Amendment to Registration of Securities of a Small-Business Issuer — Form 10-SB Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10SB12G/A Amendment to Registration of Securities of a HTML 939K Small-Business Issuer
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‘10SB12G/A’ — Amendment to Registration of Securities of a Small-Business Issuer
Cavico
Corp. (the “Company,”“Cavico” or “we”) was incorporated in Delaware on
September 13, 2004 under the name Laminaire Corp. On November 10, 2004, the
name
of the Company was changed to Agent 155 Media Group, Inc. On May 5, 2006, the
Company’s name was changed to Cavico Corp.
During
2006 and 2007, we acquired Cavico Vietnam Joint Stock Company, a corporation
organized under the laws of Vietnam (“Cavico Vietnam”) as our wholly owned
subsidiary. As a result of legal restrictions on the foreign ownership of
Vietnamese entities imposed by the Vietnamese government, the acquisition
of
Cavico Vietnam occurred in multiple steps, as follows:
·
On
April 18, 2006, we entered into an asset purchase agreement with
Cavico
Vietnam. Under the terms of the agreement, Cavico purchased all
of the
assets of Cavico Vietnam in consideration for the issuance to Cavico
Vietnam of 79,000,000 shares of our common stock. Cavico Vietnam
subsequently transferred 60,062,200 of these shares to the former
shareholders of Cavico Vietnam in return for their shares of Cavico
Vietnam stock. An additional 18,937,800 shares were deposited into a
Cavico Vietnam bonus plan for that entity’s management, of
which 4,937,800 shares were distributed to management in
2006.
·
Following
our purchase of the Cavico Vietnam assets, and pending the grant
of the
requisite approval of the acquisition of Cavico Vietnam by a Vietnamese
government agency as required under Vietnamese law, Cavico Vietnam
continued to use the assets subject to our control. Government
approval of
the acquisition of Cavico Vietnam was granted in January 2007.
Following
the grant of this approval and our subsequent acquisition of Cavico
Vietnam to become our wholly-owned subsidiary, all assets previously
purchased from Cavico Vietnam by the Company in April 2006 were
transferred back to Cavico Vietnam. Also, at that time, Cavico
Vietnam
changed its name to Cavico Vietnam Company
Limited.
We
operate nationwide through our direct and indirect subsidiaries, serving almost
exclusively public sector clients. We primarily concentrate on large
infrastructure projects, including the construction of tunnels, roads, highways,
bridges, mines and dams. In addition, we are currently making investments in
hydropower and cement production plants and urban developments in
Vietnam.
Our
fundamental objective is to increase long-term shareholder value by focusing
on
consistent profitability from controlled revenue growth. Shareholder value
is
measured by the appreciation of the value of our common stock over a period
of
years and, eventually, a return from dividends. We believe that the following
are key factors in our ability to achieve this objective:
Position
Our Business for Future Infrastructure Spending -
As a
result of strong economic expansion, there is a growing awareness of the need
to
build, reconstruct and repair Vietnam’s infrastructure, especially its network
of roads to enable transportation as well as in the area of power supply.
Significant funds have been authorized for investments in these areas. We will
continue to build on our expertise in the civil construction market for
transportation and water infrastructure, to develop new capabilities to service
these markets and to maintain our human and capital resources to effectively
meet required demand.
3
Employee
Development
- We
believe that our employees are key to the successful implementation of our
business strategies. Significant resources are employed to attract, nurture
and
retain extraordinary talent and fully develop each employee’s
capabilities.
Infrastructure
Construction Focus -
We concentrate our core competencies on this segment of the construction
industry, which includes the building of tunnels, roads, highways, bridges
and
dams.
Continue
Adding Construction Capabilities -.
By
adding capabilities that are complementary to our core construction
competencies, we are able to improve gross margin opportunities, more
effectively compete for contracts and compete for contracts that might not
otherwise be available to us. We continue to investigate opportunities to
integrate additional services and products into our business.
Operations
Tunnel
Construction.
We apply
what we believe to be the latest tunnel engineering methods such as NATM
[New
Austria Tunnel Method], and TBM [Tunnel Boring Machine] for the construction
of
highways, hydropower plants and civil infrastructure. Cavico Vietnam has
an
extensive network of tunnels that are used for government hydropower plants
like
Dai Ninh, Buon Kuop, Ban Ve, Bac Binh, Dong Nai 4, Dong Nai 3, Nam Chien
and Bao
Loc. We believe that Cavico Vietnam is the first company to use TBM tunnel
technology in Vietnam, in the Dai Ninh Hydropower plant
construction.
Within
the civil construction field, tunnel construction is one of the most complicated
areas. It requires special technique to apply comprehensive methodology from
the
design stage to the time of delivery of the finished product. It involves
experienced managers, engineers and other manpower together with synchronized
equipment to carry out complicated subterranean construction projects (under
mountain, river, even under the sea). There are few companies that have the
requisite expertise to execute a tunnel construction project from beginning
to
end. As a result of “state of art” methods such as NATM, TBM, we believe that we
have that expertise.
Tunnels
are widely used in the construction of Hydro Power Plant (HPP) to collect and
divert water resources to run turbines. They are also used in the construction
of highways that cross through the mountain or under water. In addition, tunnels
are used for underground mining, underground water supply, irrigation,
agriculture and environmental purposes.
Most
of
our tunnel projects have been built in connection with the construction of
hydro
power plants. We anticipate seeing the strongest growth in that area since
the
Vietnamese government has committed to increase power supply to meet the demand
for electricity to sustain the economic expansion that is currently underway
in
Vietnam. According to a directive by the Vietnamese Prime Minister issued on
July 18, 2007, the government plans to implement a power development plan that
at the most basic level anticipates annual growth of 17% until 2015 and the
construction of 75 hydro power plants, some of which of which are scheduled
to
have a greater than 100 MW capacity .
Specifically,
we expect to see strong growth in tunnel construction for roads and highways,
especially in the large metropolitan areas of Hanoi, Hochiminh, Haiphong and
Danang.
Dam
Construction
- Cavico
Vietnam’s experience in dam construction for hydropower plants is diverse,
ranging from dams with earth and stones, to concrete dams with curvilinear
surfaces. Cavico Vietnam has current dam construction projects for hydropower
plants in Buon TuaSha, Ba Ha, Tuyen quang and Van Chan.
Mining
Contsruction
- Cavico
Vietnam utilizes modern equipment from companies such as Caterpillar, Volvo,
Drilltech, Atlas, Copco and Tamrock for operations at the mines. Cavico Vietnam
constructs coal mines in Nui Beo (Quang Ninh) and VietMindocoal (Quang Ninh).
Cavico Vietnam intends to construct mines for the exploration of coal and iron
ore in Australia and other countries. Under Vietnamese resources and mineral
laws, operating mineral mines requires a license by the local Province or
Ministry of Resources and Environmental or Prime Minister depending on reserve
capacity of the mine, kind of mineral and size of the mine project. However,
Cavico only constructs coal mines; it does not own them. Therefore, no special
licenses are required.
Highway
Construction
- Cavico
Vietnam has designed and built a large variety of highways from small to large,
and from simple to complex, both in urban centers and in rural settings. Cavico
helps clients find innovative ways to finance, deliver and manage highways
and
has been involved in flagship design/build ("DB") and build-operate-transfer
("BOT") projects. Our highway projects include:
·
Improvement
of national route 1A sponsored and financed in part by the Asian
Development Bank and the World Bank. We are undertaking a project
that
includes, among other things, repavement, widening the surface
from six to
12 meters, adding a layer of asphalt, digging drainage systems
and
constructing retaining walls
·
Ho
Chi Minh route, we have been awarded contract packages (i.e. segments
of a
highway construction project) for the following locations: Tan
ky (Nghe
an), Khe co (Ha Tinh), A Luoi (Hue), Phuoc son (Quang nam), Dac
zon -
Dackpet (Kontum).
4
·
Construction
of a number of roads in Sonla
Province
·
Construction
of roads in connection with the construction and operation of hydropower
plants.
Urban
Development
- Cavico
Vietnam provides one-stop shopping for residential and commercial buildings,
from permitting to design, and from construction management to operations
and
maintenance. Cavico Vietnam can provide comprehensive services through the
life
of a project, working as a team member, acting as a program manager, or leading
an entire building project. Cavico Vietnam is currently developing a 27 floor
office building in Hanoi and developing a Chieng Ngan 400 hectare new urban
area
in Son La. To date, the Company has not generated any revenues from this
development project.
The
company is in the process of applying for an investment permit for Luong Son
new
tourism zone of 360 hectares in a master planning to upgrade Luong son town
during next 10 years. This includes tender of a feasibility study to construct
in this mountainous area a tourist resort, including villas that may be offered
for sale.
During
the year ended December 31, 2006, we generated revenues of $5,153,472 from
mining operations, $16,809,484 from construction operations and $2,096,471
from
other operation such as leasing machinery and equipment and the sale of
materials. Costs of productions for mining operation were $4,565,841,
$15,283,037 for construction operation and $1,704,848 for other operation.
We
continued to generate the revenues from these operations in 2007 as discussed
further in the Management Discussion and Analysis or Plan of
Operation.
Our
wholly-owned subsidiary, Cavico Vietnam, conducts its operations through
subsidiaries. Some of these entities are wholly owned while others are partially
owned by Cavico Vietnam. The directors of Cavico Vietnam also hold positions
on
the board of the subsidiaries. During 2007, we permitted some our subsidiaries
to issue shares to third parties for the purpose of raising funds for expanded
operations, thereby reducing our percentage holding in those entities. We
believe that this restructuring will result in more efficient and transparent
management. In addition, to the extent that any of the subsidiaries are publicly
traded in Vietnam, Vietnamese securities regulations limit foreign ownership
of
these subsidiaries to 49%.
The
following table sets forth for our principal operating subsidiaries that
generate more than five percent of our revenues on a combined basis, a summary
of their main activities, Cavico Vietnam’s percentage ownership and their
revenues as a percentage of the combined company’s revenues for the year ended
December 31, 2006.
Name
Principal
Activity
Percentage
Owned
Percentage
of Revenues of Combined Company
Cavico
Bridge and Underground construction JSC
Civil
construction, specializing in tunnel and bridge construction, frequently
in conjunction with hydro power construction projects
100
%(1)
44.3
%
Cavico
Mining and Construction JSC
Mining
construction and civil construction, especially in connection with
mining
and dam construction, equity investments in mines, power supply
plants and
land development projects. Cavico Mining is publicly traded on
HCMC stock
exchange.
50
%(2)
30.5
%
Cavico
Transport JSC
Civil
construction, with an emphasis on road construction.
100
%(3)
9.3
%
Cavico
Power and Resource JSC
Civil
construction, focus on power installation.
100
%(4)
8
%
(1)
As
a result of a restructuring, the percentage ownership has been reduced
to
70.4% as of the date hereof.
(2)
In
accordance with current rules promulgated by the Vietnam State Security
Committee relating to foreign ownership of publicly traded Vietnamse
entities, we have had to reduce our ownership in this entity to 48.32%.
In
addition, approximately 5% is held by Cavico Vietnam officers. As
a member
of the World Trade Organization, the Vietnamese government has announced
its commitment to open the country to free trade, which includes
permitting unlimited foreign investments by the year 2009. We expect
that
by that time we will no longer be limited in our ownership of Cavico
Mining.
(3)
As
a result of a restructuring, the percentage ownership has been reduced
to
73.8% as of the date hereof.
(4)
As
a result of a restructuring, the percentage ownership has been reduced
to
67.1% as of the date hereof.
5
Investment
We
may
from time to time continue to act as a passive investor in projects that we
develop and that are subsequently managed by unrelated parties. We may from
to
time also take a more active role in the management of certain projects.
Projects that we have invested in include hydropower projects, cement plants
and
land development projects,
Customers
Our
customers are found primarily in the public sector. Our largest customer is
Electricity of Vietnam, a state owned utility.
During
the year ended December 31, 2006, contracts with this entity represented
approximately 65% of our revenue.
Supplies
Most
of
our raw materials are purchased directly from manufacturers pursuant to simple
purchase orders. We do not have long term contracts with any of our suppliers.
All of the raw materials used in our construction projects are commodities
that
may be purchased from any source if any of our suppliers would cease to sell
to
us for any reason.
Backlog
Our
backlog includes the total value of awarded contracts that have not been
completed, including our proportionate share of unconsolidated joint venture
contracts. Our backlog was approximately $340,000,000 at July 1, 2007.
Approximately $35 million of this backlog is expected to be completed
during 2007. We include a construction project in our backlog at such time
as a contract is awarded and funding is in place. Substantially all of the
contracts in our backlog may be canceled or modified at the election of the
customer; however, we have not been materially adversely affected by contract
cancellations or modifications in the past.
Marketing
We
have
an extensive network of contacts within various levels of the Vietnamese
national and local governments and are not currently engaged in any significant
marketing efforts. We usually manage to be granted contracts based on the
quality of our construction projects.
Our contracts
with our customers include “fixed unit price” or “fixed price” and “adjustment
contracts.” Under fixed unit price contracts which represent approximately 20%
of our total contracts, we are committed to provide materials or services
required by a project at fixed unit prices (for example, dollars per cubic
yard
of concrete poured or cubic yard of earth excavated). While the fixed unit
price
contract shifts the risk of estimating the quantity of units required for a
particular project to the customer, any increase in our unit cost over the
expected unit cost in the bid, whether due to inflation, inefficiency, faulty
estimates or other factors, is borne by us unless otherwise provided in the
contract. Fixed price contracts are priced on a lump-sum basis under which
we
bear the risk of performing all the work for the specified amount. Our
contracts are generally obtained through competitive bidding in response to
advertisements by local government agencies and private parties. Less
frequently, contracts may be obtained through direct negotiations with private
owners. Our contract risk mitigation process includes identifying risks and
opportunities during the bidding process, review of bids fitting certain
criteria by various levels of management and, in some cases, by the executive
committee of our Board of Directors.
There
are
a number of factors that can create variability in contract performance and
results as compared to a project’s original bid. The most significant of these
include the completeness and accuracy of the original bid, costs associated
with added scope changes, extended overhead due to owner and weather delays,
subcontractor performance issues, changes in productivity expectations, site
conditions that differ from those assumed in the original bid (to the extent
contract remedies are unavailable), the availability and skill level of workers
in the geographic location of the project and a change in the availability
and
proximity of equipment and materials. All of these factors can impose
inefficiencies on contract performance, which can drive up costs and lower
profits. Conversely, if any of these or other factors are more positive than
the
assumptions in our bid, project profitability can improve. The ability to
realize improvements on project profitability is more limited than the
risk of lower profitability. Design/build projects carry other risks
such as the risk inherent in estimating quantities and prices before the
project design is completed and design error risk, including additional
construction costs due to any design errors, liability to the contract owner
for
the design of the project and right-of-way and permit acquisition costs.
Although we manage this additional risk by adding contingencies to our bid
amounts, obtaining errors and omissions insurance and obtaining indemnifications
from our design consultants where possible, there is no guarantee that these
risk management strategies will always be successful.
6
For
the
last four years, as a leading company in Vietnamese hydro power (HP)
construction, we have been granted preferred construction contracts by the
Government. State agencies have been using adjustment contracts for most large
HPs in the hope of expediting the completion of HP projects. Under adjustment
contracts, completion of work certifications are based on actual work completion
in accordance with site inspections performed by engineers. Payments are made
based on the price of local construction labor and materials and adjusted for
inflation. The Government periodically issues new rates and guidelines that
apply to HP projects to cover additional work as well as additional cost
incurred in connection with the projects to provide incentives to the
contractors accelerate completion of HP projects. As a result, our risk of
cost
overruns is reduced. However, the procedures to get rate guidelines approved
may
take from three to six months. Therefore, we must carry large quantities of
work
in progress on our income statement.
All
government contracts and most of our other contracts provide for termination
of
the contract for the convenience of the contract owner, with provisions to
pay
us for work performed through the date of termination. We have not been
materially adversely affected by these provisions in the past. Many of our
contracts contain provisions that require us to pay liquidated damages if
specified completion schedule requirements are not met and these amounts can
be
significant.
We
act as
prime contractor on most of the construction projects we undertake. We
accomplish the majority of our projects with our own resources and subcontract
specialized activities such as electrical and mechanical work. As prime
contractor, we are responsible for the performance of the entire contract,
including subcontract work. Thus, we may be subject to increased costs
associated with the failure of one or more subcontractors to perform as
anticipated. We manage this risk by reviewing the size of the subcontract,
the
financial stability of the subcontractor and other factors and, based on this
review, determine whether to require that the subcontractor furnish a bond
or
other type of security that guarantees their performance. As with all of
our subcontractors, some may not be able to obtain surety bonds or
other types of performance security.
