UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): May 14, 2010
CHINA ARCHITECTURAL ENGINEERING, INC.
(Exact Name of Company as Specified in Charter)
Delaware | 001-33709 | 51-05021250 | ||
(State or other jurisdiction | (Commission | (IRS Employer | ||
of incorporation) | File Number) | Identification No.) |
105 Baishi Road, Jiuzhou West Avenue, Zhuhai People’s Republic of China | 519070 | |
(Address of principal executive offices) | (Zip code) | |
Company’s telephone number, including area code: | 0086-756-8538908 |
N/A
(Former Name or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Company under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 4.02 | Non-Reliance on Previously Issued Financial Statement or a Related Audit Report or Completed Interim Review. |
On May 14, 2010, the management and the Board of Directors of the China Architectural Engineering, Inc. (the “Company”) concluded that the Company’s previously issued financial statements
(i) | as of and for the periods ended June 30, 2007 and September 30, 2007 as included in the Company’s Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on September 4, 2007 (as amended by Amendment No. 1 on Form10-Q/A on September 21, 2007) and November 14, 2007, respectively (the “2007 Quarterly Reports”), |
(ii) | as of and for the periods ended March 31, 2008 and June 30, 2008 as included in the Company’s Quarterly Reports on Form 10-Q filed with the SEC on May 14, 2008 and August 11, 2008 (the “2008 Quarterly Reports”), and |
(iii) | as of each of and for each of the three years ended December 31, 2009 as included in the Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2010 and Amendment No. 1 on the Form 10-K/A filed with the SEC on and April 30, 2010 (the “Form 10-K”, and collectively with the 2007 Quarterly Reports and 2008 Quarterly Reports, the “Filings”). |
should not be relied upon due to an error in the accounting of related to the timing of the interest expense related to the Company’s outstanding $8,000,000 Variable Rate Convertible Bonds due 2012 and $20,000,000 12% Convertible Bonds due 2011 that resulted in overstatements and understatements of the interest expenses related to the bonds during various quarters before the second quarter of 2008. Due to the accounting errors, the interest expense was overstated by approximately $0.3 million, $0.5 million, and $0.7 million for the second, third, and fourth quarters of fiscal year 2007, respectively, for a total overstatement of approximately $1.5 million for fiscal 2007. The interest expense was overstated by approximately $0.1 million in the first quarter of 2008 and all the overstatements, approximately $1.6 million, were reversed in the second quarter of 2008. For the year ended December 31, 2009, there was an overstatement of the interest expense of $7,984 in the second quarter and an understatement of $5,991 during the third quarter, for a total of overstatement of $1,993 for fiscal year 2009. The net bonds payable amounts were presented correctly in the Company’s financial statements as of December 31, 2008 and 2009, and it was only the components of the Convertible Bonds that were restated, while the net payable amounts as of December 31, 2007 was stated with correction of errors.
Additionally, the Form 10-K failed to recognize the addition of an equity compensation charge in the amount of $4,976 related to a portion of options granted in October 2009 that the Company inadvertently omitted in the Form 10-K. Together with the overstatement of interest expenses of $1,993, the loss for the year ended December 31, 2009 was understated by $2,983 and the retained earnings as of December 31, 2009 was overstated by $2,983. The Form 10-K contained an accounting error that consisted of $1.5 million of consolidation exchange loss resulting from the intercompany investments elimination was incorrectly included in the additional paid in capital instead of the accumulated comprehensive income presented in the Stockholders’ Statement of Equity and Comprehensive Income for the year ended December 31, 2009. All the errors for the year ended December 31, 2009 occurred among the components of the shareholders’ equity that the total shareholders’ equity was presented correctly as of December 31, 2009 as in the Form 10-K.
