SCHONFELD & WEINSTEIN, L.L.P.
ATTORNEYS AT LAW
80 Wall Street
(212) 344-1600
Suite 815
New York, New York 10005
Telephone: (212) 480-0717 Fax (212) 480-0717
E-MAIL WWW.SCHONFELD-WEINSTEIN.COM
joel@schonfeld-weinstein.com
andrea@schonfeld-weinstein.com
keywan@schonfeld-weinstein.com
October 19, 2006
United States Securities and Exchange Commission
Washington D.C. 20549
Attn: John Reynolds, Assistant Director
Re: Dahua, Inc.
Amendment No. 4 to Registration Statement on Form SB-2
Filed on May 10, 2006
File No. 333-122622
Dear Mr. Reynolds:
We are in receipt of your letter dated June 12, 2006 and wish to respond as
follows:
General
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1. As requested in prior comment one dated December 15, 2005, file a redlined
version of your next amendment marked to show changes on EDGAR. See Rule
310 of Regulation S-T and Rule 472 of Regulation C.
RESPONSE: Three marked and clean copies of the Amendment No. 5 to show
changes on EDGAR are being sent to the Commission by Federal Express at the
same time we file the Amendment with the Commission.
2. Much of the disclosure regarding your operations needs to be updated to
reflect all activities undertaken up until at least the first quarter ended
March 31, 2006. See for example, the disclosure in the Summary section
regarding sales and the disclosure in your MD&A section. Other portions of
the prospectus need to be updated to the latest practicable date. See for
example, the beneficial ownership amounts discussed on page 24. Please
revise throughout, as necessary.
RESPONSE: We have updated all disclosure regarding our operations to reflect
all activities undertaken up until at least the second quarter ended
June 30, 2006. Other portions of the prospectus have also been updated to
the latest practicable date.
3. The disclosure in the summary and in MD&A indicated that 6 units were sold
as of December 31, 2005, although disclosure in the plan of operations
indicates 32 units were sold at that date. In addition, under "Description
of Business-Development Projects" you indicate 35 units have been sold as
of the date of the prospectus. You appear to use different meanings for the
sale of units. Please reconcile as appropriate. If you treat units
reserved with deposits as sold units, please explain why, particularly in
light of the revenue recognition disclosure in MD&A.
RESPONSE: We are sorry for our confused disclosure. We have reconciled and
revised our presentation throughout the prospectus, including Summary and
MD&A sections. Please see pages 5, 35, and 36. Generally, in the beginning,
a customer makes a deposit to reserve the housing unit s/he wants, and
makes installment payments afterwards. Before units were fully paid, we
recorded them as "reserved." Sales revenues are recognized when the purchase
price has been paid in full. Thus, once a unit was paid in full, we
converted it from 'reserved" to "sold." We don't treat units reserved with
deposits as sold units.
Management's Discussion and Analysis, page 35
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4. We note your response to prior comment 17. Please revise your disclosure in
MD&A to discuss the allowance for the loans receivable recorded during the
year ended December 31, 2004, including how management determined that the
loans should be written off during that period as opposed to any previous
period.
RESPONSE: The following disclosures have been added to MD&A, "Allowance for
the loans receivable."
"The notes receivable were made by the company to unrelated parties. As of
December 31, 2004, management recorded a valuation allowance of $56,943.
Valuation allowance consisted of loan over three years, or when the debtors
can not be located. Prior to that time, management fully expected that the
loan amounts were collectible."
Critical Accounting Policies and Estimates, page 38
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5. We note your response to prior comment 14. As discussed in ARB 43, Chapter
4, when inventory is written down to a new cost basis, the reduced amount is
considered the cost for subsequent accounting purposes. Accordingly,
valuation adjustments for any subsequent recoveries in value are not
appropriate. Please revise your disclosures accordingly.
RESPONSE: The requested disclosure has been revised. Please see page 40.
Financial Statement, page 48
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6. Please revise the financial statements to include page numbers on each page
of the financial statements.
RESPONSE: We have revised the financial statement to include page numbers.
Statement of Cash Flows
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7. We note your disclosure of net proceeds from issuance of common stock. Based
on your disclosure in Note 9, it appears that the issuance of common stock
resulted from the conversion of short-term loans. Please revise your cash
flow statement presentation to reflect the borrowings under the short-term
loans within financing activities, and the conversion of the loans into
common stock as a non-cash investing and financing activity. Refer to
paragraph 32 of FAS 95 and revise your disclosure accordingly.
RESPONSE: The cash flow statement presentation has been revised to reflect
the borrowings under the short-term loans within financing activities, and
the conversion of the loans into common stock as a non-cash financing
activity. Please see Statements of Cash Flows on page F-14.
Note 9 - Additional Paid-in-Capital
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8. Please tell us how the conversion price of the short-term loans of $0.477
per share was determined. Tell us whether the loans had any beneficial
conversion feature at the date of issuance, and if so, how you accounted
for this feature under EITF 98-5 and EITF 00-27, if applicable.
