The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(UNAUDITED)
|
|
|
For the six months ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
$
|
(10,472,910
|
)
|
$
|
(2,843,788
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
598,972
|
|
|
1,019,519
|
|
Stock-based compensation expense
|
|
289,000
|
|
|
498,604
|
|
Provision for
doubtful accounts
|
|
4,362,318
|
|
|
2,462,523
|
|
Changes in
operating assets and liabilities
|
|
|
|
|
|
|
Accounts and notes
receivable
|
|
(14,655,416
|
)
|
|
(4,564,368
|
)
|
Inventories
|
|
374,813
|
|
|
(254,137
|
)
|
Other receivables
|
|
7,499,561
|
|
|
71,811
|
|
Prepayments and advances
|
|
(2,343,561
|
)
|
|
(3,880,311
|
)
|
Accounts payable
|
|
13,554,999
|
|
|
8,469,425
|
|
Customer deposits
|
|
(2,784,215
|
)
|
|
(509,296
|
)
|
Other payables
|
|
2,872,998
|
|
|
(1,233,668
|
)
|
Other payables - shareholders
|
|
312,072
|
|
|
-
|
|
Accrued
liabilities
|
|
(562,213
|
)
|
|
(351,778
|
)
|
Taxes payable
|
|
98,266
|
|
|
215,174
|
|
Net cash used in operating activities
|
|
(855,316
|
)
|
|
(900,290
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Redemptions of short-term
investments
|
|
-
|
|
|
5,213,420
|
|
Purchase of property, plant and equipment
|
|
(51,552
|
)
|
|
(1,153
|
)
|
Net cash
(used in) provided by investing activities
|
|
(51,552
|
)
|
|
5,212,267
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from short term loans, banks and bank
guarantees
|
|
15,560,685
|
|
|
10,270,000
|
|
Payments of short term loans,
banks and bank guarantees
|
|
(9,632,805
|
)
|
|
(20,698,000
|
)
|
Proceeds from notes payable
|
|
16,598,064
|
|
|
32,706,000
|
|
Payments of notes payable
|
|
(17,783,640
|
)
|
|
(29,467,000
|
)
|
Payable to shareholders, net
|
|
146,611
|
|
|
92,047
|
|
Principal payments on capital
lease obligations
|
|
-
|
|
|
(114,651
|
)
|
Change in restricted cash, net
|
|
(1,443,051
|
)
|
|
2,205,848
|
|
Net cash
provided by (used in) financing activities
|
|
3,445,864
|
|
|
(5,005,756
|
)
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE CHANGE IN CASH AND
CASH EQUIVALENTS
|
|
(116,282
|
)
|
|
(142,922
|
)
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
2,422,714
|
|
|
(836,701
|
)
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of
period
|
|
1,006,970
|
|
|
2,691,915
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
3,429,684
|
|
$
|
1,855,214
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Cash paid for interest expense
|
$
|
374,326
|
|
$
|
398,517
|
|
Cash paid for income
tax
|
$
|
-
|
|
$
|
27,190
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS OF INVESTING AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Property, plant and equipment additions
not yet to pay
|
$
|
-
|
|
$
|
225,417
|
|
Capital lease
obligations offset accounts and notes receivable
|
$
|
-
|
|
$
|
237,000
|
|
Capital lease obligations offset with
prepayments
|
$
|
-
|
|
$
|
201,747
|
|
Capital lease
obligations offset with advances on equipement purchases
|
$
|
-
|
|
$
|
474,000
|
|
|
|
|
|
|
|
|
OTHER NON-CASH TRANSACTIONS:
|
|
|
|
|
|
|
Accounts receivable offset with
accounts payable upon execution of tri-party agreements
|
$
|
4,822,587
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
6
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 Organization and description of business
China Advanced Construction Materials Group, Inc. (CADC
Delaware) was incorporated in the State of Delaware on February 15, 2007. CADC
Delaware, through its 100% owned subsidiaries and its variable interest entities
(VIEs), is engaged in producing general ready-mix concrete, customized
mechanical refining concrete, and other concrete-related products that are
mainly sold in the Peoples Republic of China (PRC). CADC Delaware has a
wholly owned subsidiary in the British Virgin Islands, Xin Ao Construction
Materials, Inc. (BVI-ACM), which is a holding company with no operations.
BVI-ACM has a wholly owned foreign enterprise, Beijing Ao Hang Construction
Material Technology Co., Ltd. (China-ACMH), and China-ACMH has contractual
agreements with an entity which is considered as a VIE.
On August 1, 2013, CADC Delaware consummated a reincorporation
merger with its newly formed wholly owned subsidiary, China Advanced
Construction Materials Group, Inc. (China ACM), a Nevada corporation, with
CADC Delaware merging into China ACM and China ACM being the surviving company,
for the purpose of changing CADC Delawares state of incorporation from Delaware
to Nevada.
Beijing XinAo Concrete Group (Xin Ao), a VIE, is engaged in
the business of consulting, concrete mixing and equipment rental services. Xin
Ao has five wholly owned subsidiaries (collectively, and with Xin Ao, the
VIEs) in the PRC: (1) Beijing Heng Yuan Zheng Ke Technical Consulting Co., Ltd
(Heng Yuan Zheng Ke), (2) Beijing Hong Sheng An Construction Materials Co.,
Ltd (Hong Sheng An), (3) Beijing Heng Tai Hong Sheng Construction Materials
Co., Ltd (Heng Tai), (4) Da Tong Ao Hang Wei Ye Machinery, Equipment Rental
Co., Ltd (Da Tong) and (5) Luan Xian Heng Xin Technology Co., Ltd (Heng
Xin). There were no operations since establishment of these five entities and
the Company is not planning to pursue operations for these entities. As a
result, the Company has determined to dissolve these entities between March 2016
and June 2016. As of the date of this report, Heng Yuan Zheng Ke, Hong Sheng An
and Da Tong have already been dissolved and the other two entities are still
under the administrative process of dissolution.