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The following is a summary items affected by the corrections described above for each of the periods indicated below:
Consolidated Balance Sheets
As of December 31, 2009 and 2008
As of December 31, 2009 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 24,938,476 | 1,557,400 | 26,495,876 | |||||||||
Accumulated other comprehensive income | 5,422,854 | (1,554,417 | ) | 3,868,437 | ||||||||
Retained earnings | 11,134,067 | (2,983 | ) | 11,131,084 |
As of December 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 23,043,792 | (7,200 | ) | 23,036,592 | ||||||||
Accumulated other comprehensive income | 5,443,432 | 7,200 | 5,450,632 |
As of June 30, 2007, September 30, 2007, March 31, 2008 and June 30, 2008
As of June 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Convertible bond payable, net | 5,544,064 | (10,802 | ) | 5,533,262 | ||||||||
Additional paid in capital | 11,710,602 | (281,472 | ) | 11,429,130 | ||||||||
Retained earnings | 17,371,524 | 292,274 | 17,663,798 |
As of September 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Convertible bond payable, net | 4,220,900 | 1,530,939 | 5,751,839 | |||||||||
Additional paid in capital | 13,790,282 | (2,361,152 | ) | 11,429,130 | ||||||||
Retained earnings | 20,457,002 | 830,213 | 21,287,215 |
2
As of March 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Convertible bond payable, net | 5,871,428 | 351,054 | 6,222,482 | |||||||||
Additional paid in capital | 21,594,712 | (1,953,752 | ) | 19,640,960 | ||||||||
Retained earnings | 28,987,554 | 1,602,698 | 30,590,252 |
Consolidated Statements of Operations
For the years ended December 31, 2009, 2008 and 2007
For the year ended December 31, 2009 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Selling, general and administrative expenses | $ | 21,087,131 | $ | 4,976 | $ | 21,092,107 | ||||||
Income / (Loss) from operations | 1,381,820 | (4,976 | ) | 1,376,844 | ||||||||
Interest expense | 6,333,486 | (1,993 | ) | 6,331,493 | ||||||||
0ncome / (Loss) before taxation on Continuing Operations | (5,045,611 | ) | (2,983 | ) | (5,048,594 | ) | ||||||
Net Earnings/(Loss) including non-controlling interest | (6,839,374 | ) | (2,983 | ) | (6,842,357 | ) | ||||||
Net Earnings/(Loss) attributable to the Company | (6,806,354 | ) | (2,983 | ) | (6,809,337 | ) |
For the year ended December 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 4,377,331 | $ | 1,502,291 | $ | 5,879,622 | ||||||
Income / (Loss) before taxation on Continuing Operations | (5,897,313 | ) | (1,502,291 | ) | (7,399,604 | ) | ||||||
Net Earnings/(Loss) including non-controlling interest | (5,893,664 | ) | (1,502,291 | ) | (7,395,955 | ) | ||||||
Net Earnings/(Loss) attributable to the Company | (5,873,415 | ) | (1,502,291 | ) | (7,375,706 | ) | ||||||
Earnings/(Loss) per share: | ||||||||||||
Basic | (0.11 | ) | (0.03 | ) | (0.14 | ) | ||||||
Diluted | (0.11 | ) | (0.03 | ) | (0.14 | ) |
For the year ended December 31, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 2,144,768 | $ | (1,502,291 | ) | $ | 642,477 | |||||
Income / (Loss) before taxation on Continuing Operations | 14,454,812 | 1,502,291 | 15,957,103 | |||||||||
Net Earnings/(Loss) including non-controlling interest | 12,032,328 | 1,502,291 | 13,534,619 | |||||||||
Net Earnings/(Loss) attributable to the Company | 12,032,328 | 1,502,291 | 13,534,619 | |||||||||
Earnings/(Loss) per share: | ||||||||||||
Basic | 0.24 | 0.03 | 0.27 | |||||||||
Diluted | 0.24 | 0.02 | 0.26 |
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For the periods ended June 30, 2007, September 30, 2007, March 31, 2008 and June 30, 2008
For the three months ended June 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 572,379 | $ | (292,274 | ) | $ | 280,105 | |||||
Income / (Loss) before taxation on Continuing Operations | 5,230,407 | 292,274 | 5,522,681 | |||||||||
Net Earnings/(Loss) including non-controlling interest | 4,292,777 | 292,274 | 4,585,051 | |||||||||
Net Earnings/(Loss) attributable to the Company | 4,278,500 | 292,274 | 4,570,774 | |||||||||
Earnings/(Loss) per share: | ||||||||||||
Diluted | 0.08 | 0.01 | 0.09 |
