This
prospectus supplement supplements the prospectus dated July 9, 2007 relating
to
the offer and resale by the selling stockholders identified in the prospectus
of
up to 12,040,401 shares of common stock of China Housing & Land Development,
Inc. This prospectus supplement includes:
•
our
Quarterly Report on Form 10-QSB for the quarter ended September30, 2007,
which was filed with the Securities and Exchange Commission on
November19, 2007.
The
information contained in the report included in this prospectus supplement
is
dated as of the period of such report. This prospectus should be read in
conjunction with the prospectus dated July 9, 2007, which is to be delivered
with this prospectus supplement. This prospectus supplement is qualified
by
reference to the prospectus except to the extent that the information in
this
prospectus supplement updates and supersedes the information contained in
the
prospectus dated July 9, 2007, including any supplements or amendments thereto.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal offense.
China
Housing & Land Development, Inc. (the “Company”) is a Nevada corporation,
incorporated on July 6, 2004 under the name Pacific Northwest Productions
Inc.
On May 6, 2006, the Company changed its name to China Housing & Land
Development Inc. The Company, through its subsidiary Xi’an Tsining Housing
Development Company Inc. (XTHDC), is engaged in acquisition, development,
management, and sale of commercial and residential real estate properties
located primarily in Xi'an city, the People’s Republic of China
(PRC).
XTHDC
was
established during May 1992 as a state-owned enterprise, whose former name
is
Xi’an New Star Group Real Estate Development Co. Ltd, and was formerly the
logistics department of Lan Zhou Military area of the People's Liberation
Army
of China. The Company was reorganized as a limited liability company with
equity
capital invested by management personnel in September 1999. The Company is
a
Chinese registered limited liability company with a legal structure similar
to a
regular corporation and a limited liability company. The Articles of Association
provide for a 54 year term beginning September 7, 1999 with registered capital
of approximately $3,140,000 (RMB26,000,000). On March 28, 2002, the registered
capital of Tsining was increased to approximately $6,050,000 (RMB50,000,000).
Concurrently
with the closing of the purchase agreement and as a condition thereof, Pacific
entered into an agreement with Deljit Bains and Davinder Bains, its executive
officers, pursuant to which they each returned 4,000,000 (post-split) shares
(8,000,000 shares in total) of Pacific common stock to Pacific for cancellation.
They were not compensated in any way for the cancellation of their shares
of
Pacific common stock. Upon completion of the foregoing transactions, Pacific
had
an aggregate of 20,000,000 shares of common stock issued and outstanding.
As
a
result of the merger, XTHDC’s stockholders own approximately 80% of the combined
company and the directors and executive officers of XTHDC became the directors
and executive officers of Pacific. Accordingly, the transaction has been
accounted for as a reverse acquisition of Pacific by XTHDC resulting in a
recapitalization of XTHDC. XTHDC is deemed to be the purchaser and surviving
company for accounting purposes. Accordingly, its assets and liabilities
are
included in the balance sheet at their historical book values and the results
of
operations of XTHDC have been presented for the comparative prior period.
In
addition, on May 5, 2006, Pacific changed its name to China Housing & Land
Development, Inc. (hereafter referred to as the “Company”) and the stockholders
approved a stock dividend of seven shares for each share held, which has
been
accounted for as an eight to one forward stock split. All shares and per
share
data have been restated retrospectively.
In
2007,
the Company acquired 100% equity of Xi’an New Land Development Co., Ltd. See
note 2 for details of acquisition.
Xi’an
New
Land Development Co., LTD (“New Land”) was
originally incorporated in September 2003 in Xi’an city in Shaanxi province,
China.
In
2006, New Land entered into an agreement with Baqiao District Government
of
Xi’an City to develop Baqiao Science & Technology Industrial Park, a
provincial development zone in Shaanxi Province to establish
a joint
venture for New Land to develop and purchase approximately 487 acres in Baqiao
Park. The agreement covers period from July 2006 to June 2011. New Land is
responsible
for the installation and maintenance of all basic infrastructures, including
water, electricity, and gas supply, along with telecommunication and sewer
systems. In return, New
Land
will be given the exclusive rights to obtain 487 acres land use
right.
5
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
On
June19, 2007, New Land established Xi’an Hao Tai Housing Development Company Inc.
(“Hao Tai”) for the purpose of obtaining, developing, and trading land use
rights in China. Hao Tai’s registered capital is RMB8.0 million, approximately
$1.06 million, and is 100% owned by New Land. The company received the formal
business license from the government in July 2007. Hao Tai did not have any
operating activities during the period ended September 30, 2007.
Note
2 - Acquisition
On
March9, 2007, the Company entered into a Shares Transfer Agreement (the Agreement)
to
acquire 32 million shares of Xi'an New Land Development Co., Ltd. (New Land),
representing 100% equity ownership of New Land. The acquisition was effective
on
May 31, 2007. The total purchase price for the acquisition is RMB 270 million,
approximately $35 million. The total purchase price includes 1) an initial
cash
payment of RMB 5 million, approximately $610,000, payable within 20 days
after
the signing of the Agreement, 2) an additional cash payment of RMB 57 million,
approximately $7.2 million, and 3) a promissory note of the aggregate amount
of
RMB 208 million, approximately $26.2 million, bearing 10% interest with a
maturity of January30, 2009. As of September 30, 2007, the total payable to original shareholders
amounted to $22,888,932 Pursuant
to SFAS 141, Business Combination, the excess of purchase price over total
fair
value acquired is recorded as goodwill. As a result, the Company recorded
$25.4M
of goodwill after the acquisition.
Prior
to
the acquisition, management was aware that New Land had agreements with the
local Baqiao government to perform various constructions services during
2003 to
2005. The New Land management was not able to determine the exact amount
of the
progress billing and costs incurred on the projects. The Company’s management is
currently obtaining information related to certain construction contracts
with
the Baqiao government. The amounts shown below recorded related to this
acquisition is expected to be reallocated once all information is obtained.
The
following unaudited pro forma condensed income statement for the nine months
ended September 30, 2007 was prepared under generally accepted accounting
principles and as if the acquisition of New Land had occurred on January1,2006. The pro forma information may not be indicative of the results that
actually would have occurred if the acquisition had been in effect from and
on
the dates indicated or which may be obtained in the future.
