smaller
reporting companies are not required to provide the information required by this item.
Item 2. |
Unregistered Sales of
Equity Securities and Use of Proceeds. |
None.
Item 3. |
Defaults Upon Senior Securities. |
None.
Item 4. |
Mine Safety Disclosures. |
Not
applicable.
Item 5. |
Other Information. |
None.
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 is being furnished and not filed.
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 26, 2015 |
By: |
/s/
Longlin Hu |
|
|
Longlin Hu |
|
|
President
and Chief Executive Officer
(Principal
Executive Officer) |
|
|
|
Dated: May 26, 2015 |
By: |
/s/
Cindy Zheng |
|
|
Cindy Zheng |
|
|
Chief
Financial Officer
(Principal
Financial Officer and
Principal
Accounting Officer) |
49
EXHIBIT 31.1
CERTIFICATION
CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Longlin Hu, certify that:
1. I have reviewed this
Quarterly Report on Form 10-Q of Kirin International Holding, Inc.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
5. The registrants’
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: May 26, 2015
|
|
/s/ Longlin Hu |
|
Longlin Hu
Chief Executive Officer
(Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION
CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Cindy Zheng, certify that:
1. I have reviewed this
Quarterly Report on Form 10-Q of Kirin International Holding, Inc.
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
5. The registrants’
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: May 26, 2015
|
|
/s/ Cindy Zheng |
|
Cindy Zheng
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
the undersigned officer of Kirin International Holding, Inc. (the “Company”), does hereby certify, to such officer’s
knowledge, that:
The Quarterly Report on Form 10-Q
for the quarter ended March 31, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the
periods presented in the Form 10-Q.
Date: May 26, 2015
|
|
/s/ Longlin Hu |
|
Longlin Hu
Chief Executive Officer
(Principal Executive Officer) |
|
The foregoing certification is being
furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed
as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated
by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
the undersigned officer of Kirin International Holding, Inc. (the “Company”), does hereby certify, to such officer’s
knowledge, that:
The Quarterly Report on Form 10-Q
for the quarter ended March 31, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the
periods presented in the Form 10-Q.
Date: May 26, 2015
|
|
/s/ Cindy Zheng |
|
Cindy Zheng
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
The foregoing certification is being
furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed
as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated
by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.
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