China ACM, BVI-ACM, China-ACMH and the VIEs are collectively
referred to as the Company.
Note 2 Summary of significant accounting policies
Liquidity
In assessing the Companys liquidity, the Company monitors and
analyzes its cash on-hand and its operating and capital expenditure commitments.
The Companys liquidity needs are to meet its working capital requirements,
operating expenses and capital expenditure obligations.
The Company engages in the production of advanced construction
materials for large scale infrastructure, commercial and residential
developments. The Companys business is capital intensive and the Company is
highly leveraged. Debt financing in the form of short term bank loans, loans
from related parties and bank acceptance notes have been utilized to finance the
working capital requirements and the capital expenditures of the Company. Due to
recurring losses, the Companys working capital was approximately $6.3 million
as of December 31, 2016 as compared to $16.4 million as of June 30, 2016. As of
December 31, 2016, the Company had cash on-hand of approximately $3.4 million
and restricted cash balances of approximately $5.3 million with the remaining
current assets mainly composed of accounts receivables and prepayments and
advances.
Although the Company believes that it can realize its current
assets in the normal course of business, the Companys ability to repay its
current obligations will depend on the future realization of its current assets.
Management has considered its historical experience, the economy, trends in the
construction industry, the expected collectability of the accounts and other
receivables and the realization of the prepayments on inventory, and provided
for an allowance for doubtful accounts as of December 31, 2016. The Company
expects to realize the balances net of the allowance within the normal operating
cycle of a twelve month period. If the Company is unable to realize its current
assets within the normal operating cycle of a twelve month period, the Company
may have to consider its available source of funds through the following:
7
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
-
Financial support and credit guarantee commitment from the Companys
majority shareholders (See Note 9 - Related party transactions).
-
Other available sources of financing from PRC banks and other financial
institutions given the Companys credit history.
Based on the above considerations, the Companys management is
of the opinion that it has sufficient funds to meet the Companys working
capital requirements and debt obligations as they become due. However, there is
no assurance that management will be successful in their plan. There are a
number of factors that could potentially arise that could result in shortfalls
to the Companys plan, such as the demand for the Companys products, economic
conditions, the competitive pricing in the concrete-mix industry, the Companys
operating results continuing to deteriorate and the Companys bank and
shareholders not being able to provide continued support.
Basis of presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) for interim financial
information pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). These financial statements include the accounts of all
directly, indirectly owned subsidiaries and variable interest entities listed
below. All material intercompany transactions and balances have been eliminated
in consolidation. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, considered necessary to give a fair
presentation have been included. Interim results are not necessarily indicative
of results of a full year. The information in this Form 10-Q should be read in
conjunction with information included in the annual report for the fiscal year
ended June 30, 2016 on Form 10-K filed with the SEC on September 28, 2016 and
have been consistently applied.
Principles of consolidation
The unaudited condensed consolidated financial statements
reflect the activities of the following subsidiaries and VIEs. All material
intercompany transactions have been eliminated.
|
|
Ownership
|
Subsidiaries and
VIEs
|
Place incorporated
|
percentage
|
BVI-ACM
|
British Virgin Island
|
100%
|
China-ACMH
|
Beijing, China
|
100%
|
Xin Ao
|
Beijing, China
|
VIE
|
Heng Yuan Zheng Ke***
|
Beijing, China
|
VIE
|
Hong Sheng An**
|
Beijing, China
|
VIE
|
Heng Tai
|
Beijing, China
|
VIE
|
Da Tong*
|
Datong, China
|
VIE
|
Heng Xin
|
Luanxian, China
|
VIE
|
*Dissolved in August 2016
** Dissolved in December 2016
*** Dissolved in January 2017
VIEs are generally entities that lack sufficient equity to
finance their activities without additional financial support from other parties
or whose equity holders lack adequate decision making ability. All VIEs with
which the Company is involved must be evaluated to determine the primary
beneficiary of the risks and rewards of the VIEs. The primary beneficiary is
required to consolidate the VIEs for financial reporting purposes.
Management makes ongoing assessments of whether China ACM is
the primary beneficiary of Xin Ao and its subsidiaries. Based upon a series of
contractual arrangements, the Company determined that Xin Ao and its
subsidiaries are VIEs subject to consolidation and that China ACM is the primary
beneficiary. Accordingly, the accounts of Xin Ao and its subsidiaries are
consolidated with those of China ACM.
8
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The carrying amount of the VIEs assets and liabilities are as
follows:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Current assets
|
$
|
90,418,533
|
|
$
|
90,518,451
|
|
Property, plant and equipment
|
|
3,974,154
|
|
|
4,709,794
|
|
Total assets
|
|
94,392,687
|
|
|
95,228,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
(82,190,974
|
)
|
|
(72,579,677
|
)
|
|
|
|
|
|
|
|
Intercompany payables*
|
|
(6,927,527
|
)
|
|
(7,355,650
|
)
|
|
|
|
|
|
|
|
Total liabilities
|
|
(89,118,501
|
)
|
|
(79,935,327
|
)
|
|
|
|
|
|
|
|
Net assets
|
$
|
5,274,186
|
|
$
|
15,292,918
|
|
* Payables to China - ACMH and BVI-ACM are eliminated upon
consolidation.