For the six months ended June 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 576,459 | $ | (292,274 | ) | $ | 284,185 | |||||
Income / (Loss) before taxation on Continuing Operations | 7,253,074 | 292,274 | 7,545,348 | |||||||||
Net Earnings/(Loss) including non-controlling interest | 5,988,396 | 292,274 | 6,280,670 | |||||||||
Net Earnings/(Loss) attributable to the Company | 5,974,119 | 292,274 | 6,266,393 | |||||||||
Earnings/(Loss) per share: | ||||||||||||
Basic | 0.12 | 0.01 | 0.13 |
For the three months ended September 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 764,747 | $ | (537,939 | ) | $ | 226,808 | |||||
Income / (Loss) before taxation on Continuing Operations | 3,916,040 | 537,939 | 4,453,979 | |||||||||
Net Earnings/(Loss) including non-controlling interest | 3,131,296 | 537,939 | 3,669,235 | |||||||||
Net Earnings/(Loss) attributable to the Company | 3,132,383 | 537,939 | 3,670,322 | |||||||||
Earnings/(Loss) per share: | ||||||||||||
Basic | 0.06 | 0.01 | 0.07 | |||||||||
Diluted | 0.06 | 0.01 | 0.07 |
For the nine months ended September 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 1,341,206 | $ | (830,213 | ) | $ | 510,993 | |||||
Income / (Loss) before taxation on Continuing Operations | 11,169,114 | 830,213 | 11,999,327 | |||||||||
Net Earnings/(Loss) including non-controlling interest | 9,119,692 | 830,213 | 9,949,905 | |||||||||
Net Earnings/(Loss) attributable to the Company | 9,106,502 | 830,213 | 9,936,715 | |||||||||
Earnings/(Loss) per share: | ||||||||||||
Basic | 0.18 | 0.02 | 0.2 | |||||||||
Diluted | 0.18 | 0.02 | 0.2 |
4
For the three months ended March 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Interest expense | $ | 334,137 | $ | (100,407 | ) | $ | 233,730 | |||||
Income / (Loss) before taxation on Continuing Operations | 5,229,115 | 100,407 | 5,329,522 | |||||||||
Net Earnings/(Loss) including non-controlling interest | 5,181,748 | 100,407 | 5,282,155 | |||||||||
Net Earnings/(Loss) attributable to the Company | 5,173,718 | 100,407 | 5,274,125 | |||||||||
Earnings/(Loss) per share: | ||||||||||||
Diluted | 0.09 | 0.01 | 0.10 |
Consolidated Statement of Stockholders’ Equity and Comprehensive Income
For the years ended December 31, 2009, 2008 and 2007
For the year ended December 31, 2009 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 24,938,476 | 1,557,400 | 26,495,876 | |||||||||
Accumulated other comprehensive income | 5,422,854 | (1,554,417 | ) | 3,868,437 | ||||||||
Retained Earnings | 11,134,067 | (2,983 | ) | 11,131,084 |
For the year ended December 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 23,043,792 | (7,200 | ) | 23,036,592 | ||||||||
Accumulated other comprehensive income | 5,443,432 | 7,200 | 5,450,632 |
For the year ended December 31, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 23,665,558 | (4,024,598 | ) | 19,640,960 | ||||||||
Retained Earnings | 23,813,836 | 1,502,291 | 25,316,127 | |||||||||
Total company shareholders’ equity | 52,464,602 | (2,522,307 | ) | 49,942,295 | ||||||||
Total shareholders equity | 52,514,084 | (2,522,307 | ) | 49,991,777 |
5
For the periods ended June 30, 2007, September 30, 2007, March 31, 2008 and June 30, 2008
For the six months ended June 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 11,710,602 | (281,472 | ) | 11,429,130 | ||||||||
Retained Earnings | 17,371,524 | 292,274 | 17,663,798 | |||||||||
Total company shareholders’ equity | 31,231,954 | 10,802 | 31,242,756 | |||||||||
Total shareholders equity | 31,168,547 | 10,802 | 31,179,349 |
For the nine months ended September 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 13,790,282 | (2,361,152 | ) | 11,429,130 | ||||||||
Retained Earnings | 20,457,002 | 830,213 | 21,287,215 | |||||||||
Total company shareholders’ equity | 37,069,166 | (1,530,939 | ) | 35,538,227 | ||||||||
Total shareholders equity | 36,980,538 | (1,530,939 | ) | 35,449,599 |
For the three months ended March 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Additional paid in capital | 21,594,712 | (1,953,752 | ) | 19,640,960 | ||||||||
Retained Earnings | 28,987,554 | 1,602,698 | 30,590,252 | |||||||||
Total company shareholders’ equity | 57,480,595 | (351,054 | ) | 57,129,541 | ||||||||