Note
3 - Summary of significant accounting policies
Principles
of consolidation and basis of presentation
The
accompanying consolidated financial statements include the accounts of China
Housing & Land Development, Inc. and its wholly owned subsidiaries, XTHDC,
New Land, and Hao Tai. All material inter-company accounts and transactions
have
been eliminated in consolidation. The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America.
Use
of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign
currency translation
As
of
September 30, 2007, the accounts of the Company are maintained in their
functional currency the Chinese Yuan Renminbi (RMB). The reporting currency
for
the consolidated financial statements is the United States Dollars (USD).
In
accordance with Statement of Financial Accounts Standards ("SFAS") No. 52,
"Foreign Currency Translation," all assets and liabilities were translated
at
the exchange rate on the balance sheet date, stockholder's equity are translated
at the historical rates and statement of operations are translated at the
weighted average exchange rate for the period. Cash flows are also translated
at
the weighted average exchange rate for the year; therefore, amounts reported
on
the statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet.
The
resulting translation adjustments are reported under other comprehensive
income
in accordance with SFAS No. 130, "Reporting Comprehensive Income."
7
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Real
estate sales are reported in accordance with the provisions of Statement
of
Financial Accounting Standard No. 66, “Accounting for Sales of Real Estate”.
Profit from the sales of development properties, less 5% business tax, is
recognized by the full accrual method when the sale is consummated. A sale
is
not considered consummated until (1) the parties are bound by the terms of
a
contract, (2) all consideration has been exchanged, (3) any permanent financing
of which the seller is responsible has been arranged, (4) all conditions
precedent to closing have been performed, (5) the seller does not have
substantial continuing involvement with the property, and (6) the usual risks
and rewards of ownership have been transferred to the buyer. 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. Real estate rental income, less 5% business tax, is
recognized on the straight-line basis over the terms of the tenancy
agreements.
For
Company financed sales, the Company is recognizing sales based on the full
accrual method provide that the buyer’s initial and continuing investment is
adequate according to SFAS No. 66. The initial investment is the buyer’s down
payment less the loan amount provided by the Company. Interest on these loans
is
amortized over the terms of the loans.
Real
estate capitalization and cost allocation
Residential
properties completed or under construction are stated at cost or estimated
net
realizable value, whichever is lower. Costs include land use right and land
improvements, direct construction costs and development costs, including
predevelopment costs, interest on indebtedness, real estate taxes, insurance,
construction overhead and indirect project costs. Selling and advertising
costs
are expensed as incurred. Total estimated costs of multi-unit developments
are
allocated to individual units based upon specific identification
methods.
Land
use
right and improvement costs include land use right, land improvements, interest
on indebtedness and real estate taxes. Appropriate costs are allocated to
projects based on acreage, dwelling units and relative sales value. Land
held
for development and improvements is stated at cost or estimated net realizable
value, whichever is lower.
Land
use
right and land improvements applicable to condominiums, town homes and
single-family homes, are transferred to construction in progress when
construction commences.
Capitalization
of interest
The
Company adopts SFAS 34 to account for capitalized interest. Interest incurred
during construction is capitalized into construction in progress. All other
interest is expensed as incurred. For the nine months ended September 30,2007,
the Company incurred $2,508,035 of interest and capitalized $1,072,185 in
to
construction in progress. For the nine months ended September 30, 2006, the
Company incurred $1,553,631 of interest and capitalized $1,473,416 into
construction in progress.
Concentration
of risks
Cash
includes cash on hand and demand deposits in accounts maintained with
state-owned banks within the PRC. Total cash in state-owned banks at September30, 2007 and December 31, 2006 amounted to $3,745,870 and $1,108,271
respectively, of which no deposits are covered by insurance. The Company
has not
experience any losses in such accounts and believes it is not exposed to
any
risks on its cash in bank accounts.
The
Company sells residential and commercial units to residents and small business
owners. The Company had two major customers that accounted for approximately
57%
of the Company’s sales for the nine months ended September 30, 2007 and accounts
receivable for these customers at September 30, 2007 amounted to $2,323,144.
There was no major customer that accounted for over 5% of the Company’s sales
for the nine months ended September 30, 2006.
8
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
The
Company is dependent on third-party sub-contractors, manufacturers, and
distributors for all of construction services and supply of construction
materials. Construction services or products purchased from the Company’s five
largest subcontractors/suppliers accounted for 50% and 48% of the Company’s
purchases for the nine months ended September 30, 2007 and 2006, respectively.
Accounts payables to these subcontractors/suppliers amounted to $2,890,602
and
$5,937,955 at September 30, 2007 and 2006, respectively.
The
Company's operations are carried out in the People's Republic of China.
Accordingly, the Company's business, financial condition and results of
operations may be influenced by the political, economic and legal environments
in the People's Republic of China, by the general state of the People's Republic
of China’s economy. The Company's business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods
of
taxation, among other things.
Restricted
cash
The
bank
grants mortgage loans to home purchasers and will credit these amounts to
the
Company's bank account once title passes. If the houses are not completed
and
the new homeowners have no ownership documents to secure the loan, the bank
will
deduct 10% of the homeowner’s loan from the Company's bank account and transfer
that amount to a designated bank account 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
home purchasers have obtained the ownership documents to secure the mortgage
loan. Total restricted cash amounted to $949,740 and $1,108,271 as of September30, 2007 and December 31, 2006, respectively.
Accounts
receivable - trade
Accounts
receivable-trade consists of balances due from customers for the sale of
residential and commercial units in the PRC. The Company provides an allowance
for doubtful accounts equal to the estimated uncollectible amounts. The
Company’s estimated uncollectible amounts are based on historical collection
experience and a review of the current status of trade accounts receivable.
It
is reasonably possible that the Company’s estimate of the allowance for doubtful
accounts will change. Accounts receivable are presented net of an allowance
for
doubtful accounts of $3,306,776 and $3,070,516 at September 30, 2007 and
December 31, 2006, respectively.
Notes
receivable
The
Company finances sales to certain new homeowners. Financing agreements are
signed and the loans are due in 1 to 3 years. The loans are non-interest
bearing, therefore the Company has calculated imputed interest and discounted
the carrying amount of notes receivable. Notes receivable are presented net
of
unamortized interest and allowance for doubtful accounts.
Other
receivables consist of various cash advances to unrelated companies and
individuals which the management of the Company have business relationships.