Use of estimates and assumptions
The preparation of financial statements in conformity with US
GAAP 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 periods. The significant
estimates and assumptions made in the preparation of the Companys unaudited
condensed consolidated financial statements include allowance for doubtful
accounts, deferred income taxes, prepayments and advances, stock-based
compensation, and fair value and useful lives of property, plant and equipment.
Actual results could be materially different from those estimates.
Foreign currency translation
The reporting currency of the Company is the U.S. dollar. The
functional currency of China ACM and BVI-ACM is the U.S. dollar. China-ACMH and
its VIEs use their local currency Chinese Renminbi (RMB) as their functional
currency. In accordance with the US GAAP guidance on Foreign Currency
Translation, the Companys results of operations and cash flows are translated
at the average exchange rates during the period, assets and liabilities are
translated at the exchange rates at the balance sheet dates, and equity is
translated at historical exchange rates. As a result, amounts related to assets
and liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.
Asset and liability accounts at December 31 and June 30, 2016,
were translated at RMB 6.94 to $1.00 and RMB 6.64 to $1.00, respectively. The
average translation rates applied to the consolidated statements of operations
and comprehensive loss for the three months ended December 31, 2016 and 2015
were RMB 6.79 and RMB 6.39 to $1.00, respectively. The average translation rates
applied to the consolidated statements of operations and comprehensive loss and
cash flows for the six months ended December 31, 2016 and 2015 were RMB 6.75 and
RMB 6.33 to $1.00, respectively.
Translation gains (losses) that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations. There were no foreign
currency transaction gains or losses for each of the three and six months ended
December 31, 2016 and 2015. The effects of foreign currency translation
adjustments are included in shareholders equity as a component of accumulated
other comprehensive income.
Revenue recognition
Revenue is realized or realizable and earned when four criteria
are met:
9
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
-
Persuasive evidence of an arrangement exists (the Company
considers its sales contracts to be pervasive evidence of an arrangement);
-
Delivery has occurred;
-
The sellers price to the buyer is fixed or determinable; and
-
Collectability of payment is reasonably assured.
The Company sells its concrete products primarily to major
local construction companies. Sales agreements are signed with each customer.
The agreements list all terms and conditions with the exception of delivery date
and quantity, which are evidenced separately in purchase orders. The purchase
price of products is fixed in the agreement and customers are not permitted to
renegotiate after the contracts have been signed. The agreements include a
cancellation clause if the Company or customers breach the contract terms
specified in the agreement.
The Company recognizes revenue when title and ownership of the
goods are transferred upon shipment to the customer by the Company and
collectability of payment is reasonably assured.
The Company includes the shipping and handling fee in both
revenue and cost of revenue.
Financial instruments
US GAAP regarding fair value of financial instruments and
related fair value measurements define fair value, establish a three-level
valuation hierarchy that requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The three levels of inputs are defined as follows:
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities
in active markets;
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial
instrument;
Level 3 inputs to the valuation
methodology are unobservable.
Financial instruments included in current assets and current
liabilities are reported in the unaudited condensed consolidated balance sheets
at face value or cost, which approximate fair value because of the short period
of time between the origination of such instruments and their expected
realization and their current market rates of interest.
Cash and cash equivalents
The Company considers all highly liquid investments with the
original maturity of three months or less at the date of purchase to be cash
equivalents. The Company currently maintains substantially all of its day-to-day
operating cash balances with major financial institutions within PRC and US. As
of December 31 and June 30, 2016, the Company had deposits in excess of
federally insured limits totaling approximately $3.2 million and $0.9 million,
respectively.
Restricted cash
As of December 31 and June 30, 2016, restricted cash consisted
of collateral representing cash deposits for bank guarantees and notes payable.
10
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Accounts and notes receivable
During the normal course of business, the Company extends
unsecured credit to its customers. Accounts are considered past due after 30
days. In establishing the required allowance for doubtful accounts, management
considers the historical experience, the economy, trends in the construction
industry and the expected collectability of the overdue receivables. Management
reviews its accounts receivable each reporting period to determine if the
allowance for doubtful accounts is adequate. An estimate for doubtful accounts
is recorded when collection of the full amount is no longer probable. Account
balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovering is considered remote. The
Company provides a provision of 15% of allowance for doubtful accounts for
accounts receivable balance that are past due more than 180 days but less than
one year, 40% of allowance for doubtful accounts for accounts receivable past
due from one to two years, 75% of allowance for doubtful accounts for accounts
receivable past due beyond two years, 100% of allowance for doubtful accounts
for accounts receivable past due beyond three years, plus additional amount as
necessary, which the Companys collection department had determined the
collection of the full amount is remote with the approval from the Companys
management to provide 100% provision allowance for doubtful accounts. The
Companys management has continued to evaluate the reasonableness of the
valuation allowance policy and update it if necessary.
Notes receivable represent trade accounts receivable from
various customers where the customers' banks have guaranteed such customers
obligation. The notes are non-interest bearing and typically have a three or six
month maturity date. The Company has the ability to submit requests for payment
to a customer's bank earlier than the scheduled maturity date, subject to a
discount on interest charged and a processing fee.
Other receivables
Other receivables primarily include prepayments to be refunded
by our suppliers if the supplies do not meet the Companys specification need,
advances to employees, due from unrelated entities, VAT tax refunds and other
deposits. Management regularly reviews the aging of receivables and changes in
payment trends and records allowance when management believes collection of
amounts due are at risk. Accounts considered uncollectible are written off
against the allowance after exhaustive efforts at collection are made. The
Company provides a provision of 5% of allowance for doubtful accounts for other
receivables balance that are aged within one year, 50% of allowance for doubtful
accounts for other receivables aged from one to two years, 100% of allowance for
doubtful accounts for other receivables aged beyond two years.
