UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K /A


Amendment #1





x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the Fiscal Year Ended December 31, 2009





OR





oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the transition period ____________ to__________





Commission File Number 0-52870





CAVICO CORP.


(Name of Issuer in its charter)





Delaware

20-4863704( State of other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)17011 Beach Blvd., Suite 1230,

Huntington Beach, California

92647(Address of principal executive offices)

(Zip Code)





Issuer's telephone number:   714-843-5456


Copies to:


Gregory Sichenzia, Esq.


Peter DiChiara, Esq.


Sichenzia Ross Friedman Ference LLP


61 Broadway


New York, New York 10006


Tel: (212) 930-9700


Fax: (212) 930-9725





Securities Registered Pursuant to Section 12(b) of the Act: None





Securities Registered Pursuant to Section 12(g) of the Act:





Common Stock, par value $.001


Title of Class





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.


Yes o  No x





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.





Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o    No x





As of June 30, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $16,000,870.





The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, was 3,047,795 as of March 31, 2010.














TABLE OF CONTENTS





PagesPART IItem 1. Description of Business
1Item 1A. Risk Factors
12Item 1B. Unresolved Staff Comments
20Item 2. Description of Property
20Item 3. Legal Proceedings
22Item 4. Reserved
22PART IIItem 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters
23Item 6.  Selected Financial Data
24Item 7. Management's Discussion and Analysis of Financial Condition and Results Of Operations
24Item 7A. Quantitative and Qualitative Disclosures about Market Risk
34Item 8. Financial Statements and Supplementary Data
35-63Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosures.
64Item 9A. Controls and Procedures
64Item 9B.  Other Information
65PART IIIItem 10. Directors, Executive Officers, and Corporate Governance
66Item 11. Executive Compensation
69Item 12. Security Ownership of Certain Beneficial Owners and Management
69Item 13. Certain Relationships and Related Transactions.
70Item 14. Principal Accountant Fees and Services
71PART IVItem 15. Exhibits and Financial Statement Schedules
72Signatures
73











PART I




EXPLANATORY NOTE
  This Amendment No. 1 (“Amendment”) on Form 10-K/A amends the Annual Report of Cavico Corp. (the "Company") on Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission on April 15, 2010 (the "Original Filing"). This Amendment is being filed for the purpose of inclusion of additional disclosures which were omitted in the Original Filing.  These additional disclosures provide a better presentation of the financial statements and financial condition of the Company. This Amendment is an amendment of the Original Report in its entirety in order to provide a complete presentation. Except as stated herein, this Amendment does not reflect events occurring after the date of the filing of the Original Report.





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





This Form 10-K contains forward-looking statements and information relating to Cavico Corp. (“Cavico” or “the Company”).  Cavico Corp. intends to identify forward-looking statements in this annual report by using words such as "believes," "intends," "expects," "may," "will," "should," "plan," "projected," "contemplates," "anticipates," "estimates," "predicts," "potential," "continue," or similar terminology. These statements are based on the Company’s beliefs as well as assumptions the Company made using information currently available to us. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Because these statements reflect the Company’s current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements.





ITEM 1.
BUSINESS





History





We were incorporated in Delaware on September 13, 2004 under the name Laminaire Corp. On November 9, 2004, the name of the Company was changed to Agent 155 Media Group, Inc. On May 2, 2006, our name was changed to Cavico Corp.  Our website may be found at www.cavicocorp.com .  Our executive offices are located at 17011 Beach Blvd., Suite 1230, Huntington Beach, California, 92647.  Our telephone number is (714) 843-5456.





During 2006 and 2007, we acquired Cavico Vietnam Company Limited (formerly, Cavico Vietnam Joint Stock Company Limited), 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 1,975,000 shares of our common stock. Cavico Vietnam subsequently transferred 1,501,555 of these shares to the former shareholders of Cavico Vietnam in return for their shares of Cavico Vietnam stock. An additional 473,445 shares were deposited with Cavico Vietnam for the use of that entity’s management, of which 123,445 shares were distributed to Cavico Vietnam’s management in 2006 (of which 2,238 were returned by employees) and 125,000 shares were sold to employees in 2008 for $300,000 at a price of $2.40 per share.  The remaining 227,147 shares owned by our wholly owned subsidiary, Cavico Vietnam, are for sale or issuance to employees or to third-parties by that entity’s management.  Pursuant to Delaware General Corporation Law, shares owned by Cavico Vietnam are not entitled to vote on any matters at a meeting of stockholders.  The shares owned by Cavico Vietnam, therefore, are not considered to be outstanding shares, similar to shares of treasury stock.





●
Following our purchase of Cavico Vietnam’s assets, and pending the grant of the requisite approval by a Vietnamese government agency of the acquisition of Cavico Vietnam, as required under Vietnamese law, Cavico Vietnam continued to use its 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.





We operate nationwide in Vietnam through our subsidiaries, serving almost exclusively public sector clients.  Our wholly-owned subsidiary, Cavico Vietnam, conducts its operations through a number of subsidiaries. Some of these entities are wholly owned while others are partially owned by Cavico Vietnam. The officers and directors of Cavico Vietnam also hold positions on the boards of these subsidiaries. During 2007 and 2008, we permitted some of our subsidiaries to sell shares to third parties for the purpose of raising funds for expanded operations, thereby reducing our percentage held in those entities. Cavico Vietnam's consolidated ownership percentage changed through either the purchase or sale of securities, from December 31, 2008 to December 31, 2009 as follows: Cavico Hydropower Construction JSC decreased from 71.80% to 71.74%; Cavico Tower decreased from 33.79% to 33.21%; Cavico Industry & Tech Service decreased from 64.64% to 62.08%; Cavico Stone & Mineral increased from 35.50% to 44.93%;  Cavico Transport JSC decreased from 73.84% to 68.90%;Cavico Manpower JSC increased from 30.0% to 39.5%; Luong Son International Tourist increased from 90.90% to 92.16%; and Cavico Land increased from 13.35% to 15.25%.  These Vietnamese companies do not have authorized shares. Any sale or issuance of shares must be approved by the shareholders of the Vietnamese subsidiaries. We do not plan to sell any additional shares in any of our subsidiaries. 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%.





Our website may be found at www.cavicocorp.com.





1




Business Strategy





We are a major infrastructure construction, infrastructure investment and natural resources company headquartered in Hanoi, Vietnam.  We provide construction and engineering services for large civil construction infrastructure projects in Vietnam, including the construction of tunnels, roads, highways, bridges, mines and dams.  In addition, we are currently making investments in hydropower electric plants, cement production plants, mining operations and urban developments in Vietnam and Laos.  During the year ended December 31, 2009, we generated approximately 86% of our revenues from tunnel construction for hydroelectric plants and dam construction.





Our fundamental objective is to increase long-term shareholder value by focusing on consistent profitability from controlled revenue growth. In our view, shareholder value is measured by the appreciation of the value of our common stock over a period of years and, eventually, a return through dividends. We consider the following to be 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.





Employee Development - We believe that our employees are a 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.  We sponsor events with our employees in order to nurture employees to maximize in our growth potential.  We are building a strong company culture through various activities, including company newsletters and music which fosters the pride within our employees and for the Company’s accomplishments.





Brand Building – We are trying to affirm and maintain the brand of “Cavico – Always Growing” by promptly completing projects, while ensuring their quality and safety, to gain the trust of customers and potential customers and investors.  Cavico Bridge and Underground Construction and Cavico Mining and Construction received in 2008 a Vietnamese Golden Star award from the Vietnam Association of Young Entrepreneurs which recognized Cavico as one of the top brands in Vietnam. In 2009, Cavico Vietnam, was ranked 167 of the Top 500 Vietnamese largest non-state owned enterprises, also known as VNR500.  Also in 2009, we were awarded the Class III Labor Medal issued by office of the President of Vietnam to acknowledge the outstanding contributions of individuals or entities that have contributed towards the building of Vietnam.





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 civil construction competencies, we are able to improve gross margin opportunities, more effectively compete for contracts as well as 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.





Alternative Energy - We are actively engaged in a variety of alternative energy projects, including producing electricity from hydropower plants and wind farms.





Expansion into Countries other than Vietnam – We intend to expand our operations into other Pacific Rim countries such as Laos.  On January 22, 2009 our majority-owned subsidiary, Cavico Bridge and Underground Construction (“Cavico Bridge”), was awarded a $6.2 million contract by Cooperativa Muratori e Cementisti – CMC di Ravenna (“CMC”), a leading Italian construction company, for tunnel construction work at Theun HinBoun Expansion Project in Laos.  Also, on April 22, 2009, our wholly-owned subsidiary, Cavico Vietnam entered into an agreement with Laos Ministry of Planning and Investment to explore and exploit copper, gold, and other ores in Muang Hom district, Vientiane province, Laos.  In September 2009, we received approval from the Laos Ministry of Planning and a certificate of investment for a copper mine in Laos.





