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 June 30, 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 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 August 19, 2015.
KIRIN
INTERNATIONAL HOLDING, INC.
QUARTERLY
REPORT ON FORM 10-Q
June
30, 2015
TABLE
OF CONTENTS
|
|
|
|
PAGE |
|
|
|
|
|
PART
I |
|
FINANCIAL
INFORMATION |
|
|
|
|
|
|
|
Item
1. |
|
Financial
Statements (Unaudited) |
|
1 |
|
|
|
|
|
Item
2. |
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
|
29 |
|
|
|
|
|
Item
3. |
|
Quantitative
and Qualitative Disclosures About Market Risk |
|
46 |
|
|
|
|
|
Item
4. |
|
Controls
and Procedures |
|
46 |
|
|
|
|
|
PART
II |
|
OTHER
INFORMATION |
|
|
|
|
|
|
|
Item
1. |
|
Legal
Proceedings |
|
47 |
|
|
|
|
|
Item
1A. |
|
Risk
Factors |
|
47 |
|
|
|
|
|
Item
2. |
|
Unregistered
Sales of Equity Securities and Use of Proceeds |
|
47 |
|
|
|
|
|
Item
3. |
|
Defaults
Upon Senior Securities |
|
47 |
|
|
|
|
|
Item
4. |
|
Mine
Safety Disclosures |
|
47 |
|
|
|
|
|
Item
5. |
|
Other
Information |
|
47 |
|
|
|
|
|
Item
6. |
|
Exhibits |
|
47 |
|
|
|
|
|
SIGNATURES |
|
48 |
|
|
|
Financial
Statements: |
|
|
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
Item
1. |
Financial
Statements. |
KIRIN
INTERNATIONAL HOLDING, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
ASSETS | |
| |
| |
| | |
| |
Cash and cash equivalents | |
$ | 10,482,370 | | |
$ | 22,004,479 | |
Restricted cash | |
| 17,183,084 | | |
| 6,785,042 | |
Short-term Investment | |
| 491,095 | | |
| 487,527 | |
Accounts receivable | |
| 2,405,694 | | |
| 58,202 | |
Notes receivable | |
| 600,000 | | |
| 600,000 | |
Revenue in excess of billings | |
| 9,181,592 | | |
| 13,586,442 | |
Prepayments | |
| 19,501,053 | | |
| 26,448,654 | |
Other receivables | |
| 36,251,865 | | |
| 28,549,244 | |
Receivable from a trust equity owner | |
| 1,138,567 | | |
| 5,415,488 | |
Loan to related parties | |
| 63,802,096 | | |
| 48,353,101 | |
Real estate property completed | |
| 16,058,688 | | |
| 1,441,194 | |
Real estate properties and land lots under development | |
| 164,848,982 | | |
| 187,445,154 | |
Long-term Investments | |
| 7,902,724 | | |
| 7,850,402 | |
Property and equipment, net | |
| 5,176,730 | | |
| 7,477,607 | |
Deferred tax assets | |
| 4,878,249 | | |
| 5,791,051 | |
Total assets | |
$ | 359,902,789 | | |
$ | 362,293,587 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Notes payable | |
$ | 2,800,000 | | |
$ | - | |
Accounts payable | |
| 114,382,263 | | |
| 102,265,749 | |
Income taxes payable | |
| 1,899,863 | | |
| 1,904,666 | |
Other taxes payable | |
| 233,426 | | |
| 2,263,163 | |
Other payables and accrued liabilities | |
| 20,966,845 | | |
| 23,455,757 | |
Customer deposits | |
| 71,823,781 | | |
| 83,522,070 | |
Loans payable | |
| 87,179,151 | | |
| 92,313,136 | |
Deferred tax liabilities | |
| 1,082,057 | | |
| 266,003 | |
| |
| | | |
| | |
Total liabilities | |
| 300,367,386 | | |
| 305,990,544 | |
| |
| | | |
| | |
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 | |
| 11,115,442 | | |
| 8,967,841 | |
Accumulated other comprehensive income | |
| 8,434,940 | | |
| 8,110,120 | |
Total
Kirin International Holding, Inc.’s equity | |
| 58,105,226 | | |
| 55,632,805 | |
Non-controlling interest | |
| 1,430,177 | | |
| 670,238 | |
Total Stockholders' equity | |
| 59,535,403 | | |
| 56,303,043 | |
Total liabilities and stockholders’ equity | |
$ | 359,902,789 | | |
$ | 362,293,587 | |
See
notes to the unaudited condensed consolidated financial statements
All
of the assets of the VIEs can be used only to settle obligations of the consolidated VIEs. Conversely, all 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)
| |
Six Months Ended
June 30, | | |
Three
Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
(Revised) | | |
| | |
(Revised) | |
| |
| | |
| | |
| | |
| |
Revenue, net | |
$ | 58,354,545 | | |
$ | 47,641,831 | | |
$ | 36,321,482 | | |
$ | 40,229,654 | |
Cost of sales | |
| 48,757,579 | | |
| 39,809,623 | | |
| 28,986,384 | | |
| 34,043,637 | |
Gross profit | |
| 9,596,966 | | |
| 7,832,208 | | |
| 7,335,098 | | |
| 6,186,017 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 1,546,009 | | |
| 1,665,126 | | |
| 811,456 | | |
| 885,298 | |
General and administrative expenses | |
| 3,448,810 | | |
| 4,791,089 | | |
| 1,566,797 | | |
| 1,854,475 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 4,994,819 | | |
| 6,456,215 | | |
| 2,378,253 | | |
| 2,739,773 | |
| |
| | | |
| | | |
| | | |
| | |
Income from operations | |
| 4,602,147 | | |
| 1,375,993 | | |
| 4,956,845 | | |
| 3,446,244 | |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Investment income (loss) | |
| 786,806 | | |
| 504,548 | | |
| 120,834 | | |
| (2,000 | ) |
Interest income | |
| 3,480,811 | | |
| 2,469,723 | | |
| 1,999,856 | | |
| 1,236,816 | |
Interest expense | |
| (4,814,932 | ) | |
| (5,292,851 | ) | |
| (2,735,250 | ) | |
| (2,580,985 | ) |
Other non-operating income (loss) | |
| 2,155,292 | | |
| 171,251 | | |
| 1,685,699 | | |
| (39,860 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total other income (expenses) | |
| 1,607,977 | | |
| (2,147,329 | ) | |
| 1,071,139 | | |
| (1,386,029 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
| 6,210,124 | | |
| (771,336 | ) | |
| 6,027,984 | | |
| 2,060,215 | |
| |
| | | |
| | | |
| | | |
| | |
Income taxes expense | |
| 3,301,745 | | |
| 808,045 | | |
| 1,662,193 | | |
| 1,390,565 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| 2,908,379 | | |
| (1,579,381 | ) | |
| 4,365,791 | | |
| 669,650 | |
Less: net income (loss) attributable to non-controlling interest | |
| 760,778 | | |
| (44,055 | ) | |
| 831,604 | | |
| (35,478 | ) |
Net income (loss) attributable to stockholder of Kirin International Holding, Inc. | |
$ | 2,147,601 | | |
$ | (1,535,326 | ) | |
$ | 3,534,187 | | |
$ | 705,128 | |
Net income (loss) | |
| 2,908,379 | | |
| (1,579,381 | ) | |
| 4,365,791 | | |
| 669,650 | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| 324,820 | | |
| (424,414 | ) | |
| 97,018 | | |
| (28,998 | ) |
Total comprehensive income (loss) | |
| 3,233,199 | | |
| (2,003,795 | ) | |
| 4,462,809 | | |
| 640,652 | |
Less: other comprehensive income (loss) attributable to non-controlling interest | |
| 760,778 | | |
| (44,055 | ) | |
| 831,604 | | |
| (35,478 | ) |
Comprehensive income (loss) attributable to stockholder of Kirin International Holding, Inc. | |
$ | 2,472,421 | | |
$ | (1,959,740 | ) | |
$ | 3,631,205 | | |
$ | 676,130 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted income (loss) per share | |
$ | 0.10 | | |
$ | (0.08 | ) | |
$ | 0.17 | | |
$ | 0.03 | |
Basic and diluted weighted average shares outstanding | |
| 20,596,546 | | |
| 20,596,546 | | |
| 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
| |
Six months Ended June 30, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) (Revised) | |
Cash flows from operating activities: | |
| | |
| |
Net income (loss) | |
$ | 2,908,379 | | |
$ | (1,579,381 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Depreciation | |
| 76,577 | | |
| 139,474 | |
Gain on disposal of land and units | |
| (2,172,702 | ) | |
| (171,251 | ) |
Deferred tax expense (benefit) | |
| 1,764,489 | | |
| (614,003 | ) |
| |
| | | |
| | |
Changes in operating assets and liabilities | |
| | | |
| | |
Restricted cash | |
| (10,320,350 | ) | |
| 1,454,249 | |
Accounts receivable | |
| (2,340,705 | ) | |
| 141,329 | |
Notes receivable | |
| - | | |
| 813,788 | |
Revenue in excess of billings | |
| 4,492,059 | | |
| 3,504,098 | |
Prepayments | |
| 7,121,782 | | |
| (3,221,962 | ) |
Other receivables | |
| (6,292,019 | ) | |
| (24,176,503 | ) |
Receivable from a trust equity owner | |
| 4,351,830 | | |
| 1,383,439 | |
Real estate property completed | |
| (14,567,363 | ) | |
| 521,331 | |
Real estate properties and land lots under development | |
| 23,830,030 | | |
| (4,609,412 | ) |
Accounts payable | |
| 11,337,395 | | |
| 2,082,034 | |
Income taxes payable | |
| (18,689 | ) | |
| (88,446 | ) |
Other taxes payable | |
| (2,040,752 | ) | |
| (136,422 | ) |
Other payables and accrued liabilities | |
| (2,466,951 | ) | |
| 5,698,306 | |
Customer deposits | |
| (12,276,021 | ) | |
| 3,680,092 | |
| |
| | | |
| | |
Net cash provided by (used in) operating activities | |
| 3,386,989 | | |
| (15,179,240 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of equipment | |
| (168,142 | ) | |
| (209,472 | ) |
Proceeds from disposal of equipment | |
| 3,185,621 | | |
| 598,647 | |
Repayment of loans from related parties | |
| 15,320,983 | | |
| 1,139,303 | |
Loans to related parties | |
| (30,375,255 | ) | |
| (3,609,025 | ) |
Repayment of short-term loan from related parties | |
| - | | |
| 12,190,537 | |
Payment of short-term investment | |
| (1,632,546 | ) | |
| (244,136 | ) |
Repayment of short-term investment | |
| 1,632,546 | | |
| - | |
Cash paid for investment at cost | |
| - | | |
| (22,468 | ) |
| |
| | | |
| | |
Net cash provided by (used in) investing activities | |
| (12,036,793 | ) | |
| 9,843,386 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from financial institution loans | |
| 31,140,823 | | |
| 29,296,350 | |
Repayment of financial institution loans | |
| (36,934,548 | ) | |
| (26,366,715 | ) |
Proceeds from Notes payable | |
| 2,800,000 | | |
| - | |
Distribution to non-controlling stockholder of Greenfield | |
| (839 | ) | |
| - | |
| |
| | | |
| | |
Net cash provided by (used in) financing activities | |
| (2,994,564 | ) | |
| 2,929,635 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents | |
| 122,259 | | |
| (282,048 | ) |
Net decrease in cash and cash equivalents | |
| (11,522,109 | ) | |
| (2,688,267 | ) |
| |
| | | |
| | |
Cash and cash equivalents - beginning of the period | |
| 22,004,479 | | |
| 23,407,551 | |
| |
| | | |
| | |
Cash and cash equivalents - end of the period | |
$ | 10,482,370 | | |
$ | 20,719,284 | |
| |
| | | |
| | |
Supplementary cash flow information | |
| | | |
| | |
Cash paid for income tax | |
$ | 1,035,127 | | |
$ | 746,874 | |
Cash paid for interest expense | |
$ | 4,030,828 | | |
$ | 4,931,525 | |
See
notes to the unaudited condensed consolidated financial statements
KIRIN
INTERNATIONAL HOLDING, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, as of June 30, 2015)
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 June 30, 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 Group, LLC |
|
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 America |
|
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, INC |
|
State of California, United States of America |
|
November 11, 2014 |
|
E-Commerce Retail/Wholesale |
VIEs |
|
|
|
|
|
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HebeiZhongding Real Estate Development Co., Ltd. (“HebeiZhongding”) |
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Xingtai, Hebei province, China |
|
July 16,
2007 |
|
Real estate development |
XingtaiZhongdingJiye Real Estate Development Co., Ltd. (“ZhongdingJiye”, “XingtaiZhongding”) |
|
Xingtai, Hebei province, China |
|
August 7,
2008 |
|
Real estate development |
|
|
|
|
|
|
|
Subsidiaries of VIEs
Subsidiaries of HebeiZhongding |
|
|
|
|
|
|
XingtaiZhongding Construction Project Management Co., Ltd. |
|
Xingtai, Hebei province, China |
|
September 3,
2007 |
|
Dormant
|
Subsidiaries of XingtaiZhongding |
|
|
|
|
|
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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 |
XingtaiHetai 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 |
HebeiZhongding 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 six months and three months ended June 30, 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 June 30, 2015, the results of operations
for the six months and three months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014.