Inventories
Inventories consist of raw materials and are stated at the
lower of cost or market, as determined using the weighted average cost method.
Management compares the cost of inventories with the market value and an
allowance is made for writing down the inventory to its market value, if lower
than cost. As of December 31 and June 30, 2016, the Company determined that no
reserves for obsolescence were necessary.
Prepayments and advances
Prepayments are funds deposited or advanced to outside vendors
for future inventory purchases. As a standard practice in China, many of the
Companys vendors require a certain amount to be deposited with them as a
guarantee that the Company will complete its purchases on a timely basis. This
amount is refundable and bears no interest. The Company has legally binding
contracts with its vendors, which require any outstanding prepayments to be
returned to the Company when the contract ends.
The Company wrote off approximately $0.1 million and $0.2
million on unrealizable prepayments for the three and six months ended December
31, 2016, respectively.
Property, plant and equipment
Property, plant and equipment are stated at cost. Expenditures
for maintenance and repairs are charged to operations as incurred while
additions, renewals and improvements are capitalized. Depreciation is provided
over the estimated useful life of each class of depreciable assets and is
computed using the straight-line method with 5% residual value. Leasehold improvements are amortized over the
lesser of estimated useful lives or lease terms, as appropriate.
11
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The estimated useful lives of assets are as follows:
|
Useful life
|
Transportation equipment
|
7-10 years
|
Plant and machinery
|
10 years
|
Office equipment
|
5 years
|
Buildings and improvements
|
3-20 years
|
Accounting for long-lived assets
The Company classifies its long-lived assets into: (i)
machinery and equipment; (ii) transportation equipment; (iii) office and
equipment; and (iv) buildings and improvements.
Long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be fully recoverable. It is possible that
these assets could become impaired as a result of technology or other industry
changes. If circumstances require a long-lived asset or asset group to be tested
for possible impairment, the Company first compares undiscounted cash flows
expected to be generated by that asset or asset group to its carrying value. If
the carrying value of the long-lived asset or asset group is not recoverable on
an undiscounted cash flow basis, an impairment is recognized to the extent that
the carrying value exceeds its fair value. Fair value is determined through
various valuation techniques, including discounted cash flow models, quoted
market values and third-party independent appraisals, as considered necessary.
If the value of an asset is determined to be impaired, the
impairment to be recognized is measured in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are reported at the lower of the carrying amount or the fair value, less
disposition costs.
Due to recurring losses, the deterioration of the concrete-mix
industry in the city of Beijing, PRC and competitive pricing pressure, the
Company has performed an impairment analysis and determined its long-lived
assets were impaired during the year ended June 30, 2016. As a result, the
Company recorded an impairment charge of $2.6 million for the year ended June
30, 2016. These charges were related to the impairment of the Companys
transportation equipment and plant and machinery. The loss was determined using
Level 3 inputs. There was no impairment charge for the three and six months
ended December 31, 2016 and 2015.
Competitive pricing pressure and changes in interest rates
could materially and adversely affect the Companys estimates of future net cash
flows to be generated by the long-lived assets, and thus could result in future
impairment losses.
Stock-based compensation
The Company records stock-based compensation expense at fair
value on the grant date and recognizes the expense over the employee's requisite
service period. The Companys expected volatility assumption is based on the
historical volatility of Companys stock. The expected life assumption is
primarily based on historical exercise patterns and employee post-vesting
termination behavior. The risk-free interest rate for the expected term of the
option is based on the U.S. Treasury yield curve in effect at the time of grant.
The expected dividend yield is based on the Companys current and expected
dividend policy.
Income taxes
The Company accounts for income taxes in accordance with ASC
740, Income Taxes, which requires the Company to use the assets and liability
method of accounting for income taxes. Under the assets and liability method, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between financial statement carrying
amounts and the tax bases of existing assets and liabilities and operating loss
and tax credit carry forwards. Under this accounting standard, the effect on
deferred income taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recognized if
it is more likely than not that some portion, or all of, a deferred tax asset
will not be realized.
12
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
ASC 740-10, Accounting for Uncertainty in Income Taxes,
defines uncertainty in income taxes and the evaluation of a tax position as a
two-step process. The first step is to determine whether it is more likely than
not that a tax position will be sustained upon examination, including the
resolution of any related appeals or litigation based on the technical merits of
that position. The second step is to measure a tax position that meets the
more-likely-than-not threshold to determine the amount of benefit to be
recognized in the financial statements. A tax position is measured at the
largest amount of benefit that is greater than 50 percent likelihood of being
realized upon ultimate settlement. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent period in which the threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not criteria should be
de-recognized in the first subsequent financial reporting period in which the
threshold is no longer met. Penalties and interest incurred related to
underpayment of income tax are classified as income tax expense in the period
incurred. United States federal, state and local income tax returns prior to
2013 are not subject to examination by any applicable tax authorities.
Value Added Tax
Enterprises or individuals, who sell commodities, engage in
repair and maintenance, or import and export goods in the PRC are subject to a
value added tax. The standard VAT rate was 6% of gross sales for the Companys
industry, which was reduced to 3% of gross sales on July 1, 2014. Due to the
fact that the Company uses recycled raw materials to manufacture its products,
the State Administration of Taxation granted the Company a VAT tax exemption,
which expired in June 2015. From July 2015 going forward, the Company is subject
to VAT at the reduced rate of 3% of the gross sales price.
