Delaware
(State or other jurisdiction of incorporation
or organization)
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51-05021250
(I.R.S. Employer Identification
No.)
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Research Building, No.801 Wuzhong Road,
Changzhou Science and Education Industrial Park,
Wujin District,
Changzhou, Jiangsu, People’s Republic of China
(Address of principal executive offices)
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213164
(Zip Code)
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Large accelerated filer ¨
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Accelerated filer
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Non-accelerated filer ¨
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Smaller reporting company x
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(Do not check if a smaller
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reporting company)
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31.1 (1)
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Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
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31.2 (1)
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Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
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32.1 (1)
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Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
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101*
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XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q
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CHINA CGAME, INC.
(Registrant)
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||
September 14, 2011
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By:
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/s/ Zhixin (Steven) Xing
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Zhixin (Steven) Xing
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Chief Executive Officer
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September 14, 2011
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By:
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/s/ Qin (Andy) Lu
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Qin (Andy) Lu
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Acting Chief Financial Officer
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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
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Jun. 30, 2011
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Dec. 31, 2010
|
---|---|---|
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 20,039,825 | 20,039,825 |
Common stock, shares outstanding | 20,039,825 | 20,039,825 |
CONSOLIDATED STATEMENTS OF INCOME (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
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Jun. 30, 2010
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|
Contract revenues earned | Â | Â | Â | $ 5,631,832 |
Cost of contract revenues earned | Â | Â | Â | (961,937) |
Gross profit | Â | Â | Â | 4,669,895 |
Selling, general and administrative expenses | (1,584,351) | (3,574,589) | (3,187,519) | (4,808,320) |
Loss from operations | (1,584,351) | (3,574,589) | (3,187,519) | (138,425) |
Interest income | 221 | 10 | 665 | 80 |
Interest expense | (1,862,829) | (1,729,275) | (3,929,408) | (3,355,356) |
Other income | 51 | 1,338 | 6,984 | 8,852 |
Other expenses | (249,942) | (115) | (381,251) | (804) |
Loss before taxation on Continuing Operations | (3,696,850) | (5,302,631) | (7,490,529) | (3,485,653) |
Income tax | Â | Â | Â | 9,575 |
Loss from Continuing Operations | (3,696,850) | (5,302,631) | (7,490,529) | (3,495,228) |
Discontinued Operation Income (Loss), net of tax | 326,608 | 1,970,744 | (611,275) | (3,357,938) |
Net Loss | (3,370,242) | (3,331,887) | (8,101,804) | (6,853,166) |
Net loss attributable to non-controlling interest | 491,627 | 1,551 | 893,796 | 2,946 |
Net Income Loss Attributable to the Company | $ (2,878,615) | $ 3,330,336 | $ (7,208,008) | $ (6,850,220) |
Earnings Per Share | Â | Â | Â | Â |
Basic-Net Loss | $ (0.14) | $ (0.24) | $ (0.36) | $ (0.50) |
-Loss from Continuing Operations | $ (0.16) | $ (0.38) | $ (0.33) | $ (0.26) |
-Loss from non-controlling interest | $ (0.02) | $ 0.00 | $ (0.04) | $ 0.00 |
-Income(Loss) from Discontinued Operations | $ 0.02 | $ 0.14 | $ (0.03) | $ (0.24) |
Diluted- Net Loss | $ (0.14) | $ (0.24) | $ (0.36) | $ (0.50) |
- Loss from Continuing Operations | $ (0.16) | $ (0.38) | $ (0.33) | $ (0.26) |
-Loss from non-controlling interest | $ (0.02) | $ 0.00 | $ (0.04) | $ 0.00 |
-Income(Loss) from Discontinued Operations | $ 0.02 | $ 0.14 | $ (0.03) | $ (0.24) |
Weighted Average Shares Outstanding | Â | Â | Â | Â |
-Basic | 20,039,825 | 13,789,219 | 20,039,825 | 13,736,441 |
-Diluted | 20,039,825 | 13,789,219 | 20,039,825 | 13,736,441 |
COMMITMENTS AND CONTINGENCIES
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Jun. 30, 2011
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||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES |
A.