The results of operations for the six months and three months ended June 30, 2015 are not necessarily indicative of the operating
results for the year. The unaudited condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014, the unaudited
condensed consolidated statements of operations and comprehensive income (loss) for the six months and three months ended June
30, 2015 and 2014, and cash flows for the six months ended June 30, 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 unaudited 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 June 30, 2014 unaudited condensed consolidated financial statement and December 31, 2014 consolidated financial
statements have been reclassified to conform to the June 30, 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, XingtaiZhongding 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 six months and three months ended June
30, 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 XingtaiJiye 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 XingtaiZhongding 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 June 30, 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. As of June 30, 2015
and December 31, 2014, $nil 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 $17,183,084 (unaudited) and $6,785,042 as of June 30, 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. The Company received $118,768 (unaudited) as dividend for the six months ended
June 30, 2015.
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 $668,038 (unaudited) and $504,548 (unaudited) as dividend for the six months ended June 30, 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 | |
| 2~10 years
| |
Building and warehouse | |
| 20 years | |
Electronic equipment | |
| 2~5 years
| |
Nonresidential real
estate property | |
| 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 six months and
three months ended June 30, 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 six months ended June 30, 2015 and 2014, the Company recorded an advertising expense of $760,138
(unaudited) and $997,724 (unaudited), respectively. For the three months ended June 30, 2015 and 2014, the Company recorded
an advertising expense of $459,214 (unaudited) and $517,761 (unaudited), 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 June 30, 2015 and December 31, 2014, the Company
retained $92,981 (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 six months and three months ended June 30, 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 six months and three
months ended June 30, 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
In
May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers”.
For a public entity, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period. Early application is not permitted. The amendments in ASU 2014-09 affects any entity that
either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial
assets unless those contracts are within the scope of other standards (e.g. insurance contracts or lease contracts). This ASU
will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and
creates a Topic 606 Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services.
In
August 2014, the FASB issued Accounting Standards Update (ASU) No.2014-15, “Presentation of Financial Statements-Going Concern”.
Effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December
15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously
been issued. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there
is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.
Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as
a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because
it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about
management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue
as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management,
with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly
provided by organizations today in the financial statement footnotes.
On
April, 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, entitled Simplifying the Presentation of Debt Issuance
Costs. The ASU amends the guidance in the FASB Accounting Standards Codification (FASB ASC) Topic 835, entitled Interest-Imputation
of Interest. The objective of the amendments in this Update is to require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts. Effective for public business entities for financial statements issued for fiscal years beginning after December
15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been
previously issued. The amendments in ASU 2015-03 are intended to simplify the presentation of debt issuance costs. These amendments
require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for
debt issuance costs are not affected by the amendments in this ASU.
The
Company is currently in the process of evaluation the impact of the adoption of ASU 2014-09, ASU 2014-15 and ASU 2015-03 on its
consolidated financial statements.
Correction
of Prior Period Financial Statements
During the six months and three
months ended June 30, 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 condensed
consolidated statements of operations comprehensive income (loss) for the six months and three months ended June 30, 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 | |
| 5,493,018 | | |
| 298,033 | | |
| 5,791,051 | |
| |
| | | |
| | | |
| | |
Total
assets | |
| 363,187,685 | | |
| (894,098 | ) | |
| 362,293,587 | |
| |
| | | |
| | | |
| | |
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 consolidated income statements of operations comprehensive income (loss) for the six months
and three months ended June 30, 2014
| |
For the Six months Ended June 30, 2014 | | |
For the Three Months Ended June 30, 2014 | |
| |
| As Previously Reported | | |
| Adjustment | | |
| As Currently Reported | | |
| As Previously Reported | | |
| Adjustment | | |
| As Currently Reported | |
Interest expense | |
$ | (4,991,900 | ) | |
| (300,951 | ) | |
$ | (5,292,851 | ) | |
$ | (2,427,875 | ) | |
$ | (153,110 | ) | |
$ | (2,580,985 | ) |
Total other income (expense) | |
| (1,846,378 | ) | |
| (300,951 | ) | |
| (2,147,329 | ) | |
| (1,232,919 | ) | |
| (153,110 | ) | |
| (1,386,029 | ) |
Income (Loss) before income taxes | |
| (470,385 | ) | |
| (300,951 | ) | |
| (771,336 | ) | |
| 2,213,325 | | |
| (153,110 | ) | |
| 2,060,215 | |
Income taxes expense (benefit) | |
| 883,283 | | |
| (75,238 | ) | |
| 808,045 | | |
| 1,428,843 | | |
| (38,278 | ) | |
| 1,390,565 | |
Net income (loss) | |
| (1,353,668 | ) | |
| (225,713 | ) | |
| (1,579,381 | ) | |
| 784,482 | | |
| (114,832 | ) | |
| 669,650 | |
Net income (loss) attributable to stockholder of Kirin International Holding, Inc. | |
| (1,309,613 | ) | |
| (225,713 | ) | |
| (1,535,326 | ) | |
| 819,960 | | |
| (114,832 | ) | |
| 705,128 | |
Foreign currency translation adjustment | |
| (428,115 | ) | |
| 3,701 | | |
| (424,414 | ) | |
| (28,206 | ) | |
| (792 | ) | |
| (28,998 | ) |
Total comprehensive income (loss) | |
| (1,781,783 | ) | |
| (222,012 | ) | |
| (2,003,795 | ) | |
| 756,276 | | |
| (115,624 | ) | |
| 640,652 | |
Comprehensive income (loss) attributable to stockholder of Kirin International Holding, Inc. | |
| (1,737,728 | ) | |
| (222,012 | ) | |
| (1,959,740 | ) | |
| 791,754 | | |
| (115,624 | ) | |
| 676,130 | |
Basic and diluted loss per share | |
| (0.07 | ) | |
| (0.01 | ) | |
| (0.08 | ) | |
| 0.04 | | |
| (0.01 | ) | |
| 0.03 | |
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:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
ASSETS |
| |
| | | |
| | |
Cash and cash equivalents | |
$ | 8,214,175 | | |
$ | 21,084,446 | |
Restricted cash | |
| 17,183,084 | | |
| 6,785,042 | |
Short-term Investment | |
| 491,095 | | |
| 487,527 | |
Accounts receivable | |
| 2,405,694 | | |
| 58,202 | |
Revenue in excess of billings | |
| 9,181,592 | | |
| 13,586,442 | |
Prepayments | |
| 19,501,053 | | |
| 26,448,654 | |
Other receivables | |
| 46,285,476 | | |
| 42,314,953 | |
Receivable from a trust equity owner | |
| 7,576,192 | | |
| 11,853,261 | |
Loan to related parties | |
| 63,802,096 | | |
| 48,353,101 | |
Real estate property completed | |
| 16,058,688 | | |
| 1,441,194 | |
Real estate properties and land lots under development | |
| 153,912,175 | | |
| 178,040,195 | |
Investment at cost | |
| 7,202,724 | | |
| 7,150,402 | |
Property and equipment, net | |
| 389,599 | | |
| 466,557 | |
Deferred tax assets | |
| 4,878,249 | | |
| 5,791,051 | |
| |
| | | |
| | |
Total assets | |
$ | 357,081,892 | | |
$ | 363,861,027 | |
| |
| | | |
| | |
LIABILITIES |
| |
| | | |
| | |
Accounts payable | |
$ | 114,382,263 | | |
$ | 102,265,749 | |
Income taxes payable | |
| 1,899,863 | | |
| 1,904,666 | |
Other taxes payable | |
| 233,426 | | |
| 2,263,163 | |
Other payables and accrued liabilities | |
| 19,835,585 | | |
| 23,325,237 | |
Customer deposits | |
| 71,823,781 | | |
| 83,507,580 | |
Financial institution loans | |
| 87,179,151 | | |
| 92,313,136 | |
Deferred tax liabilities | |
| 1,082,057 | | |
| 266,003 | |
| |
| | | |
| | |
Total liabilities | |
$ | 296,436,126 | | |
$ | 305,845,534 | |
All
of the assets of the VIEs can be used only to settle obligations of the consolidated VIEs. Conversely, all liabilities
recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general
assets.
For
the six months and three months ended June 30, 2015 and 2014, the financial performance of VIEs is as follows:
| |
Six Months Ended June 30, | | |
Three Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
(Revised) | | |
| | |
(Revised) | |
| |
| | | |
| | | |
| | | |
| | |
Revenue, net | |
$ | 58,354,545 | | |
$ | 47,574,686 | | |
$ | 36,321,482 | | |
$ | 40,199,206 | |
Cost of sales | |
$ | 48,757,579 | | |
$ | 39,809,623 | | |
$ | 28,986,384 | | |
$ | 34,043,637 | |
Operation expenses | |
$ | 3,530,720 | | |
$ | 5,310,953 | | |
$ | 1,712,622 | | |
$ | 2,081,825 | |
Net income (loss) | |
$ | 2,199,776 | | |
$ | (672,515 | ) | |
$ | 3,311,672 | | |
$ | 1,337,010 | |
Note
4 – Short-term Investments
On December 15, 2014 and February 15,
2015, the Company invested RMB 3,000,000 (approximately $491,000, maturing in one year) and RMB 10,000,000 (approximately
$1,637,000, matured in three months and repaid on April 30, 2015), respectively, in a financial instrument managed by Xingtai Small
and Micro Enterprises Investment Association. The company received $118,768 (unaudited) and nil investment income for the six and
three months ended June 30, 2015, respectively.
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 June 30, 2015 and December 31, 2014, accounts receivable due from complete properties represents revenue in excess of billings
balances of Kirin County project, No.79 Courtyard Phase I and Kirin Bay 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.
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | | |
| | |
Receivable from sales of condominium units | |
$ | 2,405,166 | | |
$ | 55,375 | |
Receivable from property management | |
| 528 | | |
| 2,827 | |
| |
| | | |
| | |
| |
$ | 2,405,694 | | |
$ | 58,202 | |
Note
6 – Notes Receivable
| |
June 30, | | |
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,
it is due from a shareholder of Hopkins Kirin Facilities Group, LLC.
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 June 30, 2015 and December
31, 2014, revenue in excess of billings is $9,181,592 (unaudited) and $13,586,442, respectively.
Note
8 – Prepayments
Prepayments
consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
| |
| | | |
| | |
Advances to suppliers and contractors | |
$ | 1,356,745 | | |
$ | 1,250,734 | |
Prepaid financing service fees | |
| 1,468,141 | | |
| 1,291,465 | |
Excessive business tax and LAT liabilities | |
| 9,001,272 | | |
| 8,873,569 | |
Prepayments-related parties | |
| 7,674,895 | | |
| 15,032,886 | |
| |
| | | |
| | |
| |
$ | 19,501,053 | | |
$ | 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 HebeiPufa 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:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
| |
| | |
| |
Working capital borrowed by contractors | |
$ | 19,693,913 | | |
$ | 20,209,181 | |
Due from a related party supplier | |
| 5,400,743 | | |
| 5,361,511 | |
Due from a third party supplier | |
| 4,092,457 | | |
| - | |
Receivable from sales of land | |
| 3,550,000 | | |
| - | |
Due from Xingtai Rural Commercial bank | |
| 746,464 | | |
| - | |
Deposit | |
| 561,318 | | |
| 1,693,773 | |
Staff allowance | |
| 1,411,812 | | |
| 1,069,379 | |
Receivables of housing maintenance funds | |
| 169,445 | | |
| 204,651 | |
Others | |
| 625,713 | | |
| 10,749 | |
| |
| | | |
| | |
| |
$ | 36,251,865 | | |
$ | 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 June 30, 2015 and December 31, 2014.
On April 10, 2014, the Company entered
into a loan agreement with HebeiYoerma Business Service Co.,Ltd (“HebeiYoerma”), 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 $5,400,000 (unaudited) and $5,362,000 as of June 30, 2015 and December
31, 2014) and has a term of two years. As of June 30, 2015 and December 31, 2014, there is RMB 18,211,330 (approximately $2,981,000
(unaudited)) and RMB 18,211,330 (approximately $2,960,000) working capital borrowed by HebeiYoerma, respectively.
On February 11, 2015, the Company entered
into a loan agreement with XingtaiDongxinshun 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 $4,911,000) with no interest.