Operations





Tunnel Construction. We apply what we believe to be the latest tunnel engineering methods such as New Austria Tunnel Method (“NATM”), a tunneling method that involves sequential excavation using blasting procedures and mechanical methods, and advanced Tunnel Boring Machines (“TBM”) for the construction of highways, hydropower plants and civil infrastructure. Cavico Vietnam has constructed an extensive network of tunnels that are used for government hydropower plants including:




2




Project

Subsidiary (Ownership Interest in subsidiary)

Tunnel SizeBuon Kuop(1)

Cavico-Vietnam (100% owned)

280MW; length of 5180m, diameter of 8mBan Ve(2)

Cavico Transport JSC (69% owned)

320MW; length, of 1720m, diameter of 8mBac Binh(3)

Cavico-Vietnam (100% owned)

33MW; length of 2644m, diameter of 5.2mDong Nai 4

Cavico-Vietnam (100% owned)

340MW; length of 2926m, diameter of 5.5m to 9.2mDong Nai 3

Cavico-Vietnam (100% owned)

180MW; length of 1305m, diameter of 8m to 9.2mNam Chien

Cavico-Vietnam (100% owned)

210MW; length of 9126m, diameter of 3.8mBao Loc(4)

Cavico-Vietnam (100% owned)

24.5MW; length of 960m, diameter of 4.8mA Luoi

Cavico-Vietnam (100% owned)

170MW; length of 12800m, diameter of 4.5m to 6.5mDak Mi 4

Cavico Power and Resource JSC (76% owned)

190MW; length of 3355m, diameter of 7.6mZa Hung(5)

Cavico-Vietnam (100% owned)

30MW; length of 1500m, diameter of 6mDasiat(6)

Cavico-Vietnam (100% owned)

13.5MW; length of 2512m, diameter of 2.5mSong Tranh 2

Cavico Bridge and Underground (66% owned)

190MW; length of 1200m, diameter of 9.9mSong Giang 2

Cavico Hydropower Construction(72% owned)

37MW; length of 3900m &2 sub-tunnel of 650m, diameter 2.5mDak Sin 1

Cavico –Vietnam(100% owned)

28.4MW; tunnel length of 800m, diameter of 2.5mDakdrinh

Cavico Transport (69% owned)

125MW; length of 7500m, diameter of 4.5mThuong Kon Tum

Cavico Bridge and Underground (66% owned)

220MW; length of 1800m, diameter of 6.5mHua Na

Cavico Power and Resource JSC (76% owned)

180MW; length of 4500m, diameter of 7.5mSong Bac

Cavico Vietnam (100% owned)

42MW; length of 4243m, diameter of 7.6m





(1) Completed in October 2009


(2) Completed in December 2009


(3) Completed in June 2009


(4) Completed in September 2009


(5) Completed in June 2009


(6) Completed in July 2009





We believe that Cavico Vietnam is the first company to use TBM tunnel technology in Vietnam, in the Dai Ninh Hydropower plant construction.





To maximize the use of water for hydropower, tunnels are often needed to move water to electric turbines. Usually, the electric turbines are located in a lower elevation in relation to the elevation of the reservoir. Water is brought from the reservoir to the turbines via a system of open channels or underground tunnels depending on geographic conditions. A headrace tunnel is the main tunnel to connect from the reservoir to the inclined penstock, a big steel pipe installed and inclined outside on a hill or installed inclined inside in a tunnel excavated in a mountain, to bring water from headrace tunnel to the turbines. Surge shafts and surge tanks, both vertical tunnels connected to the headrace tunnel with an opening to the surface, are used to moderate the flow and pressure of the water that runs through the headrace tunnel to the inclined penstock to turbines. We have expertise in construction of shafts and tunnels, including  surge shafts and inclined penstocks to regulate the flow of water for hydropower plants applying the different boring machines and boring methods.





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, working 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  the “state of art” methods such as NATM and TBM that we employ, we believe that we have the requisite expertise.





Tunnels are widely used in the construction of Hydropower Plant (“HP”) to collect and divert water resources to run turbine rotary engines that produce electricity.  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 hydropower plants. We anticipate seeing the strongest growth in that area until the year 2020 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 hydropower plants, some of which are scheduled to have a greater than 100 MW capacity.





Specifically, based on discussions with government officials, we anticipate future growth in tunnel construction for roads and highways, especially in the large metropolitan areas of Hanoi, Hochiminh, Haiphong and Danang. Although we may have an opportunity to bid on such projects, we do not have any current agreements for any of this future work.





3





Our largest hydropower assignment is the A Luoi Hydropower located on the A Sap River, 70 km from Hue City. This is a Grade II hydropower project, the second most productive grade, with the valley area of 331 square kilometers and the total capacity of reservoir of 60.2 million cubic meters. The constructed project which has the entire investment of Vietnamese Dong 3,234.7 billion ($180.3 million) composes of 2 units with the total installed capacity of 170 MW and the annual power output of 686.5 million kwh/year. As estimated, the project will be finished and put into operation in 2010.  Cavico Vietnam, our wholly-owned subsidiary, has been awarded two contracts for $58 million, and will be paid on completion of the various construction stages that began in 2007. The tunnel is around 11.6km long and 4m to 6m wide, and will also include a surge tank, will take 40 months to complete.





In January 2009, our majority-owned subsidiary, Cavico Hydropower Construction (“Cavico Hydropower”), was awarded a $9.6 million construction contract by Song Giang 2 Hydropower Joint Stock Company (“Song Giang”). Cavico Hydropower will be responsible for the construction of a 3,900 meter long headrace tunnel to bring water to the hydropower plant, two sub tunnels of total 650 meters in length, and a 42 meter tall surge tank. The sub tunnels allow us to excavate the headrace tunnel more efficiently. Cavico Hydropower expects to complete the construction within a period of 20 months.  Upon completion, the 37 megawatt hydropower plant is expected to generate 141 million kilowatt-hour of electricity annually. The plant will be connected to the national grid to help to ease the shortage of electricity supply in the country. The Song Giang 2 hydropower plant has a total estimated value of approximately $50 million and is considered to be one of the largest hydropower projects in the Khanh Hoa province.





Also in January 2009, our majority-owned subsidiary, Cavico Bridge, was awarded a $6.4 million contract by a leading Italian construction company, for tunnel construction work at the Theun HinBoun Expansion Project in Laos as described more fully below.





In March 2009, Cavico Power and Resource JSC was awarded a $11.3 million contract  for the Hua Na Hydropower plant. Cavico will be responsible for constructing a diversion tunnel and coffer dam at the Hua Na Hydropower plant. Upon completion, the Hua Na Hydropower plant will generate 180 MW of power and will supply 706 million KW hours annually. This twin turbine plant will require an investment of approximately $250 million and will help ease the electricity shortage issues currently faced and thereby contributing to the growth of Central Vietnam provinces. Cavico expects the project to be completed in five years





In August 2009, Cavico Transport was awarded a contract for the 125 megawatt hydropower plant, owned by Dakdrinh Hydropower Company, which is funded with $212 million capital investment. Cavico’s portion of this project is $16 million with the construction expected to be completed within 60 months.  Cavico Transport will construct a 7.5 kilometers long and 4.5 meters wide water tunnel and tunnel Sections No.3, No.4, and No.5. Cavico Transport has recently signed two separate contracts with Dakdrinh Hydropower for Phases I and II of the Dakdrinh Hydropower Plant project totaling $13.4 million to extract, process, and transport stones.





In September 2009, Cavico Bridge and Underground was awarded a $12 million contract for the Thuong Kon Tum hydropower plant which is a 240 Megawatt hydropower plant with a capital investment of $300 million. The plant, expected to be completed in five years, will supply 1070 million kilowatt-hours per year to this region. For Phrase I, Cavico will excavate a 1.8 kilometer long, 6.5 diameters wide, and 7.5 diameters high service access tunnel and construct and improve the road around the plant. In Phrase II, Cavico will be responsible for pouring concrete for the tunnel.





In November 2009, Cavico was awarded an Engineering, Procurement and Construction contract at Dak Sin Hydropower Plant withexpected revenue of contract to be at $18.8 million. Cavico will be responsible for constructing the main dam, a spillway dam, an overpass bridge, a water-intake portal, a headrace tunnel, a water diversion tunnel ((800 meters long and 2.5 meters wide, Contract Value: $1.8 million), a coffer dam, a vertical surge sharp tank and the service roads of the construction site. Cavico expects to complete its scope of work in 27 months.





Hydroelectric Plants and Dam Construction - Generally, hydropower is built based on the principle of bringing high-pressure water stream to turn turbines for generating electricity. Tropical country like Vietnam has a lot of rain during a large part of the year. Building dams and reservoirs prevents flooding and allows operators to use the water for electricity turbines and to provide water for agricultural use. 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. Curvilinear surfaces are a design feature of concrete dam designed with many curved lines to stabilize the dam.





Cavico Vietnam has current dam construction projects for hydropower plants in Buon Tua Srah ( 86MW; dam length of 1037m, dam height of 492m; water reservoir volume of 430 million cubic meters ), Ngan Truoi Water Reservoir (20MW, dam and a flood spillway with a diameter of seven meters and a length of 287 meters), Dambri  (75MW; 55 meters in height, 214 meters in length) and Ta Trach (dam length 1187m, dam high 60m, water reservoir volume 700 million cubic meters ).





4





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. We help clients find innovative ways to finance, deliver and manage highways and have 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);





●
Construction of a number of roads in Sonla Province; and





●
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, developing a Chieng Ngan 400 hectare new urban area in Son La and developing a Ngo Sai 10.4 hectare new urban area in Ha Noi. To date, we have not generated any revenues from these development projects.





The company is in the process of applying for an investment permit for Luong Son’s new tourism zone of 353.53 hectares which is a part of master plan developed by the Province of Hoa Binh to upgrade Luong Son town during the next 10 years. This project will include a feasibility study to construct a tourist resort, including villas that may be offered for sale.