OPERATING LEASE COMMITMENTS
The
Company leases certain administrative and production facilities
from third parties. Accordingly, for the six-month
periods ended June 30, 2011 and June 30, 2010, the Company incurred
rental expenses of $463,628 and $381,665
respectively.
The
Company has commitments with respect to non-cancelable operating
leases for these offices, as follows: -
B.
PENDING LITIGATION
Techwell Litigation
Pursuant
to a Stock Purchase Agreement dated November 7, 2007, the previous
shareholders of Techwell Engineering Limited
(“Techwell”), Mr. Ng, Chi Sum and Miss Yam, Mei Ling
Maria agreed to sell 100% of the shares in Techwell to the Company
for approximately $11.7 million in cash and shares of common stock
of the Company. Subsequent to the said acquisition, Mr. Ng and Miss
Yam were employed by Techwell.
On
January 14, 2009, the board of directors of Techwell passed a board
resolution, to dismiss both Mr. Ng and Miss Yam with immediate
effect and remove Mr. Ng from the board of Techwell (the
“Resolution”). On January 16, 2009,
Mr. Ng and Miss Yam filed a lawsuit in the High Court of Hong Kong
against the Company and its subsidiary, Full Art International
Limited. The lawsuit alleges that, inter alia , (i) the
Company misrepresented to them the financial status of the Company
and operations during the course the acquisition of Techwell was
being negotiated; (ii) the Company failed to perform its
obligations under a settlement agreement alleged to be agreed
by the Company in January 2009; and (iii) the dismissal of Mr.
Ng was unlawful and invalid. The lawsuit filed by Mr. Ng
and Miss Yam requests the court for specific performance of the
settlement agreement that was allegedly entered into, which would
require the return of the Techwell company to Mr. Ng and Miss Yam,
and in the absence of such grant of relief, Mr. Ng and Miss Yam
request unspecified damages lieu of return of the Techwell
company.
On
January 23, 2009 an ex-parte injunction order was granted to Mr.
Ng, restraining the Company from implementing the Resolution, which
was eventually dismissed with immediate effect on February 25, 2009
after a court session in the High Court of Hong Kong. Mr. Ng was
also ordered to bear the costs of the various court proceedings in
connection with the said injunction order. On March 27, 2009, Mr.
Ng and Miss Yam filed a summons in the High Court of Hong Kong
seeking a court order for leave to join the Company’s
principal shareholder, KGE Group Limited, as a defendant of the
said lawsuit, which was granted on April 9, 2009. As a
result, KGE Group Limited became one of the defendants of the
lawsuit. On May 12, 2009, the Company filed a Defense and
Counterclaim at the High Court of Hong Kong in response to a
Statement of Claim served by Mr. Ng and Miss Yam on the Company on
April 7, 2009.
The
Company, Mr. Ng, and Miss Yam are in discussions and negotiations
to settle the all disputesbetween the parties. However,
there is no guarantee that the parties will reach an agreement to
settle the dispute, in which case the Company intends to vigorously
defend against the lawsuit. There can be no assurance
that the lawsuit will be resolved in the Company’s
favor. Even if the Company successfully defends the
lawsuit, the Company may incur substantial costs defending or
settling the lawsuit, in addition to a possible diversion of the
time and attention of the Company’s management from its
business. If the Company is unsuccessful in defending
the lawsuit, its may be required to pay a significant amount of
damages and/or it may potentially lose ownership of Techwell, which
will have a material adverse effect on the Company’s
business, financial condition or results of operations. In the last
quarter of 2009, Mr. Ng made a settlement proposal to the Company
for consideration and the Company is still under negotiation of the
settlement agreement with Mr. Ng as of June 30, 2011. The
management intends to take further legal action in the event no
settlement agreement could be reached by end of June
2011.