Dongxinshun repaid RMB 15,000,000 to the company in April, 2015. On June 23, 2015, the Company lent another RMB 10,000,000 to
Dongxinshun with no interest. As of June 30, 215, the ending balance of Dongxinshun is RMB 25,000,000 ($4,092,457). Dongxinshun
repaid all of this balance to the Company in July, 2015.
On March 3, 2015, the Company entered
into a land sales agreement with a contract price of $3,550,000, this case is expected to be closed in September, 2015.
On June 30, 2015, the Company made a
loan to Xingtai Rural Commercial Bank (“Xingtai RC Bank”) of RMB 4,560,000 ($746,464) with no interest and Xingtai
RC Bank repaid RMB 4,500,000 to the Company on July 21, 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:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Properties under development | |
(Unaudited) | | |
| |
Kirin Plaza | |
| | | |
| | |
Costs of land use rights | |
$ | 1,241,266 | | |
$ | 1,153,179 | |
Other development costs | |
| 477,179 | | |
| 483,486 | |
No. 79 Courtyard | |
| | | |
| | |
Costs of land use rights | |
| 42,426,903 | | |
| 45,263,421 | |
Other development costs | |
| 19,346,106 | | |
| 22,400,751 | |
Kirin Bay | |
| | | |
| | |
Costs of land use rights | |
| 13,633,235 | | |
| 24,579,507 | |
Other development costs | |
| 13,985,833 | | |
| 22,547,288 | |
Archway HHC Apartment | |
| | | |
| | |
Costs of land use rights | |
| 8,730,454 | | |
| 8,730,454 | |
Other development costs | |
| 2,206,353 | | |
| 674,505 | |
| |
| | | |
| | |
Land lots under development | |
| 62,801,653 | | |
| 61,612,563 | |
| |
| | | |
| | |
| |
$ | 164,848,982 | | |
$ | 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 June 30, 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 and the Residential building of Kirin Bay Phase I are fully competed in June, 2015. As of
June 30, 2015 and December 31, 2014, the account balance of the real estate property completed is $16,058,688 (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 June 30, 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 secures
land use rights through the auditions and use acquired land use rights for the development of Kirin Bay and other projects. 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 June 30, 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 $62,801,653 and $61,612,563, respectively.
On March 31, 2015, XingtaiQiaoxi District
Government filed an application to Xingtai Municipal Government for a refund of RMB 125,512,500 (approximately $20,550,000 Relocation
Program, the refund is expected to be approved and received in 2015) on behalf of the Company under the Kong Village.
Note
11 – Long-term Investments
Long term Investments include the Company’s
equity interest in HebeiXingtai 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
(translated at historical exchange rate) 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 XingtaiChengjiao 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 (translated at historical exchange rate) to RMB 500,000,000, or approximately
$79,598,000 (translated at historical exchange rate) on April 26, 2013. The Company paid approximately RMB 24,000,000, or approximately
$3,841,000 to keep its stockholder position.
As of June 30, 2015 and December 31,
2014, the balance of Long term investment for Xingtai RC Bank was $7,202,724 (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 June 30, 2015 and December 31,
2014, the Company has deposit balances (including restricted cash) of approximately $4,740,000 (unaudited) and approximately $5,818,000
in Xingtai RC Bank, respectively.
On June 30, 2015, the Company made a
loan to Xingtai RC Bank of RMB 4,560,000 ($746,464), with no interest and Xingtai RC Bank repaid RMB 4,500,000 to the Company on
July 21, 2015 (Note 9).
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. There is no operation of Hopkins Kirin Facilities Group, LLC till now. The Company
plans to recoup all of the investment for Hopkins Kirin Facilities Group, LLC in the third quarter of 2015.
As of June 30, 2015 and December 31,
2014, the ending balance in long-term investment was $7,902,724 (unaudited) and $7,850,402. The Company determined that there was
no impairment on its long-term investment at June 30, 2015.
Note
12 – Notes Payable
| |
June 30, | | |
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
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| (Unaudited) | | |
| | |
Payables in relation to acquisitions of land use rights | |
$ | 3,832,209 | | |
$ | 3,804,371 | |
Construction contractors | |
| 110,550,054 | | |
| 98,461,378 | |
| |
| | | |
| | |
| |
$ | 114,382,263 | | |
$ | 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 June 30, 2015, payable to Huada Mining Co., Ltd. was $1,376,735. 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 June 30, 2015, unpaid balance plus
accrued interest was $2,455,474. 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:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
Unrecognized tax benefit (Note 16(2)) | |
$ | 6,547,931 | | |
$ | 6,500,366 | |
Deposits from customers on behalf of utility operators | |
| 12,015,719 | | |
| 8,195,227 | |
Car park deposits from customers | |
| 515,650 | | |
| 1,732,347 | |
Due to a related party suppliers | |
| - | | |
| 6,500,366 | |
Deposit from a contractor | |
| 92,981 | | |
| 117,218 | |
Accrued loan interest | |
| 246,794 | | |
| 175,510 | |
Estimated penalty | |
| 430,847 | | |
| - | |
Others | |
| 1,116,923 | | |
| 234,723 | |
| |
| | | |
| | |
| |
$ | 20,966,845 | | |
$ | 23,455,757 | |
On December 30, 2014, the Company entered
into RMB 40,000,000 (approximately $6,550,000) loan agreement with HebeiYoerma, 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 was 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 June 30, 2015, $430,847
estimated penalty is reasonably estimated for Kirin Bay and No. 79 Courtyard and probably will occur in future. The Company
will record the liability when such penalty can be reasonably estimated.
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 June 30, 2015 and December
31, 2014, the Company received $71,823,781 (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, INC, 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 XingtaiZhongding 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 six months and three months ended June 30, 2015 and 2014 are summarized as follows:
| |
Six Months Ended June 30, | | |
Three Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) (Revised) | | |
(Unaudited) | | |
(Unaudited) (Revised) | |
Current | |
| | | |
| | | |
| | | |
| | |
EIT expense | |
$ | 1,016,439 | | |
$ | 659,994 | | |
$ | 381,828 | | |
$ | 446,037 | |
LAT expense | |
| 520,817 | | |
| 762,054 | | |
| 191,009 | | |
| 742,559 | |
Deferred tax expense/( benefit) - EIT | |
| 1,764,489 | | |
| (614,003 | ) | |
| 1,089,356 | | |
| 201,969 | |
| |
| | | |
| | | |
| | | |
| | |
| |
$ | 3,301,745 | | |
$ | 808,045 | | |
$ | 1,662,193 | | |
$ | 1,390,565 | |
A
reconciliation between taxes computed at the PRC statutory rate of 25% and the Company’s effective tax rate for the six
months ended June 30, 2015 and 2014 is as follows:
| |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
(Revised) | |
EIT at the PRC statutory rate of 25% | |
$ | 1,552,531 | | |
$ | (192,834 | ) |
LAT expense | |
| 520,817 | | |
| 762,054 | |
EIT benefit of LAT | |
| (130,204 | ) | |
| (190,514 | ) |
Change in Deferred tax valuation allowance | |
| 1,071,825 | | |
| 176,336 | |
Permanent items | |
| 286,776 | | |
| 253,003 | |
| |
| | | |
| | |
| |
$ | 3,301,745 | | |
$ | 808,045 | |
(2) Liability
for unrecognized tax benefit
A
reconciliation of the beginning and ending amount of liability associated with unrecognized tax benefit for the six months ended
June 30, 2015 and 2014 is as follows:
| |
Six Months Ended June 30, | |
| |
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 | |
| 47,565 | | |
| (46,430 | ) |
| |
| | | |
| | |
Unrecognized tax benefit, as of June 30 | |
$ | 6,547,931 | | |
$ | 6,495,932 | |
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 June 30, 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 assets /liabilities
The
tax effects of temporary differences that give rise to the following approximate deferred tax assets and liabilities as of June
30, 2015 and December 31, 2014 are presented below.
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Revised) | |
Deferred tax assets/liabilities | |
| | | |
| | |
Operating loss carry forward | |
$ | 4,884,130 | | |
$ | 4,892,926 | |
Excess of interest expense | |
| 4,809,420 | | |
| 3,929,488 | |
Revenue recognized based on percentage-of-completion | |
| 898,872 | | |
| 2,021,035 | |
Interest income from related parties | |
| (2,409,267 | ) | |
| (1,505,458 | ) |
Accrued expenses | |
| 388,718 | | |
| 298,033 | |
| |
| 8,571,873 | | |
| 9,636,024 | |
| |
| | | |
| | |
Valuation allowance | |
| (4,775,681 | ) | |
| (4,110,976 | ) |
| |
| | | |
| | |
Net deferred tax assets/liabilities | |
$ | 3,796,192 | | |
$ | 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 $12,123,521 as of June 30, 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 $5,881,175 as of June 30, 2015.
Note
17 – Other Taxes Payable
Other
taxes payable consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | | |
| | |
Business tax and related urban construction tax and education surcharge | |
$ | 185,119 | | |
$ | 2,060,115 | |
Land Appreciation Tax | |
| 48,307 | | |
| 203,048 | |
| |
| | | |
| | |
| |
$ | 233,426 | | |
$ | 2,263,163 | |
Note
18 – Loans Payable
Loans payable consisted of the following:
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | | |
| | |
Loans from Industrial and Commercial Bank of China, XingtaiYejin Branch (“ICBC 2013 Loans”) | |
| | | |
| | |
Original loan due January 30, 2015, maturity extended to March 30, 2016, at 9.84% per annum | |
| 11,131,483 | | |
| 11,050,621 | |
Original loan due May 30, 2015, maturity extended to December 30, 2015, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
Due September 30, 2015, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
Due January 30, 2016, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
Due May 30, 2016, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
| |
| 42,561,551 | | |
| 42,252,377 | |
Loans from Industrial and Commercial Bank of China, XingtaiYejin Branch (“ICBC 2012 Loans”) | |
| | | |
| | |
Due September 18, 2015, at 9.225% per annum | |
| 6,547,930 | | |
| 6,500,366 | |
Due May 19, 2015, at 9.225% per annum | |
| - | | |
| 4,875,274 | |
Due January 19, 2015, at 9.225% per annum | |
| - | | |
| 4,875,274 | |
| |
| 6,547,930 | | |
| 16,250,914 | |
Loans from HebeiXingtai Rural Commercial Bank | |
| | | |
| | |
Due April 24, 2015, at 12.56% per annum (“Credit Union 2014 Short-term loan”) | |
| - | | |
| 3,250,183 | |
Due May 8, 2015, at 12.036% per annum (“Syndicated Loans 2014”) | |
| - | | |
| 8,125,457 | |
Due July 24, 2015, at 11.46% per annum (“Zhongding Kirin 2014 Loan”) (note (b)) | |
| - | | |
| 7,514,241 | |
Due June 26, 2015, at 11.46% per annum (“Short-term 2014 Loan”) (note (a)) | |
| - | | |
| 3,250,183 | |
Due October 16, 2017, at 7.38% per annum (“Garden 2014 Loan”) | |
| 4,910,948 | | |
| 4,875,274 | |
Due November 12, 2015, at 15% per annum (“Entrust Loan 2014”) | |
| 1,933,277 | | |
| 1,919,233 | |
Due July 3, 2015, at 11.79% per annum (“Zhongding Kirin Loan 2014”) (note (b)) | |
| - | | |
| 4,875,274 | |
Due February 6, 2016, at 15% per annum (“Entrust Loan 2015”) | |
| 2,087,153 | | |
| - | |
Due February 8, 2017, at 7% per annum (“Syndicated Loans 2015”) | |
| 8,184,914 | | |
| - | |
Due April 21, 2016, at 15.46% per annum (“Credit Union 2015 Short-term loan”) | |
| 3,273,965 | | |
| - | |
Due May 14, 2016, at 13.01% per annum (“Garden 2015 Loan”) | |
| 2,946,569 | | |
| - | |
Due May 7, 2016, at 13.11% per annum (“HebeiZhongding Loans 2015”) | |
| 7,366,422 | | |
| - | |
Due June 10, 2016, at 13.01% per annum (“Zhongding Kirin Loan 2015”) | |
| 7,366,422 | | |
| - | |
| |
| 38,069,670 | | |
| 33,809,845 | |
| |
| | | |
| | |
| |
$ | 87,179,151 | | |
$ | 92,313,136 | |
Note
(a): The Company repaid this loan in May, 2015.
Note
(b): The Company repaid these loans in June, 2015.
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 Syndicated Loans 2014, Zhongding Kirin 2014 Loan,
Garden 2015 Loan, HebeiZhongding Loans 2015 and Zhongding Kirin Loan 2015. 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 2015 Short-term Loan was guaranteed by HebeiYoerma 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 June 30, 2015 and December 31,
2014, ICBC 2012 Loans, ICBC 2013 Loans, HebeiZhongding Loans 2015 and Zhongding Kirin Loan 2015 were secured by the Company’s
real estate held for development and land use right with carrying value of approximately $118,940,000 (unaudited) and $132,360,000,
respectively.