Research and development
Research and development costs are expensed as incurred. The
cost of materials and equipment that are acquired or constructed for research
and development activities, and have alternative future uses, either in research
and development, marketing, or sales, are classified as property and equipment,
and depreciated over their estimated useful lives.
Earnings (loss) per share
The Company reports earnings (loss) per share in accordance
with the US GAAP, which requires presentation of basic and diluted earnings
(loss) per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings (loss) per share excludes
dilution and is computed by dividing income (loss) available to common
shareholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts, such as warrants, options,
restricted stock based grants and convertible preferred stock, to issue common
stock were exercised and converted into common stock. Common stock equivalents
having an anti-dilutive effect on earnings per share are excluded from the
calculation of diluted earnings per share. For each of the three and six months
ended December 31, 2016 and 2015, diluted loss per share is the same as basic
loss per share since the addition of any contingently issuable shares would be
anti-dilutive.
Stock dividends or stock splits are to be accounted for
retroactively if the stock dividends or stock splits occur during the period, or
retroactively if the stock dividends or stock splits occur after the end of the
period but before the release of the financial statements, by considering if
outstanding of the entirety of each period presented.
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.
13
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Comprehensive income (loss)
Comprehensive income (loss) consists of net income (loss) and
foreign currency translation adjustments.
Recent Accounting Pronouncements
In August 2016, the FASB issued Accounting Standards Update
(ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments, to address diversity in how certain
cash receipts and cash payments are presented and classified in the statement of
cash flows. The amendments provide guidance on the following eight specific cash
flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of
Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest
Rates That Are Insignificant in Relation to the Effective Interest Rate of the
Borrowing; (3) Contingent Consideration Payments Made after a Business
Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds
from the Settlement of Corporate-Owned Life Insurance Policies, including
Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity
Method Investees; (8) Beneficial Interests in Securitization Transactions; and
Separately Identifiable Cash Flows and Application of the Predominance
Principle. The amendments are effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. The
amendments should be applied using a retrospective transition method to each
period presented. If it is impracticable to apply the amendments retrospectively
for some of the issues, the amendments for those issues would be applied
prospectively as of the earliest date practicable. Management does not believe
the adoption of this ASU would have a material effect on the Companys unaudited
condensed consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17, Consolidation
(Topic 810): Interests held through related parties that are under common
control. The amendments in this ASU require that the reporting entity, in
determining whether it satisfies the second characteristic of a primary
beneficiary, to include all of its direct variable interests in a VIE and, on a
proportionate basis, its indirect variable interests in a VIE held through
related parties, including related parties that are under common control with
the reporting entity. The amendments are effective for public business entities
for fiscal years beginning after December 15, 2016, including interim periods
within those fiscal years. For all other entities, the amendments in this ASU
are effective for fiscal years beginning after December 15, 2016, and interim
periods within fiscal years beginning after December 15, 2017. Early adoption is
permitted, including adoption in an interim period. Management does not believe
the adoption of this ASU would have a material effect on the Companys
consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, "Statement
of Cash Flows: Restricted Cash". The amendments address diversity in practice
that exists in the classification and presentation of changes in restricted cash
on the statement of cash flows. The amendment is effective for public companies
for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. The adoption of this ASU on the statement of cash
flows will increase cash and cash equivalents by the amount of the restricted
cash on the Companys unaudited condensed consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year presentation. These reclassifications have no effect on the
accompanying unaudited condensed consolidated financial statements.
Note 3 Accounts and notes receivable, net
Accounts and notes receivable, net consisted of the following:
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
Accounts receivable
|
$
|
58,520,322
|
|
$
|
51,812,683
|
|
Notes receivable
|
|
676,767
|
|
|
-
|
|
Less: Allowance for doubtful accounts
|
|
(15,906,328
|
)
|
|
(11,524,131
|
)
|
Total accounts and notes receivable, net
|
$
|
43,290,761
|
|
$
|
40,288,552
|
|
14
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Movement of allowance for doubtful accounts is as follows:
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
11,524,131
|
|
$
|
28,209,249
|
|
Provision for doubtful accounts
|
|
4,949,145
|
|
|
2,591,465
|
|
Less: write-off
|
|
-
|
|
|
(17,482,713
|
)
|
Exchange rate effect
|
|
(566,948
|
)
|
|
(1,793,870
|
)
|
Ending balance
|
$
|
15,906,328
|
|
$
|
11,524,131
|
|
Note 4 Inventories
Inventories consisted of the following:
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
Raw materials
|
$
|
615,014
|
|
$
|
1,023,471
|
|
Note 5 Other receivables, net
Other receivables
Other receivables consisted of the following:
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
Other receivables
|
$
|
1,714,614
|
|
$
|
7,742,057
|
|
Less: Allowance for doubtful accounts
|
|
(1,435,238
|
)
|
|
(2,334,672
|
)
|
Other receivables, net
|
|
279,376
|
|
|
5,407,385
|
|
Other receivable from sale of Asset Group
|
|
18,417
|
|
|
1,685,645
|
|
Total
|
$
|
297,793
|
|
$
|
7,093,030
|
|
Movement of allowance for doubtful accounts is as follows:
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
2,334,672
|
|
$
|
2,403,362
|
|
Provision for (recovery of) doubtful accounts
|
|
(821,743
|
)
|
|
129,212
|
|
Less: write-off
|
|
-
|
|
|
-
|
|
Exchange rate effect
|
|
(77,691
|
)
|
|
(197,902
|
)
|
Ending balance
|
$
|
1,435,238
|
|
$
|
2,334,672
|
|
Other receivable from sale of Asset Group
On February 29, 2016, the Company terminated an operating lease
for its concrete plant in the eastern suburban area of Beijing due to the fact
that the plant was not operating at ideal capacity and the Company did not
anticipate it would be in the foreseeable future. The Company entered into an
agreement with the lessor to terminate its operating lease, which was originally effective from August 18,
2013 to August 17, 2021, and for the sale of certain of the Companys assets and
liabilities (Asset Group) at the leased location. Under the agreement, the
carrying value of the Asset Group was determined to be RMB 13.7 million
(approximately $2.1 million), and was settled for RMB 11.2 million
(approximately $1.7 million). The Company recognized approximately $0.4 million
loss from the sale of the Asset Group for the year ended June 30, 2016. As of
December 31, 2016, the Company had received approximately $1.7 million, with an
$18,417 balance outstanding to be paid by the lessor.