Dubai Metro Rail Project Dispute
On
September 9, 2009, the Red Line, or first phase, of the Dubai Metro
was officially opened. The Company, through its subsidiary
Techwell, had been working towards completion of its external
envelopes for stations along the Red Line of the Dubai Metro
System. According to the Company’s original
construction blueprint, the majority of its construction work was
completed at the end of June 2009, and final construction
milestones were scheduled for completion in the third quarter of
2009. With less than 5% of its contract remaining to be
completed, Techwell was removed by the master contractor of the
project, which also called for and received payment of $2.1 million
in performance bonds and $7.3 million in advance payment bonds that
were issued on Techwell's behalf for the project. The calling of
the advance payment bonds was based on the master contractor's
belief that it had paid in excess of the construction work
performed. The Company and certain of its subsidiaries
are guarantor of the bonds that were paid by the banks, and the
Company is liable under the guaantee agreements for such amounts
paid by the banks. The Company does not believe that the
master contractor had a proper basis for calling the bonds and
intend to vigorously defend all of its legal rights and remedies
related to the dispute. The Company has engaged a
construction claims consultant to facilitate resolution of the
dispute. The Company and its construction claims
consultant, based on a review of the facts, documents, and
materials available, believes that it has a reasonable opportunity
to collect the amounts due to Techwell from the master contractor,
less appropriate credits as its final amount due for work performed
through September 2009. The Company, with the assistance
of its claims consultant, will continue to evaluate the
dispute and probability of success on this dispute going forward
and make the appropriate adjustments; however, no assurance can be
given that the dispute will be resolved in the Company’s and
Techwell’s favor.
In
July 2010, the Company met with the master contractor, and the
master contractor agreed to arrange a further meeting to explore
the possibility of settlement. No such meeting was arranged as of
date. The Company’s counsel in Dubai was preparing the legal
documents for the claims as of September 30, 2010. On November 8,
2010 the Company issued a notice informing the master contractor
that the Company would seek resolution through arbitration with 56
day waiting period for the master contractor to respond. In April
2011, the master contractor reiterated that it does not believe
that it is obligated to pay to the Company any of the amounts that
the Company believes it is due. The Company intends to
file for arbitration in the Courts of Dubai in second or third
quarter of 2011.
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Document and Entity Information
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6 Months Ended |
---|---|
Jun. 30, 2011
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Document Information [Line Items] | Â |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Jun. 30, 2011 |
Document Fiscal Year Focus | 2011 |
Document Fiscal Period Focus | Q2 |
Trading Symbol | CCGM |
Entity Registrant Name | CHINA CGAME, INC. |
Entity Central Index Key | 0001287668 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Smaller Reporting Company |
Entity Common Stock, Shares Outstanding | 20,039,825 |
DISCONTINUED OPERATIONS
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Jun. 30, 2011
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DISCONTINUED OPERATIONS |
In order to improve its cash flows from
operations and working capital, the Company decided to redeploy its
capital to meet requirements of its business plan. On June 30,
2011, the Company classified its subsidiaries, Zhuhai King Glass
Engineering Co., Ltd. and Zhuhai Xiangzhou District Career
Training School, as a discontinued
operation. Accordingly, Zhuhai King Glass Engineering
Co., Ltd. and Zhuhai Xiangzhou District Career Training
School’s operations have been classified as discontinued
operations in the consolidated statements of income and cash flows
and the assets and associated liabilities have been classified as
held for sale in the consolidated balance sheets. The Company
reviewed its Zhuhai King Glass Engineering Co., Ltd. and Zhuhai
Xiangzhou District Career Training School assets and plans to
sell these assets before 2012. Proceeds from the sales of Zhuhai
King Glass Engineering Co., Ltd. and Zhuhai Xiangzhou
District Career Training School assets will be used for
working capital for the Company and potentially purchasing of
equipment.
In
accordance with SFAS No. 144 (ASC 360-10), “Accounting for
the Impairment or Disposal of Long-lived Assets” (“SFAS
144”), the results of Zhuhai King Glass Engineering Co., Ltd.
and Zhuhai Xiangzhou District Career Training School
operations have been excluded from continuing operations and
reported as discontinued operations for the current and prior
periods. Furthermore, the assets of Zhuhai King Glass Engineering
Co., Ltd. and Zhuhai Xiangzhou District Career Training School
have been reclassified as held for sale in the Balance Sheet for
prior periods. On June 30, 2011, the Company assessed its
long-lived assets in Zhuhai King Glass Engineering Co., Ltd. and
Zhuhai Xiangzhou District Career Training School based on the
best estimation per the revenue guidance and determined that no
write-down is necessary because undiscounted cash flow is more than
the carrying values of the assets.