7
Equipment
The
Company believes that it owns through its subsidiaries the largest private
fleet
of heavy construction equipment in Vietnam. The total value of all vehicles
and
pieces of machinery and equipment after depreciation at June 30, 2007, was
$14,343,931 and included the following pieces:
Type
Units
Tunnel
Drill Machines 1 boom to 3 booms; for Tunnel Diameter from 8m2 to
80m2
12
Tunnel
Wheel Loaders capacity from 2m3 to 3m3
15
Tunnel
Dump Trucks capacity from 20 tons to 30 tons
28
Bulldozers
capacity from 130hp to 385 hp
13
Excavators
and wheel loaders capacity from 0.7m3 to 10m3
Light
and medium Dump Trucks Capacity up to 15 tons
35
Open
cut Drilling Rigs Dia 89mm - 225mm
18
Electronic
Construction Survey Sets/Stations
19
Concrete
Batching Plants capacity from 60 to 120m3/hour
10
Aggregate
Crushing Plants/Stations capacity from 60 to 180 tons/hour
09
Concrete
Pumps capacity up to 100m3/hour
25
Crawer
Cranes capacity up to 100 tons
11
Site
service cars
39
Other
construction machinery and Equipments ( Generator sets, Air compressors,
Transformers, shotcretes, pumps, Graders, Road Rollers, lift cars,
Concrete mixer Trucks, sliding forms, etc )
200
Total
494
We
believe that ownership of equipment is generally preferable to leasing because
ownership ensures the equipment is available as needed and normally results
in
lower equipment costs. We regularly lease or rent equipment on a short-term
basis to supplement existing equipment and respond to construction activity
peaks.
Competition
Factors
influencing our competitiveness include price, reputation for quality, the
availability of aggregate materials, machinery and equipment, financial
strength, knowledge of local markets and conditions, and project management
and
estimating abilities. Although some of our competitors are larger than us and
may possess greater resources, we believe that we compete favorably on the
basis
of the foregoing factors. Although the construction business is highly
competitive, we believe we are well positioned to compete effectively in the
markets in which we operate.
We
believe that we are the only company executing construction projects in Vietnam
utilizing Tunnel Boring Machines. This technology is the most advanced
engineering method of tunnel construction. It enables excavation and finishing
of underground concrete structures in the most time efficient manner. This
technique is also applied for long tunnels, weak ground conditions and complex
geological conditions. For example, the traffic tunnel that connects England
and
France was constructed utilizing this method.
8
Cavico's
areas of competition include modern technology, advanced management, and
professionally executed quality projects.
In
Vietnam, we are aware of four other companies with expertise in our area of
construction, namely Song Da Corporation,Vinaconex Corporation,
Hydro-construction No. 4 Corporation and Agriculture Electric-mechanical
construction Corporation. Cavico and Song Da are the two largest companies
in
the area of hydropower construction. At the current time, we are the principal
contractors for more than 60% of the total quantity of tunnel construction
works
and have backlog of up to approximately 70% of tunnel construction projects
and
30-40% dam construction works. We have stakes in approximately 90% of hydropower
construction projects, approximately 10% of long high way/road development
projects and about 5% of open cut mining construction. We are expanding our
construction activities to Laos, Algeria and are focusing increasingly on
Australia. We are also diversifying our works in other construction and services
fields such as steel fabrication and mechanical products/services exported
to
Australia and oversea. Within Vietnam, we believe we have a strong reputation,
and the advantage of expertise in the construction of modern and complex
projects.
During
the past five years, we have acted as subcontractors for some of the largest
Japanese construction company like Kumagai Gumi, Kajima, Maeda. This has
resulted in additional involvement in large projects overseas.
Government
Regulation
Our
operations are subject to compliance with requirements of local Vietnamese
government agencies and authorities, including regulations concerning workplace
safety, labor relations and disadvantaged businesses. Additionally, all of
our
operations are subject to local laws and regulations relating to the
environment, including those relating to discharges to air, water and land,
the
handling and disposal of solid and hazardous waste, the handling of underground
storage tanks and the cleanup of properties affected by hazardous substances.
Certain environmental and other laws impose substantial penalties for
non-compliance. We continually evaluate whether we must take additional steps
at
our locations to ensure compliance with environmental and other
laws.
While
compliance with applicable regulatory requirements has not materially adversely
affected our operations in the past, there can be no assurance that these
requirements will not change and that compliance will not adversely affect
our
operations in the future. In addition, our operations require operating permits
granted by governmental agencies. We believe that tighter regulations for the
protection of the environment and other factors will make it increasingly
difficult to obtain new permits and renewal of existing permits may be subject
to more restrictive conditions than currently exist.
Environmental
The
Company’s operations are subject to environmental regulation in Vietnam.
Environmental legislation is still evolving in this jurisdiction and it is
expected to evolve in a manner which may require stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors and employees. If
there are future changes in environmental regulation, they could impede our
current and future business activities and negatively impact the profitability
of operations.
Employees
The
Company and its subsidiaries currently have approximately 3,000 employees (of
which approximately 700 are engineers) located in Hanoi and throughout the
country as well as a small number stationed in Australia. If and when the need
arises, the Company intends to hire additional employees to meet the demand
of a
certain project.
The
Company has always focused on building a dynamic and professional labor force
by
utilizing the following methods:
·
Regular
salary adjustments commensurate with cost of living and inflation
trends
in the Vietnamese labor market.
9
·
Payment
of incentive and performance
bonuses.
·
Improvement
of labor conditions for our
workers.
·
Continuous
professional training.
·
Building
of a company culture through various activities, including company
newsletters, and instill feelings of pride with the Company’s
accomplishments.
Reports
to Security Holders
The
Company is not required to deliver an annual report to security holders and
at
this time does not anticipate the distribution of such a report. The Company
recently became subject to the filing and reporting requirements of the Exchange
Act. These requirements include the filing of annual reports that will include
audited financial statements and quarterly reports as well as reports that
will
be filed upon the occurrence of certain significant events. It is also subject
to the proxy rules under the Exchange Act and its insiders will have to file
reports disclosing their beneficial ownership of the Company’s securities. It is
estimated that the annual cost of compliance with the Exchange Act reporting
requirements will be approximately $100,000.
The
public may read and copy any materials the Company files with the SEC at the
SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, which
can
be found at http://www.sec.gov.
Risk
Factors
Risks
Associated with Our Business
If
we are unable to accurately estimate the overall risks or costs when we bid
on a
contract, we may achieve a lower than anticipated profit or incur a loss on
the
contract.
A
substantial portion of our revenues and contract backlog are typically derived
from fixed unit price contracts. Fixed unit price contracts require us to
perform the contract for a fixed unit price irrespective of our actual costs.
As
a result, we realize a profit on these contracts only if we successfully
estimate our costs and then successfully control actual costs and avoid cost
overruns. If our cost estimates for a contract are inaccurate, or if we do
not
execute the contract within our cost estimates, then cost overruns may cause
us
to incur losses or cause the contract not to be as profitable as we expected.
This, in turn, could negatively affect our cash flow, earnings and financial
position.
The
costs
incurred and gross profit realized on those contracts can vary, sometimes
substantially, from the original projections due to a variety of factors,
including, but not limited to:
·
on-site
conditions that differ from those assumed in the original
bid;
·
delays
caused by weather conditions;
·
contract
modifications creating unanticipated costs not covered by change
orders;
·
changes
in availability, proximity and costs of materials, including steel,
concrete, aggregate and other construction materials (such as stone,
gravel and sand), as well as fuel and lubricants for our
equipment;
·
availability
and skill level of workers in the geographic location of a
project;
·
our
suppliers’ or subcontractors’ failure to
perform;
10
·
fraud
or theft committed by our employees;
·
mechanical
problems with our machinery or equipment;
·
citations
issued by a governmental authority;
·
difficulties
in obtaining required governmental permits or
approvals;
·
changes
in applicable laws and regulations; and
·
claims
or demands from third parties alleging damages arising from our work
or
from the project of which our work is
part.
Many
of
our contracts with public sector customers contain provisions that attempt
to
shift some or all of the above risks from the customer to us, even in cases
where the customer is partly at fault. Our practice in many instances has been
to supersede these terms with an agreement to obtain insurance covering both
the
customer and ourselves. In cases where insurance is not obtained, our experience
has often been that public sector customers have been willing to negotiate
equitable adjustments in the contract compensation or completion time provisions
if unexpected circumstances arise. If we are unable to obtain insurance, and
if
public sector customers seek to impose contractual risk-shifting provisions
more
aggressively, we could face increased risks, which may adversely affect our
cash
flow, earnings and financial position.
Economic
downturns or reductions in government funding of infrastructure projects, or
the
cancellation of significant contracts, could reduce our revenues and profits
and
have a material adverse effect on our results of
operations.
Our
business is highly dependent on the amount of infrastructure work funded by
various governmental entities, which, in turn, depends on the overall condition
of the economy, the need for new or replacement infrastructure, the priorities
placed on various projects funded by governmental entities and federal, state
or
local government spending levels. Decreases in government funding of
infrastructure projects could decrease the number of civil construction
contracts available and limit our ability to obtain new contracts, which could
reduce our revenues and profits.
Contracts
that we enter into with governmental entities may usually be canceled at any
time by them with payment only for the work already completed. In addition,
we
could be prohibited from bidding on certain governmental contracts if we fail
to
maintain qualifications required by those entities. A sudden cancellation of
a
contract or our debarment from the bidding process could cause our equipment
and
work crews to remain idled for a significant period of time until other
comparable work became available, which could have a material adverse effect
on
our business and results of operations.
Our
operations are currently focused in Vietnam, and any adverse change to the
economy or business environment in Vietnam could significantly affect our
operations, which would lead to lower revenues and reduced
profitability.
Our
operations are currently concentrated in Vietnam. Because of this concentration
in a specific geographic location, we are susceptible to fluctuations in our
business caused by adverse economic or other conditions in this region,
including natural or other disasters. A stagnant or depressed economy in Vietnam
generally, or in any of the other markets that we serve, could adversely affect
our business, results of operations and financial condition.
Our
industry is highly competitive, with a variety of larger companies with greater
resources competing with us, and our failure to compete effectively could reduce
the number of new contracts awarded to us or adversely affect our margins on
contracts awarded.
Most
contracts on which we bid are awarded through a competitive bid process, with
awards generally being made to the lowest bidder, but sometimes recognizing
other factors, such as shorter contract schedules or prior experience with
the
customer. Within our markets, we compete with many national, regional and local
construction firms. Some of these competitors have achieved greater market
penetration than we have in the markets in which we compete, and some have
greater financial and other resources than we have. In addition, there are
a
number of national companies in our industry that are larger than us that,
if
they so desired, could establish a presence in our markets and compete with
us
for contracts. As a result, we may need to accept lower contract margins in
order to compete against these competitors. If we are unable to compete
successfully in our markets, our relative market share and profits could be
reduced.
11
Our
dependence on subcontractors and suppliers of materials, including
petroleum-based products, could increase our costs and impair our ability to
complete contracts on a timely basis or at all, which would adversely affect
our
profits and cash flow.
We
rely
on third-party subcontractors to perform some of the work on many of our
contracts. We do not bid on contracts unless we have the necessary
subcontractors committed for the anticipated scope of the contract and at prices
that we have included in our bid. Therefore, to the extent that we cannot engage
subcontractors, our ability to bid for contracts may be impaired. In addition,
if a subcontractor is unable to deliver its services according to the negotiated
terms for any reason, including the deterioration of its financial condition,
we
may suffer delays and be required to purchase the services from another source
at a higher price. This may reduce the profit to be realized, or result in
a
loss, on a contract.
We
also
rely on third-party suppliers to provide all of the materials, including
aggregates, concrete, steel and pipe, for our contracts. We do not own any
quarries, and there are no naturally occurring sources of aggregate in the
Vietnam. We do not bid on contracts unless we have commitments from suppliers
for the materials required to complete the contract and at prices that we have
included in our bid. Thus, to the extent that we cannot obtain commitments
from
our suppliers for materials, our ability to bid for contracts may be impaired.
In addition, if a supplier is unable to deliver materials according to the
negotiated terms of a supply agreement for any reason, including the
deterioration of its financial condition, we may suffer delays and be required
to purchase the materials from another source at a higher price. This may reduce
the profit to be realized, or result in a loss, on a contract.
Our
auditors have included a going concern opinion on our financial statements
because of concerns about our ability to continue as a going concern. These
concerns arise from the fact that we have recurring operating losses and a
net
capital deficit. If we are unable to continue as a going concern, you could
lose
your entire investment in us.
Diesel
fuel and other petroleum-based products are utilized to operate the equipment
used in our construction contracts. Decreased supplies of those products
relative to demand and other factors can cause an increase in their
cost.
Future
increases in the costs of fuel and other petroleum-based products used in our
business, particularly if a bid has been submitted for a contract and the costs
of those products have been estimated at amounts less than the actual costs
thereof, could result in a lower profit, or a loss, on a contract.
Our
contracts may require us to perform extra or change order work, which can result
in disputes and adversely affect our working capital, profits and cash
flows.
Our
contracts generally require us to perform extra or change order work as directed
by the customer even if the customer has not agreed in advance on the scope
or
price of the extra work to be performed. This process may result in disputes
over whether the work performed is beyond the scope of the work included in
the
original project plans and specifications or, if the customer agrees that the
work performed qualifies as extra work, the price that the customer is willing
to pay for the extra work. These disputes may not be settled to our
satisfaction. Even when the customer agrees to pay for the extra work, we may
be
required to fund the cost of that work for a lengthy period of time until the
change order is approved by the customer and we are paid by the
customer.
To
the
extent that actual recoveries with respect to change orders or amounts subject
to contract disputes or claims are less than the estimates used in our financial
statements, the amount of any shortfall will reduce our future revenues and
profits, and this could have a material adverse effect on our reported working
capital and results of operations. In addition, any delay caused by the extra
work may adversely impact the timely scheduling of other project work and our
ability to meet specified contract milestones.
Our
failure to meet schedule or performance requirements of our contracts could
adversely affect us.
In
most
cases, our contracts require completion by a scheduled acceptance date. Failure
to meet any such schedule could result in additional costs being incurred,
penalties and liquidated damages being assessed against us, and these could
exceed projected profit margins on the contract. Performance problems on
existing and future contracts could cause actual results of operations to differ
materially from those anticipated by us and could cause us to suffer damage
to
our reputation within the industry and among our customers.
12
Timing
of the award and performance of new contracts could have an adverse effect
on
our operating results and cash flow.
At
any
point in time, a substantial portion of our revenues may be derived from a
limited number of large construction contracts. It is generally very difficult
to predict whether and when new contracts will be offered for tender, as these
contracts frequently involve a lengthy and complex design and bidding process,
which is affected by a number of factors, such as market conditions, financing
arrangements and governmental approvals. Because of these factors, our results
of operations and cash flows may fluctuate from quarter to quarter and year
to
year, and the fluctuation may be substantial.
The
uncertainty of the timing of contract awards may also present difficulties
in
matching the size of work crews with contract needs. In some cases, we may
maintain and bear the cost of a ready work crew that is larger than currently
required, in anticipation of future employee needs for existing contracts or
expected future contracts. If a contract is delayed or an expected contract
award is not received, we would incur costs that could have a material adverse
effect on our anticipated profit.
In
addition, the timing of the revenues, earnings and cash flows from our contracts
can be delayed by a number of factors, including adverse weather conditions
such
as prolonged or intense periods of rain, storms or flooding, delays in receiving
material and equipment from suppliers and changes in the scope of work to be
performed. Those delays, if they occur, could have an adverse effect on our
operating results for a particular period.
Our
dependence on a limited number of customers could adversely affect our business
and results of operations.
Due
to
the size and nature of our construction contracts, one or a few customers have
in the past and may in the future represent a substantial portion of our
consolidated revenues and gross profits in any one year or over a period of
several consecutive years. Similarly, our contract backlog frequently
reflects multiple contracts for individual customers; therefore, one customer
may comprise a significant percentage of contract backlog at a certain point
in
time. For the year ended December 31, 2006, Electricity of Vietnam accounted
for
approximately 65% of our revenues. The loss of business from this entity or
any
one of those customers could have a material adverse effect on our business
or
results of operations. Because we do not maintain any reserves for payment
defaults, a default or delay in payment on a significant scale could materially
adversely affect our business, results of operations and financial
condition.
We
may incur higher costs to acquire and maintain equipment necessary for our
operations, and the market value of our equipment may
decline.
We
have
traditionally owned most of the construction equipment used to build our
projects, and we do not bid on contracts for which we do not have, or cannot
quickly procure (whether through acquisition or lease), the necessary equipment.