These amounts are unsecured, non-interest bearing and generally are short
term
in nature.
Advances
to suppliers
Advances
to suppliers consist of amounts paid in advance to contractors and vendors
for
services and materials that have not been performed or received and generally
relate to the development and construction of residential units in the PRC.
Advances amounted to $8,894,622493,570 as of September 30, 2007 and December31,2006 respectively.
Real
estate held for development or sale
Real
estate held for development or sale consist of residential and commercial
units
under construction and units completed. Construction in progress also includes
cost associated in development and construction of Baqiao project. Real estate
held for development or sale are stated at the lower of cost or net realizable
value. If the real estate is determined to be impaired, it will be written
down
to its fair market value. Real estate held for development or sale costs
include
land use right, land development and home construction costs, engineering
costs,
insurance costs, wages, real estate taxes, and interest related to development
and construction. All costs are accumulated by specific projects and allocated
to residential and commercial units within the respective projects. The Company
leases the land for the residential unit sites under land use rights with
various terms from the government of the PRC. The Company evaluates the carrying
value for impairment based on the undiscounted future cash flows of the assets.
Write-downs of inventory deemed impaired would be recorded as adjustments
to the
cost basis. No Impairment loss was incurred or recorded for the nine months
ended September 30, 2007 and 2006.
No
depreciation is provided for construction in progress. Construction overhead
and
selling expenses are expensed as incurred.
Assets
held for sale
The
Company intends to sell one of its fixed assets which consists of 14,380
square
meters of retail units with net book value of $12,563,133 as of September30,2007. There is no asset held for sale as of December 31, 2006.
Property
and equipment
Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Depreciation
expense for the nine months ended September 30, 2007 and 2006 amounted to
$365,560 and $189,722, respectively. Estimated useful lives of the assets
are as
follows:
Estimated
Useful Life
Buildings
30
years
Vehicles
6
years
Electronic
equipment
5
years
Office
furniture
5
years
10
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Maintenance,
repairs and minor renewals are charged directly to expenses as incurred.
Major
additions and betterment to property and equipment are capitalized.
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS
144"), which addresses financial accounting and reporting for the impairment
or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for
the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to
be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event,
a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to
be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
there was no impairment of its long-lived assets as of September 30,2007.
Fair
value of financial instruments
Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments” requires disclosure of the fair value of financial
instruments held by the Company. SFAS 107 defines the fair value of financial
instruments as the amount at which the instrument could be exchanged in a
current transaction between willing parties. The Company considers the carrying
amount of cash, accounts receivable, other receivables, accounts payable,
accrued liabilities and other payables to approximate their fair values because
of the short period of time between the origination of such instruments and
their expected realization and their current market rate of interest. Management
believes the interest rate on notes reflect rates currently available. Thus,
the
carrying value of loans payable approximates fair value.
Advances
from customers
Advances
from
customers represent prepayments by customers for home purchases. The Company
records these prepayments as advances from customers when the payments are
received. Advances from customers amounted to $3,954,755 and $2,902,426 at
September 30, 2007 and December 31, 2006 respectively.
Other
payables
Other
payables consist of various cash advances to unrelated companies and individuals
with whom management of the Company has business relationships. These amounts
are not related to operations of the Company, are unsecured, non-interest
bearing and generally are short term in nature. Other payables amounted to
$4,323,990 and $2,572,838 as of September 30, 2007 and December 31,2006,
respectively.
Advertising
costs
Advertising
and sales promotion costs are expensed as incurred. Advertising expense totaled
$398,776 and $425,200 for the nine months ended September 30, 2007 and 2006
respectively.
11
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Generally,
the Company provides all of its customers with a limited warranty period
(half a
year to 5 years) for defective workmanship.
The
Company
accrues
estimated warranty costs into the cost of its homes as a liability after
each
project is closed based on the Company's historical experience, which normally
is less than 0.2% of total cost of the project. Any excess amounts are expensed
in the period when they occur. Many of the items relating to workmanship
are
completed by the existing labor force utilized to construct other new houses
and
are therefore already factored into the labor and overhead costs of another
project. Any significant material defects are generally under warranty with
the
Company's suppliers. Currently, the Company retains 5% of the total construction
contract from the construction contractors for a period of one year after
the
completion of the construction. Such retention amounts will be used to pay
for
any repair expense incurred due to defects in the construction. The Company
has
not historically incurred any significant litigation requiring additional
specific reserves for its product offerings. As of September 30, 2007 and
December 31, 2006, the Company has accrued $0 and $68,682 as warranty costs,
respectively.
Income
taxes
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. At September 30, 2007 and 2006, there was no
significant book to tax differences.
The
Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to
occur.
The amount recognized is the largest amount of tax benefit that is greater
than
50% likely of being realized on examination. For tax positions not meeting
the
“more likely than not” test, no tax benefit is recorded. The adoption had no
affect on the Company’s financial statements.
Local
PRC income tax
The
Company is governed by the Income Tax Law of the PRC concerning Chinese
registered limited liability companies. Under the Income Tax Laws of the
PRC,
Chinese enterprises are generally subject to an income tax at an effective
rate
of 33% (30% state income taxes plus 3% local income taxes) on income reported
in
the statutory financial statements after appropriate tax adjustments, unless
the
enterprise is located in a specially designated region for which more favorable
effective tax rates are applicable. The provision for income taxes at September
30 consisted of the following:
2007
2006
(Unaudited)
(Unaudited)
Provision
for China income and local tax
$
1,995,359
$
4,455,191
Deferred
taxes
-
-
Total
provision for income taxes
1,995,359
4,455,191
12
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Beginning
January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
(“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
applicable to both DES and FIEs. The two year tax exemption and three year
50%
tax reduction tax holiday for production-oriented FIEs will be eliminated.
The
Company is currently evaluating the effect of the new EIT law will have on
its
financial position.
Sales
and additional taxes
In
June
2006, the Emerging Issues Task Force (EITF) reached a consensus on, “How Taxes
Collected from Customers and Remitted to Governmental Authorities Should
Be
Presented in the Income Statement (EITF No. 06-3)”. EITF No. 06-3 permits that
such taxes may be presented on either a gross basis or a net basis as long
as
that presentation is used consistently. The adoption of EITF No. 06-3 on
January1, 2007 did not influence the Company’s consolidated financial statements. Taxes
are presented within the scope of EITF No. 06-3 on a net basis.