15
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
In accordance with ASC 205, the Company did not report the sale
of the Asset Group as discontinued operations as the sale of the Asset Group did
not represent a strategic shift that had a major effect on the Companys
operations and financial results.
Note 6 Property, plant and equipment
Property, plant and equipment consist of the following:
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
Machinery and equipment
|
$
|
724,046
|
|
$
|
754,997
|
|
Transportation equipment
|
|
4,148,400
|
|
|
4,299,862
|
|
Office equipment
|
|
1,135,177
|
|
|
1,172,059
|
|
Buildings and improvements
|
|
301,286
|
|
|
314,909
|
|
Total
|
|
6,308,909
|
|
|
6,541,827
|
|
Less: Accumulated depreciation
|
|
(2,334,755
|
)
|
|
(1,832,033
|
)
|
Plant and equipment, net
|
$
|
3,974,154
|
|
|
4,709,794
|
|
Depreciation expense for the three months ended December 31,
2016 and 2015 amounted to approximately $0.3 million and $0.6 million,
respectively. Depreciation expense for the six months ended December 31, 2016
and 2015 amounted to approximately $0.6 million and $1.0 million, respectively.
Note 7 Prepayments and advances
Prepayments and advances consisted of the following:
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
Advances on inventory purchases
|
$
|
37,648,786
|
|
$
|
37,209,699
|
|
Note 8 Credit Facilities
Short term loans - banks:
The outstanding balances on these loans consisted of the
following:
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
Loans from China Construction Bank, each
with an interest rate of 4.35% per annum, due March 2017, September 2017
and December 2017, guaranteed by Beijing Jinshengding Mineral Products Co., LTD, Mr. Xianfu Han, Ms.
Chunying Wang, Mr. Weili He and Ms. Junkun Chen.
|
|
17,279,160
|
|
|
12,404,320
|
|
|
|
|
|
|
|
|
Loan from Bank of Beijing, interest rate at
5.66% per annum, due March 2017, guaranteed by Beijing Jinshengding
Mineral Products Co., LTD, Mr. Xianfu Han, Ms. Chunying Wang, Mr. Weili
He, and Ms. Junkun Chen.
|
|
4,319,790
|
|
|
4,515,120
|
|
|
|
|
|
|
|
|
|
$
|
21,598,950
|
|
$
|
16,555,440
|
|
16
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Beijing Jinshengding Mineral Products Co., LTD is a supplier to
the Company. Mr. Xianfu Han is the Companys Chief Executive Officer. Chunying
Wang is the spouse of Mr. Xianfu Han. Mr. Weili He is the Companys Interim
Chief Financial Officer. Ms. Junkun Chen is the spouse of Mr. Weili He. Also see
Note 9 Related party transactions.
Interest expense was approximately $0.2 million for each of the
three months ended December 31, 2016 and 2015. Interest expense was
approximately $0.4 million for each of the six months ended December 31, 2016
and 2015.
Notes payable:
Bank notes are issued to a third party for inventory purchases.
The notes payable are guaranteed by Beijing Jinshengding Mineral Products Co.,
LTD., Xianfu Han and his spouse, Chunying Wang, and Weili He and his spouse,
Junkun Chen, and amounted to approximately $16.1 million and $18.1 million as of
December 31, 2016 and June 30, 2016, respectively, and were non-interest bearing
with expiration dates between January 2017 and May 2017. The restricted cash for
the notes was approximately $5.3 million and $4.1 million as of December 31 and
June 30, 2016, respectively. The Company has subsequently issued approximately
$5.0 million of notes payable in January 2017and repaid approximately $5.0 million of notes payables in February 2017.
Note 9 Related party transactions
Other payables shareholders
Two shareholders have advanced funds to BVI-ACM for working
capital purposes. The advances are non-interest bearing, unsecured, and are
payable in cash on demand. These two shareholders are officers of the Company.
They and their spouses also guaranteed certain short-term loans payable and
notes payable of the Company (see Note 8). The other payables balance also
includes the Companys salary payables to the two shareholders.
Other payables - shareholders consisted of the following:
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
Xianfu Han
|
$
|
920,535
|
|
$
|
715,086
|
|
Weili He
|
|
1,028,930
|
|
|
776,039
|
|
|
$
|
1,949,465
|
|
$
|
1,491,125
|
|
17
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 10 Income taxes
(a) Corporate income tax
China ACM was organized in the United States. China ACM had no
taxable income for United States income tax purposes for the three and six
months ended December 31, 2016 and 2015, respectively. China ACMs net operating
loss for the six months ended December 31, 2016 amounted to approximately $0.2
million. As of December 31, 2016, China ACMs net operating loss carry forward
for United States income taxes was approximately $0.8 million. The net operating
loss carry forward are available to reduce future years taxable income through
year 2035. Management believes that the realization of the benefits from these
losses appears uncertain due to the Companys operating history and continued
losses in the United States. Accordingly, the Company has provided a 100%
valuation allowance on the deferred tax asset to reduce the asset to zero. As of
December 31 and June 30, 2016, valuation allowance for deferred tax assets was
approximately $0.3 million and $0.2 million, respectively. Management reviews
this valuation allowance periodically and makes changes accordingly.