To the extent that we are unable to buy construction equipment necessary for
our
needs, either due to a lack of available funding or equipment shortages in
the
marketplace, we may be forced to rent equipment on a short-term basis, which
could increase the costs of completing contracts. In addition, our equipment
requires continuous maintenance for which we maintain our own repair facilities.
If we are unable to continue to maintain the equipment in our fleet, we may
be
forced to obtain third-party repair services, which could increase our
costs.
13
The
market value of our equipment may unexpectedly decline at a faster rate than
anticipated. Such a decline would reduce the borrowing base under our
construction business credit facility, thereby reducing the amount of credit
available to us and impeding our ability to expand our business consistent
with
historical levels.
Unanticipated
adverse weather conditions may cause delays, which could slow completion of
our
contracts and negatively affect our revenues and cash
flow.
Because
most of our construction projects are built outdoors, work on our contracts
is
subject to unpredictable weather conditions. Lengthy periods of wet weather
will
generally interrupt construction, and this can lead to under-utilization of
crews and equipment, resulting in less efficient rates of overhead recovery.
While revenues can be recovered following a period of bad weather, it is
generally impossible to recover the efficiencies, and hence, we may suffer
reductions in the expected profit on contracts.
Our
operations are subject to hazards that may cause personal injury or property
damage, thereby subjecting us to liabilities and possible losses, which may
not
be covered by insurance.
Our
workers are subject to the usual hazards associated with providing services
on
construction sites. Operating hazards can cause personal injury and loss of
life, damage to, or destruction of, property, plant and equipment and
environmental damage. We self-insure our workers’ compensation claims, subject
to stop-loss insurance coverage. We also maintain insurance coverage in amounts
and against the risks that we believe are consistent with industry practice,
but
this insurance may not be adequate to cover all losses or liabilities that
we
may incur in our operations.
Insurance
liabilities are difficult to assess and quantify due to unknown factors,
including the severity of an injury, the determination of our liability in
proportion to other parties, the number of incidents not reported and the
effectiveness of our safety program. If we were to experience insurance claims
or costs above our estimates, we might also be required to use working capital
to satisfy these claims rather than to maintain or expand our operations. To
the
extent that we experience a material increase in the frequency or severity
of
accidents or workers’ compensation claims, or unfavorable developments on
existing claims, our operating results and financial condition could be
materially and adversely affected.
Environmental
and other regulatory matters could adversely affect our ability to conduct
our
business and could require expenditures that could have a material adverse
effect on our results of operations and financial
condition.
Our
operations are subject to various environmental laws and regulations relating
to
the management, disposal and remediation of hazardous substances and the
emission and discharge of pollutants into the air and water. We could be held
liable for the contamination created not only by our own activities but also
by
the historical activities of others on our project sites or on properties that
we acquire. Our operations are also subject to laws and regulations relating
to
workplace safety and worker health, which, among other things, regulate employee
exposure to hazardous substances. Violations of those laws and regulations
could
subject us to substantial fines and penalties, cleanup costs, third-party
property damage or personal injury claims. In addition, these laws and
regulations have become, and are becoming, increasingly stringent. Moreover,
we
cannot predict the nature, scope or effect of legislation or regulatory
requirements that could be imposed, or how existing or future laws or
regulations will be administered or interpreted, with respect to products or
activities to which they have not been previously applied. Compliance with
more
stringent laws or regulations, as well as more vigorous enforcement policies
of
the regulatory agencies, could require us to make substantial expenditures
for,
among other things, pollution control systems and other equipment that we do
not
currently possess, or the acquisition or modification of permits applicable
to
our activities.
Risks
Associated with Equity Ownership of our Securities and Our Capital
Structure
Insiders
have substantial control over the company, and they could delay or prevent
a
change in our corporate control, even if our other stockholders wanted such
a
change to occur.
Our
executive officers, directors, and principal stockholders who hold 5% or more
of
the outstanding common stock and their affiliates beneficially owned as of
October 15, 2007, in the aggregate, approximately 35,639,400 shares of our
outstanding common stock. These stockholders will be able to exercise
significant control over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
This could delay or prevent an outside party from acquiring or merging with
us
even if our other stockholders wanted it to occur.
14
Our
common stock does not have a vigorous trading market and you may not be able
to
sell your securities when desired.
We
have a
limited active public market for our common shares. We cannot assure you that
a
more active public market will ever develop, allowing you to sell large
quantities of shares or all of your holdings. Consequently, you may not be
able
to liquidate your investment in the event of an emergency or for any other
reason.
We
do not meet the requirements for our stock to be quoted on NASDAQ, the American
Stock Exchange or any other senior exchange and even if our securities quoted
on
the OTC Bulletin Board, the tradability in our securities will be limited under
the penny stock regulations.
The
liquidity of our securities may be restricted even after they are included
for
quotation in the OTC Bulleting Board, should our securities fall within the
definition of a penny stock.
Under
the
rules of the Securities and Exchange Commission, if the price of our securities
on the OTC Bulletin Board is below $5.00 per share, our securities will come
within the definition of a "penny stock." As a result, it is possible that
our
securities may become subject to the "penny stock" rules and regulations.
Broker-dealers who sell penny stocks to certain types of investors are required
to comply with the Commission's regulations concerning the transfer of penny
stock. These regulations require broker-dealers to:
*Make
a
suitability determination prior to selling penny stock to the
purchaser;
*Receive
the purchaser's written consent to the transaction; and
*Provide
certain written disclosures to the purchaser.
These
requirements may restrict the ability of broker/dealers to sell our securities,
and may affect the ability to resell our securities.
Our
compliance with the Sarbanes-Oxley Act and SEC rules concerning internal
controls may be time consuming, difficult and costly for
us.
It
may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act.
We may need to hire additional financial reporting, internal controls and other
finance staff in order to develop and implement appropriate internal controls
and reporting procedures. If we are unable to comply with the internal controls
requirements of the Sarbanes-Oxley Act, we may not be able to obtain the
independent accountant certifications that the Sarbanes-Oxley Act requires
publicly-traded companies to obtain.
We
do not have a written stock option plan in place, which may create potential
conflicts of interest for our management and may dilute or diminish the value
of
our common stock.
The
options to purchase common stock that are outstanding or that may be issued
in
the future are not and may not be issued in accordance with a comprehensive
written option plan. Management presents proposed grants of stock options to
our
Board of Directors for approval, and the terms of the options we grant are
contracted between each recipient and the Company on a case-by-case basis.
Therefore, our board may issue options on terms and in amounts not yet
determined. These circumstances may create a conflict of interest with respect
stock option recipients serving on the board. Furthermore, if more stock options
are granted, the eventual exercise of those options will dilute the holdings
of
the current stockholders, and significant sales of stock issued upon the
exercise of options could have a negative effect on our stock
price.
15
Should
our securities become eligible for inclusion for quotation on the OTC Bulletin
Board, and should we then fail to remain current in our reporting requirements,
our securities could be removed from the OTC Bulletin Board, which would limit
the ability of broker-dealers to sell our securities an the ability of
stockholders to sell their securities in the secondary
market.
Companies
trading on the OTC Bulletin Board, such as we hope to be, must be reporting
issuers under Section 12 of the Exchange Act, and must be current in their
reports under Section 13, in order to maintain price quotation privileges on
the
OTC Bulletin Board. If we fail to remain current on our reporting requirements,
we could be removed from the OTC Bulletin Board. As a result, the market
liquidity for our securities could be severely adversely affected by limiting
the ability of broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary market.
Our
common stock is traded on the "pink sheets" and could be subject to extreme
volatility.
Our
common stock is currently quoted on the "pink sheets," which is characterized
by
low trading volume. Because of this limited liquidity, stockholders may be
unable to sell their shares. The trading price of our shares has from time
to
time fluctuated widely and may be subject to similar fluctuations in the future.
The trading price of our common stock may be affected by a number of factors,
including events described in the risk factors set forth in this prospectus,
as
well as our operating results, financial condition, announcements of
construction projects, general conditions in Vietnam, Southeast Asia, overall
country-wide development, and other events or factors. In recent years, broad
stock market indices, in general, and smaller capitalization companies, in
particular, have experienced substantial price fluctuations. In a volatile
market, we may experience wide fluctuations in the market price of our common
stock. These fluctuations may have a negative effect on the market price of
our
common stock.
16
Item
2. Management's Discussion and Analysis or Plan of
Operation
Forward-Looking
Statements
The
information in this report contains forward-looking statements. All statements
other than statements of historical fact made in report are forward looking.
In
particular, the statements herein regarding industry prospects and future
results of operations or financial position are forward-looking statements.
These forward-looking statements can be identified by the use of words such
as
“believes,”“estimates,”“could,”“possibly,”“probably,” anticipates,”
“projects,”“expects,”“may,”“will,” or “should” or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. Forward-looking statements reflect
management’s current expectations and are inherently uncertain. Our actual
results may differ significantly from management’s expectations.
The
following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative
of
actual operating results in the future. Such discussion represents only the
best
present assessment of our management.
Background
Cavico
Corp. (the “Company,”“Cavico” or “we”) was incorporated in Delaware on
September 13, 2004 under the name Laminaire Corp. On November 10, 2004, the
name
of the Company was changed to Agent 155 Media Group, Inc. On May 5, 2006, the
Company’s name was changed to Cavico Corp.
During
2006 and 2007, we acquired Cavico Vietnam Joint Stock Company, a corporation
organized under the laws of Vietnam (“Cavico Vietnam”) as our wholly owned
subsidiary. As a result of legal restrictions on the foreign ownership of
Vietnamese entities imposed by the Vietnamese government, the acquisition
of
Cavico Vietnam occurred in multiple steps, as follows:
·
On
April 18, 2006, we entered into an asset purchase agreement with
Cavico
Vietnam. Under the terms of the agreement, Cavico purchased all
of the
assets of Cavico Vietnam in consideration for the issuance to Cavico
Vietnam of 79,000,000 shares of our common stock. Cavico Vietnam
subsequently transferred 60,062,200 of these shares to the former
shareholders of Cavico Vietnam in return for their shares of Cavico
Vietnam stock. An additional 18,937,800 shares were deposited into a
Cavico Vietnam bonus plan for that entity’s management, of
which 4,937,800 shares were distributed to management in
2006.
·
Following
our purchase of the Cavico Vietnam assets, and pending the grant
of the
requisite approval of the acquisition of Cavico Vietnam by a Vietnamese
government agency as required under Vietnamese law, Cavico Vietnam
continued to use the assets subject to our control. Government
approval of
the acquisition of Cavico Vietnam was granted in January 2007.
Following
the grant of this approval and our subsequent acquisition of Cavico
Vietnam to become our wholly-owned subsidiary, all assets previously
purchased from Cavico Vietnam by the Company in April 2006 were
transferred back to Cavico Vietnam. Also, at that time, Cavico
Vietnam
changed its name to Cavico Vietnam Company
Limited.
The
transaction was accounted for as a reverse acquisition under the purchase
method
of accounting since the shareholders of Cavico Vietnam obtained control of
the
consolidated entity. Accordingly, the merger of the two companies is recorded
as
a recapitalization of Agent 155 Media Group, Inc., with Cavico Vietnam being
treated as the continuing entity. The historical financial statements to
be
presented are those of Cavico Vietnam, our wholly-owned
subsidiary.
Critical
Accounting Policies
Principles
of Consolidation
Our
consolidated financial statements include the accounts of our direct and
indirect subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 revenue and expenses during the reporting
period. Such estimates may be materially different from actual financial
results. Significant estimates include the recoverability of long-lived assets
and the collectibility of accounts receivable.
17
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all cash and
highly liquid investments with initial maturities of three months or less to
be
cash equivalents.
Investment
in Marketable Securities
Investments
with original maturities of less than 90 days are considered cash equivalents,
and all other investments are classified as short-term investments.
Inventories
Inventories
are stated at the weighted-average method. Market value for raw materials is
based on replacement cost and for work-in-process on net realizable
value.
Accounts
Receivable
We
grant
credit to customers within Vietnam and do not require collateral. Our ability
to
collect receivables is affected by economic fluctuations in the geographic
areas
and industries that we serve. Our main customers were project management units
established by Electricity of Vietnam, which accounts for 99% of all accounts
receivable. Reserves for un-collectable amounts are provided, based on past
experience and a specific analysis of the accounts, which management believes
are sufficient.
Property
and Equipment
Property
and equipment, including renewals and betterments, are stated at cost. Assets
held under capital leases are recorded at lease inception at the lower of the
present value of the minimum lease payments or the fair market value of the
related assets. We follow the practice of capitalizing property and equipment
purchased over $600. The cost of ordinary maintenance and repairs is
charged to operations while renewals and replacements are capitalized.
Depreciation and amortization are computed on the straight-line method over
the
following estimated useful lives of the related assets, which range from two
to
twenty five years.
Construction
in Progress
Construction
in progress is stated at cost, which includes the cost of construction and
other
direct costs attributable to the construction. No provision for depreciation
is
made on construction in progress until such time as the relevant assets are
completed and put into use. Construction in progress at December 31, 2006,
represents land costs, infrastructure and building expenditures.
Long-Lived
Assets
Our
management assesses the recoverability of its long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their
remaining lives can be recovered through projected undiscounted future cash
flows. The amount of long-lived asset impairment if any, is measured based
on
fair value and is charged to operations in the period in which long lived assets
impairment is determined by management.
Fair
Value of Financial Instruments
The
carrying amount of cash, cash equivalents, investment securities, notes payable,
accounts receivable, accounts payable and accrued expenses are considered to
be
representative of their respective fair values because of the short-term nature
of these financial instruments. The carrying amount of the notes payable and
long-term debt are reasonable estimates of fair value as the loans bear interest
based on market rates currently available for debt with similar
terms.
Revenue
Recognition
Revenue
from product and services are recognized at the time goods are shipped or
services are provided and accepted by the customer, with an appropriate
provision for returns and allowances.
We
recognize revenues from construction contract, which includes engineering,
using
the percentage-of-completion method, based primarily on contract costs incurred
to date compared with total estimated contracted costs. Customer-furnished
materials, labor, and equipment, and in certain
cases subcontractor materials, labor, and equipment are included in revenues
and
cost of revenue when management believes that we are
responsible for the ultimate acceptability of the project. Contracts are
not
segmented between types of services such as engineering and construction,
and
accordingly, gross margin is recognized under construction
services.
18
Changes
to total estimated contract cost or losses, if any, are recognized in the period
in which they are determined. Claims against customers are recognized as revenue
upon settlement. Revenues are recognized in excess of amounts billed are
classified as current assets under contract work-in-progress. Amounts billed
to
clients in excess of revenues recognized to date are classified as current
liabilities under advance billing on contracts.
Other
Comprehensive Income
We
have
adopted Financial Accounting Standards Board Statement No. 130, “Reporting
Comprehensive Income” (SFAS 130). SFAS 130 requires reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statement.
Foreign
Currency Translation
We
account for translation of foreign currency in accordance with Statement of
Financial Accounting Standards No. 52 “Foreign Currency
Translation.”
We
generated $24,079,427 in revenue during the year ended December 31, 2006
compared to $22,566,306 during the year ended December 31, 2005, mostly from
construction and mining projects. The Company’s revenue from mining construction
decreased by $1,126,686 or 17.88% to $5,173,472 for the year ending December31,2006 from $6,300,158 for the year ending December 31, 2005. Company’s revenue
from civil construction increased by $2,668,600 or 18.87% to $16,809,484 for
the
year ending December 31, 2006 from $14,140,884 for the year ending December31,2005. Company’s revenue from other operations (i.e. leasing machinery and
equipment, selling materials) decreased by $28,793 or 1.35% to $2,096,471 for
the year ending December 31, 2006 from $2,125,264 for the year ending December31, 2005.
Cost
of production
Cost
of
Goods sold for the year ended December 31, 2006 was $21,553,726 which includes
cost of goods sold for production activities of $20,352,757 and capitalization
of interest expenses of $1,200,969.
Cost
of
Goods sold (without capitalization of interest expenses) increased by $1,744,837
or 2.06% to 84.52% of sales for the year ended December 31, 2006 from 82.46%
of
sales for the year ended December 31, 2005. The increase is due to increase
in
price of material and salary of labor during the year.
Company’s
cost of production from mining construction construction decreased by $713,564
or 13.52% to $4,565,841 for the year ending December 31, 2006 from $5,279,405
for the year ending December 31, 2005. Company’s cost of production from civil
construction was increased by $3,809,560 or 33.20% to $15,283,037 for the year
ending December 31, 2006 from $11,473,477 for the year ending December 31,2005.