As
of June 30, 2015 and December 31, 2014, Garden 2014 Loan and Syndicated Loans 2015 were secured by land use right owned by Zhenjiang
Huaxia Kirin Real Estate Co.,Ltd with carry value of approximately $31,900,000 (unaudited) and $12,280,000, respectively. As of
June 30, 2015, Garden 2015 Loan was secured by HebeiYoerma’s Land use right and property right with carrying value of approximately
$6,330,000.
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 $1,933,000, “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 $2,087,000, “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 June 30, 2015 are as follows:
Twelve months Ending June 30 | |
Amount | |
| |
| |
2016 | |
$ | 74,083,289 | |
2017 | |
| 8,184,914 | |
2018 | |
| 4,910,948 | |
| |
| | |
Loans payable | |
$ | 87,179,151 | |
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 June 30, 2015 and December 31, 2014, as all related employees have terminated service with the Company, all unvested
shares will not be vested to related employees. The Company did not recognize of share-based compensation expense related to the
Restricted Stock Awards for the six months and three months ended June 30, 2015 and 2014, respectively.
Note
20 – Revenue
The
Company’s revenue is recognized under percentage-of-completion methods for the six months and three months ended June 30,
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 six months and three months ended June 30, 2015 and 2014 was as follows:
| |
Six Months Ended June 30, | | |
Three Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Kirin County | |
$ | 1,837 | | |
$ | 720,713 | | |
$ | 86,149 | | |
$ | 516,681 | |
No.79 Courtyard | |
| 20,050,513 | | |
| 12,704,071 | | |
| 9,339,551 | | |
| 11,738,045 | |
Kirin Bay | |
| 37,990,133 | | |
| 33,992,242 | | |
| 26,775,649 | | |
| 27,901,784 | |
Property Service | |
| 312,062 | | |
| 224,805 | | |
| 120,133 | | |
| 73,144 | |
| |
| | | |
| | | |
| | | |
| | |
| |
$ | 58,354,545 | | |
$ | 47,641,831 | | |
$ | 36,321,482 | | |
$ | 40,229,654 | |
Note
21 – Income(loss) per Share
Basic net income (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.
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, Newport Property Holding, LLC and Kirin Alamo, LLC. The non-controlling interests
in 2015 and 2014 are summarized as below:
| |
June 30, | | |
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, Newport Property Holding, LLC and Kirin Alamo that are not owned by the Company
are shown as “non-controlling interests” in the condensed consolidated balance sheets as of June 30, 2015 and December
31, 2014 and “net income (loss) attributable to non-controlling interests” in the condensed consolidated statements
of operations and comprehensive income (loss) for the six months and three months ended June 30, 2015 and 2014.
Note
23 – Related Party Transactions and Balances
(1)
Loan to related parties consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited) |
|
|
|
|
HuaxiaHuifeng Ventures Capital Management (Beijing) Co., Ltd (“HuaxiaHuifeng”, note(a)) |
|
|
|
|
|
|
|
|
Due October 14, 2015, at 18% per annum |
|
$ |
16,369,827 |
|
|
$ |
27,626,554 |
|
Due October 14, 2015, no interest |
|
|
2,128,078 |
|
|
|
4,532,380 |
|
|
|
|
18,497,905 |
|
|
|
32,158,934 |
|
|
|
|
|
|
|
|
|
|
Zhuolu Huada Real Estate Development Co., Ltd |
|
|
|
|
|
|
|
|
Originally loan due
August 5, 2015, maturity extended to August 5, 2016, at 20% per annum |
|
|
4,870,024 |
|
|
|
4,834,647 |
|
|
|
|
|
|
|
|
|
|
Zhenjiang Huaxia Kirin Real Estate Development Co., Ltd |
|
|
|
|
|
|
|
|
Due October 16. 2017, at 7.92% per annum |
|
|
4,910,948 |
|
|
|
4,875,274 |
|
Due February 8, 2017, at 8.90% per annum |
|
|
8,184,914 |
|
|
|
- |
|
Due December 31, 2015, at 15% per annum |
|
|
6,106,764 |
|
|
|
- |
|
|
|
|
19,202,626 |
|
|
|
4,875,274 |
|
|
|
|
|
|
|
|
|
|
Langfang Hualin Real Estate Development Co., Ltd |
|
|
|
|
|
|
|
|
Due February 9, 2016, at 15% per annum |
|
|
13,914 |
|
|
|
- |
|
Due March 18, 2016, at 15% per annum |
|
|
24,555 |
|
|
|
- |
|
Due May 13, 2016, at 15% per annum |
|
|
42,562 |
|
|
|
- |
|
Due July 9, 2016, at 15% per annum |
|
|
8,185 |
|
|
|
- |
|
|
|
|
89,216 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Huaxia Kirin (Beijing) Investment Co., Ltd |
|
|
|
|
|
|
|
|
Due December 31, 2016, at 18% per annum |
|
|
5,729,439 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Huaxia Brother (Beijing) Investment Management Co., Ltd |
|
|
|
|
|
|
|
|
Due December 31, 2016, at 18% per annum |
|
|
3,349,267 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Beijing Huaxia Kirin Investment Development Co., Ltd |
|
|
|
|
|
|
|
|
Due December 31, 2016, at 18% per annum |
|
|
2,432,556 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Interest income receivables |
|
|
9,631,063 |
|
|
|
6,484,246 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,802,096 |
|
|
$ |
48,353,101 |
|
Note (a): On February 11, 2015, the
Company received RMB 84,890,000 (approximately $13,660,000, at historical exchange rate) from HuaxiaHuifeng.
(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 June 30, 2015 and December 31, 2014, accumulated earned government grant of RMB160,000,000
and RMB160,000,000 ($26,191,723 and $26,001,463) was used to repay working capital provided by Jianfeng Guo for the support of
other real estate projects’ development. As of June 30, 2015, the Company had a remaining $1,138,567 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 June 30, 2015 and December 31, 2014 were as follows:
| |
June 30, | |
December 31, |
| |
2015 | |
2014 |
| |
(unaudited) | |
|
Gross of working capital received from affiliate companies and individuals designated by Jianfeng Guo | |
$ | (42,844,129 | ) | |
$ | (42,278,247 | ) |
Gross of working capital provided to affiliate companies and individuals designated by Jianfeng Guo | |
| 17,790,973 | | |
| 21,692,272 | |
Gross earned government grant held by a related party | |
| 26,191,723 | | |
| 26,001,463 | |
| |
| | | |
| | |
Receivable from a trust equity owner | |
$ | 1,138,567 | | |
$ | 5,415,488 | |
(4) Prepayment to related party
Please see Note 8 – Prepayments
(5) Loan related to related party
Please see Note 18 Credit Union 2014,
2015 Short-term Loan, Entrusted loan 2014 and 2015, Garden 2014 and 2015 Loan, Syndicated loans 2015.
(6) Balances with a related
party supplier
Please see Note 9 – Other
receivables and Note 14 – Other Payables and Accrued liabilities.
(7) Service fee
For six months ended June 30, 2015 and
2014, the Company recorded service fee with an amount of RMB 1,200,000 (approximately $196,000 ) and RMB 2,400,000 (approximately
$391,000), respectively. For three months ended June 30, 2015 and 2014, the Company recorded service fee with an amount of RMB
nil and RMB 1,200,000 (approximately $196,000), respectively. The service was received from affiliate companies designated by Jianfeng
Guo.
(8) Notes Receivable
Please see Note 6- Notes Receivable.
Note 24 – Contingencies and Commitments
As at June 30, 2015 and December 31,
2014, the Company provided $158,331,751 (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 event
On July 3, 2014, the Company received
RMB 27,000,000 (approximately $4,420,000) one-year term loan from Xingtai RC Bank with an annual effective interest rate of 13.99%.
Except this, no events have occurred subsequent to the balance-sheet date through filing date that would require adjustment to
or disclosure in the condensed consolidated financial statements.
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 six months and three months ended
June 30, 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.”
Overview
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, Hebei Province,
Liaoning Province and Shandong Province, and begin additional projects in the next three to five years.
We
focus on middle-income customers in tier-three cities and strive to offer affordable homes. We believe that we are able to keep
up with growth 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 June
30, 2015, we have the following projects under development:
| |
POC | | |
Construction beginning | |
Completion/ Estimated Completion |
Kirin County | |
| 100 | % | |
September 2011 | |
Late 2012 |
Kirin Plaza | |
| 86.4 | % | |
September 2011 | |
Late 2015 |
No.79 Courtyard (Phase I) | |
| 100 | % | |
September 2011 | |
Late 2014 |
No.79 Courtyard (Phase II) | |
| 92.4 | % | |
September 2012 | |
Mid-to-late 2015 |
No.79 Courtyard (Phase III) | |
| 93.2 | % | |
April 2013 | |
Mid-to-late 2015 |
No.79 Courtyard (Phase IV) | |
| 55.2 | % | |
July 2014 | |
Late 2017 |
Kirin Bay (Phase I) | |
| 99.4 | % | |
October 2011 | |
Late 2014 |
Kirin Bay (Phase II) | |
| 93.3 | % | |
March 2013 | |
Mid-to-late 2015 |
Kirin Bay ( Phase III) | |
| 69.4 | % | |
May 2013 | |
Mid-to-late 2016 |
Kirin Bay (Phase IV) | |
| 41.2 | % | |
April 2014 | |
Late 2016 |
Financial
Performance Highlights
The following
summarizes certain key financial information for the six months ended June 30, 2015.
● |
Total
revenue was $58.4 million for the six months ended June 30, 2015, an increase of $10.8 million, or 22.5%, from $47.6 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 $9.6 million for the six months ended June 30, 2015, an increase of 1.8 million, or 22.5%, from $7.8 million for
the same period of 2014. Gross margin ratio was 16.4% and 16.4% for the six months ended June 30, 2015 and 2014. |
|
|
● |
Net
income was $2.9 million for the six months ended June 30, 2015, an increase of $4.5 million, or approximately 284.1%, from
net loss of $1.6 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, 7.4% in 2014 and 7% in the first half year of 2015. 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, 2.0% in 2014
and 1.4% for the first half year of 2015. 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 six months ended June 30, 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
In
May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with
Customers”. For a public entity, the amendments are effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. Early application is not permitted. The amendments in ASU
2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into
contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g.
insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue
Recognition, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. The core
principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services.
In
August 2014, the FASB issued Accounting Standards Update (ASU) No.2014-15, “Presentation of Financial Statements-Going Concern”.
Effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December
15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously
been issued. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there
is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.
Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as
a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because
it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about
management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue
as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management,
with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly
provided by organizations today in the financial statement footnotes.
On
April, 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, entitled Simplifying the Presentation of Debt Issuance
Costs. The ASU amends the guidance in the FASB Accounting Standards Codification (FASB ASC) Topic 835, entitled Interest-Imputation
of Interest. The objective of the amendments in this Update is to require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts. Effective for public business entities for financial statements issued for fiscal years beginning after December
15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been
previously issued. The amendments in ASU 2015-03 are intended to simplify the presentation of debt issuance costs. These amendments
require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for
debt issuance costs are not affected by the amendments in this ASU.
The
Company is currently in the process of evaluation the impact of the adoption of ASU 2014-09, ASU 2014-15 and ASU 2015-03 on its
consolidated financial statements.