Our minority-owned subsidiary, Cavico Tower, has commenced construction of the APEX Tower.  The ground breaking occurred in February, 2008.The APEX tower, which was designed by RDC Design, upon completion, will be a 27-story tower covering 14,960 square feet of land on Pham Hung Street, Tu Liem district in Hanoi. The state-of-the-art tower will consist of three floors for parking, eight elevators, and three stairways.  We plan to occupy seven floors of the tower for our headquarters and subsidiary offices and lease or sell the remaining 20 floors of the tower. The APEX Tower is located near the National Convention Center, which hosted the APEC 14 (Asia Pacific Economic Cooperation).Cavico Tower is funded by Military Bank. Cavico Tower obtained a long term loan from the bank to cover 70% of the project costs and it uses its own capital for 30% of project costs.





Expansion into Laos – Cavico Bridge is responsible for constructing a 1000 meter long tunnel and a 45 meters deep shaft. We expect to complete the construction in 24 months and the first phase of the project involved road preparation to transport Tunnel Boring Machine (“TBM”), which was completed in August 2009.  Theun HinBoun Power Company (“THPC”) is the owner and operator of the existing 220-Megawatt Theun HinBoun hydropower, which is currently in operation in Bolikhamsai province. In September 2008, THPC contracted CMC as the main contractor for Theun HinBoun Expansion Project after receiving approval from the Laos government to construct an additional hydropower plant in the same area of the existing plant. Electricity generated from this plant will be sold to the neighboring country, Thailand.





Wind Farms – In October 2008, Cavico Transport, our majority-owned subsidiary, received approval from the officials of Lam Dong province to study and evaluate different areas in the province for possible wind farms. The province will use the results of these studies as part of its windpower planning. For its contribution to the studies, we are being given a priority to invest and participate in windpower projects in the province according to its financial capability. We have researched and identified a few potential sites for wind farm development along the country. Our study has concluded that the coastal areas of southern and south-central Vietnam, where the proposed site is located, show exceptional promise for wind energy.  In this first phase, we are studying the construction of a 30 megawatt (“MW”) wind farm, which will connect to the national grid upon completion. The feasibility study at the site is expected to be completed over a period of one year and will involve collection of wind data and detailed analysis to determine the scope and size of the wind turbines. Prior to the completion of the study, we plan to begin construction of connecting roads and other site preparations. In September 2009, Cavico and Altus AG, Germandeveloper of renewable energy projects, signed a contract which Altus AG will provide consultancy and services of wind measurement and valuate the results and other feasible studies and in selecting areas for setting the posts.





Subsidiaries





Our wholly-owned subsidiary, Cavico Vietnam, conducts its operations through a number of 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 Boards of these subsidiaries.





5





During 2007 we permitted some of our subsidiaries to sell shares to third parties for the purpose of raising funds for expanded operations, thereby reducing our percentage held in those entities. As of December 31, 2009, through either the purchase and sale of securities, Cavico Vietnam's consolidated ownership percentage from December 31, 2008 to December 31, 2009 in: Cavico Hydropower Construction JSC decreased from 71.80% to 71.74%; Cavico Tower decreased from 33.79% to 33.21%; Cavico Industry & Tech Service decreased from 64.64% to 62.08%; Cavico Stone & Mineral increased from 35.50% to 44.93%; Cavico Transport JSC decreased from 73.84% to 68.90%;Cavico Manpower JSC increased from 30.0% to 39.5% ; Luong Son International Tourist increased from 90.90% to 92.16%; and Cavico Land increased from 13.35% to 15.25%.  These Vietnamese companies do not have authorized shares. Any sale or issuance of shares must be approved by the shareholders of the Vietnamese subsidiaries. Even though we do not plan to sell any additional shares in any of our subsidiaries, as a result of investments in and purchases and sales of shares of our subsidiaries, our ownership percentage may change from time to time.





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, a summary of their main activities, Cavico Vietnam’s percentage of ownership and their revenues as a percentage of the combined company’s construction revenues for the year ended December 31, 2009.


Name

Principal Activity

Percentage

Owned as of

December

31, 2009


Percentage of

Construction

Revenues of

Combined

CompanyCavico Bridge and Underground Construction JSC

Civil construction, specializing in tunnel and bridge construction, frequently in conjunction with hydropower construction projects


65.71
%


31.61
%Energy Construction JSC

Civil construction, specializing in hydropower construction projects


37.57
%


11.31
%Cavico Hydropower Construction JSC

Civil construction, specializing in hydropower construction projects


71.74
%


14.67
%Cavico Infrastructure Construction JSC

Civil construction, specializing in infrastructure development and construction projects


68.83
%


8.99
%Cavico Transport JSC

Civil construction, with an emphasis on road construction.


68.90
%


5.66
%Cavico Construction Trading JSC

Trading of machinery, equipment and materials for civil construction industry.


63.19
%


-Cavico Power and Resource JSC

Civil construction, focus on power installation.


75.96
%


8.68
%Cavico Tower

Office for leases


33.21
%(1)(2)


-Cavico Industry & Tech Service

Steel fabrication production


62.08
%(1)


-Cavico Manpower

Labor supply for projects


39.50
%(1)


12.30
%Cavico Stone & Mineral

Production of white stone.


44.93
%(1)


-Cavico PHI Cement

Cement factory operation


80.63
%(1)(2)


-Luong Son International Tourist

Operation of tourism zone


92.16
%(1)(2)


-Cavico Land

Land investment and development


15.25
%(1)(2)


-Cavico Son La JSC

Stone exploitation


100
%(3)(2)


-





(1)
This subsidiary was added to the consolidation in 2008.(2)
This subsidiary had no operations in 2009 and 2008.(3)
This subsidiary was added to the consolidation in 2009.





6





Cavico Mining and Construction JSC





Cavico Vietnam Mining and Construction Joint Stock Company formerly known as Cavico Vietnam Mining and Construction Limited, was established on March 26, 2002 with principal activities in mining construction and civil construction, especially in connection with mining and dam construction, equity investments in mines, power supply plants and land development projects. On June 13, 2006,  Cavico Vietnam Mining and Construction Company Limited was changed to joint stock company following Business registration Certificate issued by Hanoi Department of Planning and Investment. Cavico Mining’s share capital as stated in its Business Registration Certificate is VND 80,610,060,000 (approximately $4.5 million). Currently, Cavico Mining shares are traded over the Hochiminh City Stock Exchange.


In accordance with current rules promulgated by the Vietnam State Security Committee relating to foreign ownership of publicly traded Vietnamese entities, we had to reduce our ownership in this entity to 50.16% in 2006. In 2008, our percentage of ownership was reduced to 25.55% with total equity amount of $1,315,704 from 39.13% as of December 31, 2007 due to additional sale of ownership.





We accounted for the investment in Cavico Mining by the equity method in the accompanying financial statements for the year ended December 31, 2009 and 2008.





On December 11, 2009, Cavico Corp., Cavico Vietnam and Cavico Mining and Construction JCS (“Cavico Mining”) entered into a Stock Purchase Agreement, pursuant to which the Company and its subsidiaries agreed to purchase from Cavico Mining a total of 4,000,000 ordinary shares of Cavico Mining at Vietnamese Dong 16,894 per share (approximately $0.94 per share based on current exchange rates) in exchange for debt owed to the Company and its subsidiaries by Cavico Mining. At the conclusion of transactions contemplated by the Stock Purchase Agreement, we will own 50.2% of the total issued and outstanding ordinary shares of Cavico Mining. The purpose of the acquisition of an additional 4,000,000 shares of Cavico Mining to own over 50% of Cavico Mining’s common stock is to enable us to include Cavico Mining in our consolidated financial statements on a going forward basis. On January 12, 2010, Cavico Mining’s shareholders approved the proposal to purchase 4,000,000 of Cavico Mining’s ordinary shares. Pursuant to the Stock Purchase Agreement, the purchase of the Shares shall take place on the tenth business day following the shareholder approval or on such later date as the parties involved agree in writing. On February 11, 2010, this Stock Purchase Agreement was consummated.





Investment





Approximately 86% of our revenues are from civil construction projects where we are the contractor or subcontractor.  We may from time to time continue to act as a passive investor in projects for which we serve as the contractor.  After construction, these projects will be managed by unrelated parties.  Projects that we have invested in include hydropower projects, cement plants, petroleum and land development projects in urban and tourist areas. We are expanding our investment in wind power.  We have also been carrying on the exploration study of a copper mine in Vietnam, and copper and a tin mine in Laos. These above mentioned investment are targeted investments as we have substantial expertise and experiences in these fields.





Customers





Our customers are found primarily in the public sector. Our largest customer is Electricity of Vietnam, a state owned utility.   During the years ended December 31, 2009 and December 31, 2008, contracts with this entity represented approximately 34% and 56%, respectively, of our revenue.





Suppliers





Our raw materials consist of fuel, steel and concrete. The most significant raw material cost is for steel which represents approximately 24% of total material costs, cement and concrete mixed which represents approximately 14% of our total material costs and fuel which represents approximately 18% of total material costs. Most of these raw materials are purchased directly from suppliers and 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 sources if any of our suppliers would cease to sell to us for any reason. We source our raw material purchases to suppliers located in the area of our projects. As a result, no supplier accounted for more than 10% of total material costs for the year ended December 31, 2009.





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 $273.5 million excluding Cavico Mining at December 31, 2009.  Approximately $72.6 million of this backlog is expected to be completed during 2010.  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 our customers.  We have not, however, been materially adversely affected by contract cancellations or modifications in the past.