All
sales
recognized are subject to sales and additional taxes of 5.61% and are payable
to
local government. This amount is included in cost of properties sold. Sales
and
additional taxes incurred for the nine months ended September 30, 2007 and
2006
were $1,368,509 and $2,828,621, respectively. Sales and additional taxes
incurred for the three months ended September 30, 2007 and 2006 were $292,433
and $795,610, respectively.
Basic
and diluted earning per share
Earning
per share is calculated in accordance with the Statement of Financial Accounting
Standards No. 128 (“SFAS No. 128”), “Earnings per share”. SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net earning
per
share for all periods presented has been restated to reflect the adoption
of
SFAS No. 128. Basic net earning per share is based upon the weighted average
number of common shares outstanding. Diluted net earning per share is based
on
the assumption that all dilutive convertible shares and stock warrants were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Stock-based
compensation
The
Company records stock-based compensation pursuant to Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payments,"
("FAS123R"), which established standards for the accounting for transactions
in
which an entity exchange its equity instruments for goods or services. This
statement requires companies to measure the cost of services received in
exchange for an award of equity instruments based on the grant-date fair
value
of the award. The cost will be recognized over the period of services
rendered.
13
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Comprehensive
income consists of net income and foreign currency translation gains and
losses
affecting shareholders’ equity that, under generally accepted accounting
principles are excluded from net income. Gain (Loss) on foreign exchange
translation totaled $1,745,926 and $ 26,815 for the nine months ended September30, 2007 and 2006 respectively.
Derivative
financial instruments
The
Company accounts for its warrants in accordance with FAS No.133, “Accounting for
Derivatives Instruments and Hedging Activity,” and EITF 00-19 which requires the
warrants to be carried on the balance sheet at fair value and to mark to
market
at each reporting period. Under certain circumstances, the warrants are reported
as liabilities on the balance sheet when issued and any changes in the fair
value is reported in the income statement.
Recent
pronouncements
In
September 2006, FASB issued Statement of Financial Accounting Standards
(‘‘SFAS’’) No.157 ‘Fair Value Measurements’. This Statement 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, it also establishes a framework for measuring fair value
in
generally accepted accounting principles (GAAP), and expands disclosures
about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
has
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on its financial
statements.
In
February 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued
SFAS No. 159, ‘The Fair Value Option for Financial Assets and Financials
Liabilities — Including an Amendment of FASB Statement No.115’. This standard
permits measurement of certain financial assets and financial liabilities
at
fair value. If the fair value option is elected, the unrealized gains and
losses
are reported in earnings at each reporting date. Generally, the fair value
option may be elected on an instrument-by-instrument basis, as long as it
is
applied to the instrument in its entirety. The fair value option election
is
irrevocable, unless a new election date occurs. SFAS No. 159 requires
prospective application and the companies to establish certain additional
presentation and disclosure requirements. The standard is effective as of
the
beginning of the fiscal year that begins after November 15, 2007. The
Company is currently evaluating the provisions of SFAS No. 159 to determine
the
potential impact, if any; the adoption will have on the Company’s financial
statements.
In
June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in
Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered
for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been performed.
Management believes this pronouncement has no effect on the Company’s financial
statements.
Note
4 - Supplemental disclosure of cash flow information
Income
taxes paid amounted to $0 and $0 for the nine months ended September 30,2007
and 2006 respectively. Interest (net of amount capitalized) paid for the
nine
months ended September 30, 2007 and 2006 amounted to $744,950 and $1,703,185
respectively.
14
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Noncash
operating activity included transfer of fixed asset as prepayment to one
of the
Company’s contractors at fair market value for $864,850 in 2007 with a book
value of $166,593.
Noncash
financing activities included issuance of 60,000 shares of common stock to
an
investor relations company in consideration of a one-year consulting service
valued at $131,400 and issuance of 66,154 warrants to placement agents as
compensations for the service provided. In addition, 123,845 warrants were
exercised on a noncash basis resulting in the issuance of 29,377 shares of
common stock.
Noncash
financing activities also included reclassification of notes receivable from
accounts receivable of $302,729 and paying off $4,679,783 loan due to original
shareholders of New Land using inventory appraised at fair market value.
The
Company’s intangibles consist of goodwill (see note 2 for goodwill) and
exclusive development rights to acquire 487 acre of land use right in Shaanxi
province.. As of September 30, 2007, the amount recorded for the exclusive
development rights was $2,299,359. The future benefit of this exclusive right
is
valued at $36,451,800. The Company evaluates its intangible assets for
impairment issues and whenever events or changes in circumstances indicate
that
the carrying value of its intangibles may not be recoverable from its estimated
future cash flows. As of September 30, 2007, the Company believes there is
no
impairment issue on intangibles.
The
Company has borrowed monies from certain employees to fund the Company’s
construction projects. The loans bear interest ranging from 7% to 12% and
the
principal matures within one to three years. Loans from employees amounted
to
$1,879,208 and $1,037,842 as of September 30, 2007 and December 31, 2006,
respectively.
16
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
Loans
payable represent amounts due to various banks and are due on demand or normally
within one year. These loans generally can be renewed with the banks when
expired. Loans payable consisted of the following as of September 30, 2007
and
December 31, 2006:
Due
December 31, 2007, annual interest is at 9.79%, secured by the
Company’s
24G project
6,018,667
6,410,000
Xi’an
Rural Credit union Zao Yuan rd. Br, .
Due
June 14, 2008, annual interest is at 9.527%, secured by the Company’s Jun
Jing Yuan I, Han Yuan project and Xin Xing Tower Projects
3,333,333
-
Various
loans on demand, to unrelated parties,
at
various interest rate
7,342
1,525,668
Total
$
14,692,676
$
23,206,852
All
loans
were borrowed for construction projects. Interest paid was capitalized during
the periods of construction and allocated to various construction projects.
When
the projects are completed, interest incurred from these loans is
expensed.
Note
12 - Shareholders’ equity
Common
stock
On
June28, 2006, the Company entered into securities purchase agreements with
accredited investors and completed the sale of $1,075,000 of the Company’s
common stock and common stock purchase warrants. The securities sold were
an
aggregate of 330,769 shares of common stock and 99,231 warrants. Each warrant
is
exercisable for three years at $3.60 per share. Pursuant to the terms of
the
warrant, each investor has contractually agreed to restrict its ability to
exercise the warrants to an amount which would not exceed the difference
between
the number of shares of common stock beneficially owned by the holder or
issuable upon exercise of the warrant held by such holder and 9.9% of the
outstanding shares of common stock of the Company. New York Global Securities,
Inc. acted as the placement agent of the transaction.