Results
of Operations
Comparison
of Six and Three Months Ended June 30, 2015 and 2014
| |
Six
Months Ended June 30, | | |
Three
Months Ended June 30, | |
| |
2015
(Unaudited) | | |
2014
(Unaudited) (Revised) | | |
2015
(Unaudited) | | |
2014
(Unaudited) (Revised) | |
| |
| | |
%
of Revenue | | |
| | |
%
of Revenue | | |
| | |
%
of Revenue | | |
| | |
%
of Revenue | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Revenue,
net | |
$ | 58,354,545 | | |
| 100 | % | |
$ | 47,641,831 | | |
| 100 | % | |
$ | 36,321,482 | | |
| 100 | % | |
$ | 40,229,654 | | |
| 100 | % |
Cost
of sales | |
| 48,757,579 | | |
| 83.6 | % | |
| 39,809,623 | | |
| 83.6 | % | |
| 28,986,384 | | |
| 79.8 | % | |
| 34,043,637 | | |
| 84.6 | % |
Gross
profit | |
| 9,596,966 | | |
| 16.4 | % | |
| 7,832,208 | | |
| 16.4 | % | |
| 7,335,098 | | |
| 20.2 | % | |
| 6,186,017 | | |
| 15.4 | % |
Selling
expenses | |
| 1,546,009 | | |
| 2.6 | % | |
| 1,665,126 | | |
| 3.5 | % | |
| 811,456 | | |
| 2.2 | % | |
| 885,298 | | |
| 2.2 | % |
General
and administrative expenses | |
| 3,448,810 | | |
| 5.9 | % | |
| 4,791,089 | | |
| 10.1 | % | |
| 1,566,797 | | |
| 4.3 | % | |
| 1,854,475 | | |
| 4.6 | % |
Income
from operations | |
| 4,602,147 | | |
| 7.9 | % | |
| 1,375,993 | | |
| 2.9 | % | |
| 4,956,845 | | |
| 13.6 | % | |
| 3,446,244 | | |
| 8.6 | % |
Investment
income (Loss) | |
| 786,806 | | |
| 1.3 | % | |
| 504,548 | | |
| 1.1 | % | |
| 120,834 | | |
| 0.3 | % | |
| (2,000 | ) | |
| 0.0 | % |
Interest
income | |
| 3,480,811 | | |
| 6.0 | % | |
| 2,469,723 | | |
| 5.2 | % | |
| 1,999,856 | | |
| 5.5 | % | |
| 1,236,816 | | |
| 3.1 | % |
Interest
expense | |
| (4,814,932 | ) | |
| -8.3 | % | |
| (5,292,851 | ) | |
| -11.1 | % | |
| (2,735,250 | ) | |
| -7.5 | % | |
| (2,580,985 | ) | |
| -6.4 | % |
Other
non-operating income (loss) | |
| 2,155,292 | | |
| 3.7 | % | |
| 171,251 | | |
| 0.4 | % | |
| 1,685,699 | | |
| 4.6 | % | |
| (39,860 | ) | |
| -0.1 | % |
Total
other income (expenses) | |
| 1,607,977 | | |
| 2.8 | % | |
| (2,147,329 | ) | |
| -4.5 | % | |
| 1,071,139 | | |
| 2.9 | % | |
| (1,386,029 | ) | |
| -3.4 | % |
Income
(loss) before income taxes expense | |
| 6,210,124 | | |
| 10.6 | % | |
| (771,336 | ) | |
| -1.6 | % | |
| 6,027,984 | | |
| 16.6 | % | |
| 2,060,215 | | |
| 5.1 | % |
Income
taxes expense | |
| 3,301,745 | | |
| 5.7 | % | |
| 808,045 | | |
| 1.7 | % | |
| 1,662,193 | | |
| 4.6 | % | |
| 1,390,565 | | |
| 3.5 | % |
Net
income (loss) | |
$ | 2,908,379 | | |
| 5.0 | % | |
$ | (1,579,381 | ) | |
| -3.3 | % | |
$ | 4,365,791 | | |
| 12.0 | % | |
$ | 669,650 | | |
| 1.7 | % |
Our
net income for the six months ended June 30, 2015 was $2.9 million, an increase of $4.5 million, from net loss of $1.6
million for the six months ended June 30, 2014. Net income increased because gross profit increased by $1.8
million, the other income increased by $3.8 million and the operating and administrative expense decreased by $1.5 million,
meanwhile income tax expense increased by $2.5 million for the six months ended June 30, 2015 as compared to the same period
of 2014.
Our net income for the three months ended
June 30, 2015 was $4.4 million, an increase of $3.7 million, from net income of $0.7 million for the three months ended June 30,
2014. Net income increase because in the three months ended June 30, 2015, the gross profit increased by $1.1 million, the other
income increased by $2.5 million, the operating and administrative expense decreased by $0.4 million, meanwhile income tax expense
increased by $0.3 million 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 made 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
| |
Six
Months Ended June 30, | | |
Three
Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
%
of Revenue | | |
| | |
%
of Revenue | | |
| | |
%
of Revenue | | |
| | |
%
of Revenue | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Revenue, net | |
$ | 58,354,545 | | |
| 100 | % | |
$ | 47,641,831 | | |
| 100 | % | |
$ | 36,321,482 | | |
| 100 | % | |
$ | 40,229,654 | | |
| 100 | % |
-No.79 Courtyard (Phase
I) | |
| 4,407,722 | | |
| 7.6 | % | |
| 1,233,400 | | |
| 2.6 | % | |
| 49,047 | | |
| 0.1 | % | |
| 1,129,915 | | |
| 2.8 | % |
-No.79 Courtyard (Phase
II) | |
| 1,745,267 | | |
| 3.0 | % | |
| 4,062,993 | | |
| 8.5 | % | |
| 980,551 | | |
| 2.7 | % | |
| 4,019,394 | | |
| 10.0 | % |
-No.79 Courtyard (Phase
III) | |
| 6,235,760 | | |
| 10.7 | % | |
| 7,407,678 | | |
| 15.5 | % | |
| 2,269,854 | | |
| 6.2 | % | |
| 6,588,736 | | |
| 16.4 | % |
-No.79 Courtyard (Phase
IV) | |
| 7,661,764 | | |
| 13.1 | % | |
| - | | |
| - | | |
| 6,040,099 | | |
| 16.6 | % | |
| - | | |
| - | |
-Kirin Bay (Phase I) | |
| 2,058,221 | | |
| 3.5 | % | |
| 9,315,855 | | |
| 19.6 | % | |
| 1,867,443 | | |
| 5.1 | % | |
| 7,686,051 | | |
| 19.1 | % |
-Kirin Bay (Phase II) | |
| 5,737,910 | | |
| 9.8 | % | |
| 10,297,884 | | |
| 21.6 | % | |
| 3,106,072 | | |
| 8.6 | % | |
| 8,442,688 | | |
| 21.0 | % |
-Kirin Bay (Phase III) | |
| 26,736,383 | | |
| 45.8 | % | |
| 13,099,974 | | |
| 27.5 | % | |
| 19,411,556 | | |
| 53.4 | % | |
| 10,494,516 | | |
| 26.1 | % |
-Kirin Bay (Phase IV) | |
| 3,457,619 | | |
| 5.9 | % | |
| 1,278,529 | | |
| 2.7 | % | |
| 2,390,578 | | |
| 6.6 | % | |
| 1,278,529 | | |
| 3.2 | % |
-Kirin County | |
| 1,837 | | |
| 0.1 | % | |
| 720,713 | | |
| 1.5 | % | |
| 86,149 | | |
| 0.2 | % | |
| 516,681 | | |
| 1.3 | % |
-Property Service | |
| 312,062 | | |
| 0.5 | % | |
| 224,805 | | |
| 0.5 | % | |
| 120,133 | | |
| 0.3 | % | |
| 73,144 | | |
| 0.2 | % |
Cost of sales | |
| 48,757,579 | | |
| 83.6 | % | |
| 39,809,623 | | |
| 83.6 | % | |
| 28,986,384 | | |
| 79.8 | % | |
| 34,043,637 | | |
| 84.6 | % |
-No.79 Courtyard (Phase
I) | |
| 4,125,165 | | |
| 7.1 | % | |
| 889,853 | | |
| 1.9 | % | |
| 15,560 | | |
| 0.0 | % | |
| 801,594 | | |
| 2.0 | % |
-No.79 Courtyard (Phase
II) | |
| 1,682,660 | | |
| 2.9 | % | |
| 4,112,603 | | |
| 8.6 | % | |
| 928,483 | | |
| 2.6 | % | |
| 4,089,983 | | |
| 10.2 | % |
-No.79 Courtyard (Phase
III) | |
| 4,354,855 | | |
| 7.5 | % | |
| 4,571,593 | | |
| 9.6 | % | |
| 1,344,971 | | |
| 3.7 | % | |
| 3,933,768 | | |
| 9.8 | % |
-No.79 Courtyard (Phase
IV) | |
| 6,302,243 | | |
| 10.8 | % | |
| - | | |
| - | | |
| 4,911,590 | | |
| 13.5 | % | |
| - | | |
| - | |
-Kirin Bay (Phase I) | |
| 1,789,669 | | |
| 3.1 | % | |
| 7,931,307 | | |
| 16.6 | % | |
| 1,463,158 | | |
| 4.0 | % | |
| 7,392,101 | | |
| 18.4 | % |
-Kirin Bay (Phase II) | |
| 5,537,272 | | |
| 9.5 | % | |
| 9,396,763 | | |
| 19.7 | % | |
| 2,630,473 | | |
| 7.2 | % | |
| 7,682,018 | | |
| 19.1 | % |
-Kirin Bay (Phase III) | |
| 21,349,677 | | |
| 36.6 | % | |
| 10,386,022 | | |
| 21.8 | % | |
| 15,413,960 | | |
| 42.4 | % | |
| 8,324,260 | | |
| 20.7 | % |
-Kirin Bay (Phase IV) | |
| 2,879,690 | | |
| 4.9 | % | |
| 1,140,090 | | |
| 2.4 | % | |
| 1,913,718 | | |
| 5.3 | % | |
| 1,140,090 | | |
| 2.8 | % |
-Kirin County | |
| 37,643 | | |
| 0.1 | % | |
| 1,112,658 | | |
| 2.3 | % | |
| 66,081 | | |
| 0.2 | % | |
| 535,121 | | |
| 1.3 | % |
-Property Service | |
| 698,705 | | |
| 1.2 | % | |
| 268,734 | | |
| 0.6 | % | |
| 298,390 | | |
| 0.8 | % | |
| 144,702 | | |
| 0.4 | % |
Gross profit | |
| 9,596,966 | | |
| 16.4 | % | |
| 7,832,208 | | |
| 16.4 | % | |
| 7,335,098 | | |
| 20.2 | % | |
| 6,186,017 | | |
| 15.4 | % |
-No.79 Courtyard (Phase
I) | |
| 282,557 | | |
| 0.5 | % | |
| 343,547 | | |
| 0.7 | % | |
| 33,487 | | |
| 0.1 | % | |
| 328,321 | | |
| 0.8 | % |
-No.79 Courtyard (Phase
II) | |
| 62,607 | | |
| 0.1 | % | |
| (49,610 | ) | |
| -0.1 | % | |
| 52,068 | | |
| 0.1 | % | |
| -70,589 | | |
| -0.2 | % |
-No.79 Courtyard (Phase
III) | |
| 1,880,905 | | |
| 3.2 | % | |
| 2,836,085 | | |
| 6.0 | % | |
| 924,883 | | |
| 2.5 | % | |
| 2,654,968 | | |
| 6.6 | % |
-No.79 Courtyard (Phase
IV) | |
| 1,359,521 | | |
| 2.3 | % | |
| - | | |
| - | | |
| 1,128,509 | | |
| 3.1 | % | |
| - | | |
| - | |
-Kirin Bay (Phase I) | |
| 268,552 | | |
| 0.5 | % | |
| 1,384,548 | | |
| 2.9 | % | |
| 404,285 | | |
| 1.1 | % | |
| 293,950 | | |
| 0.7 | % |
-Kirin Bay (Phase II) | |
| 200,638 | | |
| 0.3 | % | |
| 901,121 | | |
| 1.9 | % | |
| 475,599 | | |
| 1.3 | % | |
| 760,670 | | |
| 1.9 | % |
-Kirin Bay (Phase III) | |
| 5,386,706 | | |
| 9.2 | % | |
| 2,713,952 | | |
| 5.7 | % | |
| 3,997,596 | | |
| 11.0 | % | |
| 2,170,256 | | |
| 5.4 | % |
-Kirin Bay (Phase IV) | |
| 577,929 | | |
| 1.0 | % | |
| 138,439 | | |
| 0.3 | % | |
| 476,860 | | |
| 1.3 | % | |
| 138,439 | | |
| 0.3 | % |
-Kirin County | |
| (35,806 | ) | |
| -0.1 | % | |
| (391,945 | ) | |
| -0.8 | % | |
| 20,068 | | |
| 0.1 | % | |
| (18,440 | ) | |
| 0.0 | % |
-Property Service | |
| (386,643 | ) | |
| -0.7 | % | |
| (43,929 | ) | |
| -0.1 | % | |
| (178,257 | ) | |
| -0.5 | % | |
| (71,558 | ) | |
| -0.2 | % |
Profit margin | |
| 16.4 | % | |
| | | |
| 16.4 | % | |
| | | |
| 20.2 | % | |
| | | |
| 15.4 | % | |
| | |
-No.79 Courtyard (Phase
I) | |
| 6.4 | % | |
| | | |
| 27.9 | % | |
| | | |
| 68.3 | % | |
| | | |
| 29.1 | % | |
| | |
-No.79 Courtyard (Phase
II) | |
| 3.6 | % | |
| | | |
| -1.2 | % | |
| | | |
| 5.3 | % | |
| | | |
| -1.8 | % | |
| | |
-No.79 Courtyard (Phase
III) | |
| 30.2 | % | |
| | | |
| 38.3 | % | |
| | | |
| 40.7 | % | |
| | | |
| 40.3 | % | |
| | |
-No.79 Courtyard (Phase
IV) | |
| 17.7 | % | |
| | | |
| - | | |
| | | |
| 18.7 | % | |
| | | |
| - | | |
| | |
-Kirin Bay (Phase I) | |
| 13.0 | % | |
| | | |
| 14.9 | % | |
| | | |
| 21.6 | % | |
| | | |
| 3.8 | % | |
| | |
-Kirin Bay (Phase II) | |
| 3.5 | % | |
| | | |
| 8.8 | % | |
| | | |
| 15.3 | % | |
| | | |
| 9.0 | % | |
| | |
-Kirin Bay (Phase III) | |
| 20.1 | % | |
| | | |
| 20.7 | % | |
| | | |
| 20.6 | % | |
| | | |
| 20.7 | % | |
| | |
-Kirin Bay (Phase IV) | |
| 16.7 | % | |
| | | |
| 10.8 | % | |
| | | |
| 19.9 | % | |
| | | |
| 10.8 | % | |
| | |
-Kirin County | |
| -1949.2 | % | |
| | | |
| -54.4 | % | |
| | | |
| 23.3 | % | |
| | | |
| -3.6 | % | |
| | |
-Property Service | |
| -123.9 | % | |
| | | |
| -19.5 | % | |
| | | |
| -148.4 | % | |
| | | |
| -97.8 | % | |
| | |
Revenue,
net. Real estate sales represent revenue from the pre-sale of properties under development. For the six months
and three months ended June 30, 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 six months ended June 30, 2015 was $58.4 million, an increase of $10.8 million, or approximately 22.5%,
compared to $47.6 million for the same period of 2014. The revenue increased because of the sales of new phases:
revenue from Phase IV of No. 79 Courtyard is $7.7 million in the first half year of 2015, while nil in the first half year of
2014, revenue from Phase III and Phase IV of Kirin Bay is $30.2 million in the first half year of 2015, increased by $15.8 as
compared with $14.4 million in the first half year 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, $1.7 million,
$6.2 million, $7.7 million, $2.1 million, $5.7 million, $26.7 million and $3.5 million respectively, representing 7.6%, 3.0%,
10.7%, 13.1%, 3.5%, 9.8%, 45.8% and 5.9% of total revenue earned in the six months ended June 30, 2015. For the six months ended
June 30, 2015, revenue of property service increased by $0.1 million as compared with the same period of 2014.