The
following table summarizes the amounts included in income/(loss)
from discontinued operations for all periods presented. These
revenues and expenses were historically reported under Zhuhai King
Glass Engineering Co., Ltd. and Zhuhai Xiangzhou
District Career Training School operating segment, and are now
reported in discontinued operations:
The following table summarizes the amounts
included in financial position from discontinued operations for all
periods presented. These amounts included in financial position
were historically reported under Zhuhai King Glass Engineering Co.,
Ltd. and Zhuhai Xiangzhou District Career Training School
operating segment, and are now reported in discontinued
operations:
|
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INVENTORIES
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Jun. 30, 2011
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INVENTORIES |
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SUBSEQUENT EVENTS
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18 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
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SUBSEQUENT EVENTS |
The
Company evaluated all events or transactions that occurred after
June 30, 2011 up through the date the Company issued these
financial statements. During this period the Company did
not have any material recognizable subsequent events.
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EARNINGS (LOSS) PER SHARE
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EARNINGS (LOSS) PER SHARE |
Components
of basic and diluted earnings per share were as follows:
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OTHER PAYABLES
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OTHER PAYABLES |
Other
payables consisted of the following:
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ORGANIZATION AND PRINCIPAL ACTIVITIES
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Jun. 30, 2011
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ORGANIZATION AND PRINCIPAL ACTIVITIES |
CHINA
CGAME, INC. (the “Company”) formerly China
Architectural Engineering, Inc., was incorporated in the State of
Delaware, United States on March 16, 2004. The Company’s
common stock was initially listed for trading on the NYSE Amex LLC
on September 28, 2007. The Company transferred its
listing to The NASDAQ Stock Market LLC on June 10,
2008.
The
Company through its subsidiaries conducts its principal activity as
building envelope systems contractors, specializing in the design,
engineering, fabrication and installation of curtain wall systems,
roofing systems, steel construction systems and eco-energy saving
building conservation systems, throughout China, Australia,
Southeast Asia, the Middle East, and the United
States.
The
Company's work is performed under cost-plus-fee contracts,
fixed-price contracts, and fixed-price contracts modified by
incentive and penalty provisions. These contracts are undertaken by
the Company or its wholly owned subsidiaries. The length of the
Company's contracts varies but is typically about one to two
years.
On
August 18, 2010, pursuant to a stock purchase agreement that was
entered into on August 11, 2010 by and among the Company, First Jet
Investments Limited (“First Jet”), New Crown Technology
Limited, First Jet’s wholly-owned subsidiary (“New
Crown”) and Mr. Jun Tang, the principal of First Jet and New
Crown, the Company completed an acquisition of 60% of the issued
and outstanding shares of New Crown, which is the holder of 100% of
the equity interests of Shanghai ConnGame Network Ltd.
(“ConnGame”). In exchange for the 60% equity
interest of New Crown, the Company issued 6,250,000 shares of the
Company’s common stock, $0.001 par value per share, to First
Jet. ConnGame is a company organized under the laws of the
People’s Republic of China with a registered capital of RMB
10,000,000. ConnGame is a developer and publisher of MMORPG
(Massively Multiplayer Online Role Playing Game). Since ConnGame
has not launched any games, it has not generated any material
revenue. In connection with the foregoing transaction, the Company
transferred to New Crown 100% of the equity interests of China
Architectural Engineering (Shenzhen) Co., Ltd., which had
immaterial operations and assets at the time of
transfer.
In
August 2010, connection with the acquisition of ConnGame and the
issuance of 6,250,000 shares of the Company's common stock, the
Company increased its authorized shares of common stock from
100,000,000 to 150,000,000 shares of common
stock.
Effective
December 21, 2010, the Company conducted a 1-for-4 Reverse Stock
Split of all issued and outstanding shares of its common stock, and
reduced the number of the authorized shares of the common stock
from 150,000,000 to 100,000,000. Upon the effect of the Reverse
Stock Split, the Company’s issued and outstanding shares
reduced from 80,156,874 to 20,039,825. Except as otherwise
specified, all information in these financial statements and notes
and all share and per share information has been retroactively
adjusted to reflect the reverse stock split.