7





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 are usually  granted contracts based on the high-level quality of our work provided for the prior construction projects.





Contract Provisions and Subcontracting





Our contracts with our customers include “fixed unit price” or “fixed price” and “adjustment contracts”.  Under fixed unit price contracts which represent approximately 4% of our total contracts and may change from time to time, 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 changes 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 the 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 mentioned 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.





For the last five years, as a leading company in Vietnamese Hydropower (“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 to 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 often carry large quantities of work in progress on our balance sheet.





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. Generally, however, when contract conditions change, we are able to negotiate modifications to the contract which mitigates this risk.





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 for more specialized activities such as electrical and mechanical work. As prime contractor, we are responsible for the performance of the entire contract, including any 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. Some of our subcontractors may not be able to obtain surety bonds or other types of performance security.





8





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 December 31, 2009, was $ 13,096,820  and includes the following equipment:





Type

UnitsTunnel Drill Machines 1 boom to 3 booms; for Tunnel Diameter from 8m2 to 80m2

23Tunnel Wheel Loaders capacity from 2m3 to 3m3

31Tunnel Dump Trucks capacity from 20 tons to 30 tons

24Bulldozers capacity from 130hp to 385 hp

21Excavators and wheel loaders capacity from 0.7m3 to 10m3

45Off-Highway Dump Trucks capacity over 50 tons ( 32 m3 )

30Light and medium Dump Trucks Capacity up to 15 tons

72Open cut Drilling Rigs Dia 89mm - 225mm

20Electronic Construction Survey Sets/Stations

36Concrete Batching Plants capacity from 60 to 120m3/hour

10Aggregate Crushing Plants/Stations capacity from 60 to 180 tons/hour

9Concrete Pumps capacity up to 100m3/hour

118Crawer Cranes capacity up to 100 tons

19Site service cars

82Other construction machinery and Equipment ( Generator sets, Air compressors, Transformers, shotcretes, pumps, Graders, Road Rollers, lift cars, Concrete mixer Trucks, sliding forms, etc )

496Total

1,036





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. We are able to purchase used equipment and maintain repair facilities which keep the equipment in good working order. Most of our equipment brands are Caterpillar, Komatsu, Tamrock and Atlascopco. A large part of our equipment was purchased from the year 2000 to 2005 at prices less than the current replacement cost.  Depreciation of this equipment has been recorded over five years.  Although much of the equipment is fully depreciated, the equipment presently is in good working order.





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 we are 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.





Our areas of strength 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. Currently, we are the principal contractors in Vietnam for more than 60 % of the total quantity of tunnel construction works; 20-30% dam construction works. We have stakes in approximately 90% of hydropower construction projects. During the years 2000 and 2003 we participated in construction of the National high way No1 and Ho Chi Minh road, the two longest national roads along the country. From 2003 to date, we participated in a limited number of road constructions, but we have been focusing our efforts on construction for hydropower projects which we have expertise and face very few competitors compared to road works. Within Vietnam, we believe we have a good reputation in the industry and the advantage of expertise in the construction of modern and complex projects.





9





We are also diversifying our efforts in other construction and services fields such as steel fabrication and mechanical products/services exported to Australia and overseas.





During the past five years, we have acted as subcontractors for several large Japanese construction companies like Kumagai Gumi, Kajima, and Maeda. This has resulted in additional involvement in large projects overseas (e.g., a manpower sub-contract to construct tunnels of highway in Algeria (Granted to us by Kajima) or a tunnel construction contract for Theun Hinboun hydropower project in Laos).





Government Regulation





Our operations are subject to compliance with the 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, based on statements from government officials, 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





Our operations are subject to environmental regulation in Vietnam. Environmental regulation, established by The Law on Environmental Protection, passed on December 12, 2005, is still evolving in Vietnam 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.





As a contractor in Vietnam, environmental regulations do not affect our work as we only follow the specifications established by the project developer. Our customers are charged with the environmental protection duties and this duty stipulated in their investment license for each project.  To obtain an investment license for any project, our customers and its consultants have to submit an environmental impact analysis report to the relevant government authorities and receive approval from relevant authorities.





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





As of December 31, 2009, we have, with our subsidiaries, 3,409 full time employees, of which approximately 818 are engineers. Most of our employees are located throughout Vietnam and 503 employees in Algeria. All of our employees are represented by labor unions. If and when the need arises, we intend to hire additional employees to meet the demand of a certain project.





It is our goal to focus 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;●
Payment of incentive and performance bonuses;





●
Improvement of labor conditions for our workers;●
Continuous professional training; and





●
Build a company culture through various activities, including company newsletters, music and other promotions to instill feelings of pride with our accomplishments.





The majority of our work is done through employees governed by our collective labor agreement with the Labor Union of Cavico Vietnam. The agreement was signed on January 20, 2009. The original term of the agreement expires on January 20, 2012 but it may be extended for one year if both parties agree. Pursuant to the collective labor agreement, each employee signs an employment contract with us. We believe that our relationships with all our employees, both union and non-union, are satisfactory. We have not experienced a strike or lockout.




10





Reverse Stock Split





Our Board of Directors and shareholders approved a proposal to grant discretionary authority to our Board of Directors to amend our Certificate of Incorporation to effect a reverse stock split of our issued and outstanding common stock at any time before April 27, 2010 at any whole number ratio between a 20-for-1 reverse stock split and 60-for-1 reverse stock split , with the exact exchange ratio and timing of the reverse stock split to be determined at the discretion of the Board of Directors (the “Reverse Stock Split”), without decreasing the number of our authorized capital stock. The reverse stock split of 40-for-1 was completed on August 19, 2009.


The Reverse Stock Split was affected simultaneously for all our then-existing common stock (the “Old Shares”) and the exchange ratio is the same for all of our shares of issued and outstanding common stock. The Reverse Stock Split affected all of our shareholders uniformly and did not affect any shareholder’s percentage ownership interests in us, except to the extent that the Reverse Stock Split resulted in any of our shareholders owning a fractional share. If this occurred, the fractional shares were rounded up to the next whole share, including fractional shares that were less than one share. Shares of common stock issued pursuant to the Reverse Stock Split (the “New Shares”) remain fully paid and non-assessable.





Reports to Security Holders





We are subject to the filing and reporting requirements of the Exchange Act. These requirements include the filing of annual reports that include audited financial statements as well as quarterly reports and current reports that will be filed upon the occurrence of certain significant events. We are also subject to the proxy rules under the Exchange Act and its insiders are required to file reports disclosing their beneficial ownership of our securities. It is estimated that the annual cost of compliance with the Exchange Act reporting requirements will be approximately $400,000.





The public may read and copy any materials we file 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 .
























11




ITEM 1A.
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 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. We recorded a loss of 562,074 during the year ended December 31, 2009 on contracts on which the anticipated future costs exceeded  projected revenue. This, in turn, could negatively affect our cash flow, earnings and financial position.  During the year ended December 31, 2009 and 2008, 4% and 14%, respectively, of our revenue was generated from fixed unit price contracts of which we have not experienced any losses due to cost overruns.


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 the workers in the geographic location of a project;●
our suppliers’ or subcontractors’ failure to perform;●
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.●
claims relating to construction deficiency





We attempt to shift construction risks to its customers. We, however, provide a warranty period of two to three year after completion of the construction contract. Our customers generally keep the retention of 5 to 15 percent of the contract amount until the warranty period expires. Due to this retention period, our receivables can be significantly delayed and may adversely impact our cash flow. In accordance with SOP 81-1 (ASC 605)we continually review contract performance and any anticipated additional costs that might be associated with contract performance and modify contract income accordingly.  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.





Due to the global downturn in the financial markets, Vietnam may not be able to maintain its recent growth rates mainly due to the lack of demand of exports to countries that are in recessions. Our earnings may become unstable if Vietnam’s domestic growth slows significantly and our public sector clients are unable to fund infrastructure projects. 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.


The loans that finance our construction are renewable each year and classified as short-term loans creating a working capital deficit.  Our banks’ failure to renew such loans or our failure to repay our loans could impact our operations.


12





At December 31, 2009, we had $60,115,212 construction loans of which $54,740,704 are classified as short-term construction loans with interest rates ranging 10% to 17%.  We obtain these short-term construction loans to finance our civil construction and mining projects.  Each time we begin a construction project, we obtain a loan from one of several banks to purchase equipment and supplies and to mobilize our employees and materials to the worksite.  As we complete a percentage of each construction project, our customer certifies our work in process and our customer, or its financing source, pays us for our completed work, less a retention percentage (which we will collect at the end of the warranty period), and we repay the bank from which we borrowed funds for each project.  Construction contracts include a two to three year warranty period that is part of the construction contract.





It is the general practice of Vietnamese banks to give short term loans such as these for each construction contract and make the loans renewable every year until the construction contract is completed.  As a result, the loans are classified as current liabilities.  Our retention receivables and a portion of our work in process, however, are classified as long-term assets.  As a result, our working capital deficit as of December 31, 2009 was $23,628,581. As of December 31, 2009, long-term retention receivables and long-term work in process totaled $14,455,193.





We expect to renew these loans with the banks and repay the balances as we complete our projects.  In the year 2009, we made $73,634,129 of payments on our notes payable.  We also needed to draw down $82,185,846 from our notes payable to finance our construction projects.