Our
revenue from the pre-sale of real estate properties for the three months ended June 30, 2015 was $36.3 million, a decrease of
$3.9 million, or approximately 9.7%, compared to $40.2 million for the same period of year 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 $0.1 million, $1.0 million, $2.3 million, $6.0 million,
$1.9 million, $3.1 million, $19.4 million and $2.4 million respectively, representing 0.1%, 2.7%, 6.2%, 16.6%, 5.1%, 8.6%, 53.4%
and 6.6% of total revenue earned in the three months ended June 30, 2015.
The
following tables set forth the percentage-of-completion (POC) by project for the period ended June 30, 2015 and 2014 and year
ended December 31, 2014 and 2013:
| |
As at June 30, 2015 | | |
As at December 31, 2014 | | |
As at June 30, 2014 | | |
As at December 31, 2013 | |
No.79 Courtyard Phase I | |
| 100 | % | |
| 96.1 | % | |
| 95.4 | % | |
| 95.3 | % |
No.79 Courtyard Phase II | |
| 92.4 | % | |
| 88.0 | % | |
| 70.2 | % | |
| 59.1 | % |
No.79 Courtyard Phase III | |
| 93.2 | % | |
| 86.3 | % | |
| 62.9 | % | |
| 53.6 | % |
No.79 Courtyard Phase IV | |
| 55.2 | % | |
| 44.9 | % | |
| - | | |
| - | |
Kirin Bay Phase I | |
| 99.4 | % | |
| 98.3 | % | |
| 92.6 | % | |
| 85.0 | % |
Kirin Bay Phase II | |
| 93.3 | % | |
| 88.7 | % | |
| 74.1 | % | |
| 61.0 | % |
Kirin Bay Phase III | |
| 69.4 | % | |
| 55.4 | % | |
| 40.2 | % | |
| 35.9 | % |
Kirin Bay Phase IV | |
| 41.2 | % | |
| 22.9 | % | |
| 9.9 | % | |
| - | |
Kirin County | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
| 100 | % |
Kirin Plaza | |
| 86.4 | % | |
| 85.8 | % | |
| 83.7 | % | |
| 82.9 | % |
Kirin
Bay is a four-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.
For
Kirin Bay Project, we have obtained the land use right pursuant to our participation in the Kong Village Relocation
Program.
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, Phase III
and Phase IV) and Kirin Bay (Phase I, Phase II, Phase III and Phase IV). 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 June 30, 2015 | | |
Cumulative Customer deposits collected as of June 30, 2015 | | |
Contract value of pre-sale for the six months ended June 30, 2015 | | |
Customer deposits collected for the six months ended June 30, 2015 | |
No.79 Courtyard Phase I | |
$ | 128,252 | | |
| 133,263 | | |
| 72 | | |
| 254 | |
No.79 Courtyard Phase II | |
| 37,996 | | |
| 38,535 | | |
| 234 | | |
| 444 | |
No.79 Courtyard Phase III | |
| 59,897 | | |
| 56,665 | | |
| 3,383 | | |
| 7,327 | |
No.79 Courtyard Phase IV | |
| 35,459 | | |
| 32,302 | | |
| 9,850 | | |
| 12,611 | |
Kirin Bay Phase I | |
| 94,037 | | |
| 95,210 | | |
| 1,424 | | |
| 941 | |
Kirin Bay Phase II | |
| 72,472 | | |
| 72,910 | | |
| 2,479 | | |
| 3,029 | |
Kirin Bay Phase III | |
| 107,507 | | |
| 101,506 | | |
| 25,004 | | |
| 22,383 | |
Kirin Bay Phase IV | |
| 19,286 | | |
| 18,532 | | |
| 4,007 | | |
| 3,711 | |
Kirin County (including Kirin Plaza) | |
| 108,085 | | |
| 117,098 | | |
| -72 | | |
| -258 | |
Cost Cost
of real estate sales consist of land use rights costs, construction and installation costs. Our costs of real estate sales
for the six months ended June 30, 2015 were $48.8 million, an increase of $9.0 million, or 22.5 %, compared to $39.8 million
for the same period of 2014. Our costs of real estate sales for the three months ended June 30, 2015 were $29.0
million, a decrease of $5.0 million, or approximately 14.9%, compared to $34.0 million for the same period of year 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 $9.6 million for the six months ended June 30, 2015 (gross profit ratio:
16.4 %), increased by $1.8 million as compared to gross profit of $7.8 million (gross profit ratio: 16.4%) for the six months
ended June 30, 2014.
Gross profit for the three months ended June
30, 2015 was $7.3 million (gross profit ratio: 20.2%), increased by $1.1 million as compared with gross profit of $6.2 million
(gross profit ratio: 15.4%) for the same period of year 2014, due to the higher gross margin ratio of the commercial units of
Kirin Bay Phase III and No.79 Courtyard Phase III
The
following tables set forth the aggregate Gross Floor Area (GFA) and the percentage-of-completion (POC) and Contract sold by project
for the six months ended June 30, 2015 and 2014:
| |
Total | | |
POC cumulative
accomplished
for the
six months
ended
June 30, | | |
Contract value of units sold for the six months ended June 30, | | |
Revenue recognized for the six months ended June 30, | |
| |
GFA | | |
2015 | | |
2014 | | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
No.79 Courtyard (Phase I) | |
| 130,096 | | |
| 100 | % | |
| 95.4 | % | |
$ | 71,843 | | |
$ | 1,241,795 | | |
$ | 4,407,722 | | |
$ | 1,233,400 | |
No.79 Courtyard (Phase II) | |
| 45,122 | | |
| 92.4 | % | |
| 70.2 | % | |
| 234,404 | | |
| 289,274 | | |
| 1,745,267 | | |
| 4,062,993 | |
No.79 Courtyard (Phase III) | |
| 47,960 | | |
| 93.2 | % | |
| 62.9 | % | |
| 3,383,441 | | |
| 5,728,422 | | |
| 6,235,760 | | |
| 7,407,678 | |
No.79 Courtyard (Phase IV) | |
| 40,767 | | |
| 55.2 | % | |
| - | | |
| 9,850,060 | | |
| - | | |
| 7,661,764 | | |
| - | |
Kirin Bay (Phase I) | |
| 163,607 | | |
| 99.4 | % | |
| 92.6 | % | |
| 1,423,825 | | |
| 3,842,813 | | |
| 2,058,221 | | |
| 9,315,855 | |
Kirin Bay (Phase II) | |
| 92,043 | | |
| 93.3 | % | |
| 74.1 | % | |
| 2,479,368 | | |
| 5,576,264 | | |
| 5,737,910 | | |
| 10,297,884 | |
Kirin Bay (Phase III) | |
| 130,734 | | |
| 69.4 | % | |
| 40.2 | % | |
| 25,003,702 | | |
| 24,063,303 | | |
| 26,736,383 | | |
| 13,099,974 | |
Kirin Bay (Phase IV) | |
| 31,496 | | |
| 41.2 | % | |
| 9.9 | % | |
| 4,007,243 | | |
| 12,901,598 | | |
| 3,457,619 | | |
| 1,278,529 | |
Kirin County | |
| 183,314 | | |
| 98.5 | % | |
| 98.3 | % | |
| (72,293 | ) | |
| 797,371 | | |
| 1,837 | | |
$ | 720,713 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| 865,139 | | |
| | | |
| | | |
$ | 46,381,593 | | |
$ | 54,440,840 | | |
$ | 58,042,483 | | |
$ | 47,417,026 | |
The
following tables set forth the consolidated square meters sold and average selling price per square meter by each project for
the six months ended June 30, 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 | |
$ | - | | |
| - | | |
$ | - | | |
$ | 822,694 | | |
| 545 | | |
$ | 1,510 | |
-commercial | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
-garage | |
| 71,843 | | |
| 145 | | |
| 495 | | |
| 419,101 | | |
| 657 | | |
| 638 | |
No.79 Courtyard Phase II | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-One elevator and four suites | |
| - | | |
| - | | |
| - | | |
| 184,133 | | |
| 143 | | |
| 1,288 | |
-Parking lots | |
| 234,404 | | |
| 156 | | |
| 1,503 | | |
| 105,141 | | |
| 72 | | |
| 1,460 | |
No.79 Courtyard Phase III | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 2,742,335 | | |
| 2,414 | | |
| 1,136 | | |
| 4,946,171 | | |
| 3,458 | | |
| 1,430 | |
-commercial | |
| 532,672 | | |
| 216 | | |
| 2,466 | | |
| 474,363 | | |
| 123 | | |
| 3,857 | |
-garage | |
| 108,434 | | |
| 151 | | |
| 718 | | |
| 307,888 | | |
| 281 | | |
| 1,096 | |
No.79 Courtyard Phase IV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 9,850,060 | | |
| 7,558 | | |
| 1,303 | | |
| - | | |
| - | | |
| - | |
Kirin Bay Phase I | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 418,373 | | |
| 429 | | |
| 975 | | |
| 701,220 | | |
| 742 | | |
| 945 | |
-commercial | |
| 947,944 | | |
| 282 | | |
| 3,362 | | |
| 1,388,353 | | |
| 500 | | |
| 2,777 | |
-garage | |
| 57,508 | | |
| 70 | | |
| 822 | | |
| 1,753,240 | | |
| 3,101 | | |
| 565 | |
Kirin Bay Phase II | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 2,115,597 | | |
| 1,936 | | |
| 1,093 | | |
| 5,228,198 | | |
| 4,180 | | |
| 1,251 | |
-garage | |
| 363,771 | | |
| 952 | | |
| 382 | | |
| 348,066 | | |
| 557 | | |
| 625 | |
Kirin Bay Phase III | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 24,577,542 | | |
| 27,408 | | |
| 897 | | |
| 23,369,411 | | |
| 25,994 | | |
| 899 | |
-garage | |
| 426,160 | | |
| 571 | | |
| 746 | | |
| 693,892 | | |
| 951 | | |
| 730 | |
Kirin Bay Phase IV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 3,926,530 | | |
| 4,423 | | |
| 888 | | |
| 12,901,598 | | |
| 14,657 | | |
| 880 | |
-garage | |
| 80,713 | | |
| 147 | | |
| 549 | | |
| - | | |
| - | | |
| - | |
Kirin County | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
-commercial | |
| (145,052 | ) | |
| 195 | | |
| (744 | ) | |
| 632,563 | | |
| 794 | | |
| 797 | |
-garage | |
| 72,759 | | |
| 319 | | |
| 228 | | |
| 164,808 | | |
| 738 | | |
| 223 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 46,381,593 | | |
| 47,372 | | |
$ | 979 | | |
$ | 54,440,840 | | |
| 57,493 | | |
$ | 947 | |
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 June 30, 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 | |
$ | - | | |
| - | | |
$ | - | | |
$ | 819,786 | | |
| 545 | | |
$ | 1,504 | |
-commercial | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
-garage | |
| 39,807 | | |
| 29 | | |
| 1,373 | | |
| 286,745 | | |
| 339 | | |
| 848 | |
No.79 Courtyard Phase II | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-One elevator and four suites | |
| - | | |
| - | | |
| - | | |
| 183,716 | | |
| 143 | | |
| 1,285 | |
-Parking lots | |
| 207,095 | | |
| 156 | | |
| 1,328 | | |
| - | | |
| - | | |
| - | |
No.79 Courtyard Phase III | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 375,812 | | |
| 880 | | |
| 427 | | |
| 3,467,427 | | |
| 2,240 | | |
| 1,548 | |
-commercial | |
| 1,152,190 | | |
| 353 | | |
| 3,264 | | |
| 329,554 | | |
| 89 | | |
| 3,703 | |
-garage | |
| 50,349 | | |
| 108 | | |
| 466 | | |
| 96,249 | | |
| 86 | | |
| 1,119 | |
No.79 Courtyard Phase IV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 6,001,990 | | |
| 4,510 | | |
| 1,331 | | |
| - | | |
| - | | |
| - | |
Kirin Bay Phase I | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 425,386 | | |
| 429 | | |
| 992 | | |
| 357,204 | | |
| 380 | | |
| 940 | |
-commercial | |
| 947,944 | | |
| 282 | | |
| 3,362 | | |
| 1,388,353 | | |
| 500 | | |
| 2,777 | |
-garage | |
| 6,086 | | |
| (24 | ) | |
| (254 | ) | |
| 292,269 | | |
| 553 | | |
| 529 | |
Kirin Bay Phase II | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 285,625 | | |
| 264 | | |
| 1,082 | | |
| 3,348,954 | | |
| 2,857 | | |
| 1,172 | |
-garage | |
| 187,213 | | |
| 584 | | |
| 321 | | |
| 237,255 | | |
| 372 | | |
| 638 | |
Kirin Bay Phase III | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 11,404,231 | | |
| 12,644 | | |
| 902 | | |
| 18,955,468 | | |
| 21,180 | | |
| 895 | |
-garage | |
| 143,138 | | |
| 190 | | |
| 753 | | |
| 371,125 | | |
| 516 | | |
| 719 | |
Kirin Bay Phase IV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| 1,223,722 | | |
| 1,379 | | |
| 887 | | |
| 12,901,598 | | |
| 14,657 | | |
| 880 | |
-garage | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Kirin County | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-residential | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
-commercial | |
| - | | |
| - | | |
| - | | |
| 529,591 | | |
| 678 | | |
| 781 | |
-garage | |
| 40,926 | | |
| 175 | | |
| 234 | | |
| 49,995 | | |
| 254 | | |
| 197 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 22,491,514 | | |
| 21,959 | | |
$ | 1,024 | | |
$ | 43,615,289 | | |
| 45,389 | | |
$ | 961 | |
(1) |
This
column reflects the aggregate amount of all contracts entered into during 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 six months ended June 30, 2015 were $5.0 million, a decrease of $1.5 million, or
22.6%, from $6.5 million for the six months ended June 30, 2014. The decrease was because our overall operating expenses in
staff salaries decreased by $0.3 million, advertising expenses decreased by $0.2 million and professional fee decreased by
$0.8 million for the six months ended June 30, 2015 as compared to the same period of 2014.