On
March 25, 2011, the Company changed its name from China
Architectural Engineering, Inc. to its current name China CGame,
Inc. The Board of Directors approved the change of the
corporate name to better reflect the operations of the
Company’s focus on providing MMORPG in
China. Pursuant to Section 253 of the Delaware General
Corporation Law, the name change was effected by the merger of
China CGame, Inc., a wholly-owned subsidiary of the Company, with
and into the Company, with the Company being the surviving
corporation. This merger had the effect of amending the
Company’s Certificate of Incorporation to reflect the new
legal name of the Company.
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INTANGIBLE ASSETS
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INTANGIBLE ASSETS |
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CONTRACT REVENUES EARNED
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CONTRACT REVENUES EARNED |
The
contract revenues earned for the three and six months ended June
30, 2011 and 2010 consist of the following: -
The
unbilled contract revenue earned represents those revenue that
should be recognized according to the percentage of completion
method for accounting for construction contract because the Company
is entitled to receive payment from the customers for the amount of
work that has been rendered to and completed for that customer
according to the terms and progress being made as stipulated under
that contract between the Company and that customer. As an
industrial practice, there are certain procedures that need to be
performed, such as project account finalization, by both the
customer and the Company before the final billing is issued;
however this does not affect the Company’s recognition of
revenue and respective cost according to the terms of the contract
with the consistent application of the percentage-of-completion
method.
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LOANS
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LOANS |
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PROPERTY, PLANT AND EQUIPMENT
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PROPERTY, PLANT AND EQUIPMENT |
Property,
Plant and equipment consist of the following as of: -
Depreciation
expenses included in the selling and administrative expenses for
periods ended June 30, 2011 and 2010 were $ 455,215 and $200,784
respectively.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (USD $)
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Total
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Common stock
|
Additional paid in capital
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Statutory reserves
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Accumulated other comprehensive income
|
Retained earnings
|
Non-controlling Interest
|
---|---|---|---|---|---|---|---|
Beginning Balance at Dec. 31, 2009 | $ 44,562,860 | $ 13,315 | $ 26,535,818 | $ 3,040,595 | $ 3,868,437 | $ 11,131,084 | $ (26,389) |
Beginning Balance (in shares) at Dec. 31, 2009 | Â | 13,314,825 | Â | Â | Â | Â | Â |
Net Loss including non-controlling interests | (23,195,174) | Â | Â | Â | Â | (22,303,183) | (891,991) |
Additional Paid-in Capital from grant of employee stock options | 19,902 | Â | 19,902 | Â | Â | Â | Â |
Value of stocks grant to employees (in shares) | Â | 475,000 | Â | Â | Â | Â | Â |
Value of stocks grant to employees | 1,957,000 | 475 | 1,956,525 | Â | Â | Â | Â |
Value of stocks to acquire New Crown (in shares) | Â | 6,250,000 | Â | Â | Â | Â | Â |
Value of stocks to acquire New Crown | 15,375,000 | 6,250 | 15,368,750 | Â | Â | Â | Â |
Foreign currency translation adjustment | (2,295,597) | Â | Â | Â | (2,295,597) | Â | Â |
Ending Balance at Dec. 31, 2010 | 36,423,991 | 20,040 | 43,880,995 | 3,040,595 | 1,572,840 | (11,172,099) | (918,380) |
Ending Balance (in shares) at Dec. 31, 2010 | Â | 20,039,825 | Â | Â | Â | Â | Â |
Net Loss including non-controlling interests | (8,101,804) | Â | Â | Â | Â | (7,208,008) | (894,433) |
Foreign currency translation adjustment | 3,479,808 | Â | Â | Â | 3,479,808 | Â | Â |
Ending Balance at Jun. 30, 2011 | $ 31,801,358 | $ 20,040 | $ 43,880,995 | $ 3,040,595 | $ 5,052,648 | $ (18,380,107) | $ (1,812,813) |
Ending Balance (in shares) at Jun. 30, 2011 | Â | 20,039,825 | Â | Â | Â | Â | Â |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The
Company maintains its general ledger and journals with the accrual
method accounting for financial reporting purposes. The
consolidated financial statements and notes are representations of
management. Accounting policies adopted by the Company
conform to generally accepted accounting principles in the United
States of America and have been consistently applied in the
presentation of consolidated financial statements, which are
compiled on the accrual basis of accounting.