Although a substantial majority of our loans are not secured by our assets other than our work in process and receivables, our banks’ decision not to renew these loans or our failure to repay these loans could have important consequences including the following:





●
it may limit our ability to borrow money or issue equity to finance our working capital, construction projects or capital projects or other purposes;●
it may limit our flexibility in planning for, or reacting to, changes in our operations or business;


●
a substantial portion of our cash flow from operations could be dedicated to the repayment of our indebtedness and would not be available for other purposes;●
there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed; and


●
It may result in the banks repossessing up to $21,000,000 of our equipment and other assets.





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 business is subject to significant political and economic uncertainties and may be affected by political, economic and social developments in Vietnam. Over the past several years, the government of Vietnam has pursued economic reform policies. Changes in policies, laws and regulations or in their interpretations or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, or devaluations of currency could cause a decline in the price of our common stock, should a market for our common stock ever develop.





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 we are and 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.




13




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 certain work on some 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 fuel, aggregates (sand and gravel), concrete, steel and pipe, for our contracts. We do not own any quarries, and there are no naturally occurring sources of aggregates in 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.





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 work 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.





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.





14





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, 2009, Electricity of Vietnam accounted for approximately 34% of our revenues. The loss of business from these entities 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.





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 a part 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.




15








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. As a contractor, however, our customers are primarily responsible for environmental protection.  Nevertheless, 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.





If we fail to obtain additional financing we will be unable to execute our business plan.





We may need additional funds to finance our capital projects. Should such needs arise, we intend to seek additional funds through public or private equity or debt financing, strategic transactions and/or from other sources.  There are no assurances that future funding will be available on favorable terms or at all. If additional funding is not obtained, we will need to reduce, defer or cancel development programs, planned initiatives or overhead expenditures, to the extent necessary. The failure to fund our capital requirements would have a material adverse effect on our business, financial condition and results of operations.





We may face potential dilution of our ownership interest in our subsidiaries.





We operate nationwide in Vietnam through our subsidiaries, serving almost exclusively public sector clients.  Our wholly-owned subsidiary, Cavico Vietnam, conducts its operations through a number of subsidiaries. Some of these entities are wholly owned while others are partially owned by Cavico Vietnam. The officers and directors of Cavico Vietnam also hold positions on the Boards of these subsidiaries. The profit/loss generated from the entities in which we have less than fifty percent ownership shares was $103,831 as loss and $93,716 as profit for the year ended December 31, 2009 and 2008, respectively.





Some of our subsidiaries were able to raise working capital by selling their shares to independent third parties.  During 2007 and 2008, we permitted some of our subsidiaries to sell shares to third parties for the purpose of raising funds for expanded operations, thereby reducing our percentage held in those entities.  As of December 31, 2009, through either the purchase and sale of securities, Cavico Vietnam's consolidated ownership percentage from December 31, 2008 to December 31, 2009 in: Cavico Hydropower Construction JSC decreased from 71.80% to 71.74%; Cavico Tower decreased from 33.79% to 33.21%; Cavico Industry & Tech Service decreased from 64.64% to 62.08%; Cavico Stone & Mineral increased from 35.50% to 44.93%; Luong Son International Tourist increased from 90.90% to 92.16%; and Cavico Land increased from 13.35% to 15.25%.  We do not plan to sell additional shares in any of our subsidiaries.  If we do sell additional shares in our subsidiaries or if the subsidiaries sell additional shares to third parties, our ownership interest in our subsidiaries could be diluted and we would potentially recognize less income from our subsidiaries.





We will be unsuccessful if we fail to attract and retain qualified personnel.





We depend on a core management team. The loss of any of these individuals could prevent us from achieving our business objective of commercializing our product candidates. Our future success will depend in large part on our continued ability to attract and retain other highly qualified management team, engineers,  technical operators, skilled labors with expertise in our construction field. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. If our recruitment and retention efforts are unsuccessful, our business operations could suffer.





16





Risks Associated with Our Capital Structure





Insiders have substantial control over the company, and issuance of shares of Common Stock pursuant to our incentive plan will dilute your ownership and voting rights and allow insiders to control the direction of the Company.





Our executive officers and directors, beneficially owned as of March 15, 2010  in the aggregate, approximately 527,609 shares of our outstanding common stock , which constitutes approximately 17.3% of our outstanding shares.  Our officers and directors ownership percentage will increase as a result of any shares issued under our incentive plan under which we can issue 1,250,000 shares to our officers, directors, employees and consultants.





If we issue to our management all 1,250,000 shares of common stock issuable under our incentive plan, our management will control approximately 41.3% of the votes on matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.





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.





Our common stock could be subject to extreme volatility.





The trading price of our shares has fluctuated widely from time to time 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 annual report, 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.  In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our stock.





We have never paid dividends and have no plans to in the future.





Holders of shares of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.





Our common stock may be subject to “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our common stock.





Under the rules of the Securities and Exchange Commission, if the price of our securities is below $5.00 per share and our securities are not listed on the Nasdaq Capital Market or another national securities exchange, our securities will come within the definition of a “penny stock.” In that case, 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.





17





These requirements may restrict the ability of broker/dealers to sell our securities, and may affect the ability to resell our securities.





If we fail to maintain an effective system of internal control, we may not be able to accurately report our financial results or prevent fraud.





We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of our internal controls over financial reporting.  Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our stock. We are in the process of implementing and monitoring our internal control procedures throughout the Company and improving the areas of weakness.





Our management identified  material weaknesses in internal control during its assessment of internal controls over financial reporting as of December 31, 2009.  We lack an effective and efficient period end closing process to timely prepare the financial statements for audits to meet financial reporting deadlines. We lacked effective accounting policies to record bad debt expense on recievables and writedowns on work-in-process. Management determined that we did not fully implement our transition to United States Generally Accepted Accounting Principles (“US GAAP”) which are different from the accounting principles used in Vietnam.  As a result, we were required to record material adjustments to the December 31, 2009 and 2008 financial statements to bring them into compliance.  The Company recorded additional costs of goods sold of $1,021,259 for losses on certainprojects where anticipated future costs exceed the expected revenue amounting to $562,074 and write-off of advances on certain projects where no future benefits are expected amounting to $459,185 and other expenses of $276,498 for write-off of certain advances and receivables for total of  $1,297,757.  These adjustments and reclassification of accounts affected a reduction of total assets by $1,425,658 and reduction of liabilities by $127,901. In an effort to remediate the identified material weakness and to further enhance our internal controls, we are in the process of identifying and retaining a consultant who can work with our Vietnamese accounting team to identify US GAAP related issues and help evaluate and address such issues before they present problems in reporting in the United States.





If we fail to remain current in our reporting requirements, our securities could be removed from the NASDAQ Capital Market, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.





Companies trading on the NASDAQ Capital Market 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 NASDAQ Capital Market. If we fail to remain current on our reporting requirements, we could be removed from the NASDAQ Capital Market. 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.





We may need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our stockholders.





We believe that our current cash and cash equivalents, anticipated cash flow from operations and the net proceeds from this financing will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.





The implementation of our stock-based incentive plan may dilute your percentage ownership interest and may also result in downward pressure on the price of our stock.





Our Board has adopted a stock-based incentive plan, which was approved at a special shareholders’ meeting on April 27, 2009.  Under the incentive plan, we can grant 1,250,000 shares to our officers, directors, employees and consultants.  Shareholders would experience a dilution in ownership interest, assuming the maximum issuance of 1,250,000 shares from stock options or awards of restricted stock under the plan.  In addition, the existence of a significant amount of stock and stock options that would be issuable upon the adoption and approval of our stock-based incentive plan may be perceived by the market as having a dilutive effect, which could lead to a decrease in the price of our common stock.





18





Risks Related to Doing Business in Vietnam





Adverse changes in political and economic policies of the Vietnamese government could have a material adverse effect on the overall economic growth of Vietnam, which could reduce the demand for our products and materially and adversely affect our competitive position.





Our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in Vietnam. The Vietnamese economy differs from the economies of most developed countries in many respects, including:





•     the amount of government involvement;


•     the level of development;


•     the growth rate;


•     the control of foreign exchange; and


•     the allocation of resources.





While the Vietnamese economy has grown significantly in the past 20 years, the growth has been uneven, both geographically and among various sectors of the economy. The Vietnam government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Vietnamese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by Vietnamese government control over capital investments or changes in tax regulations that are applicable to us.





The Vietnamese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Vietnamese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in Vietnam is still owned by the Vietnam government. The continued control of these assets and other aspects of the national economy by the Vietnamese government could materially and adversely affect our business. The Vietnam government also exercises significant control over Vietnamese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Vietnam government to slow the pace of growth of the Vietnamese economy could result in decreased capital expenditure by the government, which in turn could reduce demand for our services.





Any adverse change in the economic conditions or government policies in Vietnam could have a material adverse effect on the overall economic growth and the level of energy and infrastructure investments and expenditures in Vietnam, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.





Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.





All of our revenues and most of our expenses are denominated in the Vietnamese Dong. If our revenues denominated in the Vietnamese Dong increase or expenses denominated in Vietnamese Dong decrease in the future, we may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared, if any, in respect of our ordinary shares.





19





Our operations and assets in Vietnam are subject to significant political and economic uncertainties.





Government policies are subject to rapid change and the Vietnam government may adopt policies which have the effect of hindering private economic activity and greater economic decentralization. There is no assurance that the Vietnam government will not significantly alter its policies from time to time without notice in a manner with reduces or eliminates any benefits from its present policies of economic reform. In addition, a substantial portion of productive assets in Vietnam remains government-owned. For instance, all lands are state owned and leased to business entities or individuals through governmental granting of state-owned land use rights. The granting process is typically based on the government policies at the time of granting, which could be lengthy and complex. This process may adversely affect our business. The Vietnam government also exercises significant control over Vietnam’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures. In addition, changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, as well as adverse changes in the political, economic or social conditions in Vietnam, could have a material adverse effect on our business, results of operations and financial condition.





