CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these
consolidated financial statements.
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE 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 (the 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 subsidiary, Beijing Ao Hang Construction
Material Technology Co., Ltd. (China-ACMH), and China-ACMH has contractual
agreements with Beijing XinAo Concrete Group (Xin Ao) and therefore Xin Ao is
considered to be a VIE of China- ACM.
Xin Ao is engaged in the business of consulting, concrete
mixing and equipment rental services. Xin Ao had five wholly owned subsidiaries
in the PRC: (1) Beijing Heng Yuan Zheng Ke Technical Consulting Co., Ltd, (2)
Beijing Hong Sheng An Construction Materials Co., Ltd, (3) Beijing Heng Tai Hong
Sheng Construction Materials Co., Ltd, (4) Da Tong Ao Hang Wei Ye Machinery,
Equipment Rental Co., Ltd, and (5) Luan Xian Heng Xin Technology Co., Ltd. Since
their establishment, none of these five entities had any operations and the
Company did not plan to pursue operations for these entities. As of June 30,
2017, all five subsidiaries were dissolved.
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.
China ACM, BVI-ACM, China-ACMH and Xin Ao 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 $7.5 million
as of June 30, 2017, as compared to $16.4 million as of June 30, 2016. As of
June 30, 2017, the Company had cash on-hand of approximately $0.2 million and
restricted cash balances of approximately $4.2 million, with 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 economic environment,
trends in the construction industry, the expected collectability of its accounts
receivable and other receivables and the realization of the prepayments on
inventory, and provided for an allowance for doubtful accounts as of June 30,
2017. The Company expects to realize the balance of its current assets net of
the allowance for doubtful accounts 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 supplementing its available sources of funds through the following:
|
|
Financial support and credit guarantee commitments from
the Companys majority shareholders (See Note 7 - Related party
transactions).
|
F-6
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
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 plans. There are a
number of factors that could potentially arise that could undermine the
Companys plans, such as changes in the demand for the Companys products,
economic conditions, competitive pricing in the concrete-mix industry, the
Companys operating results continuing to deteriorate, or the inability of the
Companys bank and shareholders to provide continued financial support.
Basis of presentation
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP) pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). These financial statements
include the accounts of all the directly and indirectly owned subsidiaries and
VIEs listed below. All material intercompany transactions and balances have been
eliminated in consolidation.
Principles of consolidation
The 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
3
|
Beijing, China
|
VIE
|
Hong Sheng An
2
|
Beijing, China
|
VIE
|
Heng Tai
4
|
Beijing, China
|
VIE
|
Da Tong
1
|
Datong, China
|
VIE
|
Heng Xin
2
|
Luanxian, China
|
VIE
|
1
Dissolved in August 2016
2
Dissolved in December 2016
3
Dissolved in January 2017
4
Dissolved in February 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. Based upon a series of contractual
arrangements, the Company determined that Xin Ao is a VIE subject to
consolidation and that China ACM is the primary beneficiary. Accordingly, the
accounts of Xin Ao are consolidated with those of China ACM.
The carrying amount of the VIEs assets and liabilities are as
follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Current assets
|
$
|
76,607,089
|
|
$
|
90,518,451
|
|
Property, plants and equipment
|
|
3,644,203
|
|
|
4,709,794
|
|
Total assets
|
|
80,251,292
|
|
|
95,228,245
|
|
|
|
|
|
|
|
|
Liabilities
|
|
(66,612,148
|
)
|
|
(72,579,677
|
)
|
Intercompany payables*
|
|
(7,088,094
|
)
|
|
(7,355,650
|
)
|
Total liabilities
|
|
(73,700,242
|
)
|
|
(79,935,327
|
)
|
Net assets
|
$
|
6,551,050
|
|
$
|
15,292,918
|
|
F-7
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
* Payables to China-ACMH and BVI-ACM have been 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 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
Xin Ao 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 June 30, 2017 and 2016, were
translated at RMB 6.78 and RMB 6.64 to $1.00, respectively. The average
translation rates applied to the consolidated statements of operations and
comprehensive loss and cash flows for the years ended June 30, 2017 and 2016
were RMB 6.81 and RMB 6.43 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 years ended June 30, 2017
and 2016. 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:
|
|
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.
|
F-8
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 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 the PRC and the
United States. As of June 30, 2017 and 2016, the Company had deposits in excess
of federally insured limits totaling approximately $0.2 million and $0.9
million, respectively, in the PRC.