The
consolidated financial statements include the accounts of the
Company and its seventeen subsidiaries. Significant inter-company
transactions have been eliminated in consolidation. The
consolidated financial statements include 100% of the assets and
liabilities of these majority-owned subsidiaries, and the ownership
interests of minority investors are recorded as non-controlling
interests.
As
of June 30, 2011, detailed identities of the consolidating
subsidiaries are as follows:
The
preparation of the consolidated financial statements in conformity
with generally accepted accounting principles in the United States
of America 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
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the
time the estimates are made; however, actual results could differ
materially from those estimates.
Plant
and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their
estimated useful lives, using the straight-line method. Estimated
useful lives of the plant and equipment are as follows:
-
The
cost and related accumulated depreciation of assets sold or
otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of operation. The cost of
maintenance and repairs is charged to income as incurred, whereas
significant renewals and betterments are capitalized.
The long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not
be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry
changes. Determination of recoverability of assets to be
held and used is by comparing the carrying amount of an asset to
future net undiscounted cash flows to be generated by the
assets.
If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
During
the reporting periods, there was no impairment loss.
In
accordance with ASC 350, “Goodwill and Other Intangible
Assets.” the Company does not amortize goodwill or intangible
assets with indefinite lives.
Upon
indication that the carrying values of such assets may not be
recoverable, the Company recognizes an impairment loss as a charge
against current operations.
The
Company performs an analysis on its goodwill balances to test for
impairment on an annual basis and whenever events occur that
indicate an impairment could exist.
All
of the goodwill presented as June 30, 2011 is attributable to the
acquired subsidiaries with approximately $15.8 million attributable
to ConnGame, which was acquired in August 2010, and approximately
$8.0 million attributable to Techwell Engineering Limited. There
are several instances that may cause the Company to further test
its goodwill for impairment between the annual testing periods
including: (i) continued deterioration of market and
economic conditions that may adversely impact its ability to meet
its projected results; (ii) declines in the Company’s stock
price caused by continued volatility in the financial markets that
may result in increases in its weighted-average cost of capital or
other inputs to its goodwill assessment; (iii) the occurrence of
events that may reduce the fair value of a reporting unit below its
carrying amount, such as the sale of a significant portion of one
or more of the Company’s reporting units. In the period ended
June 30, 2011, the Company believes that no instance indicates that
an impairment could exist in respect to Techwell and
ConnGame.
Material
assumptions the related to Techwell include: (1) The
reporting unit continues to have the profitable operations for a
period of next 10 years; (2) the revenue has the steady annual
growth rate ranging from 5% to 8% as in line with the estimated
growth rate of PRC economy; (3) costs of funds kept stable for the
period of next 10 years resulting in a stable discount rate for the
projection of estimated fair value; and (4) no material change in
the prevailing payment terms of the construction industry that
allowing the working capital requirement kept at a low level at
15%. Uncertainties include: (1) The ability
of the reporting unit to continue as a profitable
operation may be affected by changes in technologies and the market
of the construction industry; (2) the growth of the PRC economy may
not be as steady as projected that in turn affect the steady growth
of the revenue of the reporting unit, (3) it is also uncertain
about the capital market that affect the costs of fund of the
company; and (4) the prevailing payment terms used in the
construction industry may be changed as a result of changes in the
business environment for the construction industry. Potential
events include (1) the appreciation of the value of RMB that would
slow down the export and in turn the economic development of China
that in turn have negative effect of property development industry
in China; and (2) the controlling policies towards the property
market by the PRC government.
For
other intangible assets, impairment tests are performed annually
and more frequently whenever events or changes in circumstances
indicate carrying values exceed estimated reporting unit fair
values
Inventories
are raw materials, which are stated at the lower of weighted
average cost or market value.