Company’s cost of production from other operations (i.e. leasing machinery and
equipment, selling materials) was decreased by $150,190 or 8.10% to $1,704,848
for the year ending December 31, 2006 from $1,855,038 for the year ending
December 31, 2005.
Operating
expenses
The
company’s general and administration cost in 2006 was $2,720,071, compared to
general and administration cost in 2005 of $2,319,925 with an increase of
$540,146. The main factors for the increase in the company’s general and
administration cost were $482,248 in Cavico Corp administration and $57,898
in
Cavico Vietnam and subsidiaries. These costs were incurred mostly due to our
restructuring of the Company and its subsidiaries.
19
The
comparisons of the components of the general and administration costs are
as
follows;
·
Rent
expenses increased by $69,498 to $220,133 for the period ended December31, 2006 from $150,635 for the period ended December 31,2005.
·
Payroll
expenses were increased by $250,219 to $944,425 for the period ended
December 31, 2006 from $694,206 for the period ended December 31,2005.
·
Other
administration cost was decreased by $261,819 to $1,213,265 for the
period
ended December 31, 2006 from $1,475,084 for the period ended December31,2005.
We
believe that the Company’s restructuring will lead to greater efficiencies in
production and management transparency. In addition, it will facilitate raising
additional funds in connection with discrete projects, and enhance strategic
partnering. We believe that as a result of these greater efficiencies, we
will
be able to reduce our expenses, which is expected to result in improved results
of operations. However, to the extent that the restructuring results in our
retaining minority interests in some of the subsidiaries only, the financial
results of those subsidiaries may not be included in our results of our
operations on a consolidated basis.
Other
Income (expenses)
:
Other
Income increased by $228,102 to $596,818 for the period ended December 31,2006
from $368,716 for the period ended December 31, 2005. Other income included
an
income from disposal of fixed assets and leased machinery. Investment income
increased by $3,353,806 to $3,754,415 for the period ended December 31, 2006
from $400,609 for the period ended December 31, 2005. Investment income includes
primary dividends and gain on sales of marketable securities. Dividend income
was $869,979 and income from sales of marketable securities was $2,867,643.
We
sold 780,000 shares of common stock of Habubank during the year ended December31, 2006 and received $2,677,369 with a profit of $2,105,362. We sold 435,340
shares of common stock of An Binh Commercial Bank during the year ended December31, 2006 and received $685,961 with a profit of $359,688 We also sold 1,555,000
shares of common stock of Cavico Mining to reduce the ownership in this entity
from 100% to 50% and received $1,372,045 resulting a profit of $402,593.
Interest expenses including capitalization of interest expenses increased by
$528,266 to $3,232,852 for the period ended December 31, 2006 from $3,905,555
for the period ended December 31, 2005. Loans increased to $43,722,548 on
December 31, 2006 from $39,095,112 on December 31, 2005.
Other
expenses decreased by $946,498 to $93,851 for the period ended December 31,2006
from $1,040,349 for the period ended December 31, 2005. Other expenses for
the
year ended December 31, 2006 and 2005 were loss on settlement of
debts.
We
generated $20,123,277 in revenue during the period ended September 30, 2007
compared to $17,616,416 during the period ended September 30, 2006, mostly
from
construction and mining projects. Company’s revenue from mining construction
decreased by $261,689 or 7.61% to $3,175,261 for the period ending September30,2007 from $3,436,950 for the period ending September 30, 2006. The Company’s
revenue from civil construction increased by $3,494,544 or 27.72% to $16,101,657
for the period ending September 30, 2007 from $12,607,113 for the period
ending
September 30, 2006. The Company’s revenue from other operations (leasing
machinery and equipment, selling materials) decreased by $725,994 or 46.17%
to
$846,359 for the period ending September 30, 2007 from $1,572,353 for the
period
ending September 30, 2006
Cost
of Production
Cost
of
Goods sold for the period ended September 30, 2007 was $12,370,036. Cost of
Goods sold for the period ended September 30, 2006 was $12,533,757. Cost of
goods sold for production activities was $12,370,036 in 2007 which was an
increase of $741,483_from $11,628,553 in the same period in 2006 and
capitalization of interest expenses was $0 for the period ended September 30,2007, a decrease of $905,203 from $905,203 for the period ended September 30,2006
. Cost
of Goods sold excluding capitalization of interest expenses as a percentage
of
sales decreased by 4.54% to 61.47% for the period ended September 30, 2007
from
66.01% for the period ended September 30, 2006. The decrease is due to improve
in efficiency of machinery and equipment.
Operating
expenses
The
company’s general and administration cost increased by $1,420,648 to $3,308,045
for the period ended September 30, 2007 from $1,887,397 for the same period
in
2006. The increase in general and administration cost was mainly resulted from
our restructure of the whole system from Cavico Corp to the subsidiaries. In
which:
·
Stock
compensation expenses for consultant was $337,500 for the period
ended
September 30, 2007.
·
Rent
expense increased by $101,452 to $266,552 for the period ended September30, 2007 from $169,100 for the period ended September 30,2006.
·
Payroll
expenses increased by $273,564 to $877,321 for the period ended September30, 2007 from $603,757 for the period ended September 30,2006.
·
Other
administration costs increased by $708,132 to $1,826,672 for the
period
ended September 30, 2007 from $1,118,540 for the period ended September30, 2006.
20
Other
Income (expenses)
Other
income decreased by $33,208 to $106,070 for the period ended September 30,2007
from $139,278 for the period ended September 30, 2006. Other income includes
gain from disposal of fixed assets and leased machinery. Investment income
increased by $6,465,987 to $9,317,022 for the period ended September 30, 2007
from $2,851,035 for the period ended September 30, 2006. Investment income
included primary from dividend and gain on sale of marketable securities. Income
from dividend was $1,039,856 and income from sales of our investment in
marketable securities was $8,277,167. We sold 1,447,985 shares of common stock
of Habubank during the period ended September 30, 2007 and received $5,580,619
with a profit of $4,306,088. We sold shares of common stock of six subsidiaries
to reduce the ownership in these entities from 100% to a range of 49% to 72%
during the period ended September 30, 2007 and received $8,556,850 with a profit
of $3,756,323. We sold 115,730 shares of common stock of Cavico Mining to reduce
the ownership in this entity from 49.84% to 48.32% and received $312,134 with
a
profit of $214,756.
Interest
expenses ( included capitalization of interest expenses) increased by $780,158
to $4,048,327 for the period ended September 30, 2007 from $3,268,169 for the
period ended September 30, 2006. Other expenses increased by $90,562 to $90,562
for the period ended September 30, 2007 from $0 for the period ended September30, 2006. Other expenses for the period ended September 30, 2006 were loss
on
settlement of debts.
We
generated $7,713,921 in revenue during the three months period ended September30, 2007 compared to $6,220,294 during the three months period ended September30, 2006. Revenue of the company consists of progressive billing from
construction and mining projects.
Company’s
revenue from mining construction decreased by $77,450 or 7.47% to $958,982
for
the three months period ending September 30, 2007 from $1,036,432 for the three
months ending September 30, 2006. Company’s revenue from civil construction
increased by $1,774,739 or 38.23% to $6,417,032 for the three months ending
September 30, 2007 from $4,642,293 for the three months ending September 30,2006. Company’s revenue from other operations (leasing machinery and equipment,
selling materials) decreased by $203,662 or 37.61% to $337,907 for the three
months ending September 30, 2007 from $541,569 for the three months ended
September 30, 2006.
Cost
of production
The
cost
of production for the three months period ended September 30, 2007 was
$4,776,230 or 61.91% of sales compared to $4,356,503 or 70.03% of sales for
the
three months period ended September 30, 2006.
Cost
of
goods sold for production activities was $4,776,230 in 2007, representing an
increase of $419,727 from $4,356,503 for the same period in 2006.and
capitalization of interest expenses was $0, a decrease of $302,305 from $302,305
for the three months ended September 30, 2006.
Cost
of
Goods sold (without capitalization of interest expenses) as a percentage of
sales decreased by 3.27% to 61.91% for the three months ended September 30,2007
from 65.18% for the three months ended September 30, 2006. The decrease was
due
to improvements in efficiency of machinery and equipment which was a main factor
contributed to the increase in net income.
Gross
Profit
The
gross
profit for the three months period ended September 30, 2007 was $2,937,691
or
38.08% of sales compared to $1,863,791 or 29.96% for the three months period
ended September 30, 2006. The increase in profit is due to an increase in sales
by $1,493,627 in comparison to increase in cost of goods sold by
$419,727.
Operating
Expenses
The
Company incurred total operating expenses of $2,286,467 for the three months
ended September 30, 2007, as compared to operating expenses $1,380,859 for
the
three months ended September 30, 2006. The increase of $905,608 in operating
expenses is primarily a result of $421,845 increase in general and
administration expenses and $487,198 in depreciation. The operating expenses
for
the three months ended September 30, 2007, included $1,065,646 in general and
administration expenses and $1,210,045 in depreciation compared to $643,801
in
general and administration expenses and $722,846 in depreciation in the same
period in 2006.
The
Company recorded an interest expense of $1,534,044 for the three months ended
September 30, 2007 compared to $1,269,775 for the same period in 2006. The
increase of $264,269 was due to an increase of loans.
21
Net
Income
The
Company had net income of $3,416,655 for the three months ended September 30,2007, compared to a net loss of $807,930 for the three months ended September30, 2006. The increase of $4,224,585 was mainly due to the increase of
$5,974,213 in investment income. The net profit (loss) per share for the three
months ended September 30, 2007 was $0.026 compared to (-$0.009) for the three
months period ended September 30, 2006.
Liquidity
and Capital Resources
As
of
December 31, 2006, the Company had $716,901 in cash, accounts receivable
of
$10,128,932, inventory of $18,132,997 and net fixed assets of $17,008,170.
The
accounts receivable were consistent from the prior year. Inventory increased
by
$5,418,465 from the prior year. This increase is due to a significant increase
of work in progress from new construction projects added in 2006. The Company's
total current liabilities were $53,164,560, which consisted primarily of
accounts payable of $10,845,794, advances from customers of $1,130,357, which
is
consistent with the prior year and short-term loans totaling $36,099,807.
Accounts payable increased $5,272,258 from prior year mainly as a result
of
inclusion of funds received under a Regulation S financing transaction in
the
amount of $3,770,470 as Cavico Vietnam was not approved for foreign investment
as of December 31, 2006. This amount was reclassified as equity capital in
2007
when Cavico Vietnam received an approval from Vietnamese government.. At
December 31, 2006, the Company's current liabilities exceeded current assets
by
$23,277,479.
During
the year ended December 31, 2006, the Company used cash of $4,387,127 for
operating activities compared to $4,896,767 during the prior year. The Company
used cash of $9,635,618 for investment activities during the year ended December31, 2006 in connection with the purchase of property, equipment and investments
in other entities. The Company added more construction machineries and vehicles
in 2006 to meet the demand on new projects. During the year ended December31,2005, the Company used cash of $2,033,319 in investment
activities.
During
the year ended December 31, 2006, the Company realized net proceeds of
$5,100,702 from debt financing activities. In addition, the Company sold shares
of its common stock for $473,266 during the year ended December 31, 2006. During
the year ended December 31, 2005, the Company realized net proceeds of
$7,513,835 from debt financing activities.
As
of
September 30, 2007, the Company had $3,096,644 in cash, accounts receivable
of
$15,001,026, an inventory of $29,857,323 and net fixed assets of $22,814,781.
Our current accounts receivable was increased by $4,872,094 from the prior
year
end. Our inventory for the current year was increased by $11,724,326 from
the
prior year end. Our accounts receivable increase was due to an increase in
sales
from completed projects and added receivable from Cavico Energy, which became
active in 2007, of $1,916,275. Our inventory for the current year was increased
by $11,724,326 from the prior year end. This increase is due to an increase
in
work in progress from new projects and inventory of $3,746,649 added from
Cavico
Energy which started operation in 2007. The Company's total current liabilities
were $59,545,031 as of September 30, 2007, which was represented mainly accounts
payable of $8,000,865, accrued expenses of $ 4,644,864, advances from customers
of $7,570,463 which was increased by $6,440,105 from the prior year end.
The
amount of advances from customers was increased mainly due to A Luoi HP project
for which we received approximately $5.5 million from the customer. Short-term
loans totaling $37,313,579 was increased by $5,802,997 from the prior year
end.
This increase is mainly due to the added loans of $2,763,287 for Cavico Energy.
At September 30, 2007, the Company's current liabilities exceeded current
assets
by $10,024,802. At September 30, 2007, the Company's current liabilities
exceeded current assets by $10,024,802. The Company used cash $6,546,101
in
operating activities for the nine months period ended September 30, 2007
compared to $3,577,181 during the nine months period ended September 30,2006.
The
Company used cash of $5,389,289 in investing activities during the nine months
period ended September 30, 2007 in purchase of property, equipment and
investments in other entities. The Company spent $2,881,856 for purchase
of
equipment and machinery and $1,830,612 for vehicles for Cavico Energy in
nine
months period ended September 30, 2007. During the nine months period ended
September 30, 2006, the Company raised cash of $1,004,227 from investing
activities, such activities were investment in other entities.
During
the nine months ended September 30, 2007, the Company raised cash of $14,319,789
under financing activities, which included the $41,619,738 in payments on the
loans, $46,749,235 from loan proceeds. In addition, the Company sold shares
of
its common stock for $9,263,408 during the nine months period ended September30, 2007. During the nine months period ended September 30, 2006, the Company
received $2,465,507 from financing activities which includes the $27,453,741
in
payments on the loans, $29,247,537 from loan proceeds.
The
Company has an accumulated deficit at September 30, 2007 of $8,826,325. The
Company does not have capital sufficient to meet its cash needs, including
the
costs of compliance with the continuing reporting requirements of the Securities
Exchange Act of 1934. Management will have to seek loans or equity placements
to
cover such cash needs and cover outstanding payables. Lack of existing capital
may be a sufficient impediment to prevent us from accomplishing the goal of
expanding operations. There is no assurance, however, that without funds we
will
ultimately be able to carry out our business. We will need to raise additional
funds to expand our business activities in the future, and prepare a private
offering memorandum to attempt to raise operating capital. No commitments to
provide additional funds have been made by our management or other stockholders.
Accordingly, there can be no assurance that any additional funds will be
available to us to allow us to cover our expenses as they may be incurred.
Irrespective of whether our cash assets prove to be inadequate to meet our
operational needs, we might seek to compensate providers of services by
issuances of stock in lieu of cash.
During
2007, we sold a portion of some our subsidiaries to raise funds for expanded
operations. We believe that this restructuring will result in more efficient
and
transparent management.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
22
Item
3.Description
of Property
Cavico’s
principal executive offices are located at 17011 Beach Blvd., Suite 1230,
Huntington Beach, CA92647. These offices consist of approximately 200 square
feet leased on a month to month basis for $2,000 per month. These offices are
made available to Cavico under the terms of a Management Services Agreement
dated May 15, 2006, with Providential Holdings, Inc. Other services provided
by
Providential under the terms of that agreement include secretarial and
receptionist services, office and computer equipment, and bookkeeping for the
company’s U.S. operations. The agreement has a terms of two years, that is
automatically renewable for one-year periods, unless either party notifies
the
other of its desire to terminate the agreement at least 60 days prior to the
end
of the agreement, or any renewal thereo.
Cavico's
subsidiary, Cavico Vietnam, maintains its corporate headquarters in Hanoi,
Vietnam, where it leases approximately 6,458 square feet of office space, and
in
other cities and townships throughout the country, where additional operations
are conducted, equipment is maintained and stored, and research and/or
development is conducted. Combined monthly lease payments for these locations
amount to approximately $23,754.
The
main
property of the Company located in Vietnam consists of a complex of heavy plants
and equipments.
The
Company has land use rights with respect to 15,000 square feet of land in Hanoi.
It intends to build an office building of 27 floors with a total of 280,000
square feet available to the Company and its subsidiaries. It also intends
to
rent some of the space to commercial tenants.
The
Company has a long term land lease (70 years) in Son La consisting of an
area of
160 hectares that it intends to convert into a new urban area, including
office
buildings, commercial centers, super markets, condominiums and apartment
buildings. Vietnam does not recognize land ownership. Rather, parcels of
land
are leased from and land use rights are granted by the Government. In general,
land use rights may be exercised by the user in accordance with the purpose
for
which the land was designated as specified in the certificate of land use,
and
includes the right to develop the land. Land use rights may be assigned,
lease,
sub-leased, bequeathed and mortgaged. Grantees of land use rights are also
entitled to compensation in the event the State recovers the land
prematurely.