Restricted cash
As of June 30, 2017 and 2016, restricted cash consisted of
collateral representing cash deposits for bank guarantees and notes payable.
Accounts receivable
The Company extends unsecured credit to its customers in the
normal course of business. Accounts are considered past due after 30 days. In
establishing the required allowance for doubtful accounts, management considers
historical experience, the economic environment, 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 the allowance for doubtful accounts for
accounts receivable balance that are past due more than 180 days but less than one year, 40% of the allowance for doubtful
accounts for accounts receivable past due from one to two years, 75% of the
allowance for doubtful accounts for accounts receivable past due beyond two
years, 100% of the allowance for doubtful accounts for accounts receivable past
due beyond three years, plus additional amounts as necessary when the Companys
collection department determines the collection of the full amount is remote and
the Companys management approves 100% of the allowance for doubtful accounts.
The Companys management has continued to evaluate the reasonableness of the
valuation allowance policy and will update it if necessary.
F-9
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2017 and 2016, the Company determined that no reserves
for obsolescence were necessary.
Other receivables
Other receivables primarily include prepayments to be refunded
by our suppliers if the supplies do not meet the Companys specification needs,
advances to employees, amounts due from unrelated entities, VAT tax refunds and
other deposits. Management regularly reviews the aging of receivables and
changes in payment trends and records allowances when management believes
collection of amounts due are at risk. Accounts considered uncollectible are
written off against allowances after exhaustive efforts at collection are made.
The Company provides a provision of 5% of the allowance for doubtful accounts
for other receivables balance that are aged within one year, 50% of the
allowance for doubtful accounts for other receivables aged from one to two
years, and 100% of the allowance for doubtful accounts for other receivables
aged beyond two years.
Prepayments and advances
Prepayments are funds deposited or advanced to outside vendors
for future inventory purchases. As is standard practice in the PRC, 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 such contracts end.
The Company wrote off $0.2 million and $0 on unrealizable
prepayments for the years ended June 30, 2017 and 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 a 5% residual value. Leasehold
improvements are amortized over the lesser of estimated useful lives or lease
terms, as appropriate.
The estimated useful lives of assets are as follows:
|
Useful life
|
Transportation equipment
|
7-10 years
|
Plants and machinery
|
10 years
|
Office equipment
|
5 years
|
Buildings and improvements
|
3-20 years
|
Accounting for long-lived assets
F-10
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 technological 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 Beijing, PRC, and competitive pricing pressures, 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, plants and machinery. The loss was determined using Level 3 inputs.
There were no impairment charges for the year ended June 30, 2017.
Competitive pricing pressures 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.
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 2014 are not subject to examination
by any applicable tax authorities. PRC tax returns filed in 2017 and prior years
are subject to examination by any applicable tax authorities.
F-11
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 for the Companys industry is 3% of gross
sales, and revenues are presented net of VAT.
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 (losses) per share in accordance
with the US GAAP, which requires presentation of basic and diluted earnings
(losses) per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings (losses) 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.
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 it
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.
Comprehensive income (loss)
Comprehensive income (loss) consists of net income (loss) and
foreign currency translation adjustments.
Recent Accounting Pronouncements
In March 2016, the FASB issued Accounting Standards Update
(ASU) No., 2016-09, Compensation-Stock Options (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The areas for simplification in this
amendment include the income tax consequences, classification of awards as
either equity or liabilities, and classification on the statement of cash flows.
For public business entities, the amendments in this Update are effective for
annual periods beginning after December 15, 2016, and interim periods within
those annual periods. For all other entities, the amendments are effective for
annual periods beginning after December 15, 2017, and interim periods within
annual periods beginning after December 15, 2018. Early adoption is permitted
for any entity in any interim or annual period. If an entity early adopts the
amendments in an interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. An entity that
elects early adoption must adopt all of the amendments in the same period.