The loan was initially recorded as loan payable when the funds were advanced
to the Company to increase the subsidiaries' registered capital in May 2005.
The loan was not convertible at the time of issuance, but was later
converted to stock as a result of negotiations between the parties. In this
regard, the loan does not have any beneficial conversion features. Hence,
EITF 98-5 and EITF 00-27 do not apply.
Of the 5,000,000 shares, 4,750,000 shares were issued to the individual
owners of Dahua Project Management Group in exchange for the $2,265,600
short-term loans from Dahua Project Management Group. According to the Share
Exchange Agreement signed on January 30, 2005, the other 212,500 shares and
37,500 shares were issued to Comp and Waywood, respectively. In that
meaning, $2,265,600 purchased 4,750,000 shares common stock. So, the
conversion price of the short-term loans was $0.477 per share.
Part II
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Undertakings
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9. In your amended filing, please revise to include the new undertakings that
became effective on December 1, 2005. See Questions 3 through 6 in
Securities Offering Reform Transition Questions and Answers, which is
available on our web site at
http://www.sec.gov/divisions/corpfin/transitionfaq.htm. See new Item
512(a)(4) and 512(g)(2) of Regulation S-B, which were adopted in Securities
Offering Reform, Release No. 33-8591 (July 19, 2005), which is available on
our web site at http://www.sec.gov/rules/final/33-859 fr.pdf.
RESPONSE: We have revised the undertakings in the Amendment as per Items
512(a)(4) and 512(g)(2) of Regulation SB-2. Please see pages 81-82.
1934 Act Periodic Reports
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10. We note your response to prior comments five and six. Your responses do not
appear to explain all of the differences in the reported net loss and
accumulated deficit between the financial statements provided in the 8-K
and those provided in the registration statement. Please ensure that the
amended 8-K includes a complete reconciliation between each of the
previously reported and revised amounts as required by paragraph 37 of
APB 20. Also, please note that the auditor's report should refer to the
restatement and that the report should be dual-dated or re-dated.
RESPONSE: We have restated the financial statements of the Company
provided in the 8-K for the nine months ended September 30, 2004, the year
ended December 31, 2003, and for the period from September 24, 2001
(inception) to December 31, 2002. Please see Amendment to the 8-K as the
Company filed with the Commission on September 8, 2006.
A note (Note 9) was added to the financial statements to include a complete
reconciliation between each of the previously reported and revised amounts
as required by paragraph 37 of APB 20. Auditor's report was also referred
to the restatement and the report was re-dated.
11. We note your response to prior comment 18. It appears that the quarterly
reports for the periods ended March 31, 2005 and June 30, 2005 also need to
be amended to correct similar errors. Please file the amended quarterly
report, including disclosure regarding the nature of the restatements.
RESPONSE: We have restated the financial statements of the Company for
the quarters ended March 31, 2005 and June 30, 2005. The amendments,
including the disclosure regarding the nature of the restatements, to the
quarterly reports for such periods were filed with the Commission on
August 9, 2006.
12. We note that no filing were made under Item 4.02 of Form 8-K relating to
the restatements to the previously filed financial statements. Please file
the required disclosures under Item 4.02 of Form 8-K as soon as possible.
RESPONSE: The required disclosure on "Non-Reliance on Previously Issued
Financial Statements or a Related Audit Report or Completed Interim Review"
under Item 4.02 of Form 8-K was filed with the Commission on July 28, 2006.
13. Please revise the disclosure in your periodic reports as appropriate to
clearly state your conclusions regarding the effectiveness of your
disclosure controls and procedures as required by Item 307 of Regulation
S-B. We note that your disclosure in the 10-KSB for the year ended December
31, 2005 states that your executive officers to material information
required to be disclosed, but no conclusion on effectiveness is made with
respect to the information disclosed under sub-paragraph (ii). Note that
to the extent that your disclosure includes a definition of disclosure
controls and procedures, the entire definition must be provided, and a
clear conclusion regarding effectiveness with respect to each component
must be made.
RESPONSE: We have revised the disclosure on Item 8A of our Form 10-KSB for
the year ended December 31, 2005 to clearly state our conclusions regarding
the effectiveness of our disclosure controls and procedures as required by
Item 307 of Regulation S-B. Please see our Amendment to the Form 10-KSB
filed with the Commission on September 15, 2006.
14. Tell us the specific factors you considered in evaluating the effect of the
restatements to your financial statements noted above on your conclusions
regarding the effectiveness of your disclosure controls and procedures.
RESPONSE: Management is responsible for establishing and maintaining
adequate internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting.
Management assesses the effectiveness of our internal control over
financial reporting based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Our internal control over financial reporting
is required, in all material respects, to be effective in providing
reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and with the standards of
the Public Company Accounting Oversight Board (United States).
A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect all errors, frauds or misstatements.
Also, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been
detected. We will make every effort in the future to maintain, in all
material respects, an effective internal control over our financial
reporting.
If you have any questions, please do not hesitate to contact us.
Very truly yours,
/s/ Andrea I. Weinstein
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Andrea I. Weinstein
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