The
land
use rights to the Son La parcel of land was granted to the Company in payment
for its development of the Chieng Ngan 400 hectare urban area in Son La.
The
services provided include planning and building out of the local infrastructure.
Provided we exercise the land use rights respecting this area in accordance
with
the government approved master plan, there are no restrictions on our land
use
rights. To date, the Company has not generated any revenues from this
project.
The
Company owns additional offices and dormitories totaling 121,922 square feet
and
workshops totaling 145,851 square feet at construction sites owned by the
Company and its subsidiaries. These properties were built by the Company on
sites recorded as Company property for use for a period of three to ten years
depending on the life of the construction contracts/projects. Upon completion
of
the construction contracts, the Company may relinquish its right to the property
or sell it to the project owner/local entities.
23
The
following table contains a summary of the Company’s properties owned and leased
on a long term basis by its subsidiaries in Vietnam in square feet.
Name
of company
Long-term
Land Leased
Office
Lease in Hanoi
Offices
Built at Sites
Workshops
Built at Sites
Location
Cavico
Vietnam company limited
6,458
Song
Da Building,Pham Hung, Tu Liem, Ha Noi
Cavico
Mining Construction Joint Stock Company
2,153
27,448
65,122
CT5
Building, My Dinh, Ha Noi
Cavico
Trade company limited
2,799
CT5
Building, My Dinh, Ha Noi
Cavico
Vietnam Bridge & Underground Construction company
limited
3,229
45,208
59,202
CT4
Building, My Dinh, Ha Noi
Cavico
Vietnam Tower Joint Stock company
14,960
My
Dinh Area,Tu Liem, Ha Noi
Chieng
Ngan Urban Area
17,222,257
Chieng
Ngan,Thi xa Son La, Son La
Cavico
Energy Construction company
2,877
18,651
8,611
Song
Da Building,Pham Hung, My Dinh,Ha Noi
Cavico
Transportation company
2,879
7,885
4,306
Song
Da Building,Pham Hung, My Dinh,Ha Noi
Cavico
Infrastructure investment and construction company
3,132
8,708
4,306
Song
Da Building,Pham Hung, My Dinh,Ha Noi
Cavico
hydropower construction company
2,124
14,022
4,306
Song
Da Building,Pham Hung, My Dinh,Ha Noi
Cavico
construction machine company
1,812
Song
Da Building,Pham Hung, My Dinh,Ha Noi
Cavico
hightech company
2,879
Song
Da Building,Pham Hung, My Dinh,Ha Noi
Cavico
Power and Resource Company
2,842
Song
Da Building,Pham Hung, My Dinh,Ha Noi
17,237,217
33,184
121,922
145,851
24
Item
4.Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth the beneficial ownership of Common Stock of the
Company as of October 15, 2007 for the following: (i) each person or entity
who
is known to the Company to beneficially own more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's Directors;
(iii) the Company's Chief Executive Officer and each of the other executive
officers; and (iv) all Directors and executive officers of the Company as a
group.
The
number and percentage of shares beneficially owned is determined under rules
of
the Securities and Exchange Commission ("SEC"), and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such
rules, beneficial ownership includes any shares as to which the individual
has
sole or shared voting power or dispositive power and also any shares that the
individual has the right to acquire within sixty days of the Record Date through
the exercise of any stock option or other right. Unless otherwise indicated
in
the footnotes, each person has sole voting and dispositive power (or shares
such
power) with respect to the shares shown as beneficially owned.
Based
upon 131,147,493 shares outstanding as of October 15,2007.
26
(2)
Includes
4,381,400 shares held by Mr. Bui’s wife. Also includes 14,000,000 shares
held by Cavico Vietnam of which Mr. Bui is a director. Mr. Bui disclaims
beneficial ownership in those
shares.
(3)
Includes
252,000 shares held by Mr. Tran’s wife. Also includes 14,000,000 shares
held by Cavico Vietnam of which Mr. Tran is a director. Mr. Tran
disclaims
beneficial ownership in those
shares.
(4)
Includes
200,000 shares held by Mr. Phan’s wife. Also includes 14,000,000 shares
held by Cavico Vietnam of which Mr. Phan is a director. Mr. Phan
disclaims
beneficial ownership in those
shares.
(5)
Includes
367,300 shares held by Mr. Tran’s wife. Also includes 14,000,000 shares
held by Cavico Vietnam of which Mr. Tran is a director. Mr. Tran
disclaims
beneficial ownership in those
shares.
(6)
Shares
held by Mr. Pham’s wife.
(7)
Includes
350,000 shares held by Mr. Bui’s wife. Also includes 14,000,000 shares
held by Cavico Vietnam of which Mr. Bui is a director. Mr. Bui disclaims
beneficial ownership in those
shares.
27
Item
5.Directors
and Executive Officers, Promoters and Control Persons
Directors
and Executive Officers
The
following table sets forth the names and ages of the members of our Board of
Directors and our executive officers and the positions held by each.
Set
forth
below is a brief description of the background and business experience of
each of our executive officer and directors for the past five
years.
Ha
Quang Bui.
From
March 2001 to May 2003, Ha Quang Bui served as Vice President of Lung Lo
Construction Company. From May 2003 to present, Ha Quang Bui served as chairman
of the board of directors of Cavico Vietnam and as chairman of the board of
directors of Cavico Tower Company. He is a director of Energy Investment Company
and a director of Mai Son Concrete Company. Mr. Bui became the Chief Executive
Officer, Chief Financial officer and Chairman of the Board of Directors of
Cavico Corp. on April 28, 2006. He currently is CEO and Chairman of Cavico
Corporation. He graduated from the Military Technology Institute, Department
of
Defense, in 1986 with a degree in engineering.
Hung
Manh Tran.
From
March 2001 to March 2002, Hung Manh Tran served as president of an affiliate
of
Cavico. From 2002, he has been Vice President and Director of Cavico
Vietnam. Hung Manh Tran has been a director and Executive Vice President
of
Cavico since 2006 and 2007, respectively (and Vice President from 2006 to
2007). In addition, he has been chairman of Cavico mining (since 2006), chairman
of VFMC (since 2007), chairman of Luong son international tourism JSC (since
2007), director of v-power (since 2006), director of Cavico construction
machinery (since 2007), and a director of Cavico Australia (since 2005).
Hung
Manh Tran graduated from Hanoi University in 1986 with a degree in nuclear
physic. He also did course work in law at the same University during 1992-1996.
Mr. Tran also holds a degree jn international trade from Hanoi International
Trade University in 1991.
Hieu
Van Phan
. From
2001 to July 2003, Hieu Van Phan served as president of Power Installation
Company. From July 2003 to present, Hieu Van Phan has been vice president and
a
director of Cavico Vietnam, and became a Vice-President and Director of Cavico
Corp. on April 28, 2006. Hieu Van Phan is currently COO of Cavico Vietnam,
chairman of the board of directors of Cavico Power Installation Construction
Co.
and a Director of CAVICO Mining and Energy Construction Co.. Hieu Van Phan
graduated from the Military Technology Institute, Department of Defense, in
1986
with a degree in engineering.
Hai
Thanh Tran
. From
March 2001 to April 2002, Hai Thanh Tran worked as an assistant at the Planning
Department of 25/3 Lung lo Construction Co - MOD. From April 2002 to July 2003,
Hai Thanh Tran was president of Bridge and Underground Construction Cavico
Company. From July 2003 to present, he has been a director and vice president
of
Cavico Vietnam, and on April 28, 2006, he became a Vice-President and Director
of Cavico Corp and currently is CEO of Cavico Vietnam, chairman of the Board
Director of CAVICO Hydropower Construction Co., He graduated from the Military
Technology Institute, Department of Defense, in 1986 with a degree in
engineering.
28
Giang
Linh Bui.
From
March 2001 to November 2002, Giang Linh Bui worked in the Projected Technology
Department at Lung lo Construction Company.Giang Linh Bui is currently a
director of Nam Chien Hydropower Company, Director of CAVICO PHI Cement
Construction Co., and chairman of the Board Director of CAVICO Infrastructure
Construction Co, and became a Vice-President and Director of Cavico Corp. on
April 28, 2006. Mr. Bui is also a director of Cavico Vietnam. Giang Linh Bui
graduated from Hanoi University of Architecture in 1994 with a degree in
architecture.
Tuan
Duong Hoang.
Mr Hoang
has been Professor of Education at The University of New South Wales, UNSW,
Sydney, NSW 2052, Australia, since 2003. From 1999 to 2003, he was an associate
professor in the Department of Electrical and Computer Engineering at the Toyota
Technical Institute, Hiskata 2-12-2, Tenpaku, Nagoya, Japan. He holds a master
degree and a Ph.D. from the University of Odessa in the Ukraine
Timothy
Dac Pham
. From
2002 through 2003, Mr. Pham was a registered representative at NT Securities
in
Chicago, Illinois. Through 2004, he worked as a registered representative at
Golden Beneficial Securities Corp. Since that time he has worked as an
independent consultant for Providential Holdings, Inc. and as a registered
representative and life insurance agent for Richave Financial Inc. He has been
our Vice President since June 2006. Mr. Pham graduated in 1991 from the
University of California at Berkeley with a degree in Business Administration
in
the fields of Finance and Marketing.
Thanh
Binh Huynh.
Mr.
Huynh has been Vice President of the Tuan Chao Joint Stock Company since 2003.
From 2001 to 2003 he was a consultant at Edwards, Wynn & Associates LLP.
During that same period he was also Chairman and President of Raycorp.com LLC.
Mr. Huynh holds business administration degrees from institutions of higher
learning in Russia, China and the United States.
Edward
K. Chi
. Mr.
Chi has been our Chief Financial Officer since January 2007. He is also Managing
Director of Tuan Chau Group, a Vietnamese based real estate development firm.
From
January 2005 until March 2007, Mr. Chi was chief representative for SVLand
Pte,
Ltd. a Singapore based real estate consulting firm. From 2001 through 2004,
he
had been Chief Financial Officer and Administrator at the law firm of Edwards,
Wynn & Associates
Madhava
Rao Mankal
has been
a director since October 2007. He has been Chief Financial Officer and Secretary
and a Director of Medina International Holdings, Inc., a manufacturer of boats.
since November 2004. Also, Mr. Mankal has been Chief Financial Officer,
Secretary and Treasurer of Genesis Companies Group, Inc., Company formed to
develop Laser stripping equipment. Since March 2006. Mr. Mankal served as
President of Force Protection Inc., manufacturer of mine detecting vehicles,
from January 2002 to September 2003 and Chief Financial Officer from
May 1999 until September 2003. In addition, he served on the Board
of Directors of that entity from December 2001 to September 30, 2004.
He has over 28 years experience in finance and accounting and
holds accounting certifications from India and the United States. He has
Bachelor Degree in commerce from Bangalore University.
Messrs.
Ha Quang Bui and Giang Linh Bui are brothers.
Employment
Agreements
Each
of
our executives has entered into an employment agreement with us. Each agreement
is on at will basis subject to termination upon 30 day notice. The executives
are entitled to vacation and personal and sick days as well as standard health
benefits and insurance available to all of our employees. Each agreement
contains standard confidentiality provisions.
29
Compensation
under the employment agreements for each is as follows:
Name
Current
Position/Office
Annual
Compensation
Ha
Quang Bui
Chief
Excutive Officer and Chairman
$
70,000
Hung
Manh Tran
Executive
Vice-President/Director
$
55,777
*
Hieu
Van Phan
Vice-President/Director
$
41,364
**
Hai
Thanh Tran
Vice-President/Director
$
41,364
**
Giang
Linh Bui
Vice-President/Director
$
41,364
**
Timothy
Pham
Vice-President/Director
$
50,000
Edward
K. Chi
Chief
Financial Officer
$
50,000
*
$30,000
payable by Cavico Corp and $25,777 payable by Cavico Vietnam.
**
Payable by Cavico Vietnam.
Committees
of the Board
Our
Board
of Directors has established an Audit Committee, Compensation Committee and
a
Nominating Committee
The
functions of the Audit Committee are: (i) to recommend the engagement of
the
Company's independent auditors and review with them the plan, scope and results
of their audit for each year; and (ii) to consider and review other matters
relating to the financial and accounting affairs of the Company. The Audit
Committee consists of Messrs. Madhava Rao Mankal (Chairman and considered
independent under the Nasdaq rules), Hung Manh Tran and Timothy Dac
Pham.
The
functions of the Compensation Committee are: (i) reviewing and approving
the
amounts and types of compensation to be paid to the Company's executive officers
and the non-employee directors; (ii) reviewing and approving all bonus and
equity compensation to be paid to other Company employees; and (iii)
administering the Company's stock-based compensation plans. The Compensation
Committee consists of Messrs. Thanh Binh Huynh (Chairman and considered
independent under the Nasdaq rules) and Hieu Van Phan.
The
functions of the Nominating Committee are: (i) leading the search for,
screening, evaluating and recommending to the Board qualified candidates
or
nominees for election or appointment as directors, consistent with the Board's
Director Nomination Policy; (ii) recommending the number of members that
shall
serve on the Board; and (iii) reviewing the processes and performance of
the
Board in order to identify areas of concern or potential issues relating
to
Board and committee processes, performance and effectiveness and to assess
and
evaluate the overall effectiveness of individual directors. The Nominating
Committee consists of Messrs. Tuan Duong Hoang (Chairman and considered
independent under the Nasdaq rules), Giang Linh Bui and Hai Thanh
Tran.
Code
of Ethics
We
have
adopted a "Code of Ethics for Directors, Officers and Employees", a code of
ethics that applies to all employees, including our executive officers. A copy
of our Code of Ethics for Directors, Officers and Employees will be filed with
the Securities and Exchange Commission as Exhibit 14.1 to this Registration
Statement.
Item
6.Executive
Compensation
The
following table sets forth compensation information for the Company’s Chief
Executive Officer for the periods indicated. Under the rules of the Securities
and Exchange Commission no other individual is required to be included in the
table.
SUMMARY
COMPENSATION TABLE*
Name
and principal position (a)
Year (b)
Salary
($) (c)
Stock
Awards ($) (d)
Total
($) (j)
Ha
Quang Bui
Chief
Executive Officer
2006
39,565
(1)
3,900
(1)
43,465
(1)
*
In
accordance with the rules of the Securities and Exchange Commission, this table
omits columns that are not relevant.
(1)
Mr.
Bui did not join the Company until April 2006. Amounts disclosed represent
compensation actually earned. Compensation was paid in Vietnamese currency
and,
for purposes of disclosure translated into US Dollars using an exchange rate
of
15.739 Vietnamese Dongs per US Dollar. As part of his compensation, the Company
issued 390,000 shares to Mr. Bui valued at $0.01 per share, representing
the
price at which the Company’s shares were being sold to third parties in arm’s
length transactions. The Company accounts for the issuance of equity instruments
based on the fair value of services or fair value of the equity instruments
at
the time of issuance, whichever is more readily measurable.
To
date,
none of the Company's non-employee directors have received any compensation
from
the Company.
30
Item
7.Certain
Relationships and Related Transactions
Note
payable, secured by deed of trust, annual interest at 0%, due on
demand,
to Mr. Ha Quang Bui
$
128,035
Note payable, secured by deed of trust, annual interest at 12.6%,
due on
demand, to Mrs. Ty Thi Pham
$
1,246,883
Note payable, secured by deed of trust, annual interest at 0%,
due on
demand, to Mr. Hung Manh Tran
$
337,818
Note payable, unsecured, annual interest at 8%, due on demand,
to
Providential Holdings
$
37,020
Item
8.Description
of Securities
Our
authorized capital consists of 300,000,000 shares of common stock, $.001 par
value per share, of which 131,147,493 shares were issued and outstanding as
of
October 15, 2007, and 100,000,000 shares of Class B Preferred Stock, none of
which are outstanding.
The
following description is a summary and is qualified in its entirety by our
Certificate of Incorporation and By-laws as currently in effect.
Each
holder of common stock is entitled to receive ratable dividends, if any, as
may
be declared by the Board of Directors out of funds legally available for the
payment of dividends. As of the date of this prospectus, we have not paid any
dividends on our common stock, and none are contemplated in the foreseeable
future. We anticipate that all earnings that may be generated from our
operations will be used to finance our growth.
Holders
of common stock are entitled to one vote for each share held of record. There
are no cumulative voting rights in the election of directors. Thus the holders
of more than 50% of the outstanding shares of common stock can elect all of
our
directors if they choose to do so.
The
holders of our common stock have no preemptive, subscription, conversion or
redemption rights. Upon our liquidation, dissolution or winding-up, the holders
of our common stock are entitled to receive our assets pro rata.
Transfer
Agent
.
First
American Stock Transfer, Inc. acts as transfer agent for the Company’s common
stock.