Management plans to adopt this ASU during the quarter ending September 2017.
Management does not believe the adoption of this ASU would have a material
effect on the Companys consolidated financial statements.
F-12
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In August 2016, the FASB issued 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 plans to adopt
this ASU during the quarter ending September 2018. Management does not believe
the adoption of this ASU would have a material effect on the Companys
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 plans to adopt
this ASU during the quarter ending September 2017. 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. Management plans to adopt this ASU during the quarter
ending September 2018. Management believes that the adoption of this ASU on the
Companys statement of cash flows will increase cash and cash equivalents by the
amount of the restricted cash on the Companys consolidated financial
statements.
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the definition of a business. The
amendments in this ASU is to clarify the definition of a business with the
objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. The definition of a business affects many areas of accounting
including acquisitions, disposals, goodwill, and consolidation. 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, 2018, and interim periods within fiscal years
beginning after December 15, 2019. Management plans to adopt this ASU early
after during the quarter ending September 2017. The Company does not believe the
adoption of this ASU would have a material effect on the Companys consolidated
financial statements.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification
Accounting, which amends the scope of modification accounting for share-based
payment arrangements and provides guidance on the types of changes to the terms
or conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718. For all entities, this ASU is
effective for annual reporting periods, including interim periods within those
annual reporting periods, beginning after December 15, 2017. Early adoption is
permitted, including adoption in any interim period. Management plans to adopt
this ASU during the quarter ending September 2018. The adoption of this ASU
would not have a material effect on the Companys consolidated financial
statements.
F-13
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share
(Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives
and Hedging (Topic 815). The amendments in Part I of the Update change the
reclassification analysis of certain equity-lined financial instruments (or
embedded features) with down round features. The amendments in Part II of this
Update re-characterize the indefinite deferral of certain provisions of Topic
480 that now are presented as pending content in the Codification, to a scope
exception. For public business entities, the amendments in Part I of this Update
are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. For all other entities, the amendments in
Part I of this Update are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15,
2020. Early adoption is permitted for all entities, including adoption in an
interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. The amendments in Part II of this Update do not
require any transition guidance because those amendments do not have an
accounting effect. Management plans to adopt this ASU during the quarter ending
September 2019. The Company does not believe the adoption of this ASU would have
a material effect on the Companys consolidated financial statements
The Company does not believe other recently issued but not yet
effective accounting standards, if currently adopted, would have a material
effect on the Companys 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 consolidated financial statements.
Note 3 Accounts receivable, net
Accounts receivable, net consisted of the following:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Accounts receivable
|
$
|
63,370,426
|
|
$
|
51,812,683
|
|
Less: Allowance for doubtful accounts
|
|
(15,827,349
|
)
|
|
(11,524,131
|
)
|
Total accounts receivable,
net
|
$
|
47,543,077
|
|
$
|
40,288,552
|
|
Movement of allowance for doubtful accounts is as follows:
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
11,524,131
|
|
$
|
28,209,249
|
|
Provision for doubtful accounts
|
|
3,987,890
|
|
|
2,591,465
|
|
Less: write-off
|
|
-
|
|
|
(17,482,713
|
)
|
Exchange rate effect
|
|
315,328
|
|
|
(1,793,870
|
)
|
Ending balance
|
$
|
15,827,349
|
|
$
|
11,524,131
|
|
During the years ended June 30, 2017 and 2016, the Company
offset approximately $1.5 and $2.1 million of accounts receivable and accounts
payable pursuant to certain three-party settlement agreements, respectively.