17
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
In
connection with the offering, the Company paid a placement fee of 10% of
the
proceeds in cash, together with other expenses in the amount of 3% of the
proceeds, in cash. In addition, the placement agent was issued warrants to
purchase 66,154 shares of common stock on the same terms and conditions as
the
investors.
Pursuant
to securities purchase agreements with accredited investors dated July 7,2006,
the Company received $124,975 and issued 38,454 shares of common stock and
11,536 warrants. Each warrant is exercisable for three years at $3.60 per
share.
In
connection with the offering, the Company paid a placement fee of 10% of
the
proceeds in cash, together with other expenses in the amount of 3% of the
proceeds, in cash. In addition, the placement agent was issued warrants to
purchases 7,691 shares of common stock on the same terms and conditions as
the
investors.
Pursuant
to securities purchase agreements with accredited investors dated August21,2006, the Company received $812,500 and issued 250,000 shares of common stock
and 75,000 warrants. Each warrant is exercisable for three years at $3.60
per
share.
In
connection with the offering, the Company paid a placement fee of 10% of
the
proceeds in cash, together with non-accountable expenses in the amount of
3% of
the proceeds, in cash. In addition, the placement agent was issued warrants
to
purchase 50,000 shares of common stock on the same terms and conditions as
the
investors.
The
Company filed the registration statement registering the resale of shares
of the
Company’s Common Stock and those issuable upon exercise of the Warrants on
August 21, 2006 and the registration statement was effective on September14,2006.
On
January 15, 2007, the Company issued 60,000 shares of common stock to an
investor relations company in consideration for one year of consulting service
through December 31, 2007. The 60,000 shares of common stock have been recorded
at $2.19 per share or $131,400 based on the trading price of the shares at
January 12, 2007. This amount is included in prepaid expenses and is being
amortized over the service period.
Pursuant
to securities purchase agreements with accredited investors dated May 7,2007,
the Company received $25,006,978 and issued 9,261,847 shares of common stock
and
2,778,554 Warrants. Each Warrant is exercisable for five years at $4.50 per
share. In connection with the offering, the Company paid a 7% placement
fee.
According
to Section 4.8, Anti-Dilute of the Share Purchase Agreements dated June 28,2006, July 7, 2006 and August 21, 2006, the Company issued 126,138 shares
common
stock and 27,418 warrants; additionally, the Company reduced the exercise
price
of all related warrants from $3.60 to $3.31.
Pursuant
to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settle in, a Company’s Own Stock,” the warrants contain a provision
permitting the holder to demand payment based on a Black Scholes valuation
in
certain circumstances. Therefore, under EITP 00-19 and SFAS
No. 133,
the Company recorded the warrants as a liability at their fair value on date
of
grant and then marked them to $2,448,876 September 30, 2007. The change in
fair
value totaled $419,465 on fair value of warrants.
18
CHINA
HOUSING & LAND DEVELOPMENT INC. AND SUBSIDIARIES
The
Company has placed 510,000 shares of management owned common stock into an
escrow as part of a “make good obligation.” This provision stipulates that in
the event that the after-tax net income of the Company during fiscal year
2007
is less than $16.3 million and $35.8 million in fiscal 2008, management will
distribute these escrow shares pro-rata to investors who participated in
the May
7 private placement. This transaction qualifies for equity accounting under
SFAS. 133.
The
Company filed the registration statement registering the resale of shares
of the
Company’s Common Stock on June 22, 2007 and the registration statement was
effective on July 5, 2007.
123,845
warrants at exercising price of $3.31 were exercised in July on a noncash
basis
resulting in the issuance of 29,377 shares of common stock.
In
accordance with the laws and regulations of the PRC, a wholly-owned
Foreign Invested Enterprises’ income, after the payment of the PRC income taxes,
shall be allocated to the statutory surplus reserves, the proportion of
allocation for reserve funds is no less than 10 percent of the profit after
tax
until the accumulated amount of allocation for statutory surplus reserve
funds
reaches 50 percent of the registered capital. Statutory reserves represent
restricted retained earnings.
Statutory
surplus reserves are to be utilized to offset prior years’ losses, or to
increase its share capital. When the statutory surplus reserve fund of a
limited
liability company converts its surplus reserves to capital in accordance
with a
shareholders’ resolution, the Company will either distribute new shares in
proportion to the number of shares held by the each shareholder, or increase
the
par value of each share. Except for the reduction of losses incurred, any
other
usage should not result in this reserve balance falling below 25% of the
registered capital.
Pursuant
to the board of directors’ resolution, the Company transferred 10% of its net
income, as determined in accordance with the PRC accounting rules and
regulations, to a statutory surplus reserve fund until such reserve balance
reaches 50% of the Company’s registered capital.
The
transfer to this reserve must be made before distributions of any dividends
to
shareholders. For the nine months ended September 30, 2007 and 2006, the
Company
appropriated $413,658 and $1,187,050, respectively to this surplus reserve.
Note
13 - Employee welfare plan
Regulations
in the PRC require the Company to contribute to a defined contribution
retirement plan
for all
permanent employees.
The
Company established a retirement pension insurance, unemployment insurance,
health insurance and house accumulation fund for the employees during the
term
they are employed. The amount contributed to the fund is based on a certain
percentage on the base salaries set forth by the provincial and city government.
For
the
nine months
ended
September30, 2007 and 2006, the Company had contributed in the amount of $29,293
and $11,195, respectively.
19
Note
14 - Earnings per share
Earnings
per share for nine months ended September 30, 2007 and 2006 were determined
by
dividing net income for the periods by the weighted average number of both
basic
and diluted shares of common stock and common stock equivalents outstanding.
Rental
expense for the nine months ended September 30, 2007 and 2006 amounted to
$40,325 and $40,325, respectively.
20
ITEM
2.