31
PART
II
Item
1. Market
Price of and Dividends on the Registrant's Common Equity and Related Stockholder
Matters
Market
Information
There
is
currently no trading market for our common stock. We intend to take the
necessary steps to have or common stock included for quotation on the OTC
Bulletin Board. However, there can be assurance that our stock will be accepted
for quotation.
Number
of Stockholders
As
of
October 15, 2007, there were approximately 966 holders of record of our common
stock.
Dividend
Policy
Holders
of the Company's Common Stock are entitled to receive dividends if and when
declared by the Company’s Board of Directors out of funds legally available for
distribution. Any such dividends may be paid in cash, property or shares of
the
Company’s common stock.
The
Company has not paid any dividends since its inception, and it is not likely
that any dividends on its Common Stock will be declared in the foreseeable
future. Any dividends will be subject to the discretion of the Company's Board
of Directors, and will depend upon, among other things, the operating and
financial condition of the Company, its capital requirements and general
business conditions.
Securities
Authorized for Issuance under Equity Compensation Plans
The
Company does not currently have any equity compensation plans
authorized.
Item
2.Legal
Proceedings
From
time
to time the Company may become subject to litigation incidental to its business.
Such claims, if successful, could exceed applicable insurance coverage. The
Company is not currently a party to any material legal proceedings.
Item
3.Changes
in and Disagreements with Accountants
On
April18, 2006, the company entered into an agreement with Cavico Vietnam, a joint
stock company duly organized and existing under the laws of the Socialist
Republic of Vietnam, whereby the company agreed to acquire certain assets in
exchange for issuance of its common shares. Thereafter, on May 18, 2006, the
company issued 79,000,000 shares of its common stock to Cavico Corporation
(Vietnam), of which 60,062,200 were for onward distribution to Cavico
Corporation's shareholders in exchange for their then-existing share holdings
of
Cavico Corporation (Vietnam). On that same date, an additional 4,937,800 of
those shares were agreed to be distributed to certain key employees and officers
of Cavico Vietnam for their services and contributions. These shares were issued
in reliance upon the exemption from registration provided by Regulation S.
On
that same date, and simultaneous to the Cavico Corporation issuance, the company
also issued 6,010,000 shares of its common stock to Providential Capital, Inc.
in accordance with a consulting agreement with that company. These shares were
issued under the exemption from registration provided by Rule 4(2).
32
On
May18, 2006, the Company issued 7,000,000 shares of common stock to The Stone
Financial Group for cash. These shares were valued at $70,000 and were issued
to
an accredited investor free from restrictive legend pursuant to Rule 504 under
the Securities Act.
On
May18, 2006, the Company issued 850,000 shares of common stock to The Stone
Financial Group for services rendered. These shares were valued at $8,500 and
were issued to an accredited investor free from restrictive legend pursuant
to
Rule 504 under the Securities Act.
On
September 15, 2006, the company issued 2,000,000 shares of its restricted
common
stock to Providential Holdings, Inc. exchange for consultancy services, valued
at $20,000. The shares were issued under the exemption from registration
provided by Section 4(2) of the Securities Act.
On
December 4, 2006, the Company issued to 250,000 shares of common stock to two
individuals at $0.20 per share. The shares were issued under the exemption
from
registration provided by Section 4(2) of the Securities Act.
Between
January and April 2007, the company issued 32,635,,000 shares of its restricted
common stock for $8,110,549 to staff and employees of Cavico Vietnam and some
partners of Cavico Vietnam pursuant to exemptions from registration provided
by
Regulation S under the Securities Act. The company issued 1,000,000 common
shares for services and 2,105,000 common shares for $969,000.
Item
5.Indemnification
of Directors and Officers
Section
145 (“Section 145”) of the Delaware General Corporation Law, as amended (the
“DGCL”), permits indemnification of directors, officers, agents and controlling
persons of a corporation under certain conditions and subject to certain
limitations. Section 145 empowers a corporation to indemnify any person who
was
or is a party or is threatened to be made a party to any threatened, pending
or
completed action, suit or proceeding whether civil, criminal, administrative
or
investigative, by reason of the fact that he or she is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in
or
not opposed to, the best interests of the corporation, and, with respect to
any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue
or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine that despite
the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a present or former director or officer
of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein,
such
person shall be indemnified against expenses (including attorneys’ fees)
actually and reasonably incurred by such person in connection
therewith.
The
Company’s Certificate of Incorporation, as amended, provides that no current or
former director of the Registrant shall be personally liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or may hereafter
be
amended.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Consolidated
Statements of changes in Shareholder’s Equity (Deficit) and other
comprehensive income (loss) for the Years Ended December 31, 2006
and
2005
We
have
audited the accompanying consolidated balance sheet of Cavico Corp. and
Subsidiaries (“the Company”) as of December 31, 2006 and 2005, and the related
consolidated statements of operations, cash flows, and changes in stockholders’
equity and other comprehensive income (loss) for the years then ended, These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statements
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cavico Corp.
and Subsidiaries at December 31, 2006 and 2005, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As described in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficit that raises substantial doubt
about the Company’s ability to continue as a going concern. Management’ plans in
regard to these matters are described in Note 1. The financial statements do
not
include any adjustments that might result from the outcome of this
uncertainty.
Cavico
Corp and Subsidiaries, (aka -
Agent
155 Media Group, Inc.) (the Company) was organized as a Delaware corporation
on
September 13, 2004, to engage in any lawful act or activity for which
corporations may be organized. At the time of incorporation, the Company was
named Laminaire Corp. and in December 2004 the name was changed to Agent 155
Media Group, Inc. In April 2006, the Company entered into an “Asset Purchase
Agreement “ with Cavico Vietnam Joint Stock Company, a joint stock company duly
organized and existing under the laws of Socialist Republic of Vietnam. Under
this purchase agreement, Agent 155, the buyer, transferred 79,000,000 shares
of
the Company’s common shares for all assets and liabilities of Cavico Vietnam
Joint Stock Company (“CVJSC”) following a 300-to-1 reverse stock split of Agent
155 common stock. On May 18, 2006, following the consummation of the Asset
Purchase Agreement, the name of the Company was changed to Cavico
Corp.
The
merger of Agent 155 Media Group, Inc. with “CVJSC” was accounted for as a
reverse acquisition under the purchase method of accounting since the
shareholders of “CVJSC” obtained control of the consolidated entity (the
"Company"). Accordingly, the merger of the two companies is recorded as a
recapitalization of Agent 155 Media Group, Inc., with “CVJSC” being treated as
the continuing entity. The historical financial statements to be presented
are
those of “CVJSC”.
Cavico
Vietnam Joint Stock Company in Hanoi, Vietnam.
Construction and Investment Vietnam Joint Stock Company’s main operations
include the following: constructing power projects up to 35KV, shoveling mine
soil and stone, constructing transport and irrigation works, industrial and
civil construction, leasing machines and equipment, trading production and
consumption materials, machines and equipment for construction, transport,
irrigation, and power projects installation.
Going
Concern
The
financial statements have been prepared on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation
of
liabilities in the normal course of business. At December 31, 2006, the Company
has an accumulated deficit of $12,945,137 and has a working capital deficit
of
approximately $23,277,479. The ability of the Company to operate as a going
concern is dependent upon its ability (1) to obtain sufficient debt and/or
equity capital and/or (2) cut operating costs such that the Company can operate
until such time that it resumes generating positive cash flow from
operations.
Management
is taking following steps to address this situation: (a) reducing operating
costs, thus reducing the break even revenue level; (b) negotiating to replace
the line of credits with an agreement more attractive terms and expand borrowing
capacity; (c) raising equity capital on reasonable terms.
The
future success of the Company is likely dependent on its ability to obtain
additional capital to support growth and ultimately, upon its ability to attain
future profitable operations. There can be no assurance that the Company will
be
successful in obtaining such financing, or that it will attain positive cash
flow from operations. The successful outcome of these or any future activities
cannot be determined at this time and there is no assurance that if achieved,
the Company will have sufficient funds to execute their business plans or
generate positive operating results. The consolidated financial statements
do
not include any adjustments relating to the recoverability and classification
of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern.
F-6
NOTE
2-SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
Principles
of Consolidation
The
consolidated financial statements include the accounts of the parent company
and
its subsidiaries: Cavico Bridge and Underground JSC, Cavico Mining and
Construction, JSC, Cavico Trading Company, Ltd, Cavico Construction and
Infrastructure Investment, Ltd, Cavico Power Installation and Company, Ltd,
Cavico Transportation Construction, Ltd, and Cavico Hydropower Construction,
Ltd. All significant intercompany accounts and transactions have been
eliminated.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 revenue and expenses during the reporting
period. Such estimates may be materially different from actual financial
results. Significant estimates include the recoverability of long-lived assets
and the collectibility of accounts receivable.
Cash
and Cash Equivalents
The
Company maintains the majority of its cash accounts at a commercial bank and
cash on hand. The total cash balance is insured by the state bank of Vietnam.
For purposes of the statement of cash flows, the Company considers all cash
and
highly liquid investments with initial maturities of three months or less to
be
cash equivalents.
Investment
in Marketable Securities
Investments
with original maturities of less than 90 days are considered cash equivalents,
and all other investments are classified as short-term investments. Management
determines the appropriate classification of investments at the time of purchase
and reevaluates such designation as of each balance sheet date. Marketable
securities that are bought and held principally for the purpose of selling
them
in the near term are classified as trading securities and are reported at fair
value, with unrealized gains and losses recognized in earnings.
Available-for-sale investments are stated at fair value with net unrealized
gains or losses reported in stockholders’ equity. Investments classified as
held-to-maturity are carried at amortized cost in the absence of any other
than
temporary decline in value. Realized gains and losses, and declines in value
judged to be other than temporary are included in interest income. The cost
of
securities sold is computed using the specific identification
method.
Inventories
Inventories
are stated at the weighted-average method. Market value for raw materials is
based on replacement cost and for work-in-process on net realizable
value.
F-7
NOTE
2-
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: Continued
Accounts
Receivable
The
Company grants credit to customers within the Vietnam and does not require
collateral. The Company’s ability to collect receivables is affected by economic
fluctuations in the geographic areas and industries served by the Company.
The
Company’s main customers were project management units established by
Electricity of Vietnam, which accounts for 99% of all accounts receivable.
Reserves
for un-collectable amounts are provided, based on past experience and a specific
analysis of the accounts, which management believes are sufficient. Although
the
Company expects to collect amounts due, actual collections may differ from
the
estimated amounts. As of December 31, 2006 and 2005, the Company had a reserve
of $533,176 and $222,310 respectively.
Property
and Equipment
Property
and equipment, including renewals and betterments, are stated at cost. Assets
held under capital leases are recorded at lease inception at the lower of the
present value of the minimum lease payments or the fair market value of the
related assets. The Company follows the practice of capitalizing property and
equipment purchased over $600. The cost of ordinary maintenance and repairs
is charged to operations while renewals and replacements are capitalized.
Depreciation and amortization are computed on the straight-line method over
the
following estimated useful lives of the related assets, which range from two
to
twenty five years, and are as follows:
Temporary
housing assets
5
years
Machinery
and Equipment
5
to 7 years
Vehicles
3
to 10 years
Office
Equipment
3-8
years
Depreciation
expense for the years ended December 31, 2006 and 2005 was $4,663,558 and
$2,783,723 respectively.
Construction
in Progress
Construction
in progress is stated at cost, which includes the cost of construction and
other
direct costs attributable to the construction. No provision for depreciation
is
made on construction in progress until such time as the relevant assets are
completed and put into use. Construction in progress at December 31, 2006 and
2005, represents land costs, infrastructure and building
expenditures.
Long-Lived
Assets
The
Company’s management assesses the recoverability of its long-lived assets by
determining whether the depreciation and amortization of long-lived assets
over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment if any, is measured based
on fair value and is charged to operations in the period in which long lived
assets impairment is determined by management. At December 31, 2006 and 2005,
the Company’s management believes there was no impairment of its long-lived
assets. There can be no assurance however, that market conditions will not
change or demand for the Company’s services will continue, which could result in
impairment of long-lived assets in the future.
Fair
Value of Financial Instruments
The
carrying amount of cash, cash equivalents, investment securities, notes payable,
accounts receivable, accounts payable and accrued expenses are considered to
be
representative of their respective fair values because of the short-term nature
of these financial instruments. The carrying amount of the notes payable and
long-term debt are reasonable estimates of fair value as the loans bear interest
based on market rates currently available for debt with similar
terms.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized
F-8
NOTE
2-
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: Continued
Concentration
of Credit Risk
The
Company invests its excess cash in government bonds and other highly liquid
debt
instrument of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification
and
maturities to safely maintain an adequate level of liquidity.
Revenue
Recognition
Revenue
is recognized to the extent that it is probable and the revenue can be reliably
measured. The following specific recognition criteria must be met before revenue
is recognized:
Sale
of finished goods:
Sales
revenue is recognized at the date of shipment to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed, title of the goods is transferred to the customer, no other
significant obligations of the Company exist and collectability is reasonably
assured.
Rental
income:
The
Company recognizes the equipment rental income when earned during rental
period
based on contract terms and conditions. The lessee is responsible for all
expenses relating to the rented equipment incurred during the rent period.
Revenue
from construction contract: For all construction contracts, revenue
from construction contract is recorded when the amount of work finished for
each
project has been certified by the customer’s site engineer and evidenced by a
Hand-over Minute and Summary of amount , which describes the details of work
performed , prepared by the Company’s project engineer. The customer has to
verify the specification and quantum of work done and the rates per the contract
and approves the bill based on the physical verification.
The
Company recognizes revenues from construction contract, which includes
engineering service, using the percentage-of-completion method, based primarily
on contract costs incurred to date compared with total estimated contracted
costs. Customer-furnished materials, labor, and equipment, and in certain
cases
subcontractor materials, labor, and equipment are included in revenues and
cost
of revenue when management believes that the Company is responsibility for
the
ultimate acceptability of the project.
Changes
to total estimated contract cost or losses, if any, are recognized in the
period
in which they are determined. Construction contracts typically include a
two to
three year warranty period that is part of the construction contract. The
purpose of the warranty is to remedy defects in construction service. Under
the
terms of the warranty, the contractor is required to remedy all defects
resulting from the contractor’s work as well as certain consequential damages.
The portion of revenue related to warranty ranges from 5% to 10% depending
on
each contract and is not recognized until the warranty period has expired.
This
warranty retention is kept by the customers until the end of warranty period.
Based on the experience of the Company, the warranty costs do not exceed
the
retention amount. Revenues recognized in excess of amounts billed are classified
as current assets under contract work-in-progress. Amounts billed to clients
in
excess of revenues recognized to date are classified as current liabilities
under advance billing on contracts.
Changes
in project performance and conditions, estimated profitability, and final
contract settlements may result in future revisions to construction contract
costs and revenue.
Other
Comprehensive Income
The
Company has adopted Financial Accounting Standards Board Statement No. 130,
“Reporting Comprehensive Income” (SFAS 130). SFAS 130 requires reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statement. The Company’s unrealized loss of $126,645
and $321,023 for the years ended December 31, 2006 and 2005 relates to the
translation of financial statements from Vietnam Dong to US Dollars. The Company
also recorded $410,727 unrealized gain on securities available for sale for
the
year ended December 31, 2006.
Foreign
Currency Translation
The
Company accounts for translation of foreign currency in accordance with
Statement of Financial Accounting Standards No. 52 “Foreign Currency
Translation.”
Earning
(Loss) Per Share of Common Stock
Net
earning (loss) per share of common stock is computed by dividing the net loss
by
the weighted average number of shares of common stock outstanding during the
period. Diluted loss per share is determined using the weighted average number
of common shares outstanding during the period, adjusted for the dilutive effect
of common stock equivalents, consisting of shares that might be issued upon
exercise of common stock options. In periods where losses are reported, the
weighted average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive. There were no
common stock equivalents during 2006 and 2005.
F-9
NOTE
3-INVENTORY
Inventories
at December 31, 2006 and 2005 by major classification, were comprised of the
following:
2006
2005
Material
and supplies
$
2,186,829
$
2,545,538
Work
in progress
17,760,182
11,983,008
Reserve
(1,814,014
)
(1,814,014
)
Inventory
- net
$
18,132,997
$
12,714,532
NOTE
4-INVESTMENTS
The
equity method of accounting is used when the company has a 20% to 50% interest
in other entities. Under the equity method, original investments are recorded
at
cost and adjusted by the Company’s share of undistributed earnings or losses of
these entities. Non-marketable investments in which the Company has less than
a
20% interest and in which it does not have the ability to exercise significant
influence over the investee are initially recorded at cost and periodically
reviewed for impairment.