Note 4 Other receivables, net
Other receivables
Other receivables consisted of the following:
F-14
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Other receivables
|
$
|
1,653,351
|
|
$
|
7,742,057
|
|
Other receivable from sale of Asset Group
|
|
18,867
|
|
|
1,685,645
|
|
Less: Allowance for doubtful
accounts
|
|
(1,432,095
|
)
|
|
(2,334,672
|
)
|
Total other receivables, net
|
$
|
240,123
|
|
$
|
7,093,030
|
|
Movement of allowance for doubtful accounts is as follows:
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
2,334,672
|
|
$
|
2,403,362
|
|
Provision for (recovery of) doubtful accounts
|
|
(852,275
|
)
|
|
129,212
|
|
Less: write-off
|
|
-
|
|
|
-
|
|
Exchange rate effect
|
|
(50,302
|
)
|
|
(197,902
|
)
|
Ending balance
|
$
|
1,432,095
|
|
$
|
2,334,672
|
|
Other receivables from the sale of the Asset Group
On February 29, 2016, the Company terminated an operating lease
for its concrete plant in the eastern suburban area of Beijing because the plant
was not operating at ideal capacity and the Company did not anticipate it would
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 (the 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
June 30, 2017, the Company had received approximately $1.7 million, with an
$18,867 balance outstanding to be paid by the lessor.
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 5 Property, plants and equipment, net
Property, plants and equipment consist of the following:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Machinery and equipment
|
$
|
896,326
|
|
$
|
754,997
|
|
Transportation equipment
|
|
4,249,609
|
|
|
4,299,862
|
|
Office equipment
|
|
1,168,846
|
|
|
1,172,059
|
|
Buildings and improvements
|
|
308,636
|
|
|
314,909
|
|
Total
|
|
6,623,417
|
|
|
6,541,827
|
|
Less: Accumulated depreciation and
amortization
|
|
(2,979,214
|
)
|
|
(1,832,033
|
)
|
Plants and equipment, net
|
$
|
3,644,203
|
|
|
4,709,794
|
|
F-15
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization expense for the years ended June
30, 2017 and 2016 amounted to approximately $1.2 million and $2.0 million,
respectively.
Note 6 Credit Facilities
Short term loans - banks:
Outstanding balances on short-term bank loans consisted of the
following:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Loans from China Construction
Bank, each with an interest rate of 4.35% per annum, due between September 2017 and
March 2018, guaranteed by Beijing Jinshengding Mineral Products
Co., LTD, Mr. Xianfu Han, Ms. Chunying Wang, Mr. Weili He and Ms.
Junkun Chen.
|
|
17,700,720
|
|
|
12,404,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Bank of Beijing, with an interest
rate of 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.
|
|
-
|
|
|
4,515,120
|
|
|
|
|
|
|
|
|
|
$
|
17,700,720
|
|
$
|
16,555,440
|
|
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 7 Related party transactions.
Interest expense was approximately $0.8 million for each of the
years ended June 30, 2017 and 2016.
In September, 2017, the Company obtained two short term bank
loans totaling $5,206,962.
Notes payable:
The Company has an approximately $31 million (RMB210, 000,000) credit facility
from China Construction Bank (the CCB Credit Facility), which was extended in
August 2017 through August 2018. Bank notes are issued under the CCB Credit
Facility 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
$14.0 million and $13.2 million as of June 30, 2017 and 2016, respectively, and
were non- interest bearing with expiration dates between July 2017 and December
2017. The notes are generally charged with a transaction fee of 0.1% of the
notes amount. The restricted cash for the notes was approximately $4.2 million
and $4.1 million as of June 30, 2017 and 2016, respectively. The Companys
availability under the CCB Credit Facility was $17 million as of June 30, 2017. In
September 2017, the Company repaid $8,112,830 of notes payable.
As of June 30, 2016, the Company had notes payable to the Bank of Beijing of
approximately $4.9 million, which was repaid during the year ended June 30,
2017.
Note 7 Related party transactions
Prepayments - related party
Mr. Xianfu Han, and Mr. Weili He, the Companys shareholders
and officers, are holding positions as president and director of Ningbo Lianlv
Investment Ltd., respectively. This company owns 99% shares of Beijing Lianlv
Technical Group Ltd. (Beijing Lianly), the Companys supplier. As of June 30,
2017 and 2016, the Company prepaid $6,996,400 and $1,136,546 to Beijing Lianlv
for inventory purchases, respectively.