A downturn in the economy of Vietnam may slow our growth and profitability.





The growth of the Vietnamese economy has been uneven across geographic regions and economic sectors. There can be no assurance that growth of the Vietnamese economy will be steady or that any downturn will not have a negative effect on our business.





It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in Vietnam.





Substantially all of our assets are located in Vietnam and the majority of our officers and present directors reside outside of the United States.  As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws. Moreover, we have been advised that Vietnam does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and Vietnam would permit effective enforcement of criminal penalties of the Federal securities laws.





ITEM 1B.     UNRESOLVED STAFF COMMENTS.





Not applicable





ITEM 2.       PROPERTIES





Our principal executive offices are located at 17011 Beach Blvd., Suite 1230, Huntington Beach, CA 92647. These offices consist of approximately 200 square feet leased on a month to month basis included in $2,000 per month of management fees. These offices are made available to us under the terms of a Management Services Agreement dated May 15, 2006, with PHI Group, Inc. Other services provided by Providential under the terms of this 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 thereto.





Cavico's subsidiary, Cavico Vietnam, maintains its corporate headquarters in Hanoi, Vietnam, where it leases approximately 10,230 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 $41,400.





We have a long term land lease commitment for a period of 50 years with respect to 14,960 square feet of land in Hanoi. We  intend to build an office building of 27 floors with a total of 280,000 square feet available to us and our subsidiaries. We intend to rent some of the space to commercial tenants.




20


We have a long term land handed-over (70 years as per the current land law) in Son La consisting of an area of 160 hectares that we intend 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 certificate issued by the Government to the user specify the land is a) land lease to the user or b) land hand-over to user. 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.  Such compensation consists of either money having the same value as the land taken by the state prematurely or another land use grant for similar property.





The Son La parcel of land was granted to us 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, we have not generated any revenues from this project.





We own additional offices and dormitories totaling 232,878 square feet and workshops totaling 311,917 square feet at construction sites owned by the us and our subsidiaries. These properties were built us on sites recorded as our 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, we may relinquish our right to the property or sell the properties to the project owner/local entities.





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

LocationCavico Vietnam Company Limited




10,230






Song Da Building,Pham Hung, My Dinh, Ha NoiCavico Trading Joint Stock Company




1,507




8,611

CT3.2 Building, Me Tri Ha, Ha NoiCavico Bridge & Underground Construction Joint Stock Company




5,683


82,688

76,284

CT4 Building, My Dinh, Ha NoiCavico Vietnam Tower Joint Stock Company


14,960

926






CHP Building, Me Tri Ha,Tu Liem, Ha NoiChieng Ngan Urban Area


17,222,257








Chieng Ngan,Thi xa Son La, Son LaCavico Energy Construction Joint Stock Company




2,662


28,255

96,821

Song Da Building,Pham Hung, My Dinh,Ha NoiCavico Transportation Joint Stock Company




2,883


12,917

8,611

Song Da Building,Pham Hung, My Dinh,Ha NoiCavico Infrastructure Investment and Construction Joint Stock Company




3,143


15,446

8,073

Song Da Building,Pham Hung, My Dinh,Ha NoiCavico Hydropower Construction  Joint Stock Company




2,085


11,474

26,361

Song Da Building,Pham Hung, My Dinh,Ha NoiCavico Power and Resource Joint Stock Company




2,852


46,694

6,103

Song Da Building,Pham Hung, My Dinh,Ha NoiCavico Industry & Tech Service Joint Stock Company




-




23,681

My Dinh 2 Urban Zone, Tu Liem, Ha NoiCavico Manpower Joint Stock Company




10,979


31,215

53,820

CT4 Building, My Dinh, Ha NoiCavico Stone and Mineral Joint Stock Company




1,851


4,187

3,552

CT3.1 Building, Me Tri Ha, Ha NoiLuong Son International Tourist Investment Joint Stock Company




544






Song Da Building,Pham Hung, My Dinh,Ha NoiCavico Land Investment & Development JSC




1,593






Song Da Building,Pham Hung, My Dinh,Ha NoiTotal


17,237,217

46,938


232,876

311,917




21




ITEM 3.       LEGAL PROCEEDINGS





We are party to certain legal actions arising out of the normal course of business. In management’s opinion, none of these actions will have a material effect on our operations, financial condition or liquidity. No form of proceedings has been brought, instigated or is known to be contemplated against us by any governmental agency.





ITEM 4.       RESERVED
















































22





PART II





ITEM 5.       MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Our common stock was first quoted on the OTC Bulletin Board in April 2008 under the symbol “CVIC.OB.” Our symbol was changed to “CAVO” on August 19, 2009 when 40 for 1 reverse stock split became effective. The prices, as presented below adjusted to reflect the 40-for-one reverse stock split, represent the  highest and lowest intra-day prices for our common stock as quoted on the OTC Bulletin Board through September 17, 2009 and high and low sales prices on the NASDAQ Capital Market thereafter. Such over-the-counter market quotations may reflect inter-dealer prices, without markup, markdown or commissions and may not necessarily represent actual transactions. Our common stock was approved for listing on the NASDAQ Capital Market under the symbol “CAVO” and commenced trading on such exchange on September 18, 2009.





High


LowFirst Quarter 2008

$
75.20


$
21.20Second Quarter 2008

$
70.00


$
8.40Third Quarter 2008

$
11.60


$
6.00Fourth Quarter 2008

$
6.80


$
2.20First Quarter 2009

$
5.20


$
3.60Second Quarter 2009

$
7.40


$
4.00Third Quarter 2009

$
12.99


$
4.50Fourth Quarter 2009

$
9.24


$
4.24First Quarter 2010

$
4.99


$
3.96





Number of Stockholders





As of December 31, 2009, there were approximately 900 holders of record of our common stock.





Dividend Policy





Holders of our Common Stock are entitled to receive dividends if and when declared by our Board of Directors out of funds legally available for distribution. Any such dividends may be paid in cash, property or shares of our common stock.





We have 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 our Board of Directors, and will depend upon, among other things, our operating and financial condition and our capital requirements and general business conditions.





Securities Authorized for Issuance under Equity Compensation Plans





In March 2009, the Board approved the Cavico Corp. Stock Award and Incentive Plan which was subsequently approved by at a special meeting of shareholders on April 27, 2009.  The purpose of the Cavico Corp. Stock Award and Incentive Plan is to give us a competitive advantage in attracting, retaining, and motivating officers, employees, directors, and consultants and to provide us with an incentive plan that gives officers, employees, directors, and consultants financial incentives directly linked to shareholder value.





The maximum number of shares that may be issued pursuant to incentive stock options granted under the plan is 1,250,000.  The maximum number of shares of our common stock that may be issued per individual pursuant to awards granted under the Cavico Stock Award and Incentive Plan is 125,000.





As of the date hereof, there are no awards granted under the Cavico Stock Award and Incentive Plan.





23





ITEM 6.       SELECTED FINANCIAL DATA





Years Ended December 31,2009 (2)


2008 (1)Net sales

$
61,090,722


$
51,936,936Income (loss) from operations


(1,564,796
)


961,872Net other income (expense)


(3,218,461
)


(1,938,893
)Net income (loss )


(4,761,994
)


631,816Net income ( loss ) per share


(1.56
)


0.21Total assets

$
115,864,982


$
99,500,890Total liabilities

$
106,609,682


$
86,540,479





(1)
During the year 2008, we added Cavico Tower, Cavico ITS, Cavico Manpower, Cavico Stone & Mineral, Cavico PHI, Cavico Luong Son and Cavico Land.(2)
During the year 2009, we added Cavico Son La.





ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





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 9, 2004, the name of the Company was changed to Agent 155 Media Group, Inc. On May 2, 2006, the Company’s name was changed to Cavico Corp.





During 2007 and 2006, as described below, we acquired Cavico Vietnam Joint Stock Company, a corporation organized under the laws of Vietnam (“CVJSC”) 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 CVJSC occurred in multiple steps, as follows:





·
On April 18, 2006, we entered into an asset purchase agreement with CVJSC. Under the terms of the agreement, Cavico purchased all of the assets of CVJSC  in consideration for the issuance to CVJSC of 1,975,000 shares of our common stock. CVJSC subsequently transferred 1,501,555 of these shares of our common stock to the former shareholders of CVJSC in return for their shares of CVJSC stock. An additional 473,445 shares of our common stock were deposited into a CVJSC bonus plan for that entity’s management, of which 123,445 shares were distributed to CVJSC’s management in 2006.





·
Following our purchase of the CVJSC assets, and pending the grant of the requisite approval of the acquisition of CVJSC by a Vietnamese government agency as required under Vietnamese law, CVJSC continued to use the assets subject to our control. Government approval of the acquisition of CVJSC was granted in January 2007. Following the grant of this approval and our subsequent acquisition of CVJSC to become our wholly-owned subsidiary, all assets previously purchased from CVJSC by the Company in April 2006 were transferred back to CVJSC. Also, at that time, CVJSC changed its name to Cavico Vietnam Company Limited.