The
Company’s investments in companies that are accounted for on the cost method of
accounting consist of the following:
Available-for-sale
securities consisted of the following at December 31, 2006 and
2005:
2006
Number
of shares
Cost
Fair
Value
Accumulated
unrealized gain/loss
Common
Stock:
Habubank
Bank Stock
2,303,750
$
1,951,761
$
1,951,761
Vinavico
451,200
635,697
1,046,424
410,727
Vietnam
Power Development JSC
100,000
62,344
62,344
Vietnam
Growth Investment Fund (VF2)
2,000,000
1,265,586
1,265,586
Prudential
Life Insurance
7,634
7,634
An
Binh Rural Commercial JSB
—
—
Government
Bonds
8,450
5,268
5,268
Total
Securities
4,863,400
$
3,928,290
$
4,339,017
410,727
F-10
2005
Number
of shares
Cost
Fair
Value
Accumulated
unrealized gain/loss
Common
Stock:
Habubank
Bank Stock
2,115,000
$
1,332,286
1,332,286
-
Vinavico
100,000
62,990
62,990
-
Vietnam
Power Development JSC
100,000
62,992
62,992
-
Vietnam
Growth Investment Fund (VF2)
-
Prudential
Life Insurance
8,459
8,459
-
An
Binh Rural Commercial JSB
360,000
226,772
226,772
-
Government
Bonds
300
189
189
-
Total
Securities
2,675,300
$
1,693,688
$
1,693,688
-
The
Company’s short-term investments comprise equity and debt securities, all of
which are classified as available-for-sale securities and are carried at their
fair market value based on quoted market prices of the securities at December31, 2006 and 2005. Net realized and unrealized gains and losses on trading
securities are included in net earnings. For purpose of determining realized
gains and losses, the cost of securities sold is based on specific
identification.
Investment
income for the years ended December 31, 2006 and 2005 consists of the following:
2006
2005
Gross
realized gains from sale of trading securities
$
2,779,063
—
Dividend
and interest income
975,352
301,250
Net
unrealized holding gains
410,727
—
Net
investment income
$
4,165,142
$
301,250
NOTE
5-CAPITAL
LEASE OBLIGATIONS
The
Company is a lessee of certain equipment under capital leases that expire on
various dates through December 2010. Terms of the lease call for quarterly
payments ranging from $1,385 to $25,079, at implicit rates of interest ranging
from 10.2% to 12.6% per annum (the incremental borrowing rate). The assets
and
liabilities under capital leases are recorded at lease inception at the lower
of
the present value of the minimum lease payments or the fair market value of
the
related assets. The assets are depreciated over their estimated useful
lives.
Minimum
future lease payments under current lease agreements at December 31, 2006 and
2005 are as follows:
2006
2005
2006
—
187,272
2007
$
142,396
136,006
2008
33,255
25,255
2009
6,692
—
2010
2,360
—
Total
minimum lease payments
184,703
348,533
Less
amount representing interest
(18,521
)
(36,366
)
Present
value of net minimum lease payments
166,182
312,167
Less
current portion
(124,474
)
(162,909
)
Long-term
portion
$
41,708
$
149,258
F-11
The
following is an analysis of the equipment under capital leases as of December31, 2006 and 2005, which is included in property and
equipment:
2006
2005
Equipment
and vehicles
$
590,031
$
566,491
Less
accumulated depreciation
(259,971
)
(181,499
)
Net
$
330,060
$
384,992
NOTE
6-COMMITMENTS
AND CONTIGENCIES
Operating
Rental Leases
The
Company leases its office and warehouse facilities in Hanoi, Vietnam from
various lessors under an month-to-month operating lease that requires minimum
monthly payments of $25,440. The leases requires the Company to pay property
taxes and maintenance, and expires in December 31, 2007; September 15, 2008;
December 31, 2008; October 25, 2009. For the year ended December 31, 2006,
building rent expense was $220,133.
Litigation
The
Company may be involved from time to time in various claims, lawsuits, disputes
with third parties, action involving allegations or discrimination or breach
of
contract actions incidental in the normal operations of the business. The
Company is currently not involved in any such litigation which management
believes could have a material adverse effect on its financial
position.
Demand
note payable, secured by machinery and equipment, annual interest
rank
from 11.4% to 13.2%, due to Hanoi Building Commercial Joint Stock
Bank
(Habubank)
$
7,669,072
$
6,557,912
Note
payable, secured by VF2 Fund Certificate, annual interest rank
from 11.64%
to 12.6%, due to Military Commercial Joint Stock Bank
1,496,259
268,409
Note
payable, secured by machinery and equipment, annual interest at
10.8%, due
to North Asia Commercial Joint Stock Bank - Nghe An Branch
60,200
60,826
Note
payable, secured by machinery and equipment, annual interest at
13.2%, due
to Tu Liem Branch - Agribank
2,268,453
2,519,576
Note
payable, secured by machinery and equipment, annual interest at
12%, due
to An Binh Rural Commercial Joint Stock Bank
87,282
566,929
F-12
Note
payable, secured by machinery and equipment, annual interest rank
from
11.4% to 12.6%, due to Agribank - Northern Hanoi Branch
4,473,165
908,207
Note
payable, secured by machinery and equipment, annual interest at 12.36%,
due to Agribank - Southern Hanoi Branch
1,207,926
933,018
Note
payable, secured by machinery and equipment, annual interest rank
from
11.4% to 12.4%, due to Agribank - Eastern Hanoi Branch
3,288,842
3,229,984
Note
payable, secured by machinery and equipment, annual interest at 13.8%,
due
to BIVD - Thang Long Branch
100,143
235,846
Note
payable, secured by machinery and equipment, annual interest at 13.2%,
due
to Saigon Commercial Joint Stock Company
356,040
181,378
Note
payable, secured by machinery and equipment, annual interest at 13.2%,
due
to Son La - BIVD
461,347
503,937
Note
payable, secured by machinery and equipment, annual interest rank
from
12.36% to 13.2%, due to Hoang Mai - Agribank
2,176,936
2,919,480
Note
payable, secured by machinery and equipment, annual interest at 0%
due to
Lung Lo Construction JSC
48,235
48,737
Note
payable, secured by deed of trust, annual interest at 10.8%, due
to
Petroleum Financial Company
1,433,979
1,574,803
Note
payable, secured by Habubank shares, annual interest at 12%, due
to Ms
Nguyen Thi Thuy An
1,898,940
1,888,839
Note
payable, secured by deed of trust, annual interest at 0% interest,
due to
other individuals
Future
maturities on long-term debt are as follows as of December 31,2006:
2007
$
4,051,194
2008
4,464,067
2009
1,199,300
2010
824,720
2011
1,134,653
$
11,673,934
NOTE
9 -RELATED
PARTY TRANSACTIONS
Related
party transactions consisted of the following at December 31, 2006 and
2005:
2006
2005
Note
payable, secured by deed of trust, annual interest at 0%, due
on demand,
to Mr. Ha Quang Bui
$
128,035
$
686,252
Note
payable, secured by deed of trust, annual interest at 12.6%,
due on
demand, to Mrs. Ty Thi Pham
1,246,883
—
Note
payable, secured by deed of trust, annual interest at 0%, due
on demand,
to Mr. Hung Manh Tran
337,818
10,041
Note
payable, unsecured, annual interest at 8%, due on demand, to
Providential
Holdings
37,020
—
$
1,749,756
$
696,293
F-15
NOTE
10 -STOCKHOLDERS’
EQUITY
The
Company accounts for the issuance of equity instruments to acquire goods and
services based on the fair value of the goods and services or the fair value
of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
The
Company issued 9,177,100 shares of common stock for $281,628 cash
received.
NOTE
11- INCOME TAX
Pursuant
to the tax laws of Vietnam, general enterprises are subject to income tax
at an
effective rate of 28%. Each subsidiary files a separate tax return in
Vietnam.
In
addressing the reliability of deferred tax assets, management considers
whether
is more likely than not that some portion or all of the deferred tax assets
will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those
temporary differences are deductible.
At
December 31, 2006 and 2005, the Company had net operating loss carry forwards
from Vietnam of approximately $819,878 and $2,838,574, respectively, which
will
be available to offset future taxable income. These net operating loss
carry
forwards expire through year 2011. The Company has established a valuation
allowance against its deferred tax asset, due to the uncertainty of the
realization of the asset. Management periodically evaluates the recoverability
of the deferred tax asset. At such time as it is determined that it is
more
likely than not that deferred tax assets are realizable, the valuation
allowance
will be reduced.
F-16
NOTE
12-NEW
ACCOUNTING PRONOUNCEMENTS
In
December 2004, the FASB issued SFAS No 123(R)(revised 2004), Share-Based
Payment” which amends FASB Statement No. 123 and will be effective for public
companies for interim or annual periods after June 15, 2005. The new standard
will require entities to expense employee stock options and other share-based
payments. The new standard may be adopted in one of three ways - the modified
prospective transition method, a variation of the modified prospective
transition method or the modified retrospective transition method. The Company
is evaluation how it will adopt the standard and evaluating the effect that
the
adoption of SFAS 123(R) will have on our financial position and results of
operations.
In
November 2004, the FASB issued SFAS No 151, Inventory
Costs, an amendment of ARB No. 43, Chapter
. This
statement amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing
, to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling cost, and wasted material (spoilage). Paragraph 5 of ARB No. 43,
Chapter 4, previously stated that “. under some circumstances, items such as
idle facility expense, excessive spoilage, double freight, and handling costs
may be so abnormal as to require treatment as current period charges.” SFAS No.
151 requires that those items be recognized as current-period charges regardless
of whether they meet the criterion of “so abnormal.” In addition, this statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the prospectively and are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005, with earlier
application permitted for inventory costs incurred during fiscal years beginning
after the date this Statement was issued. The adoption of SFAS No. 151 is not
expected to have a material impact on the Company’s financial position and
results of operations.
In
December 2004, the FASB issued SFAS No.153, Exchanges
of Nonmonetary Assets, an amendment of APB Opinion No. 29.
The
guidance in APB Opinion No. 29, Accounting
for Nonmonetary Transactions
, is
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This Statement amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected
to
change significantly as a result of the exchange. SFAS No. 153 is effective
for
nonmonetary exchanges occurring in fiscal periods beginning after June 15,2005.
The adoption of SFAS No. 153 is not expected to have a material impact on the
Company’s financial position and results of operations.
F-17
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations” (“FIN 47”). FIN 47 provides guidance relating to
the identification of and financial reporting for legal obligations to perform
an asset retirement activity. The Interpretation requires recognition of a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability’s fair value can be reasonably estimated. FIN 47 also
defines when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The provision is effective
no
later than the end of fiscal years ending after December 15, 2005. The Company
will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does
not
believe the adoption will have an material impact on its consolidated financial
position or results of operations or cash flows.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and error Corrections”
(“SFAS 154”) which replaces Accounting Principles Board Opinions No. 20
“Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim
Financial Statements - An Amendment of APB Opinion No. 28.” SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and a correction of errors made in fiscal years beginning after December15, 2005 and is required to be adopted by the company in the first quarter
of
2007. The company is currently evaluating the effect that the adoption of SFAS
154 will have on its results of operations and financial condition but does
not
expect it to have a material impact.
F-18
In
June
2005, the Emerging Issues Task Force, or EITF, reached a consensus on Issue
05-6. Determining the Amortization Period for Leasehold Improvements, which
requires that leasehold improvements acquired in a business combination or
purchased subsequent to the inception of a lease be amortized over the lesser
of
the useful life of the assets or a term that includes renewals that are
reasonably assured at the date of the business combination or purchase. EITF
05-6 is effective for periods beginning after July 1, 2005. We do not expect
the
provisions of this consensus to have a material impact on the financial
position, results of operations or cash flows.
SFAS
155
- ‘Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140’
This
Statement, issued in February 2004, amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.”
This
Statement:
a.
Permits fair value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require
bifurcation
b.
Clarifies which interest-only strips and principal-only strips are not subject
to the requirements of Statement 133
c.
Establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring
bifurcation
d.
Clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives
e.
Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial
instrument.
This
Statement is effective for all financial instruments acquired or issued after
the beginning of our first fiscal year that begins after September 15,2004.
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
The
Company is currently reviewing the effects of adoption of this statement but
it
is not expected to have a material impact on our financial
statements.
SFAS
156
- ‘Accounting for Servicing of Financial Assets—an amendment of FASB Statement
No. 140’
This
Statement, issued in March 2004, amends FASB Statement No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
with respect to the accounting for separately recognized servicing assets and
servicing liabilities. This Statement:
1.
Requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into
a
servicing contract in certain situations.
F-19
2.
Requires all separately recognized servicing assets and servicing liabilities
to
be initially measured at fair value, if practicable.
3.
Permits an entity to choose either the amortization method or the fair value
measurement method for each class of separately recognized servicing assets
and
servicing liabilities.
4.
At its
initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights,
without calling into question the treatment of other available-for-sale
securities under Statement 115, provided that the available-for-sale securities
are identified in some manner as offsetting the entity’s exposure to changes in
fair value of servicing assets or servicing liabilities that a servicer elects
to subsequently measure at fair value.
5.
Requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position
and
additional disclosures for all separately recognized servicing assets and
servicing liabilities.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2004. The adoption of this statement is not expected
to have a material impact on our financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” The
objective of SFAS 157 is to increase consistency and comparability in fair
value
measurements and to expand disclosures about fair value measurements. SFAS
157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements
that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS No.157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on our
company’s future reported financial position or results of
operations.
In
September 2006, the FASB issued SFAS No.158, “Employers’ Accounting for Defined
Benefit Pension and Other postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106 and 132(R).” This statement requires employers to recognize the
over-funded or under-funded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability in its statement
of
financial position and to recognize changes in that funded status in the year
in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. This
statement also requires an employer to measure the funded status of a plan
as of
the date of its year-end statement of financial position, with limited
exceptions. The provisions of SFAS No. 158 are effective for employers with
publicly traded equity securities as of the end of the fiscal year ending after
December 15, 2006. The adoption of this statement is not expected to have a
material effect on our company’s future reported financial position or results
of operations.
The
interim financial statements included herein, presented in accordance with
United States generally accepted accounting principles and stated in US dollars,
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These
statements reflect all adjustments, consisting of normal recurring adjustments,
which, in the opinion of management, are necessary for fair presentation of
the
information contained therein. It is suggested that these consolidated interim
financial statements be read in conjunction with the consolidated financial
statements of the Company for the period ended December 31, 2006 and notes
thereto included in the Company's Form 10-KSB. The Company follows the same
accounting policies in the preparation of consolidated interim
reports.
Results
of operations for the interim periods are not indicative of annual
results.
The
Company
Cavico
Corp and Subsidiaries, (aka -
Agent
155 Media Group, Inc.) (the Company) was organized as a Delaware corporation
on
September 13, 2004, to engage in any lawful act or activity for which
corporations may be organized. At the time of incorporation, the Company was
named Laminaire Corp. and in December 2004 the name was changed to Agent 155
Media Group, Inc. In April 2006, the Company entered into an “Asset Purchase
Agreement “ with Cavico Vietnam Joint Stock Company, a joint stock company duly
organized and existing under the laws of Socialist Republic of Vietnam. Under
this purchase agreement, Agent 155, the buyer, transferred 79,000,000 shares
of
the Company’s common shares for all assets and liabilities of Cavico Vietnam
Joint Stock Company (“CVJSC”) following a 300-to-1 reverse stock split of Agent
155 common stock. On May 18, 2006, following the consummation of the Asset
Purchase Agreement, the name of the Company was changed to Cavico
Corp.
The
merger of Agent 155 Media Group, Inc. with “CVJSC” was accounted for as a
reverse acquisition under the purchase method of accounting since the
shareholders of “CVJSC” obtained control of the consolidated entity (the
"Company"). Accordingly, the merger of the two companies is recorded as a
recapitalization of Agent 155 Media Group, Inc., with “CVJSC” being treated as
the continuing entity. The historical financial statements to be presented
are
those of “CVJSC”.
Cavico
Vietnam Joint Stock Company in Hanoi, Vietnam.
Construction and Investment Vietnam Joint Stock Company’s main operations
include the following: constructing power projects, shoveling mine soil and
stone, constructing transport and irrigation works, industrial and civil
construction, leasing machines and equipment, trading production and consumption
materials, machines and equipment for construction, transport, irrigation,
and
power projects installation.
F-24
NOTE
2 -GOING
CONCERN
The
Company has an accumulated deficit as of September 30, 2007 of $8,826,325.