BVI-ACM was incorporated in the British Virgin Islands (BVI)
where its income tax rate is 0% under the current laws of the BVI.
China-ACMH and VIEs-Chinese operations
China-ACMH and VIEs are governed by the income tax laws of the
PRC and the income tax provision in respect to operations in the PRC is
calculated at the applicable tax rates on the taxable income for the periods
based on existing legislation, interpretations and practices in respect thereof.
Under the Chinese Enterprise Income Tax (EIT) law, the statutory corporate
income tax rate applicable to most companies is 25%. In 2009, Xin Ao applied and
received an Enterprise High-Tech Certificate. The certificate was awarded based
on Xin Aos involvement in producing high-tech products, its research and
development, as well as its technical services. As granted by the State
Administration of Taxation of the PRC, Xin Ao is entitled to a reduction in its
income tax rate from 25% to 15% until 2018.
The EIT Law imposes a 10% withholding income tax, subject to
reduction based on tax treaties where applicable, for dividends distributed by a
foreign invested enterprise to its immediate holding company outside China. Such
dividends were exempted from PRC tax under the previous income tax law and
regulations. The Company intends to permanently reinvest undistributed earnings
of its Chinese operations located in the PRC. As a result, there is no deferred
tax expense related to withholding tax on the future repatriation of these
earnings.
Loss before provision for income taxes consisted of:
|
|
Three months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
USA and BVI
|
$
|
(194,777
|
)
|
$
|
(349,001
|
)
|
China
|
|
(4,957,361
|
)
|
|
(1,402,636
|
)
|
|
$
|
(5,152,138
|
)
|
$
|
(1,751,637
|
)
|
|
|
Six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
USA and BVI
|
$
|
(838,301
|
)
|
$
|
(748,847
|
)
|
China
|
|
(9,634,609
|
)
|
|
(2,094,941
|
)
|
|
$
|
(10,472,910
|
)
|
$
|
(2,843,788
|
)
|
Significant components of deferred tax assets were as follows:
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
5,824,341
|
|
$
|
5,169,993
|
|
Impairment loss of long-lived
assets
|
|
393,673
|
|
|
393,673
|
|
Net operating loss
carryforward in China
|
|
1,766,738
|
|
|
975,894
|
|
Net operating loss carryforward in the U.S.
|
|
272,809
|
|
|
217,020
|
|
Valuation allowance
|
|
(8,257,561
|
)
|
|
(6,756,580
|
)
|
Total deferred tax assets - current
|
$
|
-
|
|
$
|
-
|
|
18
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31 and June 30, 2016, the Company believes it is
more likely than not that its China operations will be unable to fully utilize
its deferred tax assets related to its allowance for doubtful accounts,
impairment loss of long-lived assets and the net operating loss carryforward in
China. As the Company continued to incur losses in its China operations, it is
more likely than not that it will not have sufficient income to utilize its
deferred tax assets. As of December 31, 2016, the Company has a net operating
loss carry forward in China that expires in 2021. As a result, the Company had
provided 100% allowance on all the deferred tax assets of approximately $8.0
million and $6.5 million related to its operations in China as of December 31
and June 30, 2016, respectively.
The Company has incurred losses from its U.S. operations during
all periods presented. Accordingly, management provided approximately $0.3
million and $0.2 million of valuation allowance against the deferred tax assets
related to the Companys U.S. operations as of December 31, 2016 and June 30,
2016, respectively, since the deferred tax benefits of the net operating loss
carry forward in the U.S. might not be utilized.
Changes to valuation allowance for deferred tax assets were as
follows:
|
|
Three months ended
|
|
|
Year ended
|
|
|
|
December 31, 2016
|
|
|
June
30, 2016
|
|
For deferred tax assets
|
|
|
|
|
|
|
Beginning balance
|
$
|
6,756,580
|
|
|
3,064,527
|
|
Allowance for doubtful
accounts
|
|
654,348
|
|
|
2,414,859
|
|
Impairment loss of long-lived assets
|
|
-
|
|
|
393,673
|
|
Change in net operating loss
carry forward in China
|
|
790,844
|
|
|
975,894
|
|
Change in net operating loss carry forward in
U.S.
|
|
55,789
|
|
|
(92,373
|
)
|
Ending balance
|
$
|
8,257,561
|
|
|
6,756,580
|
|
(b) Uncertain tax positions
There were no uncertain tax positions as of December 31 and
June 30, 2016. Management does not anticipate any potential future adjustments
which would result in a material change to its tax positions. For the three and
six months ended December 31, 2016 and 2015, the Company did not incur any tax
related interest and penalties.
Note 11 Shareholders equity
Restricted Stock Grants
Restricted stock grants are measured based on the market price
on the grant date. The Company has granted restricted shares of common stock to
the members of the board of directors (the Board), senior management and
consultants.
Effective August 20, 2016, the Board granted an aggregate of
106,859 shares of restricted common stock, which were issued with a market value
of $308,823 to a consultant under the 2009 Plan. These shares shall be vested in
two tranches upon achieving certain performance-based milestones. As of December
31, 2016, these shares have not vested and the milestones have not been
determined by the Board.