Total shareholders equity | 57,443,331 | (351,054 | ) | 57,092,277 |
Consolidated Statements of Cash Flows
For the years ended December 31, 2009, 2008 and 2007
For the year ended December 31, 2009 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | (6,839,374 | ) | $ | (2,983 | ) | $ | (6,842,357 | ) | |||
Amortization expenses on convertible bond discount | 1,551,675 | (1,993 | ) | 1,549,682 | ||||||||
Amortization expenses on fair value of staff stock options | - | 4,976 | 4,976 |
For the year ended December 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | (5,893,664 | ) | $ | (1,502,291 | ) | $ | (7,395,955 | ) | |||
Amortization expenses on convertible bond discount | 1,901,739 | 1,502,291 | 3,404,030 |
6
For the year ended December 31, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | 12,032,328 | $ | 1,502,291 | $ | 13,534,619 | ||||||
Amortization expenses on convertible bond discount | 2,144,768 | (1,502,291 | ) | 642,477 |
For the periods ended June 30, 2007, September 30, 2007, March 31, 2008 and June 30, 2008
For the three months ended June 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | 4,278,500 | $ | 292,274 | $ | 4,570,774 | ||||||
Amortization expenses on convertible bond discount | 479,965 | (292,274 | ) | 187,691 |
For the six months ended June 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | 5,974,119 | $ | 292,274 | $ | 6,266,393 | ||||||
Amortization expenses on convertible bond discount | 479,965 | (292,274 | ) | 187,691 | ||||||||
[ADD OTHER LINE ITEMS THAT REQUIRE CORRECTION] |
For the three months ended September 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | 3,132,383 | $ | 537,939 | $ | 3,670,322 | ||||||
Amortization expenses on convertible bond discount | 756,516 | (537,939 | ) | 218,577 | ||||||||
[ADD OTHER LINE ITEMS THAT REQUIRE CORRECTION] |
For the nine months ended September 30, 2007 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | 9,106,502 | $ | 830,213 | $ | 9,936,715 | ||||||
Amortization expenses on convertible bond discount | 1,236,481 | (830,213 | ) | 406,268 |
For the three months ended March 31, 2008 | ||||||||||||
As previously | ||||||||||||
reported | Adjustments | As restated | ||||||||||
Net Earnings/(loss) | $ | 5,173,718 | $ | 100,407 | $ | 5,274,125 | ||||||
Amortization expenses on convertible bond discount | 254,327 | (100,407 | ) | 153,920 |
Corrections for the foregoing errors require a restatement of the financial statements contained in the Form 10-K (“Restatement”). The Company has filed concurrently with this Current Report on Form 8-K an Amendment No. 2 to the Form 10-K (“Amended Form 10-K”) to correct the above noted errors.
We believe that the accounting errors were caused by lack of personnel with expertise in US generally accepted accounting principles and SEC rules and regulations, in addition to inadequate staffing and supervision that lead to the untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective reviews. We intend to take action to remediate these deficiencies going forward.
7
The Company’s Board of Directors and management conducted a review of the Company’s accounting treatment of the matters relating to the Restatement and it was concluded that the errors described above existed and required correction through the filing of this Current Report on Form 8-K and the Amended Form 10-K. The Board of Directors and authorized officers of the Company discussed this matter and conclusion with Samuel H. Wong & Co., LLP, the Company’s independent auditors.
The Company has completed the Restatement with respect to the financial statement as previously issued in the Form 10-K and has filed with the SEC the Amended Form 10-K containing the Restatement.
Item 7.01 | Regulation FD Disclosure. |
The information reported under Item 7.01 in this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits |
Exhibit Number | Description | |
99.1 | Press Release dated May 14, 2010. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 14, 2010 | CHINA ARCHITECTURAL ENGINEERING, INC. | |
By: | /s/ Luo Ken Yi | |
Name | Luo Ken Yi | |
Title: | Chief Executive Officer |
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