Management's Discussion and Analysis
FORWARD
LOOKING STATEMENTS
Some
of
the statements contained in this Form 10-QSB that are not historical facts
are
"forward-looking statements" which can be identified by the use of terminology
such as "estimates,""projects,""plans,""believes,""expects,""anticipates,""intends," or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Form 10-QSB, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors affecting
our
operations, market growth, services, products and licenses. No assurances can
be
given regarding the achievement of future results, as actual results may differ
materially as a result of the risks we face, and actual events may differ from
the assumptions underlying the statements that have been made regarding
anticipated events. Factors that may cause actual results, our performance
or
achievements, or industry results, to differ materially from those contemplated
by such forward-looking statements include without limitation:
l
Our
ability to attract and retain management, and to integrate and maintain
technical information and management information
systems;
l
Our
ability to raise capital when needed and on acceptable terms and
conditions;
l
The
intensity of competition; and
l
General
economic conditions.
All
written and oral forward-looking statements made in connection with this Form
10-QSB that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
We
generated total revenues of $6,036,929 for the three months ended September30,2007, a decrease of $8,195,178 or 58% compared to $14,232,107 for the three
months ended September 30, 2006. Tsining generated revenues of $5,739,382,
including $4,201,050
contributed by Tsining-24G, $1,136,538 contributed by Tsining JunJing I,
$435,727 for others. And $263,814 interest
income
for New Land’s municipal infrastructure construction investment. For the
three-month period ended September 30, 2006, we had revenues of $5,655,135
contributed by Tsining-24G, $8,044,360 contributed by Tsining JunJing I, and
$532,612 for other projects.
The
reason for the revenue decrease of Tsining is that in the third quarter of
2006,
542,460 Sq. ft of JunJing I project was completed, and sales of units in JunJing
I were recognized in earnings. No similar project was completed and therefore
no
similar revenues were recognized in 2007.
On
September 15, 2007, the Company began to offer select 'club members' the
opportunity to secure a purchase right for a unit in the highly sought after
JunJing Garden II development for an initial cash payment of 100,000 RMB or
approximately $13,300 USD. The company provided 416 residential units for this
event. As of September 30, 2007, over 250 units were pre-sold, covering
252ô707
Sq,ft, we received approximately $
3
million
deposit in cash, which was booked as Advance from Customers in Balance sheet
of
September 30, 2007. The total revenue of these 250 units will generate
approximately 13 million, will be recognized after the projects is
completed.
21
Revenue
Mix by product categories:
Broken down by product categories, for the three-month period ended
September 30, 2007, 17% revenue was contributed by sales of residential
properties, and 73% revenue was contributed by sales of commercial properties,
7% revenue was contributed by others including rental income and other income,
and 3% was contributed by interest income. For the three-month period ended
June30, 2006, 78% revenue was contributed by sales of residential properties, and
21% revenue was contributed by sales of commercial properties, and 1% revenue
was contributed by others including rental income and other income.
Costs
and Expenses
The
cost
of properties sold for the three months ended September 30, 2007 was
$ 3,019,240,
a decrease of $6,746,610 or 69% compared to $ 9,765,850
for the three months ended September 30, 2006. This is in line with the 58%
decrease in revenue from the sale of properties.
Other
expenses for the three months ended September 30, 2007 was $ 20,153,
a
decrease of $70,970 compared to $ 91,123
for the three months ended September 30, 2006. This is in line with the revenue
decrease for the three months ended September 30, 2007.
Our
selling, general and administrative expenses for the three months ended
September 30, 2007 was $886,405, a decrease of $376,243 or 30% compared to
$ 1,262,648
c Selling, general and administrative expenses reflects our overhead expenses
such as office rent, management and staff salaries, general insurance,
accounting and legal expenses. We staff our sales department at fixed levels.
As
one project approaches the end of the sales cycle, the sales staff is shifted
to
the next project.
Loss-change
in fair value of warrants for the three months ended September 30, 2007 was
$408,262 compared to $0 for the three months ended September 30, 2006. On July17, 2007, 123,845 of cashless warrants were exercised into 29,377 shares of
common stock, which was generated $169,912 loss-change in the fair value of
warrants. $247,245 loss-change in the fair value of warrants was generated
by
2,991,685 warrants.
Interest
Expense
We
incurred interest expense for the three months ended
September 30, 2007 of $1,120,150, an increase of $1,098,863 compared
to
$21,287 for the three months ended September 30, 2006. Capitalized interest
for
the three months ended September 30, 2007 was $393,741
and
capitalized interest for the same period in 2006 was $416,740.
As of
September 30, 2007, there were $22,888,932 Payable to original shareholders
of
New Land, which generated $905,771 interest, and for the three months ended
September 30, 2007, $679,328 interest was incurred.
Gross
Profit & Margin
Our
Gross
Profit for the three months ended September 30, 2007 was $3,017,689 a decrease
of $1,448,568 or 32% compared to $4,466,257 for the three months ended September30, 2006. Our Gross margin for the three months ended September 30, 2007
was 50% an increase of 15% compared to 35% for the three months ended September30, 2006. The reason was the difference of revenue mix. For the three-month
period ended September 30, 2007, 73% revenue was contributed by sales of
commercial properties, compared to 78% revenue was contributed by sales of
residential properties for the three-month period ended June 30,2006.
Net
Income
Our
net
income for the three months ended September 30, 2007 was $-71,273, a decrease
of
$2,105,066 compared to $2,033,829 for the three months ended September 30,2006. The reason for this decrease was as of September 30, 2007, the gross
profit decreased $1,448,568, the interest expense increased $964,291,
and warrants cost increased $408,261.
We
generated revenues of $ 26,251,716
for the nine months ended September 30, 2007, a decrease of $24,375,285 or
48%
compared to $50,627,001 for the nine months ended September 30,2006. Tsining generated revenues of $25,987,902, including $21,816,495
contributed by Tsining-24G, $2,918,081
contributed by Tsining JunJing I, $1,219,392
for other projects, and $263,814 interest for New Land’s municipal
infrastructure construction investment. For the nine-month period ended
September 30, 2006, we had revenues of $36,592,762 for Tsining JunJing I,
$11,970,034 for Tsining-24G, and $2,044,205 for other projects.
The
reason of this decrease was, as of September 30, 2006, 9 buildings (1,249,252
sq.ft ) in JunJing Yuan I, and the one building (300,768 sq.ft) in 24G that
were
completed and all pre-sales of these areas were recognized into revenue in
nine
months of 2006. These recognized pre sales were contributed the most part of
the
revenues for the first quarter to the third quarter of 2006. No similar project
was completed in 2007.