F-16
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 also officers of the
Company. They and their spouses have also guaranteed certain short-term loans
payable and notes payable of the Company (see Note 6). The other payables-shareholders balance also includes the Companys salary payables to the two
shareholders.
Other payables - shareholders consisted of the following:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Xianfu Han
|
$
|
1,070,535
|
|
$
|
715,086
|
|
Weili He
|
|
1,191,231
|
|
|
776,039
|
|
|
$
|
2,261,766
|
|
$
|
1,491,125
|
|
As of June 30, 2017, the balance of other payables-shareholders
includes $1,800,000 salary payable-shareholders and $461,766 loans
payable-shareholders. As of June 30, 2016, the balance of other
payables-shareholders incudes $1,200,000 salary payable-shareholders and
$291,125 loans payable-shareholders.
Note 8 Income taxes
(a) Corporate income tax
China ACM is organized in the United States. China ACM had no
taxable income for United States income tax purposes for the years ended June
30, 2017 and 2016, respectively. China ACMs net operating loss for the year
ended June 30, 2017, amounted to approximately $0.3 million. As of June 30,
2017, China ACMs net operating loss carry forward for United States income
taxes was approximately $0.7 million. The net operating loss carry forward are
available to reduce future years taxable income through year 2037. 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. Management reviews this
valuation allowance periodically and makes changes accordingly.
BVI-ACM is incorporated in the British Virgin Islands (BVI),
where its income tax rate is 0% under current BVI law.
China-ACMH and VIE-Chinese operations
China-ACMH and Xin Ao are governed by the income tax laws of
the PRC. Income tax provisions with respect to operations in the PRC are
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 High-Tech Certificate was
required to be renewed every 3 years. 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:
F-17
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Years ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
USA and BVI
|
$
|
(1,352,589
|
)
|
$
|
(1,556,270
|
)
|
PRC
|
|
(8,418,238
|
)
|
|
(12,504,769
|
)
|
|
$
|
(9,770,827
|
)
|
$
|
(14,061,039
|
)
|
Significant components of deferred tax assets were as follows:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
5,618,514
|
|
$
|
5,169,993
|
|
Impairment loss
of long-lived assets
|
|
393,673
|
|
|
393,673
|
|
Net operating loss carryforward
in China
|
|
159,080
|
|
|
975,894
|
|
Net operating
loss carryforward in the U.S.
|
|
238,650
|
|
|
217,020
|
|
Valuation allowance
|
|
(6,409,917
|
)
|
|
(6,756,580
|
)
|
Total deferred tax assets
|
$
|
-
|
|
$
|
-
|
|
As of June 30, 2017 and 2016, the Company believes it is more
likely than not that its PRC 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 the PRC. If
the Company continues to incur losses in its PRC operations, it is more likely
than not that it will not have sufficient income to utilize its deferred tax
assets. As of June 30, 2017, the Company has a net operating loss carry forward
in the PRC that expires in 2021. As a result, the Company provided a 100%
allowance on all deferred tax assets of approximately $6.2 million and $6.5
million related to its operations in the PRC as of June 30, 2017 and 2016,
respectively.
The Company has incurred losses from its United States
operations during all periods presented. Accordingly, management provided
approximately $0.2 million and $0.2 million of valuation allowance against the
deferred tax assets related to the Companys United States operations as of June
30, 2017 and 2016, respectively, because the deferred tax benefits of the net
operating loss carry forward in the United States might not be utilized.
The following table reconciles the U.S. statutory rates to the
Companys effective tax rate for the years ended June 30, 2017 and 2016.
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
U.S. statutory rates
|
|
34%
|
|
|
34%
|
|
Foreign income not recognized in the U.S.
|
|
(34%
|
)
|
|
(34%
|
)
|
PRC statutory rates
|
|
25%
|
|
|
25%
|
|
Preferential tax treatment
|
|
(10%
|
)
|
|
(10%
|
)
|
Change in valuation allowance
|
|
(4%
|
)
|
|
(27%
|
)
|
Other*
|
|
(11%
|
)
|
|
-
|
|
Effective income tax rates
|
|
(0%
|
)
|
|
(12%
|
)
|
*This represents the expenses incurred by the Company
that are not subject to PRC income taxes during the years.
