UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of Earliest Event Reported): March 16, 2011
 
CHINA HGS REAL ESTATE INC.
(Exact name of registrant as specified in its charter)

Florida
001-34864
33-0961490
(State or other jurisdiction of
(Commission File Number)
(IRS Employer Identification No.)
incorporation or organization)
   

6 Xinghan Road, 19th Floor, Hanzhong City
Shaanxi Province, PRC 723000
(Address of principal executive offices)

(86) 091 - 62622612
 (Registrant’s telephone number, including area code)
 
N/A
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 
 
Item 1.01
Entry into a Material Definitive Agreement.

On March 16, 2011, Shaanxi Guangsha Investment and Development Group Co., Ltd., our variable interest entity (“Guangsha”),  entered into a land use rights transfer agreement (the “Transfer Agreement”) with Hanzhong Guangsha Real Estate Development Limited (“Hanzhong”), which is a related party controlled by our Chief Executive Officer, Chairman and controlling shareholder Mr. Xiaojun Zhu. Pursuant to the Transfer Agreement, Hanzhong agreed to transfer land use rights covering approximately 44,000 square meters to the Company for RMB80,000,000 (approximately $12,509,380). The Company paid the full purchase price and received the land use rights in March, 2011.

A translated copy of the Transfer Agreement is filed as Exhibit 10.1 to this report.

On November 14, 2011, Guangsha entered into a one-month loan agreement (“Loan Agreement”) with Mr. Xiaojun Zhu, our Chief Executive Officer, Chairman and controlling shareholder. Pursuant to the Loan Agreement, Guangsha borrowed RMB20,000,000 (approximately $3,149,619) from Mr. Zhu to partially fund a deposit for an auction of land use rights (the “Loan”).  The Company had repaid the full amount of the Loan as of December 7, 2011.
 
According to the terms of the Loan Agreement, there was no interest payable on the Loan during its one-month term, although the loan would have borne interest at the rate of 15% per annum if not repaid during its term.  
 
A translated copy of the Loan Agreement is filed as Exhibit 10.2 to this report.

Item 4.02. 
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On December 22, 2011, and as a result of the review of the annual financial statements for fiscal 2011 for China HGS Real Estate Inc. (the “Company”), the Company’s Board of Directors concluded that its unaudited condensed consolidated financial statements (the “Financial Statements”) for the three and six months ended March 31, 2011 and for the three and nine months ended June 30, 2011, contained in the Company’s Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission (“SEC”) on May 16, 2011 and August 15, 2011, respectively, should no longer be relied upon due to  certain material errors contained therein.

The Company’s upcoming annual report on Form 10-K for the fiscal year ended September 30, 2011 will include a disclosure of the effect of the restatement in the quarterly financial information footnote for the periods as indicated above.   The restatement of the interim financial information is to correct the allocation of certain construction costs that were inappropriately allocated between the real estate property development completed and real estate property under development, which resulted in understatements of cost of sales for the six months ended March 31, 2011 and nine months ended June 30, 2011.  The Company will restate the unaudited condensed consolidated balance sheets as of March 31, 2011 and June 30, 2011 and the unaudited condensed consolidated statements of income and comprehensive income for the periods ended March 31, 2011 and June 30, 2011 to reflect the corrected figures. The effects on net income and earnings per share for such periods are as follows:

Net income for the three and six months ended March 31, 2011 will decrease by $1,615,453. Both basic and diluted earnings per share for the three and six months ended March 31, 2011 will decrease by $0.03 and $0.04 per share, respectively.

Net income for the three and nine months ended June 30, 2011 will decrease by $1,211,941 and $2,827,394, respectively. Both basic and diluted earnings per share for the three and nine months ended June 30, 2011 will decrease by $0.02 and $0.06 per share, respectively.

The Company’s board of directors has discussed the forgoing matters with the Company’s independent registered public accounting firm.
 
 
 
 
 
Item 9.01
Financial Statements and Exhibits

(d)   Exhibits

Exhibit No.
 
Description
10.1
 
Land Use Right Transfer Agreement by and between Shaanxi Guangsha Real Estate Development Ltd. and Hanzhong Guangsha Investment and Development Group Co. Ltd, dated March 16, 2011 (English translation).
     
10.2
 
Loan Agreement by and between Zhu Xiaojun and Shaanxi Guangsha Investment and Development Group Co., Ltd., dated November 14, 2011 (English translation).
 
 
 
 
 
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 hereunto duly authorized.
 
 
CHINA HGS REAL ESTATE, INC.
 
   
(Registrant)
 
       
Date: December 23, 2011
By:
/s/ Xiaojun Zhu
 
   
Xiaojun Zhu
 
   
Chief Executive Officer, Chief Financial Officer and Chairman of the Board
 
 
 
 
 

 
Exhibit 10.1
 
Land Use Rights Transfer Agreement
 
Party A:
Hanzhong Guangsha Real Estate Development Ltd
 
Party B:
Shaanxi Guangsha Investment and Development Group Co., Ltd
 
Party A and Party B reached to the following agreement:
 
(1)
Party A agreed to transfer the land use right covering 66 Mu property located in the West of Mingzhu street and close to Hanzhong airport to Party B.
 
(2)
Location of the property
East Border: Close to the property owned by Party B
South Border: close to airport runway (Hanning road under municipal planning)
West border: close to 94043 location
North border: Close to North fence

(3)
Area of the property
Area is 66 Mu (equivalent to 44,000 square meters)

(4)
Transfer price
The transfer price is determined to be a fixed package price. The amount is RMB 80,000,000.

(5)
Payment method
5.1  Party B shall pay Party A RMB 60,000,000 upon signing this agreement
5.2  After the land use right is properly transferred to Party B, Party B shall pay Party A all the remaining transfer price RMB 20,000,000

(6)
Party A is responsible for any disputes resulted from transfer of land use rights, area border and other matters and shall be responsible for any cost incurred from dispute.
 
(7)
Party A agrees Party B to start the preliminary planning on the property
 
(8)
If any matter is not covered by this agreement, both parties agree to negotiate in the supplemental agreement. The supplemental agreement has same legal authority as this agreement.
 
(9)
If there is any dispute incurred during executing this agreement, both parties agree to settle it with the local arbitration organization. If the matter cannot be settled by local arbitration organization, both parties shall appeal to the court.
 
(10)
This agreement has six copies, each party shall have three copies.
 
Signed by Party A
Signed by Party B
Signed on March 16, 2011.
 
 
 
 
 
Exhibit 10.2
 
Loan Agreement
 
Party A: Mr. Zhu Xiaojun
 
Party B: Shaanxi Guangsha Investment and Development Group Co., Ltd
 
Party B will join the land use right auction for commercial land use rights in Yang County. For the purpose of financing working capital, Party B borrows RMB 20,000,000 from Party A. The borrowing term is one month without interest. If the borrowing term exceeds one month, Party A agrees to pay interest at a 15% interest rate.
 
This loan agreement has two copies, each party has one copy.
 
Signed by Party A
 
Signed by Part B
 
Signed on November 14, 2011.