Contracts
receivables from performing construction of industrial and
commercial buildings are based on contracted prices. The
Company provides an allowance for doubtful debts, which is based
upon a review of outstanding receivables, historical collection
information, and existing economic conditions.
The
Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash
equivalents.
Restricted
cash represents deposits in bank accounts to secure notes payables,
bank loans, project performance bond and guarantee.
The
Company computes earnings per share (“EPS’) in
accordance with ASC 260, “Earnings per Share”. ASC 260
requires companies with complex capital structures to present basic
and diluted EPS. Basic EPS is measured as the income or loss
available to common shareholders divided by the weighted average
common shares outstanding for the period. Diluted EPS is similar to
basic EPS but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, options, and
warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase
income per share or decrease loss per share) are excluded from the
calculation of diluted EPS.
The
calculation of diluted weighted average common shares outstanding
for the period ended June 30, 2011 and 2010 is based on the
estimate fair value of the Company’s common stock during such
periods applied to warrants and options using the treasury stock
method to determine if they are dilutive. The Convertible Bond is
included on an “as converted “basis when these shares
are dilutive. See also Note 18 – Earnings (Loss) Per
Share.
Revenues
from fixed-price and modified fixed-price construction contracts
are recognized on the percentage-of-completion method, measured by
the percentage of costs incurred to date to estimated total cost
for each contract.
Contract
costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and depreciation
costs.
Provisions
for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability, including
those arising from contract penalty provisions, and final contract
settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
Profit incentives are included in revenues when their realization
is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is
probable and the amount can be reliably estimated.
Selling,
general, and administrative costs are charged to expense as
incurred.
Total
estimated gross profit on a contract, being the difference between
total estimated contract revenue and total estimated contract cost,
is determined before the amount earned on the contract for a period
can be determined.
The
measurement of the extent of progress toward completion is used to
determine the amount of gross profit earned to date and that the
earned revenue to date is the sum of the total cost incurred on the
contract and the amount of gross profit earned.
Earned
revenue, cost of earned revenue, and gross profit are determined as
follows: -
Change
orders are common for the changes in specifications or
design. Contract revenue and costs are adjusted to
reflect change orders approved by the customer and the contractor
regarding both scope and price. Recognition of amounts
of additional contract revenue relating to claims is appropriate
only if it is probable that the claim will result in additional
contract revenue and if the amount can be reliably
estimated.
The
Company uses the accrual method of accounting to determine and
report its taxable reduction of income taxes for the year in which
they are available. The Company has implemented
ASC 740-270,
Accounting for Income Taxes.
Income
tax liabilities computed according to the United States,
People’s Republic of China (PRC), Hong Kong SAR, Macau SAR
and Australia tax laws are provided for the tax effects of
transactions reported in the financial statements and consists of
taxes currently due plus deferred taxes related primarily to
differences between the basis of fixed assets and intangible assets
for financial and tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences of
those differences, which will be either taxable or deductible when
the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for
operating losses that are available to offset future income
taxes. A valuation allowance is created to evaluate
deferred tax assets if it is more likely than not that these items
will either expire before the Company is able to realize that tax
benefit, or that future realization is uncertain.
In
respect of the Company’s subsidiaries domiciled and operated
in different tax jurisdictions, the taxation of these entities can
be summarized as follows:
· KGE
Australia Pty Limited is subject to a corporate income tax rate of
30%.
The
Company expensed all advertising costs as
incurred. Advertising expenses included in selling
expenses were $197,076, and $nil for the six-month periods ended
June 30, 2011 and 2010, respectively.
All
research and development costs are expensed as
incurred. Research and development costs included in
general and administrative expenses were $1,818,781 and $nil for
the six-month periods ended June 30, 2011 and 2010,
respectively.
Retirement
benefits in the form of contributions under defined contribution
retirement plans to the relevant authorities are charged to the
statements of operation as incurred.
Selling,
general and administrative expenses including employee salaries,
pension costs, marketing costs, insurance, rent, and depreciation,
etc.