As of June 30, 2017 and 2016, the Company had $103,419 and
$95,708 of other business tax payables, respectively.
(b) Uncertain tax positions
F-18
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
There were no uncertain tax positions as of June 30, 2017 and
2016. Management does not anticipate any potential future adjustments which
would result in a material change to its tax positions. For the years ended June
30, 2017 and 2016, the Company did not incur any tax related interest or
penalties.
Note 9 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 fair value
of $308,823 to a consultant under the 2009 Plan. These shares shall vest in
two tranches upon achieving certain performance-based milestones. As of June 30,
2017, these shares have not vested and the performance-based milestones have not
been determined by the Board.
Effective August 20, 2016, the Board granted an aggregate of
100,000 shares of restricted common stock, which were issued with a fair value
of $289,000 to two employees under the 2009 Plan. These shares vested
immediately upon grant.
For the years ended June 30, 2017 and 2016, 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
|
|
Unvested as of June 30, 2016
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Granted
|
|
206,859
|
|
$
|
2.89
|
|
$
|
597,823
|
|
Vested
|
|
(100,000
|
)
|
$
|
2.89
|
|
$
|
289,000
|
|
Unvested as of June 30, 2017
|
|
106,859
|
|
$
|
2.89
|
|
$
|
308,823
|
|
Note 10 Earnings (loss) per share
The following is a reconciliation of the basic and diluted
earnings per share computation for the periods ended:
|
|
Years ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net loss for loss per share
|
$
|
(9,770,827
|
)
|
$
|
(15,806,014
|
)
|
|
|
|
|
|
|
|
Weight average shares used in
basic computation
|
|
2,266,826
|
|
|
2,180,799
|
|
Diluted effect of unvested restricted stock
|
|
-
|
|
|
-
|
|
Weight average shares used in
diluted computation
|
|
2,266,826
|
|
|
2,180,799
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
Basic
|
$
|
(4.31
|
)
|
$
|
(7.25
|
)
|
Diluted
|
$
|
(4.31
|
)
|
$
|
(7.25
|
)
|
F-19
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2017 and 2016, all outstanding
unvested restricted stock was included in the calculation of diluted earnings
per share and diluted loss per share is the same as basic loss per share since
the addition of any contingently issuable shares would be anti-dilutive.
Note 11 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 setting aside statutory reserves. 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
June 30, 2017, the remaining capital reserve amount was reduced to approximately
$0.8 million after the dissolution of Heng Yuan Zheng Ke, Hong Sheng An, Heng
Tai, Da Tong, and Heng Xin.
Transfers to statutory reserves 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 PRC government restricts distributions of registered
capital and the additional investment amounts required by foreign invested
enterprises. Approval by the PRC government must be obtained before
distributions of these amounts can be returned to the shareholders.
Note 12 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 $0.7 million for each of
the years ended June 30, 2017 and 2016.
Note 13 Commitments and contingencies
Lease Commitments
The Company has a lease agreement for a concrete service plant
with an unrelated party which will expire on September 30, 2022, with annual
payments of approximately $414,000. The Company has a lease agreement for
roadway access to 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 $15,000. The Company has a lease agreement for office space from
Mr. Weili He, the Companys Interim Chief Financial Officer, through October 31,
2018, with annual payments of approximately $24,000.
Operating lease expenses are allocated between the cost of
revenue and selling, general, and administrative expenses. Total operating lease
expenses for the years ended June 30, 2017 and 2016 were approximately $0.2
million and $0.6 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 June 30,
|
|
Amount
|
|
|
2018
|
$
|
399,000
|
|
|
2019
|
|
437,000
|
|
|
2020
|
|
414,000
|
|
|
2021
|
|
414,000
|
|
|
2022
|
|
414,000
|
|
|
thereafter
|
|
104,000
|
|
|
Total
|
$
|
2,182,000
|
|
F-20
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 14 - Concentrations of risk
Credit risk
The Company is exposed to credit risk from its cash in bank and
fixed deposits, and accounts and notes receivable, other receivables and
advances on equipment purchases.