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the
Company as a going concern. As of September 30, 2007, the current liabilities
exceed the current assets by $10,024,802. As shown in the financial statements,
the Company incurred a net profit of $4,118,814 for the nine months then
ended.
The
future success of the Company is likely dependent on its ability to attain
additional capital to develop its proposed products and ultimately, upon its
ability to attain future profitable operations. There can be no assurance that
the Company will be successful in obtaining such financing, or that it will
attain positive cash flow from operations.
NOTE
3 -SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of the parent company
and
its subsidiaries: Cavico Bridge and Underground Construction JSC, Cavico Mining
and Construction JSC, Cavico Trading JSC, Cavico Construction and Infrastructure
Investment JSC, Cavico Power and Resource JSC, Cavico Transport JSC, Cavico
Hydropower Construction JSC, and Energy Construction JSC. All significant
intercompany accounts and transactions have been eliminated.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 revenue and expenses during the reporting
period. Such estimates may be materially different from actual financial
results. Significant estimates include the recoverability of long-lived assets
and the collectibility of accounts receivable.
Cash
and Cash Equivalents
The
Company maintains the majority of its cash accounts at a commercial bank and
cash on hand. The total cash balance at commercial bank is insured by the State
bank of Vietnam. For purposes of the statement of cash flows, the Company
considers all cash and highly liquid investments with initial maturities of
three months or less to be cash equivalents.
Investment
in Marketable Securities
Investments
with original maturities of less than 90 days are considered cash equivalents,
and all other investments are classified as short-term investments. Management
determines the appropriate classification of investments at the time of purchase
and reevaluates such designation as of each balance sheet date. Marketable
securities that are bought and held principally for the purpose of selling
them
in the near term are classified as trading securities and are reported at fair
value, with unrealized gains and losses recognized in earnings.
Available-for-sale investments are stated at fair value with net unrealized
gains or losses reported in stockholders’ equity. Investments classified as
held-to-maturity are carried at amortized cost in the absence of any other
than
temporary decline in value. Realized gains and losses, and declines in value
judged to be other than temporary are included in interest income. The cost
of
securities sold is computed using the specific identification
method.
F-25
Inventories
Inventories
are stated at the weighted-average method. Market value for raw materials is
based on replacement cost and for work-in-process on net realizable
value.
Accounts
Receivable
The
Company grants credit to customers within the Vietnam and does not require
collateral. The Company’s ability to collect receivables is affected by economic
fluctuations in the geographic areas and industries served by the Company.
The
Company’s main customers were project management units established by
Electricity of Vietnam, which accounts for 99% of all accounts
receivable.Reserves for un-collectable amounts are provided, based on past
experience and a specific analysis of the accounts, which management believes
are sufficient. Although the Company expects to collect amounts due, actual
collections may differ from the estimated amounts. As of September 30, 2007,
the
Company had a reserve of $533,176 respectively.
Property
and Equipment
Property
and equipment, including renewals and betterments, are stated at cost. Assets
held under capital leases are recorded at lease inception at the lower of the
present value of the minimum lease payments or the fair market value of the
related assets. The Company follows the practice of capitalizing property and
equipment purchased over $600.
The cost
of ordinary maintenance and repairs is charged to operations while renewals
and
replacements are capitalized. Depreciation and amortization are computed on
the
straight-line method over the following estimated useful lives of the related
assets, which range from three to ten years, and are as follows:
Temporary
housing assets
5
years
Machinery
and Equipment
5
to 7 years
Vehicles
3
to 10 years
Office
Equipment
3
to 8 years
Depreciation
expense for the nine-months ended September 30, 2007 and 2006 was $3,345,607
and
$2,215,572 respectively.
Construction
in Progress
Construction
in progress is stated at cost, which includes the cost of construction and
other
direct costs attributable to the construction. No provision for depreciation
is
made on construction in progress until such time as the relevant assets are
completed and put into use. Construction in progress at September 30, 2007,
represents land costs, infrastructure and building expenditures.
F-26
Long-Lived
Assets
The
Company’s management assesses the recoverability of its long-lived assets by
determining whether the depreciation and amortization of long-lived assets
over
their remaining lives can be recovered through projected undiscounted future
cash flows. The amount of long-lived asset impairment if any, is measured based
on fair value and is charged to operations in the period in which long lived
assets impairment is determined by management. At September 30, 2007 and
December 31, 2006, the Company’s management believes there was no impairment of
its long-lived assets. There can be no assurance however, that market conditions
will not change or demand for the Company’s services will continue, which could
result in impairment of long-lived assets in the future.
Fair
Value of Financial Instruments
The
carrying amount of cash, cash equivalents, investment securities, notes payable,
accounts receivable, accounts payable and accrued expenses are considered to
be
representative of their respective fair values because of the short-term nature
of these financial instruments. The carrying amount of the notes payable and
long-term debt are reasonable estimates of fair value as the loans bear interest
based on market rates currently available for debt with similar
terms.
Concentration
of Credit Risk
The
Company invests its excess cash in government bonds and other highly liquid
debt
instrument of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification
and
maturities to safely maintain an adequate level of liquidity.
Revenue
Recognition
Revenue
from product and services are recognized at the time goods are shipped or
services are provided and accepted by the customer, with an appropriate
provision for returns and allowances.
The
Company recognizes engineering and construction contract revenues using the
percentage-of-completion method, based primarily on contract costs incurred
to
date compared with total estimated contracted costs. Customer-furnished
materials, labor, and equipment, and in certain cases subcontractor materials,
labor, and equipment are included in revenues and cost of revenue when
management believes that the Company is responsibility for the ultimate
acceptability of the project. Contracts are segmented between types of services
such as engineering and construction, and accordingly, gross margin related
to
each activity is recognized as those separate services are
rendered.
Changes
to total estimated contract cost or losses, if any, are recognized in the period
in which they are determined. Claims against customers are recognized as revenue
upon settlement. Revenues are recognized in excess of amounts billed are
classified as current assets under contract work-in-progress. Amounts billed
to
clients in excess of revenues recognized to date are classified as current
liabilities under advance billing on contracts.
Changes
in project performance and conditions, estimated profitability, and final
contract settlements may result in future revisions to construction contract
costs and revenue.
F-27
Other
Comprehensive Income
The
Company has adopted Financial Accounting Standards Board Statement No. 130,
“Reporting Comprehensive Income” (SFAS 130). SFAS 130 requires reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statement. The Company’s unrealized loss of $244,963
and $639,540 for the nine-months ended September 30, 2007 and for the years
ended December 31, 2006 relates to the translation of financial statements
from
Vietnam Dong to US Dollars.
Foreign
Currency Translation
The
Company accounts for translation of foreign currency in accordance with
Statement of Financial Accounting Standards No. 52 “Foreign Currency
Translation.”
Earning
(Loss) Per Share of Common Stock
Net
earning (loss) per share of common stock is computed by dividing the net loss
by
the weighted average number of shares of common stock outstanding during the
period. Diluted loss per share is determined using the weighted average number
of common shares outstanding during the period, adjusted for the dilutive effect
of common stock equivalents, consisting of shares that might be issued upon
exercise of common stock options. In periods where losses are reported, the
weighted average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive. There were no
common stock equivalents during nine-months ended September 30, 2007 and
2006.
NOTE
4 -INVENTORY
Inventories
at September 30, 2007 by major classifications, were comprised of the
following:
Goods
in transit
$
393,908
Material
and supplies
2,713,735
Tools,
instruments
37,312
Work
in progress
27,971,524
Merchandises
554,070
Goods
on consignment
788
Reserve
(1,814,014
)
Inventory
- net
$
29,857,323
F-28
NOTE
5 -OTHER
CURRENT ASSETS
Other
current assets at September 30, 2007 by major classifications, were comprised
of
the following:
Prepaid
loan interest
$
64,962
Tools
and supplies
491,801
Other
prepaid expenses
124,262
Deductible
Value Added Tax
784,012
Others
198
TOTAL
$
1,465,235
NOTE
6 -CONSTRUCTION
IN PROGRESS
Construction
in progress were comprised of the following at September 30,2007:
Purchase
of fixed assets
$
5,951
Property
development-Chieng Ngan Project
2,754,363
Repairing
fixed assets
59,407
Leasehold
land - Cavico Tower
-
Others
4,073
TOTAL
$
2,823,794
NOTE
7 -INVESTMENTS
The
equity method of accounting is used when the company has a 20% to 50% interest
in other entities. Under the equity method, original investments are recorded
at
cost and adjusted by the Company’s share of undistributed earnings or losses of
these entities. Non-marketable investments in which the Company has less than
a
20% interest and in which it does not have the ability to exercise significant
influence over the investee are initially recorded at cost and periodically
reviewed for impairment.
F-29
The
Company’s investments in companies that are accounted for on the cost method of
accounting at September 30, 2007 consisted of the following:
1.
Agriculture Construction Corporation
$
61,870
2.
Tour Zones Investment and Construction JSC
83,524
3.
Cavico Energy Development and Investment JSC
250,395
4.
Mai Son Cement Joint Stock Company
358,844
5.
Van Chan Hydropower Company
30,935
6.
Ha Tay Investment and Development JSC
14,849
7.
Businessman Culture Development JSC
18,561
8.
Cavico Hitech
55,992
9.
Cavico Tower
704,858
10.
Cavico Construction Machines JSC
24,748
11.
VEC Tower JSC
129,308
12.
Agribank Insurance
247,479
13.
Vietnam Industry Investment and Construction JSC
61,870
14.
Dong Duong Finance JSC
5,568
15.
Cavico PHI JSC
154,055
16.
Nam Viet Investment and Consultant JSC
92,804
17.
Sao Mai-Ben Dinh Petroleum Investment JSC
309,348
18.
Cavico Industry and Technology Service JSC
12,569
19.
Luong Son International Tourist Investment JSC
The
Company’s short-term investments comprise equity and debt securities, all of
which are classified as trading securities and are carried at their fair market
value based on quoted market prices of the securities at September 30, 2007.
Net
realized and unrealized gains and losses on trading securities are included
in
net earnings. For the purpose of determining realized gains and losses, the
cost
of securities sold is based on specific identification.
Investment
income for the nine-months ended September 30, 2007 consisted of the
following:
Gross
realized gains from sale of trading securities
8,277,166
Dividend,
interest, and forex income
1,039,856
Net
unrealized holdings gain
727,254
Net
investment income
$
10,044,276
NOTE
9-CAPITAL
LEASE OBLIGATIONS
The
Company is a lessee of certain equipment under capital leases that expire on
various dates through July 2011. Terms of the lease call for quarterly payments
of $1,838; $2,191 and $25,652 at implicit interest rates of 12%; 12.6% and
12.6%
per annum (the incremental borrowing rate). The assets and liabilities under
capital leases are recorded at lease inception at the lower of the present
value
of the minimum lease payments or the fair market value of the related assets.
The assets are depreciated over their estimated useful lives.
F-31
Minimum
future lease payments under current lease agreements at September 30, 2007
are
as follows:
2007
$
30,735
2008
41,767
2009
14,592
2010
13,080
2011
4,827
Total
minimum lease payments
105,001
Less:
amount representing interest
(13,198
)
Present
value of net minimum lease payments
91,803
Less:
current portion
(26,283
)
Long-term
portion
$
65,520
The
following is an analysis of the equipment under capital leases as of September30, 2007, which is included in property and equipment:-
Equipment
and vehicles
537,095
Less
accumulated depreciation
(274,186
)
Net
$
262,909
F-32
NOTE
10 -COMMITMENTS
AND CONTIGENCIES
Operating
Rental Leases
The
Company leases its office and warehouse facilities in Hanoi, Vietnam from
various lessors under a month-to-month operating lease that requires minimum
monthly payments of $32,315. The leases requires the Company to pay property
taxes and maintenance, and expires in December 31, 2007; September 15, 2008;
December 31, 2008; October 25, 2009. For the nine-months ended September 30,2007, building rent expense was $266,552.
Litigation
The
Company may be involved from time to time in various claims, lawsuits, disputes
with third parties, action involving allegations or discrimination or breach
of
contract actions incidental in the normal operations of the business. The
Company is currently not involved in any such litigation which management
believes could have a material adverse effect on its financial
position
Demand
note payable, secured by machinery and equipment, annual interest
rank
from
11.4% to 13.2%, due to Hanoi Building Commercial Joint Stock Bank
(Habubank)
$
7,172,811
Note
payable, secured by VF2 Fund Certificate, annual interest rank from
11.64%
to 12.6%, due
to Military Commercial Joint Stock Bank
348,894
Note
payable, secured by machinery and equipment, annual interest at 10.8%,
due
to North Asia Commercial Joint Stock Bank - Nghe An Branch
1,237,394
Note
payable, secured by machinery and equipment, annual interest at 13.2%,
due
to Tu Liem Branch - Agribank
2,766,037
Note
payable, secured by machinery and equipment, annual interest rank
from
11.4% to 12.6%, due
to Agribank - North Hanoi Branch
9,819,569
Note
payable, secured by machinery and equipment, annual interest at 12.36%,
due to Agribank - South Hanoi Branch
1,287,109
Note
payable, secured by machinery and equipment, annual interest rank
from
11.4% to 12.4%, due to Agribank - East Hanoi Branch
4,288,180
Note
payable, secured by machinery and equipment, annual interest at 13.2%,
due
to Son La - BIVD
375,702
Note
payable, secured by machinery and equipment, annual interest rank
from
12.36% to 13.2%, due to Hoang Mai - Agribank
1,804,036
Note
payable, secured by machinery and equipment, annual interest at 0%,
due to
Lung Lo Construction JSC
47,868
Note
payable, secured by deed of trust, annual interest at 10.8%, due
to
Petroleum Financial Company
1,195,346
Note
payable, secured by Habubank shares, annual interest at 12%, due
to Ms
Nguyen Thi Thuy An
1,254,954
Note
payable, secured by deed of trust, annual interest at 12%, due to
Cavico
Tower
175,242
Note
payable, secured by deed of trust, annual interest at 14.4%, due
to Phuong
Dong Commercial Joint Stock Bank
1,546,742
Note
payable, secured by deed of trust, annual interest at 13.8%, due
to
Vietnam International Commercial Joint Stock Bank
16,504
Note
payable, secured by deed of trust, annual interest at 13.0%, due
to
Housing Development Bank
53,208
Note
payable, secured by deed of trust, annual interest at 0%, due to
other
individuals
2,712,259
Total
short-term debts
$
36,101,855
F-33
NOTE
12 -NOTES PAYABLE - RELATED PARTIES
Note
payable, secured by deed of trust, annual interest at 0%, due to
Mr. Ha
Quang Bui
$
2,520
Note
payable, secured by deed of trust, annual interest at 0%, due to
Mr. Hung
Manh Tran
4,814
Note
payable, secured by deed of trust, annual interest at 0%, due to
Mr. Hieu
Van Phan
4,814
Note
payable, secured by deed of trust, annual interest at 0%, due to
Mr. Giang
Linh Bui
4,814
Note
payable, secured by deed of trust, annual interest at 0%, due to
Mr. Hai
Thanh Tran
16,916
Note
payable, secured by deed of trust, annual interest at 12.6%, due
on
demand, to Mrs. Ty Thi Pham
92,804
Total
notes payable - related parties
$
126,682
NOTE
13 - CURRENT PORTION OF LONG-TERM DEBTS
Current
portion of long-term debt consisted of the following at September 30,2007:
Note
payable, secured by machinery and equipment annual interest rank
from
12.4% to 13.2%, due to East Hanoi - Agribank
$
272,845
Note
payable, secured by machinery and equipment, annual interest rank
from
10.2% to 12.6%, due to Habubank
48,661
Note
payable, secured by deed of trust, annual interest rank from 10.2%
to
14.16%, due to North Hanoi - Agribank
118,650
Note
payable, secured by machinery and equipment, annual interest at 10.5%,
due
to Incombank - Yen Vien Branch
93,194
Note
payable, secured by deed of trust, annual interest at 14.16%, due
to South
Hanoi - Agribank
146,818
Note
payable, secured by machinery, equipment and deed of trust, annual
interest at 13.2%, due to Saigon Commercial Joint Stock
Bank
277,949
Note
payable, secured by deed of trust, annual interest at 13.8%, due
to
Agribank - Hoang Mai Branch
78,289
Note
payable, secured by deed of trust, annual interest at 10.8%, due
to
Petroleum Financial Company
During
the nine months ended September 30, 2007, the Company issued 32,635,000 common
shares (Reg S) for shareholders in Vietnam ($0.248 per share) and 1,230,000
common shares for shareholders in US ($0.300 per share) and 1,875,000 common
shares for shareholders in the United States of America for consulting ($0.480
per share).
Pursuant
to the requirement of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