The
accompanying consolidated financial statements are presented in
United States Dollars (US$). The Company’s functional
currency is the US$, while certain domestic subsidiaries’ use
the Renminbi (RMB) and Hong Kong and overseas subsidiaries use
local currencies as their functional currency. The
consolidated financial statements are translated into US$ from RMB,
Hong Kong Dollars (HKD), United Arab Emirate Dirham (AED) and other
local currencies at June 30, 2011 exchange rates as to assets and
liabilities and average exchange rates as to revenues and expenses.
Capital accounts are translated at their historical exchange rates
when the capital transactions occurred.
The
RMB is not freely convertible into foreign currency and all foreign
exchange transactions must take place through authorized
institutions. No representation is made that the RMB
amounts could have been, or could be, converted into US$ at the
rates used in translation.
Statutory
reserves for foreign investment enterprises are referring to the
amount appropriated from the net earnings in accordance with PRC
laws or regulations, which can be used to recover losses and
increase capital, as approved, and are to be used to expand
production or operations.
Comprehensive
income is defined to include all changes in equity except those
resulting from investments by owners and distributions to
owners. Among other disclosures, all items that are
required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a
financial statement that is presented with the same prominence as
other consolidated financial statements. The
Company’s current components of other comprehensive income
are the foreign currency translation adjustment.
Certain
amounts have been reclassified to present the Company’s
Zhuhai King Glass Engineering Co., Ltd. and Zhuhai Xiangzhou
District Career Training School operations as discontinued
operations. Unless otherwise indicated, information presented in
the notes to the financial statements relates only to the
Company’s continuing operations. Information related to
discontinued operations is included in Note 19 and in some
instances, where appropriate, is included as a separate disclosure
within the individual footnotes.
These
consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates
the realization of assets and the discharge of liabilities in the
normal course of business for the foreseeable future. As
of June 30, 2011 and December 31, 2010, the Company has an
accumulated deficit of $18,380,107 and $11,172,099, respectively,
due to the fact that the Company continued to incur losses over the
past few years. The Company has failed to make required
principal and interest payments due under convertible bonds, which
may be called by the bondholders at any time. Management is
attempting to renegotiate the terms of the debts and is in the
process of evaluating funding alternatives including seeking
refinance of the debts and temporary loans from the major
shareholder for the Company operations. As a result, the
Company is dependent upon financial support of certain
stockholders.
These
factors raise substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do
not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome
of the Company’s ability to continue as a going
concern.
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CONTRACT RECEIVABLES
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CONTRACT RECEIVABLES |
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OTHER ACCRUALS
|
18 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER ACCRUALS |
Other
accruals consisted of the following:
|
OTHER RECEIVABLES
|
18 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER RECEIVABLES |
Other
receivables consisted of the
following:
|
M+"8,/S:8__7I_-<4+\];Q#W_RC"'=W3:#[VGP8O3IU,(=[3O/WE.LT,]_3:I
M:8H?N6A9N/4#2*W9B9F))[XW4Q0SUD=4+Y6!B0]:[FM$JY'*[$I\V^3`5\]E
MLF&C:.@+7-?L6\(;<*FR7U'3$?>MY>@FIBYH)QCL:6#BH&
M3%)46'(.WH+$610P,Q[>#I'>C`^+C7:_TBOJVRBQ'3=7+
M:,_<`91@?CJ00KA>:/W+`6`\7(*'^S[JW?A/F1.'H=E@]\E-50H;S?]1X`'6
MO6P0G2TNA8GF>;(>$L;1E"3.4M/P/;D4PC!5(R&+)_'TR/UX
SXQAAA#C%G&F-]LO"B<++:\DTL!8.(,
M<68I9ZX=GUM$D1Q39$,W_)ELR,4<\@JJYT07GJC@OJ1R:J=1KBY@5]S*TLS4
MY6$'71Y6KEB\>D'BX0X'G%')O'1='0C-A&9",Z&9T$QH)C03F@G-A.;G#KC9
MU[KM2K=$6[W)SV-=C
F'GMIM9I[*ID
M-S&O*"`EYKTX\UZWNUIKV"DU]=X0XXAQN6%