24





The transaction was accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of Cavico Vietnam Company Limited 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 Company Limited being treated as the continuing entity. The historical financial statements to be presented are those of Cavico Vietnam Company Limited, our wholly-owned subsidiary.





Critical Accounting Policies





Principles of Consolidation





The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, majority owned subsidiaries and entities in which the Company has less than fifty percent ownership that are variable interest entities in which Cavico Vietnam is the primary beneficiary. Per GAAP, the Company has majority ownership in Cavico Energy JSC, Cavico Tower JSC, Cavico Manpower JSC and Cavico Stone and Mineral JSC with inclusion of ownership by related parties and will absorb more than 50% of expected losses and residual returns from all of these five less than fifty percent owned entities. The Company has the power to control the majority of the voting interest through its ownership and agreements with other stockholders.   The Company exercises significant control over all of its consolidated entities though shared management, guarantees of indebtedness, inter-company credit lines, shared use of assets and control of major contracts. Some of these consolidated entities were able to raise working capital by selling the shares to independent third parties without affecting the benefits the Company received from these entities.


The assets in the consolidated financial statements are increased by $23,688,887 or 26% from $92,176,095 to $115,864,982, liabilities are increased by $19,071,976, or by 22% from $87,537,706 to $106,609,682, total revenues are increased by $11,254,156 or 23% from $49,836,566 to $61,090,722 and the net loss attributable to the Company was increased by $103,831 or by 2% from $4,915,106  to $5,018,937 by the entities in which the Company has less than fifty percent ownership shares Net loss before minority interest  generated from the entities in which the Company has less than fifty percent ownership shares was 6% of total net loss before minority interest for the year ended December 31, 2009.





The consolidated financial statements include the accounts of the parent company, Cavico Corp., and its following subsidiaries:





% of OwnershipSubsidiary

12/31/09


12/31/08Cavico Vietnam Company Limited


100
%


100
%Cavico Bridge and Underground Construction JSC


66
%


66
%Cavico Trading JSC


63
%


63
%Cavico Construction and Infrastructure Investment JSC


69
%


69
%Cavico Power and Resource JSC


76
%


76
%Cavico Transport JSC


69
%


74
%Cavico Hydropower Construction JSC


72
%


72
%Cavico Energy Construction JSC


38
%


38
%Cavico Tower JSC


33
%


34
%Cavico Industry and Technical Service JSC


62
%


65
%Cavico Manpower JSC


40
%


30
%Cavico Stone and Mineral JSC


45
%


36
%Cavico PHI Cement JSC


81
%


81
%Cavico Luong Son JSC


92
%


91
%Cavico Land JSC


15
%


13
%Cavico Son La JSC


100
%


-





Cavico Vietnam Company has a control in the management and decision making of all these subsidiaries.  All significant intercompany accounts and transactions have been eliminated.





Cavico Mining and Construction JSC





Cavico Vietnam Mining and Construction Joint Stock Company formerly known as Cavico Vietnam Mining and Construction Limited, was established on March 26, 2002 with principal activities in mining construction and civil construction, especially in connection with mining and dam construction, equity investments in mines, power supply plants and land development projects. On June 13, 2006,  Cavico Vietnam Mining and Construction Company Limited was changed to joint stock company following Business registration Certificate issued by Hanoi Department of Planning and Investment. The Company’s share capital as stated in its Business Registration Certificate is VND 80,610,060,000(approximately $4.5 million). Currently, Cavico Mining shares are traded over the Hochiminh City Stock Exchange.




25




We reduced our ownership in Cavico Mining to 50.16% in 2006. In 2008, our percentage of ownership was reduced to 25.55% with total equity amount of $1,315,704 from 39.13% at December 31, 2007 due to additional sale of ownership.





Our employees comprise a majority of Cavico Mining's Board of Directors and we can control the vote of Cavico Mining's Board of Directors. All major contracts were either provided by the Company or are directly controlled by the Company as the prime contractor. The Company obtained the contracts by utilizing its market advantages such as its well-known trademarks, positive track record and favorable relationships with its customers and suppliers. The Company obtained the contracts and, due to backlog and planning considerations, subcontracted the work to Cavico Mining or negotiated with its customers to enter into contracts directly with Cavico Mining. Cavico Mining's operations are interwoven into the operations of the Company and its subsidiaries with significant services offered to Cavico Mining by the Company and its subsidiaries.





During the review of the Company’s registration filing by SEC, the consolidation for the Company’s subsidiaries with less than 50% ownership was evaluated under ASC Topic 810. The Company did not meet the criteria to be a primary beneficiary of Cavico Mining under ASC Topic 810. Therefore, the financial statements have been stated to exclude Cavico Mining from consolidation and account for the investment in Cavico Mining by the equity method.





On December 11, 2009, Cavico Corp., Cavico Vietnam and Cavico Mining and Construction JCS (“Cavico Mining”) entered into a Stock Purchase Agreement, pursuant to which the Company and its subsidiaries agreed to purchase from Cavico Mining a total of 4,000,000 ordinary shares of Cavico Mining at Vietnamese Dong 16,894 per share (approximately $0.94 per share based on current exchange rates) in exchange for debt owed to the Company and its subsidiaries by Cavico Mining. At the conclusion of transactions contemplated by the Stock Purchase Agreement, we will own 50.2% of the total issued and outstanding ordinary shares of Cavico Mining. The purpose of the acquisition of an additional 4,000,000 shares of Cavico Mining to own over 50% of Cavico Mining’s common stock is to enable us to include Cavico Mining in our consolidated financial statements on a going forward basis. On January 12, 2010, Cavico Mining’s shareholders approved the proposal to purchase 4,000,000 of Cavico Mining’s ordinary shares. Pursuant to the Stock Purchase Agreement, the purchase of the Shares shall take place on the tenth business day following the shareholder approval or on such later date as the parties involved agree in writing. This Stock Purchase Agreement was consummated on February 11, 2010.





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 collectability of accounts receivable. The Company’s consolidation of the entities with less than 50% ownership, such as Cavico Energy, Cavico Manpower, Cavico Tower, Cavico Land and Cavico Stone and Mineral was based on an assumption that these entities are variable interest entities in which the Company is the primary beneficiary and will absorb more than 50% of expected losses and residual returns and has the ability to make economic decisions on behalf of  the variable interest entities.





Cash and Cash Equivalents





For purposes of the statement of cash flows, we consider 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.





26





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 51% of all accounts receivable. Reserves for uncollectable amounts, which management believes are sufficient, are based on past experience and a specific analysis of the accounts. As of December 31, 2009, we had a reserve for doubtful accounts of $751,940.





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 estimated useful lives of the related assets, which range from two to twenty five years.





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.  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.





Real Estate Activities





Cavico Tower’s, one of our subsidiaries,  principal business activities consist of civil and industrial construction; internal and external fitting out; land leveling and surface improvement; building leasing; real estate business; restaurants and supermarkets operation; real estate consulting; machine and equipment leasing; materials, machinery and equipment trading for construction, transport, hydropower; dealers for buying and selling goods, construction materials trading. During the year 2009, our major activities included capital expenditures related to building construction in the amount of $1,066,299.





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





We recognize revenues from construction projects based upon work that is periodically certified as completed by our customers or which is virtually complete. Production costs, including materials, labor and subcontractor costs are allocated to revenue based upon the ratio of total costs incurred to date compared to total work  to date.  Costs related to work performed but not completed are included in work in progress. 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 acceptability of the project by client. Contracts are not segmented between types of services such as engineering and construction, and accordingly, gross margin is recognized under construction services.





We recognized uncollectible work in process as a contract loss in the period it is determined to be not collectible. Claims against customers are recognized as revenue upon settlement. Revenues recognized in excess of amounts billed are classified as current assets under work-in-progress. Amounts billed to clients in excess of revenues recognized to date are classified as current liabilities under advances from customers.





We recognize revenues from sale of finished goods at the time when goods are delivered and accepted by the buyer, i.e. all significant risks and rewards relating to the ownership of the goods have been passed to the buyer.





Other Comprehensive Income





We report and display comprehensive income and its components in a full set of general-purpose financial statements. The Company’s unrealized loss of $641,095 and $1,093,320 for the year ended December 31, 2009 and 2008, respectively relate to the translation of financial statements from Vietnamese Dong to US Dollars. The Company also recorded an unrealized gain of $2,420,224 and unrealized loss of $6,352,628 on investments available for sale for the years ended December 31, 2009, and 2008, respectively.




27




Results of Operations





Results of Operations for the year ended December 31, 2009 compared to the year ended December 31, 2008.





Net Sales





We generated $61,090,722 in net sales during the year ended December 31, 2009 compared to $51,936,936 during the year ended December 31, 2008, mostly from construction projects. The net increase in sales was 18% in U.S. dollars, reduced 5% by the 2009 change in U.S dollar/Vietnamese Dong exchange rates.The Company’s net sales  from civil construction increased by $5,074,288 or 11% to $52,575,960 for the year ending December 31, 2009 from $47,501,672 for the year ending December 31, 2008.  This increase was due to net sales from several new projects such as Ta Trach, Thern Hinbun, Dambri, Song Giang and Ngan Truoi projects as the progress billings upon completion on these projects are made and ALuoi and Algeri projects. The Company’s net sales from other operations (leasing machinery and equipment, selling materials, steel fabrication) increased by $4,079,498 or 92% to $8,514,762 for the year ending December 31, 2009 from $4,435,264 for the year ending December 31, 2008. This was primarily due an increase in demand of construction materials as Vietnam’s economy is recovering.
 