By
product categories, for the nine-month period ended September 30, 2007, 61%
revenue was contributed by sales of residential properties, and 34% revenue
was
contributed by sales of commercial properties, 4% revenue was contributed by
others including rental income and other income, and 1% revenue was contributed
by New Land. For the nine-month period ended September 30, 2006, 82% revenue
was
contributed by sales of residential properties, and 17% revenue was contributed
by sales of commercial properties, and 1% revenue was contributed by others
including rental income and other income.
Costs
and Expenses
The
cost
of properties sold for the nine months ended September 30, 2007 was
$ 17,585,887,
a decrease of $14,523,255 or 45% compared to $ 32,109,142
for the nine months ended September 30, 2006. This is in line with the 51%
decrease in revenue from the sale of properties.
23
Other
expenses for the nine months ended September 30, 2007 was $55,832, a decrease
of
$282,097 or 83% compared to $337,929 for the nine months ended September 30,2006.
Our
selling, general and administrative expenses for the nine months ended September30, 2007 was $ 2,007,315,
a decrease of $2,704,738 or 57% compared to $ 4,712,089
for the nine months ended September 30, 2006. Selling, general and
administrative expenses reflects our overhead expenses such as office rent,
management and staff salaries, general insurance, accounting and legal expenses.
We staff our sales department at fixed levels. As one project approaches the
end
of the sales cycle, the sales staff is shifted to the next project.
Loss-change
in fair value of warrants for the nine months ended September 30, 2007 was
$419,465 compared to $0 for the nine months ended September 30, 2006. On July17, 2007, 123,845 warrants were converted in a cashless exercise into 29,377
shares of common stocks, which was generated $169,912 loss-change in the fair
value of warrants. $249,553 loss-change in the fair value of warrants was
generated by 2,991,685 warrants.
Interest
Expense
We
incurred interest expense for the nine months ended September 30, 2007
of
$1,501,105,
an
increase of $1,420,890 compared to $80,215 for the nine months ended September30, 2006. For the nine months ended September 30, 2007, capitalized interest
for
the same period was $1,072,185
and
capitalized interest for the same period in 2006 was $1,473,416. Interest
expense increased in 2007 as compared to 2006 since most projects were completed
in 2006 and new projects did not start until second quarter of 2007, interest
incurred during first quarter of 2007 was expensed rather than capitalized.
As
of September 30, 2007, there were $22,888,932 Payable to original shareholders
of New Land, which generated $905,771 interest.
Gross
Profit & Margin
Our
Gross
Profit for the nine months ended September 30, 2007 was $8,665,829 a decrease
of
$9,852,030 or 33% compared to $18,517,859 for the nine months ended September30, 2006. Our Gross margin for the nine months ended September 30, 2007 was
33% a decrease of 4% compared to 37% for the three months ended September 30,2006. The reason of decrease margin was for the nine-month period ended
September 30, 2007, all the JunJing I remaining residential units was sold
out.
We gave certain discount for the last few transaction.
Net
Income
Our
net
income for the nine months ended September 30, 2007 was $ 2,552,145,
a decrease of $6,380,290 compared to $8,932,435 for the nine months ended
September 30, 2006, which is a direct result of, 9 buildings (1,249,252 sq.ft
)
in JunJing Yuan I, and the one building (300,768 sq.ft) in 24G that were
completed as of September 30, 2006, and all pre-sales of these areas were
recognized into revenue in the first , second and third quarters of 2006. These
recognized pre sales were contributed the most part of the revenues for the
first quarter to the third quarter of 2006.
Liquidity
and Capital Resources
Our
principal demands for liquidity are for development of new properties, property
acquisitions and general corporate purposes. As of September 30, 2007, we had
total mortgage indebtedness of $14,692,676 with
a
weighted average interest rate of 11.36% per annum, payable quarterly. Future
scheduled maturities of mortgages payable are as follows: August 7, 2008 --
$5,066,667; September 20, 2008 -- $266,667; December 31, 2007 -- $6,018,667;
June 14, 2008 -- $3,333,333. Various
loans on demand- $7,342. The
mortgage debt is secured by assets of the Company.
As
of
September 30, 2007, we had $3,745,870 of cash and cash equivalents on hand,
an
increase of $3,366,237 compared to $379,633 of cash and cash equivalents on
hand
as of December 31, 2006.
As
of
September 30, 2007, decrease in accounts payable was $ 2,291,251
and other payables was $ 486,759.
Cash used for properties and equipment was $194,423.
Receivables, deferred charges and other assets increased by $4,682,109 compared
to $ -3,379,743
at December 31, 2006. Advances to suppliers decreased by $17,115,962 compared
to
$ 9,284,058
as of December 31, 2006. Most of it was the advance payment on Land related
expenses for the JunJing II project. Accounts payable decreased $11,130,781
compared to $ 8,839,530
as of December 31, 2006, other payables decreased $1,514,640 compared to
$1,027,881 as of December 31, 2006, and accrued expenses decreased $8,569,117
compared to $ 7,029,454
as of December 31, 2006, while advances from customers increased $31,076,574
compared to $ -30,161,309
as of December 31, 2006.
Our
operating activities used cash of $5,330,059 for the nine months ended September30, 2007. We had cash of $2,093,790 in investing activities during the three
months ended September 30, 2007 primarily $2,037,505 for the Notes receivable
funded. For the nine months ended September 30, 2007, cash provided in financing
activities was $6,459,338.
We
intend
to meet our liquidity requirements, including capital expenditures related
to
the purchase of land for the development of our future projects, through cash
flow provided by operations and additional funds raised by future possible
cash
investments. Upon acquiring land for future development, we intend to raise
funds to develop our projects by obtaining mortgage financing from local banking
institutions with which we have done business in the past. We believe that
our
relationships with these banks are in good standing and that our real estate
will secure the loans needed. We believe that adequate cash flow will be
available to fund our operations.