Operating
expenses for the three months ended June 30, 2015 were $2.4 million, a decrease of $0.3 million, or 13.2%, from $2.7 million for
the three months ended June 30, 2014.
| |
Six Months Ended June 30, | | |
Three Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
% of Expenses | | |
| | |
% of Expenses | | |
| | |
% of Expenses | | |
| | |
% of Expenses | |
Operating expenses | |
$ | 4,994,819 | | |
| 100 | % | |
$ | 6,456,215 | | |
| 100 | % | |
$ | 2,378,253 | | |
| 100 | % | |
$ | 2,739,773 | | |
| 100 | % |
Selling expenses | |
| 1,546,009 | | |
| 31.0 | % | |
| 1,665,126 | | |
| 25.8 | % | |
| 811,456 | | |
| 34.1 | % | |
| 885,298 | | |
| 32.3 | % |
Advertising expense | |
| 760,138 | | |
| 15.2 | % | |
| 997,724 | | |
| 15.5 | % | |
| 459,214 | | |
| 19.3 | % | |
| 517,761 | | |
| 18.9 | % |
Staff salaries | |
| 352,279 | | |
| 7.1 | % | |
| 218,659 | | |
| 3.4 | % | |
| 160,854 | | |
| 6.8 | % | |
| 136,880 | | |
| 5.0 | % |
Office and Administrative expenses | |
| 433,592 | | |
| 8.7 | % | |
| 448,743 | | |
| 7.0 | % | |
| 191,388 | | |
| 8.0 | % | |
| 230,657 | | |
| 8.4 | % |
General and administrative expenses | |
| 3,448,810 | | |
| 69.0 | % | |
| 4,791,089 | | |
| 74.2 | % | |
| 1,566,797 | | |
| 65.9 | % | |
| 1,854,475 | | |
| 67.7 | % |
Staff salaries | |
| 1,279,780 | | |
| 25.6 | % | |
| 1,740,919 | | |
| 27.0 | % | |
| 687,379 | | |
| 28.9 | % | |
| 770,005 | | |
| 28.1 | % |
Professional expenses | |
| 916,120 | | |
| 18.3 | % | |
| 1,720,795 | | |
| 26.7 | % | |
| 341,122 | | |
| 14.3 | % | |
| 499,279 | | |
| 18.2 | % |
Office and Administrative expenses | |
| 1,252,910 | | |
| 25.1 | % | |
| 1,329,375 | | |
| 20.6 | % | |
| 538,296 | | |
| 22.6 | % | |
| 585,191 | | |
| 21.4 | % |
● |
Advertising
Expenses. Our advertising expenses decreased from $1.0 million for the six months ended June 30, 2014 to $0.8 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 much additional advertising fee spent on promoting projects. |
● |
Professional
and related Expense. Our professional expense decreased from $1.7 million for the six months ended June 30, 2014
to $0.9 million for the six months ended June 30, 2015. The decrease was due to service fee of related party decreased by
$0.9 million. |
|
|
● |
Staff
salaries. Our staff salaries decreased from $2.0 million for the six months ended June 30, 2015 to $1.6 million for
the six months ended June 30, 2015 as a result of staff number decrease. |
Interest Expense, net. Our
net interest expense was $1.3 million for the six months ended June 30, 2015, a decrease of $1.5 million, or 52.7%, from $2.8 million
for the same period of 2014. The decrease was due to: 1) the interest expense for the six months ended June 30, 2015
decreased from $5.3 million for the same period of 2014 to $4.8 million, decreased by $0.5 million, the company repaid more loan
to financial institution in the first half year of 2015. 2) the Company recognizes interest income from loans to related parties,
which was $3.5 million for the six months ended June 30, 2015, increased by $1.0 million as compared to $2.5 million interest income
for the six months ended June 30, 2014.
Our
net interest expense was $0.7 million and $1.3 million for the three months ended June 30, 2015 and 2014. The decrease was
due to the company recognized interest income from loans to related parties, which was $2.0 million for the three months ended
June 30, 2015, increased by $ 0.8 million as compared to $1.2 million interest income for the three months ended June 30, 2014.
Other
non - operating income (loss). Other Non-operating income was $2.2 million for the six months ended June 30, 2015, an
increase of $2.0 million, or 1158.6%, from $0.2 million for the same period of 2014. Other non-operating income was the gain
from the disposal of building units and land, according to the full accrual method, the Company recognized the
gain from land sales of $1.7 million in the first half year of 2015.
Income Taxes. Income taxes
expense for the six months ended June 30, 2015 totaled $3.3 million, an increase of $2.5 million or 308.6% from income taxes expense
of $0.8 million for the six months ended June 30, 2014. Income taxes increased because: 1) Deferred tax expense increased by $2.4
million mainly due to deferred tax liabilities arose from interest income and revenue recognition; 2) Current income tax expense
increased by $0.4 million, meanwhile LAT expense decreased by $0.2 million as compare for the same period of 2014. Income taxes
expense for the three months ended June 30, 2015 totaled $1.7 million, an increase of $0.3 million from income taxes expense of
$1.4 million for the three months ended June 30, 2014.
Net
Income (Loss). Net income for the six months ended June 30, 2015 was $2.9 million, compared to net loss of
$1.6 million for the six months ended June 30, 2014, there was an increase of $4.5 million or 284.1%. Net income increased
because gross profit increased by $1.8 million, other income increased by $3.8 million and the operating and administrative
expense decreased $1.5 million, meanwhile income tax expense increased $2.5 million for the six months ended June 30, 2015 as
compared with the same period of 2014.
Our net income for the three months
ended June 30, 2015 was $4.4 million, an increase of $3.7 million, from net income of $0.7 million for the three months ended
June 30, 2014. Net income increased due to the gross profit increased by $1.1 million, other income increased by $2.5 million,
the operating and administrative expenses decreased by $0.4 million, meanwhile, income tax increased by $0.3 million, as compared
with the same period ended June 30, 2014.
Liquidity
and Capital Resources
The following
table sets forth a summary of our cash flows for the periods indicated:
| |
Six Months Ended June 30, |
| |
2015 (Unaudited) | |
2014 (Unaudited) |
Net cash provided by (used in) operating activities | |
$ | 3,386,989 | | |
$ | (15,179,240 | ) |
Net cash provided by (used in) investing activities | |
| (12,036,793 | ) | |
| 9,843,386 | |
Cash flows provided by (used in) financing activities | |
| (2,994,564 | ) | |
| 2,929,635 | |
Effect of exchange rate changes on cash and cash equivalent | |
| 122,259 | | |
| (282,048 | ) |
Net decrease in cash and cash equivalents | |
| (11,522,109 | ) | |
| (2,688,267 | ) |
Cash and cash equivalents - beginning of period | |
| 22,004,479 | | |
| 23,407,551 | |
Cash and cash equivalents - end of period | |
| 10,482,370 | | |
| 20,719,284 | |
We
had a balance of cash and cash equivalents of $10.5 million as of June 30, 2015 compared with a balance $20.7 million as of June
30, 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 inflow provided by operating activities was $3.4 million for the six months ended June 30, 2015, compared to net cash
outflow used in operating activities of $15.2 million for the six months ended June 30, 2014, an increase of $18.6 million. The
increase in net cash inflows provided by operating activities was primarily due to the following:
● |
We
had $2.9 net income in the six months ended June 30, 2015. In the same period of 2014, we had net loss of $1.6 million,
which led to a $4.5 million increase in net cash inflow from operating activities. |
|
|
● |
We
had $20.6 million cash inflow from real estate property completed and real estate property
under development (combination of accounts payable) for the six months ended June 30, 2015. In the same period of 2014, we
invested $2.0 million on our projects, this accounted for $22.6 million increase in the net cash inflow from operating activities; |
|
|
● |
Changes
in customer deposit provided $12.3 million cash outflow for the six months ended June 30, 2015. In the same period of 2014,
changes in customer deposit contributed $3.7 million cash inflow, which led to a $16.0 million increase in the net cash outflow
from operating activities. |
|
|
● |
Changes
in prepayments provided $7.1 million cash inflow for the six months ended June 30, 2015. In the same period of 2014, changes
in prepayments contributed $3.2 million cash outflow, which led to a $10.3 million increase in the net cash inflow from operating
activities. |
|
|
● |
Changes
in receivable from a trust equity owner provided $4.4 million cash inflow for the six months ended June 30, 2015. In the same
period of 2014, changes in receivable from a trust equity owner contributed $1.4 million cash inflow,
which led to a $3.0 million increase in the net cash inflow from operating activities. |
|
|
●
|
Changes
in other receivable provided $6.3 million cash outflow for the six months ended June 30, 2015. In the same period
of 2014, changes in other receivable contributed $24.2 million cash outflow, which led to a $17.9 million decrease in net
cash outflow from operating activities. |
|
|
●
|
Revenue
in excess of billing and Accounts receivable provided $2.2 million cash inflow for the six months ended June 30, 2015. In
the same period of 2014, Revenue in excess of billing and Account receivable contributed $3.6 million cash inflow, which led
to a $1.4 million decrease in the net cash inflow from operating activities. |
|
|
● |
Changes
in other payable provided $2.5 million cash outflow for the six months ended June 30, 2015. In the same period
of 2014, changes in other payable contributed $5.7 million cash inflow, which led to an $8.2 million increase 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 six months ended June
30, 2015. In the same period of 2014, changes in tax payable contributed $0.2 million cash outflow, which led to
a $1.9 million increase in the net cash outflow from operating activities. |
|
|
● |
Change
in restricted cash provided $10.3 million cash outflow for the six months ended June 30, 2015, compared to restricted cash
generated $1.5 million cash inflow in the same period of 2014, which led to $11.8 million increase in net cash outflow. |
Investing Activities. Net
cash outflow used in investing activities was $12.0 million for the six months ended June 30, 2015, compared to net cash inflow
of $9.8 million provided by investing activities for the six months ended June 30, 2014, represented an increase of $21.8 million
in the net cash outflow from investing activities. The Company loans repaid from related parties increased by $2.0 million, meanwhile,
loans paid to related party increased by $26.8 million in the first half year of 2015 as compared with the same period of 2014.