As of June 30, 2017 and 2016, $4,433,444 and $5,104,591 were
deposited with a bank located in the PRC, respectively. These balances are not
covered by insurance. While management believes that the credit risk on cash in
bank and fixed deposits is limited because the counterparties are recognized
financial institutions.
Accounts and notes receivable, other receivables and advances
on inventory purchases are subjected to credit evaluations. An allowance has
been made for estimated unrecoverable amounts which have been determined by
reference to past default experience and the current economic environment.
Customer concentration risk
For the year ended June 30, 2017, the Company had one customer
accounted for approximately 12.0% of total revenue. For the year ended June 30,
2016, no customer accounted for more than 10% of total revenue. As of June 30,
2017 and 2016, no customer accounted for more than 10% of the total balance of
accounts receivable.
For the year ended June 30, 2017, the Company had one vendor
representing approximately 19% of total purchases. For the year ended June 30,
2016, no vendor accounted for more than 10% of total purchases. As of June 30,
2017, no vendor accounted for more than 10% of the total balance of accounts
payable. As of June 30, 2016, one vendor accounted for approximately 11% of
total balance of accounts payable.
F-21
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
SCHEDULE 1
- PARENT COMPANY BALANCE SHEETS
AS OF JUNE 30, 2017 AND
2016
(UNAUDITED)
ASSETS
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
$
|
456
|
|
$
|
456
|
|
Total
current assets
|
|
456
|
|
|
456
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
Prepayments and advances
|
|
-
|
|
|
-
|
|
Intercompany
receivable
|
|
17,192,991
|
|
|
17,192,991
|
|
Investment in subsidiaries
|
|
-
|
|
|
5,134,283
|
|
Total other assets
|
|
17,192,991
|
|
|
22,327,274
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
17,193,447
|
|
$
|
22,327,730
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Other payables - shareholders
|
$
|
1,800,000
|
|
$
|
1,200,000
|
|
Total
current liabilities
|
|
1,800,000
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
Loss in excess of investment in
subsidiaries
|
|
4,241,525
|
|
|
-
|
|
Total
other liabilities
|
|
4,241,525
|
|
|
-
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
6,041,525
|
|
$
|
1,200,000
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
$0.001 par value, 1,000,000 shares authorized, no share issued or
outstanding
|
|
-
|
|
|
-
|
|
Common stock, $0.001 par
value, 74,000,000 shares authorized, 2,387,658 and 2,180,799 shares issued
and outstanding as of June 30, 2017 and 2016, respectively
|
|
2,388
|
|
|
2,181
|
|
Additional
paid-in-capital
|
|
38,662,377
|
|
|
38,373,584
|
|
Accumulated deficit
|
|
(40,975,658
|
)
|
|
(31,204,831
|
)
|
Statutory
reserves
|
|
6,248,092
|
|
|
6,248,357
|
|
Accumulated other comprehensive
income
|
|
7,214,723
|
|
|
7,708,439
|
|
Total shareholders' equity
|
|
11,151,922
|
|
|
21,127,730
|
|
Total liabilities and shareholders' equity
|
$
|
17,193,447
|
|
$
|
22,327,730
|
|
The accompanying notes are an integral part of Schedule 1.
F-22
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
SCHEDULE 1
- PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE
YEARS ENDED JUNE 30, 2017 AND 2016
(UNAUDITED)
|
|
2017
|
|
|
2016
|
|
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
|
$
|
(889,000
|
)
|
$
|
(1,098,604
|
)
|
LOSS FROM OPERATIONS
|
|
(889,000
|
)
|
|
(1,098,604
|
)
|
EQUITY LOSS OF SUBSIDIARIES
|
|
(8,881,827
|
)
|
|
(14,707,410
|
)
|
NET LOSS
|
|
(9,770,827
|
)
|
|
(15,806,014
|
)
|
OTHER COMPREHENSIVE LOSS -
|
|
|
|
|
|
|
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT
|
|
(493,716
|
)
|
|
(2,766,786
|
)
|
COMPREHENSIVE LOSS
|
$
|
(10,264,543
|
)
|
$
|
(18,572,800
|
)
|
The accompanying notes are an integral part of Schedule 1.