24
As
part
of our funding plan, on March 9, 2007, we entered into a Shares Transfer
Agreement with the shareholders of Xi'an New Land Development Co., Ltd. ("New
Land"), pursuant to which we have acquired 32,000,000 shares of New Land,
constituting 100% equity ownership of New Land. Xi'an New Land Development
Co.,
LTD (“New Land”) is now in cooperation with BaQiao District Government of Xi'an
City in developing BaQiao Science & Technology Industrial Park, a provincial
development zone in Shaan'xi Province. Now, this acquisition is in process,
in
the future, China Housing will take the first steps in the primary land market,
and also have the right to develop and sell 487 acres of property which has
been
targeted for new residential developments.
The
majority of the Company's revenues and expenses were denominated primarily
in
Renminbi ("RMB"), the currency of the People's Republic of China. There is
no
assurance that exchange rates between the RMB and the U.S. Dollar will remain
stable. The Company does not engage in currency hedging. Inflation has not
had a
material impact on the Company's business.
Other
Events
Beginning
in mid September, the Company began to offer select 'club members' the
opportunity to secure a purchase right for a unit in the highly sought after
JunJing Garden II development for an initial cash payment of 100,000 RMB or
approximately $13,300 USD. As of November 14, 2007, over 310 units were
pre-sold, covering $15 million of revenue, by far, we have received
approximately $4 million in cash as the deposit. The rest of payment will be
got
in the first quarter of 2008. China Housing will use these proceeds for working
capital while recording these initial transactions as revenue and subsequent
profit once the units are complete and the title is officially transferred
to
the new owner, which is anticipated to occur late next year. The buyers will
be
responsible for the approximate balance of $40,000 for each unit at the time
of
closing to officially consummate the sale with the Company recording
approximately $14.0 million in 2008 revenue assuming all units close. There
are
risks that certain presale units may not come into final closings and if the
transaction cannot close in 2008 a portion of the deposits maybe returned to
customers. Presales are customary in China and enable developers to have
visibility into sell- through rates, while providing access to capital to
complete projects which augments overall internal rate of return.
On
July26, 2007, New Land and the administrative committee of Baqiao Technology and
Industrial Park reached the <<Agreement on Acknowledgement of New Land’s
Investment in Infrastructure and Compensation Settlement>>, which
finalizes the arrangement for compensating New Land for its investment in
infrastructure within Baqiao district for the period from July 16, 2003 to
May31, 2007, and the manner and terms of settlement. Specifically, the Baqiao
district government will refund New Land its costs incurred for the
infrastructure construction as assessed by independent appraiser plus interest
accrued during above settlement period as well as 10% of the total costs as
return on investment. The compensation will be in the form of deduction to
New
Land’s payable to the government for acquiring land usage rights and carried out
by end of 2008. The agreement also applies to New Land’s further investment in
infrastructure within the 487 acres land. In September 2007, New Land delivered
the rubber dam it built to Baqiao district government, who issued New Land
“Acknowledgement of Compensation for New Land's Investment in Infrastructure”
for New Land’s riverway renovation work done for the period from July16, 2003 to May 31, 2005 within Baqiao Technology and Industrial Park in the
total amount of approximately $7,310,236, of which accrued interest and return
on investment total approximately $3,803,141. The remaining infrastructure
investment refund and return are in the process of being settled with the
district government.
The
Chief
Executive Officer and Chief Financial Officer conducted an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange
Act
of 1934, as amended (the “Exchange Act”) as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report.
There were no changes in internal control over financial reporting (as defined
in Rule 13a-15(e) under the Exchange Act) that occurred during the third quarter
of 2007 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
Part
II.
OTHER INFORMATION
Item
1.
Legal Proceedings
Not
applicable
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
Certification
of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
31.2
Certification
of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d
14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
32.1
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002(Chief Executive Officer)
32.2
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002(Chief Financial
Officer)
26
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
China
Housing & Land Development, Inc.
November
19 , 2007
By:
/s/
LU PINGJI
Lu
Pingji
Chief
Executive Officer
(Principal
Executive Officer)
November
19 , 2007
By:
/s/
WAN YULONG
Wan
Yulong
Chief
Financial Officer
(Principal
Financial and
Accounting
Officer)
27
Exhibit
31.1
CERTIFICATIONS
I,
Lu
Pingji, certify that:
1.
I
have reviewed this Quarterly Report on Form 10-QSB of China Housing
&
Land Development, 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
small
business issuer as of, and for, the periods presented in this
report;
4.
The
small business issuer's other certifying officer 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
small
business issuer 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 small business issuer,
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)
evaluated
the effectiveness of the small business issuer'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
c)
disclosed
in this report any changes in the small business issuer's internal
control
over financial reporting that occurred during the small business
issuer's
most recent fiscal quarter (the small business issuer's fourth
fiscal
quarter in the case of an annual report) that has materially affected,
or
is reasonably likely to materially affect, the small business issuer's
internal control over financial reporting;
and
5.
The
small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit
committee
of small business issuer's board of directors (or persons performing
the
equivalent functions):
a)
all
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer'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 small business issuer's
internal control over financial
reporting.
I
have reviewed this Quarterly Report on Form 10-QSB of China Housing
&
Land Development, 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
small
business issuer as of, and for, the periods presented in this
report;
4.
The
small business issuer's other certifying officer 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
small
business issuer 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 small business issuer,
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)
evaluated
the effectiveness of the small business issuer'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
c)
disclosed
in this report any changes in the small business issuer's internal
control
over financial reporting that occurred during the small business
issuer's
most recent fiscal quarter (the small business issuer's fourth
fiscal
quarter in the case of an annual report) that has materially affected,
or
is reasonably likely to materially affect, the small business issuer's
internal control over financial reporting;
and
5.
The
small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit
committee
of small business issuer's board of directors (or persons performing
the
equivalent functions):
a)
all
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer'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 small business issuer's
internal control over financial
reporting.
In
connection with the Quarterly Report of China Housing & Land Development,
Inc. (the "Company") on Form 10-QSB for the quarter ending September 30,2007 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), each of the undersigned, in the capacities and on the date indicated
below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to his
knowledge:
(1)
The
report fully complies with the requirements of Section 13(a) or
15(d) of
the Securities Exchange Act of 1934;
and
(2)
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of
the
Company.
In
connection with the Quarterly Report of China Housing & Land Development,
Inc. (the "Company") on Form 10-QSB for the quarter ending September 30,2007 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), each of the undersigned, in the capacities and on the date
indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
his
knowledge:
(1)
The
report fully complies with the requirements of Section 13(a) or 15(d) of
the
Securities Exchange Act of 1934; and
(2)
The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