Financing Activities.
Net cash outflow used in financing activities was $3.0 million for the six months ended June 30, 2015, compared to $2.9 million
cash inflows provided by financing activities for the six months ended June 30, 2014, an increase of cash outflows of $5.9 million.
This was mainly due to an increase of repayment of financial institution loan of $10.6 million in the first half year of 2015
as compared with the same period of 2014, meanwhile, an increase of $1.8 million of financial institution loan received in the
first half year of 2015 as compared with same period of 2014 and the Company received $2.8 million cash inflow from note payable
in the first half year of 2015.
Contractual
Obligations
Long-term
debt obligations, costs of land use rights and non-cancellable construction contract obligations for the six months ended of June
30, 2015
| |
Payments due by period | |
| |
| | |
less than | | |
1-3 | |
in thousands of US Dollars | |
Total | | |
1 year | | |
years | |
Loans payable | |
$ | 87,179 | | |
$ | 74,083 | | |
$ | 13,096 | |
Costs of land use rights | |
| 3,832 | | |
| 3,832 | | |
| - | |
Non-cancellable construction contract obligations | |
| 122,736 | | |
| 122,736 | | |
| - | |
| |
| | | |
| | | |
| | |
Total | |
| 213,747 | | |
| 200,651 | | |
| 13,096 | |
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 June 30, 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 $122.7 million.
Material
Financial Obligations
Loans
Payable
As of June
30, 2015 our total loan balance was $87.2 million.
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Loans from Industrial and Commercial Bank of China, XingtaiYejin Branch (“ICBC 2013 Loans”) | |
| | |
| |
Original loan due January 30, 2015, maturity extended to March 30, 2016, at 9.84% per annum | |
| 11,131,483 | | |
| 11,050,621 | |
Original loan due May 30, 2015, maturity extended to December 30, 2015, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
Due September 30, 2015, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
Due January 30, 2016, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
Due May 30, 2016, at 9.84% per annum | |
| 7,857,517 | | |
| 7,800,439 | |
| |
| 42,561,551 | | |
| 42,252,377 | |
Loans from Industrial and Commercial Bank of China, XingtaiYejin Branch (“ICBC 2012 Loans”) | |
| | | |
| | |
Due September 18, 2015, at 9.225% per annum | |
| 6,547,930 | | |
| 6,500,366 | |
Due May 19, 2015, at 9.225% per annum | |
| - | | |
| 4,875,274 | |
Due January 19, 2015, at 9.225% per annum | |
| - | | |
| 4,875,274 | |
| |
| 6,547,930 | | |
| 16,250,914 | |
Loans from HebeiXingtai Rural Commercial Bank | |
| | | |
| | |
Due April 24, 2015, at 12.56% per annum (“Credit Union 2014 Short-term loan”) | |
| - | | |
| 3,250,183 | |
Due May 8, 2015, at 12.036% per annum (“Syndicated Loans 2014”) | |
| - | | |
| 8,125,457 | |
Due July 24, 2015, at 11.46% per annum (“Zhongding Kirin 2014 Loan”) (note (b)) | |
| - | | |
| 7,514,241 | |
Due June 26, 2015, at 11.46% per annum (“Short-term 2014 Loan”) (note (a)) | |
| - | | |
| 3,250,183 | |
Due October 16, 2017, at 7.38% per annum (“Garden 2014 Loan”) | |
| 4,910,948 | | |
| 4,875,274 | |
Due November 12, 2015, at 15.00% per annum (“Entrust Loan 2014”) | |
| 1,933,277 | | |
| 1,919,233 | |
Due July 3, 2015, at 11.79% per annum (“Zhongding Kirin Loan 2014”) (note (b)) | |
| - | | |
| 4,875,274 | |
Due February 6, 2016, at 15% per annum (“Entrust Loan 2015”) | |
| 2,087,153 | | |
| - | |
Due February 8, 2017, at 7% per annum (“Syndicated Loans 2015”) | |
| 8,184,914 | | |
| - | |
Due April 22, 2015, at 15.46% per annum (“Credit Union 2015 Short-term loan”) | |
| 3,273,965 | | |
| - | |
Due May 14, 2016, at 13.01% per annum (“Garden 2015 Loan”) | |
| 2,946,569 | | |
| - | |
Due May 7, 2016, at 13.11% per annum (“HebeiZhongding Loans
2015”) | |
| 7,366,422 | | |
| - | |
Due June 10, 2016, at 13.01% per annum (“Zhongding Kirin Loan 2015”) | |
| 7,366,422 | | |
| - | |
| |
| 38,069,670 | | |
| 33,809,845 | |
| |
| | | |
| | |
| |
$ | 87,179,151 | | |
$ | 92,313,136 | |
Note (a):
The Company repaid this loan in May, 2015.
Note (b):
The Company repaid these loans in June, 2015.
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 Syndicated Loans 2014, Zhongding Kirin 2014 Loan,
Garden 2015 Loan, HebeiZhongding Loans 2015 and Zhongding Kirin Loan 2015. 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 2015 Short-term Loan was guaranteed by HebeiYoerma 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 June 30, 2015 and December 31, 2014, ICBC 2012 Loans, ICBC 2013 Loans, HebeiZhongding Loans 2015 and Zhongding Kirin Loan 2015
were secured by the Company’s real estate held for development and land use right with carrying value of approximately $118,940,000
(unaudited) and $87,030,000, respectively.
As
of June 30, 2015 and December 31, 2014, Garden 2014 Loan and Syndicated Loans 2015 were secured by land use right owned by Zhenjiang
Huaxia Kirin Real Estate Co., Ltd with carry value of approximately $31,900,000 (unaudited) and $12,280,000, respectively. Garden
2015 Loan was secured by HebeiYoerma’s land use right and property right with carrying value of $6,330,000.
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 $1,933,000, “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 $2,087,000, “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:
|
|
June
30, |
|
|
December
31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited) |
|
|
|
|
HuaxiaHuifeng Ventures Capital Management
(Beijing) Co., Ltd(note(a)) |
|
|
|
|
|
|
|
|
Due October
14, 2015, at 18% per annum |
|
$ |
16,369,827 |
|
|
$ |
27,626,554 |
|
Due October 14, 2015,
no interest |
|
|
2,128,078 |
|
|
|
4,532,380 |
|
|
|
|
18,497,905 |
|
|
|
32,158,934 |
|
Zhuolu Huada Real Estate Development
Co., Ltd |
|
|
|
|
|
|
|
|
Original loan due
August 5, 2015, maturity extended to August 5, 2016, at 20% per annum |
|
|
4,870,024 |
|
|
|
4,834,647 |
|
Zhenjiang Huaxia Kirin Real Estate Development
Co., Ltd |
|
|
|
|
|
|
|
|
Due October 16. 2017,
at 7.92% per annum |
|
|
4,910,948 |
|
|
|
4,875,274 |
|
Due February 8, 2017,
at 8.90% per annum |
|
|
8,184,914 |
|
|
|
- |
|
Due December 31,
2015, at 15% per annum |
|
|
6,106,764 |
|
|
|
- |
|
|
|
|
19,202,626 |
|
|
|
4,875,274 |
|
Langfang Hualin Real Estate Development
Co., Ltd |
|
|
|
|
|
|
|
|
Due February 9, 2016,
at 15% per annum |
|
|
13,914 |
|
|
|
- |
|
Due March 18, 2016,
at 15% per annum |
|
|
24,555 |
|
|
|
- |
|
Due May 13, 2016,
at 15% per annum |
|
|
42,562 |
|
|
|
- |
|
Due July 9, 2016,
at 15% per annum |
|
|
8,185 |
|
|
|
- |
|
|
|
|
89,216 |
|
|
|
- |
|
Huaxia Kirin (Beijing) Investment Co.,
Ltd |
|
|
|
|
|
|
|
|
Due December 31,
2016, at 18% per annum |
|
|
5,729,439 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Huaxia Brother (Beijing) Investment Management
Co., Ltd |
|
|
|
|
|
|
|
|
Due December 31,
2016, at 18% per annum |
|
|
3,349,267 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Beijing Huaxia Kirin Investment Development
Co., Ltd |
|
|
|
|
|
|
|
|
Due December 31,
2016, at 18% per annum |
|
|
2,432,556 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Interest income receivables |
|
|
9,631,063 |
|
|
|
6,484,246 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,802,096 |
|
|
$ |
48,353,101 |
|
Note (a): On February 11, 2015, the
Company received RMB 84,890,000 (approximately $13,660,000, at historical exchange rate) from HuaxiaHuifeng.
(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 June 30, 2015 and December 31, 2014, accumulated earned government grant of RMB160,000,000
and RMB160,000,000 ($26,191,723 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 June 30, 2015, the Company had a remaining $1,138,567 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 June 30, 2015 and December 31, 2014 were as follows:
| |
June 30, | |
December 31, |
| |
2015 | |
2014 |
| |
| | | |
| | |
Gross of working capital received from affiliate companies and individuals designated by Jianfeng Guo | |
$ | (42,844,129 | ) | |
$ | (42,278,247 | ) |
Gross of working capital provided to affiliate companies and individuals designated by Jianfeng Guo | |
| 17,790,973 | | |
| 21,692,272 | |
Gross earned government grant held by a related party | |
| 26,191,723 | | |
| 26,001,463 | |
| |
| | | |
| | |
Receivable from a trust equity owner | |
$ | 1,138,567 | | |
$ | 5,415,488 | |
(4) Prepayment to related party
Please see Note 8 – Prepayments
(5) Loan related to related party
Please see Note 18 Credit Union 2014
and 2015 Short-term Loan, Entrusted loan 2014 and 2015, Garden 2014 and 2015 Loan, Syndicated loans 2015.
(6) Balances with a related party supplier
Please see Note 9 – Other receivables
and Note 14 – Other Payables and Accrued liabilities.
(7) Service fee
For six months ended June 30, 2015 and
2014, the Company recorded service fee with an amount of RMB 1,200,000 (approximately $196,000) and RMB 2,400,000 (approximately
$391,000), respectively. For three months ended June 30, 2015 and 2014, the Company recorded service fee with an amount of RMB
nil and RMB 1,200,000 (approximately $196,000), respectively. The service was received from affiliate companies designated by Jianfeng
Guo.
(8) Notes Receivable
Please see Note 6 – Notes Receivable.
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
In
May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with
Customers”. For a public entity, the amendments are effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. Early application is not permitted. The amendments in ASU
2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into
contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g.
insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue
Recognition, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. The core
principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services.
In
August 2014, the FASB issued Accounting Standards Update (ASU) No.2014-15, “Presentation of Financial Statements-Going Concern”.
Effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December
15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously
been issued. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there
is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.
Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as
a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because
it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about
management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue
as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management,
with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly
provided by organizations today in the financial statement footnotes.
On
April, 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, entitled Simplifying the Presentation of Debt Issuance
Costs. The ASU amends the guidance in the FASB Accounting Standards Codification (FASB ASC) Topic 835, entitled Interest-Imputation
of Interest. The objective of the amendments in this Update is to require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts. Effective for public business entities for financial statements issued for fiscal years beginning after December
15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been
previously issued. The amendments in ASU 2015-03 are intended to simplify the presentation of debt issuance costs. These amendments
require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for
debt issuance costs are not affected by the amendments in this ASU.
The
Company is currently in the process of evaluation the impact of the adoption of ASU 2014-09, ASU 2014-15 and ASU 2015-03 on its
consolidated financial statements.
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk. |
Smaller
reporting companies are not required to provide the information required by this item.
Item
4. |
Controls
and Procedures. |
Evaluation
of Disclosure Controls and Procedures
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 June 30, 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 second 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 materials 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: August 19, 2015 |
By: |
/s/ Jianfeng Guo |
|
|
Jianfeng Guo |
|
|
Chief Executive Officer |
|
|
|
Dated: August 19, 2015 |
By: |
/s/ Cindy Zheng |
|
|
Cindy Zheng |
|
|
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) |
48
Exhibit
31.1
CERTIFICATION
CHIEF
EXECUTIVE OFFICER
PURSUANT
TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, JianfengGuo,
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: August
19, 2015
/s/
JianfengGuo |
|
JianfengGuo
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: August
19, 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 June 30, 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: August
19, 2015
/s/
JianfengGuo |
|
JianfengGuo
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 June 30, 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: August
19, 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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