Saturday, June 17, 2006
China Expert Technology (CXTI) amended 2004 10-K
In Description of Property
"The [Fujian] offices are provided to the Company by Mr. Lai Man Yuk The Company paid $133,404 [was $168,487 in original] being total rental for the offices in the fiscal year 2004 which was predetermined by both parties with reference to market rentals. The operating lease arrangements are cancelable and rentals are paid on a monthly basis."
Here's the reason for the restatement:
As discussed in Note 2 to the consolidated financial statements, the financial statements for the year ended December 31, 2004 and the related notes have been restated in order to properly reflect the compensation for consulting services for the reverse takeover as operating costs and to reclassify certain assets and liabilities. The effect of the adjustments is to reduce the net income for 2004 by $2,940,000 and increase the additional paid-in capital by the same amount. Common stock under the stockholders' equity as of December 31, 2004 as reported in the consolidated balance sheets and the related notes have been restated at $24,414 to reflect the par value of common stock issued and outstanding. 6 Prepaid expenses reported in the consolidated balance sheets and the related notes have been restated by reclassifying $500,000 from non-current assets to current assets, in order to properly present the current and non-current portion of prepaid expenses. Amount due from a former officer as reported in the consolidated balance sheets as of December 31, 2004 has been restated at $2,022,525 and amount due to a former officer has been restated at $2,137,881. They have been restated by reporting the gross amount instead of net amount.We already know this stuff from the 2005 10-K.
They added this table to the overview:
|Tentative||Completion||Contract||Recognized in||Recognized in||Outstanding|
|Projects||Start Date||Date||Sum||2003||2004||Contract Sum|
|Jinjiang (1st Phase)||Apr 03||Jan 05||24.7||4.7||17.8||2.2|
|Dehua (1st Phase)||Apr 04||Aug 06||15.6||--||8.9||6.7|
|Nan'an||Aug 05||Mar 07||14.5||--||--||14.5|
Remarks: Tentative start date and target completion date may vary from the original contract terms. Contract sum are net of PRC business tax
They removed this stuff:
The table showing margin percentages is different due to the restatements (and be careful, they switched the order of the years in the tables). The breakdown of expenses is a bit different. They added more detail to G&A.
The Company’s need for capital to commence new e-government projects may have an impact on its short-term liquidity during 2005.
As of December 31, 2004, management is focused on the immediate task of improving the Company's ability to capture the e-government market in China and to continue to provide income stability.
The Company anticipates, based on internal forecasts and assumptions, that it will obtain 2 new contracts in 2005, with estimated contract prices totaling approximately $30 million. Based on that assumption, management is projecting approximately 15% growth on its revenues and profits for the fiscal year ended December 31, 2005.
|Amortization of prepaid consultancy fees||$437,500|
|Increase in legal and professional fees||67,016|
|Decrease in financial advisory fees||(122,494)|
|Decrease in payroll expenses||(37,899)|
|Decrease in overseas traveling||(24,554)|
|Decrease in telephone and fax||(14,315)|
|Total increase in expenses||$299,550|
In Liquidity and Capital Resources, this text was added:
The Company required more working capital in terms of accounts receivable because substantial portion of Dehua (1st Phase) was completed and billed near the end of the year. The increase in prepayments and deposits was due to prepaid contract costs during the start-up stage of Dehua (1st Phase), as the Company had arranged prepayments to suppliers for the purchases of hardware on behalf of customers, and down payment to subcontractors for system development during the start-up stage of the project.Good. Obviously some of the numbers changed due to the restatement. Lots of changed text here.
Management Assumptions were removed (perhaps just moved elsewhere):
The Company anticipates, based on internal forecasts relating to our projects, that existing cash and funds generated from the existing projects will be sufficient to meet working capital and capital expenditure requirements for all our existing projects for the next 12 months. In the event that the Company signs up new contracts, the Company could be required to seek additional financing. There can be no assurance that we will be able to obtain additional financing on terms acceptable to it, or at all.Some changes in Foreign Exchange Rates text, nothing that seems major, just added CYA posturing.
In the auditor's statement, there were some essentially non-printing changes related to punctuation. Also, "and the related consolidated statements of operations" was changed to "and the related consolidated statements of income". The restatement of Note 2 was signed by the auditors on March 10, 2006.
I went through the consolidated financial statements and they match up with the restated 2004 numbers from the 2005 10-K.
Note 2 is essentially stuff from the 2005 10-K Note 2. I didn't check this exactly via a diff.
Overall, this appears to be what it should be: propagating the restatement details back to the 2004 10-K.