19
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Effective August 20, 2016, the Board granted an aggregate of
100,000 shares of restricted common stock, which were issued with a market value
of $289,000 to two employees under the 2009 Plan. These shares are vested
immediately upon grant.
For the three months ended December 31, 2016, the Company did
not recognize any compensation expense related to restricted stock grants, as
compared to $0.2 million for the same period in 2015.
For the six months ended December 31, 2016 and 2015, the
Company recognized approximately $0.3 million and $0.5 million, respectively, of
compensation expense related to restricted stock grants.
Following is a summary of the restricted stock grants:
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Grant Date
|
|
|
Intrinsic
|
|
Restricted
stock grants
|
|
Shares
|
|
|
Fair
Value Per Share
|
|
|
Value
|
|
Nonvested as of June 30, 2016
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Granted
|
|
206,859
|
|
$
|
2.89
|
|
$
|
597,823
|
|
Vested
|
|
(100,000
|
)
|
$
|
2.89
|
|
$
|
289,000
|
|
Nonvested as of December 31, 2016
|
|
106,859
|
|
$
|
2.89
|
|
$
|
308,823
|
|
Note 12 Reserves and dividends
The laws and regulations of the PRC require that before a
foreign invested enterprise can legally distribute profits, it must first
satisfy all its tax liabilities, provide for losses in previous years, and make
allocations, in proportions determined at the discretion of the board of
directors, after the statutory reserves. The statutory reserves include the
surplus reserve fund and the common welfare fund.
The Company is required to transfer 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
Companys registered capital. As of June 30, 2016, the remaining reserve to
fulfill the 50% registered capital requirement amounted to $1.9 million. As of
December 31, 2016, the remaining capital reserve amount was reduced to
approximately $1.3 million after the dissolution of Da Tong and Hong Shen An.
The transfer to this reserve must be made before the
distribution of any dividends to the Companys shareholders. The surplus reserve
fund is non-distributable other than during liquidation. The surplus reserve
fund can however be used to fund previous years losses, if any, and may be
utilized for business expansion or converted into share capital by issuing new
shares to existing shareholders in proportion to their shareholding or by
increasing the par value of the shares currently held by them, provided that the
remaining reserve balance after such issue is not less than 25% of the
registered capital.
The Chinese government restricts distributions of registered
capital and the additional investment amounts required by foreign invested
enterprises. Approval by the Chinese government must be obtained before
distributions of these amounts can be returned to the shareholders.
Note 13 Employee post-retirement benefits
The Company offers a defined contribution plan to eligible
employees which consists of two parts: (i) the first part, paid by the Company,
is 20% of the employees compensation from the prior year and (ii) the second
part, paid by the employee, is 8% of the employees compensation. The Companys
contributions of employment benefits were approximately $0.2 million for each of
the three months ended December 31, 2016 and 2015. The Companys contributions
to employment benefits were approximately $0.4 million for each of the six
months ended December 31, 2016 and 2015.
20
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 14 Commitments and contingencies
Lease Commitments
The Company has a lease agreement for a concrete service plant
with an unrelated party which will expire on December 31, 2017, with annual
payments of approximately $194,000. The Company has a lease agreement for a
roadway access in the west side entry of the concrete service plant with an
unrelated party which will expire on June 30, 2019, with annual payment of
approximately $14,000. The Company has a lease agreement to lease office space
from Mr. Weili He, the Companys Interim Chief Financial Officer, through
October 31, 2018, with annual payments of approximately $23,000, at a fair
market rate.
Operating lease expenses are allocated between the cost of
revenue and selling, general, and administrative expenses. Total operating lease
expenses for the three months ended December 31, 2016 and 2015 were
approximately $56,000 and $0.2 million, respectively. Total operating lease
expenses for the six months ended December 31, 2016 and 2015 were approximately
$0.1 million and $0.4 million, respectively. Future annual lease payments under
non-cancelable operating leases with a term of one year or more consist of the
following:
Twelve months
ending December 31,
|
|
Amount
|
|
2017
|
$
|
183,000
|
|
2018
|
|
34,000
|
|
2019
|
|
7,000
|
|
Total
|
$
|
224,000
|
|
Legal Contingencies
From time to time, the Company is a party to various legal
actions arising in the ordinary course of business. The Company accrues costs
associated with these matters when they become probable and the amount can be
reasonably estimated. Legal costs incurred in connection with loss contingencies
are expensed as incurred. The Companys management does not expect any liability
from the disposition of such claims and litigation individually or in the
aggregate would have a material adverse impact on the Companys consolidated
financial position, results of operations and cash flows.
Note 15 - Concentrations
For the three months ended December 31, 2016, the Company had
two customers representing approximately 32.9% and 11.6% of total revenue. For
the three months ended December 31, 2015, the Company had one customer
representing approximately 10.3% of total revenue. For the six months ended
December 31, 2016, the Company had one customer representing approximately 22.0%
of total revenue. For the six months ended December 31, 2015, the Company had
one customer representing approximately 14.4% of total revenue. As of December
31 and June 30, 2016, no customer accounting for more than 10% of the total
balance of accounts receivable.
For the three months ended December 31, 2016, the Company had
one vendor representing approximately 14.4% of total purchases. For the three
months ended December 31, 2015, no vendor represented more than 10% of total
purchases. For the six months ended December 31, 2016, the Company had one
vendor representing approximately 15.8% of total purchases. For the six months
ended December 31, 2015, no vendor represented more than 10% of total purchases.
As of December 31 and June 30, 2016, no vendor accounted for more than 10% of
the total balance of accounts payable.
21