F-23
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
SCHEDULE 1
- PARENT COMPANY STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2017
AND 2016
(UNAUDITED)
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
$
|
(9,770,827
|
)
|
$
|
(15,806,014
|
)
|
|
|
|
|
|
|
|
Adjustments to reconcile net
loss to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
289,000
|
|
|
498,604
|
|
Loss from subsidiaries
|
|
8,881,827
|
|
|
14,707,410
|
|
Changes in
operating assets and liabilitie
|
|
|
|
|
|
|
Other payables - shareholders
|
|
600,000
|
|
|
600,000
|
|
Net cash
provided by (used in) operating activitie
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE
CHANGE IN CASH
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
CASH, beginning of year
|
|
456
|
|
|
456
|
|
|
|
|
|
|
|
|
CASH, end of year
|
$
|
456
|
|
$
|
456
|
|
The accompanying notes are an integral part of Schedule 1.
F-24
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
UNAUDITED CONDENSED NOTES TO SCHEDULE 1
Certain information and footnote disclosures normally included
in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted. The Companys investment
in subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries.
Schedule I of Article 5-04 of Regulation S-X requires the
condensed financial information of registrant shall be filed when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net
assets as of the end of the most recently completed fiscal year. For purposes of
the above test, restricted net assets of consolidated subsidiaries shall mean
that amount of the registrants proportionate share of net assets of
consolidated subsidiaries (after intercompany eliminations) which as of the end
of the most recent fiscal year may not be transferred to the parent company by
subsidiaries in the form of loans, advances or cash dividends without the
consent of a third party (i.e., lender, regulatory agency, foreign government,
etc.).
The condensed parent company financial statements have been
prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the
restricted net assets of the subsidiaries of China Advanced Construction
Materials Group, Inc. exceed 25% of the consolidated net assets of China
Advanced Construction Materials Group, Inc. The ability of our Chinese operating
affiliates to pay dividends may be restricted due to the foreign exchange
control policies and availability of cash balances of the Chinese operating
subsidiaries. Because a significant portion of our operations and revenues are
conducted and generated in China, a significant portion of our revenues being
earned and currency received are denominated in Renminbi (RMB). RMB is subject
to the exchange control regulation in China, and, as a result, we may be unable
to distribute any dividends outside of China due to PRC exchange control
regulations that restrict our ability to convert RMB into US Dollars.
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.
On August 20, 2016, the Company granted a total of 106,859
shares of the Companys restricted stock at $2.89 per share under the 2009
Equity Incentive Plan to a consultant as compensation for the consulting service
to be provided. The shares are to vest in two tranches upon achieving certain
milestones. As of June 30, 2017, these shares have not vested and the
performance-based milestones have not been determined by the Board.
On August 20, 2016, the Company granted a total of 100,000
shares of the Companys restricted stock at $2.89 per share under the 2009
Equity Incentive Plan to two employees as compensation. The shares vested
immediately upon the grant.
For the years ended June 30, 2017 and 2016, the Company
recognized $0.3 million and $0.5 million of compensation expenses related to
restricted stock grants, respectively.
Following is a summary of the restricted stock grants:
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Grant Date
|
|
|
Intrinsic
|
|
Restricted stock grants
|
|
Shares
|
|
|
Fair Value Per Share
|
|
|
Value
|
|
Unvested as of June 30, 2016
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Granted
|
|
206,859
|
|
$
|
2.89
|
|
$
|
597,823
|
|
Vested
|
|
(100,000
|
)
|
$
|
2.89
|
|
$
|
289,000
|
|
Unvested as of June 30, 2017
|
|
106,859
|
|
$
|
2.89
|
|
$
|
308,823
|
|
F-25