 The revenues, costs of goods sold and profit margins from our major projects from civil construction except Algeri which is a service contract in the year ended December 31, 2009 compared to the year ended December 31, 2008 are as follows:





Song Tranh


A Luoi


Dambri


Dong Nai 4


Algeri2009Revenue

$
4,235,761


$
10,704,117


$
2,944,312


$
3,035,603


$
5,499,524Cost of goods sold


4,060,590



8,659,942



2,876,293



2,439,291



4,292,510Gross Profit


175,171



2,044,175



68,020



596,312



1,207,014Gross Profit %


4
%


19
%


2
%


20
%


22
%2008Revenue

$
2,526,709


$
7,966,166


$
278,918


$
2,795,571


$
1,852,385Cost of goods sold


2,062,523


$
6,279,033


$
342,980



2,346,072



1,374,671Gross Profit


464,186



1,687,133



(64,061
)


449,500



477,713Gross Profit %


18
%


21
%


(23
)%


16
%


26
%Contract Amount


11,727,953



49,032,632



30,921,808



17,258,565



14,469,530Contract period


2007-2010



2007-2011



2007-2010



2005-2010



2008-2011





Comparisons for Major Projects





A Luoi Tunnel





The revenues from the A Luoi Tunnel Project increased by $2,737,951 or 34% to $10,704,117 for the year ended December 31, 2009 compared to the year 2008. The cost of goods sold from A Luoi Tunnel project increased by $2,380,909 or 38% for the year ended December 31, 2009 compared to 2008. The percentage of cost of goods sold to sales for this project increased to 81% for the year ended December 31, 2009 compared to 79% for the year 2008. The gross profit from A Luoi Tunnel increased by $357,042 in the year ended December 31, 2009 or 21% over the same period in 2008. The gross profit percentage for this project decreased from 21% to 19%. The Company encountered 900 meters long of tunnel excavation with poor geological conditions. The lower production caused lower revenue and increased higher cost of goods sold rate per revenue. The Company recognizes the revenue of the project based on the previous unit rate of tunnel excavation while submitting to the project owner the new rate for additional quantity of work related to the geological changes.





Algeri Project





The revenues from Algeri Project increased by $3,647,139 or 197% for the year ended December 31, 2009 compared to the year 2008. The cost of goods sold from Algeri project increased by $2,917,839 or 212% for the year ended December 31, 2009 compared to the year 2008. The percentage of cost of goods sold to sale for this project was increased to 78% in 2009 compared to 74% in 2008. The gross profit from Algeri project increased by $729,301 or 153% in the year ended December 31, 2009 compared to the year 2008. This increase in gross profit is due to an increase in revenue in the year ended December 31, 2009 since this project started in 2008. The gross profit percentage to sales for Algeri project decreased from 26% to 22% in the year ended December 31, 2009 compared to the year 2008.





28




Song Tranh Project





The revenues from Song Tranh Project increased by $1,709,052 or 68% for the year ended December 31, 2009 compared to the year 2008. The revenue for 2009 included the revenue generated from tunnel concrete lining and as well as tunnel excavation work compared to revenue from tunnel excavation in 2008.  The cost of goods sold for Song Tranh project increased by $1,998,067 or 97% for the year ended December 31, 2009 compared to the year 2008. The percentage of cost of good sold to sale for this project was increased to 96% in 2009 compared to 82% in 2008. This increase of the cost of goods sold to sale in 2009 was caused by the extra volume of concrete lining needed on an excavated tunnel, due to bad geological conditions, for which we have not been compensated from the customer yet.  The gross profit from Song Tranh project decreased by $289,015 or 62% in the year ended December 31, 2009 compared to the year 2008. The gross profit percentage to sales for Song Tranh project decreased from 18% to 4% in the year ended December 31, 2009 compared to the year 2008.





Dong Nai 4





The revenues from Dong Nai 4 Project increased by $240,032 or 9% for the year ended December 31, 2009 compared to the year 2008. The cost of goods sold from Dong Nai 4 project increased by $93,219 or 4% for the year ended December 31, 2009 compared to the year 2008. The percentage of cost of goods sold to sale for this project was decreased to 80% for the year ended December 31, 2009 compared to 84% in 2008. The gross profit from Dong Nai 4 project was increased by $146,813 or 33% in the year ended December 31, 2009 compared to the year 2008. The gross profit percentage to sales for Dong Nai 4 project increased from 16% to 20% in the year ended December 31, 2009 compared amounts received to the year 2008. This increase in gross profit percentage to sales is due amounts received  from the Customer.





Dambri





The revenues from Dambri Project increased by $2,665,394 or 956% for the year ended December 31, 2009 compared to the year 2008. The cost of goods sold from Dambri project increased by $2,533,313 or 739% for the year ended December 31, 2009 compared to the year 2008. The percentage of cost of goods sold to sale for this project was decreased to 98% in 2009 compared to 123% in 2008. The gross profit from Dambri project increased by $132,081 to $68,020 in the year ended December 31, 2009 compared to $64,061 as a loss in the year 2008. This increase in gross profit is due to an increase in revenue in the year ended December 31, 2009 as the project progressed compared to a small operation as the project started in 2008. As a result, the gross profit percentage to sales for Dambri project also increased from (23%) to 2% in the year ended December 31, 2009 compared to the year 2008.





Cost of production





Costs of Goods sold were $55,303,582 and $44,402,887 for the year ended December 31, 2009 and 2008, respectively.  Cost of Goods sold includes capitalization of interest expenses of $3,592,974 and $5,219,334 for the year ended December 31, 2009 and 2008, respectively.





Cost of Goods sold (without capitalization of interest expenses) increased by $12,527,054 or 32% to $51,710,607 for the year ending December 31, 2009 from $39,183,553 for the year ending December 31, 2008. Cost of Goods sold excluding capitalization of interest expenses as a percentage of sales increases by 10% to 85% for the year ended December 31, 2009 from 75% of sales for the year ended December 31, 2008.





Company’s cost of production from civil construction for the year ended December 31, 2009 was $47,871,074, of which as a percentage of sales increased by 6% to 91%, compared to the year ended December 31, 2008. Company’s cost of production from other operations (i.e. leasing machinery and equipment, selling steel fabrication) for the year ended December 31, 2009 was $7,432,507, of which as a percentage of sales decreased  by 2% to 87% for the year ended December 31, 2009 from 89% for the year ended December 31, 2008. The increase of cost of production from other operation as a percentage of sales was due to decrease of demand in trading which result in smaller sales price increase compared to cost increase.





29




Gross Profit





The gross profit for the year ended December 31, 2009 was $5,787,140 or 9% of sales compared to $7,534,049 or 15% of sales for the year ended December 31, 2008. The decrease in gross profit in U.S. dollars was 23% from the prior year with 4% of the decrease caused by the 2009 change in U.S dollar/Vietnamese Dong exchange rates.The decrease in gross profit was primarily due to lower rate of increase in sales by $9,153,786 in comparison to an increase in cost of goods sold by $10,900,695. Due to the high inflation rate of 23% in 2008 in Vietnam, the cost of our construction materials increased in 2009. As a result of the higher costs of construction materials, we were reimbursed by our customers for our higher costs and we recognized higher revenue, For some items included in cost of goods sold, however, such as capitalized interest and machine parts, we were not reimbursed by our clients. Therefore, the gross margin for the year ended December 31, 2009 was lower than 2008 and this lower gross profit caused the lower income from operation for 2009. Since the inflation rate for 2009 was only 6.9% and anticipated to be 7.0% in 2010, we are not anticipating any material impact on our gross margin in 2010.
 
 The decrease in gross profit was primarily from civil construction which decreased by $2,345,011 from $7,049,897 to $4,704,886 . The gross profit percentage for net sales in civil construction decreased to 9% in the year ended December 31, 2009 compared to 15% in 2008. These decreases in gross profit percentages resulted from decreases in the gross profit percentages of our major projects as explained above and completion of several projects which the costs of sales were much higher than revenue recognized at the completion stage due to costs of withdrawing machinery and completing engineering work. For those projects competed in 2009, revenues in the year 2009 decreased compared to the last year whereas the cost of goods sold of these projects increased significantly compared to the same period last year. In addition, in the year ended December 31, 2009, the Company recorded $1,021,259 for losses on certain projects which was charged to costs of goods sold.  These costs  were written off in connection with projects where anticipated future costs are over the expected revenue, amounting to $562,074, and write-offs of advances on certain projects where no future benefits are expected, amounting to $459,185 The gross profit from commercial activities increased by $598,103 to $1,082,255 in the year ended December 31, 2009 compared to $484,152 in 2008, as a percentage to sale increased from 11% in 2008 to 13% in 2009. This increase is mainly due to an increase in demand of construction materials as Vietnam’s economy is recovering.





Operating expenses





The company’s operating expenses in 2009 was $7,351,937 compared to $6,572,177 in 2008 with an increase of $779,760. The increase in operating expenses was mainly resulted from increased in the size of our support facilities as we prepare for the future growth of the Company and its subsidiaries, noted as follows:





•
Rent expenses increased by $62,421 to $483,112 for the year ended December 31, 2009 from $420,691 for the year ended December 31, 2008.•
Payroll expenses increased by $191,892 to $2,505,291 for the year ended December 31, 2009 from $2,313,399 for the year ended December 31, 2008.•
Other administration cost of other subsidiaries increased by $317,816 to $2,585,347 for the year ended December 31, 2009 from $2,267,531 for the year ended December 31, 2008.•
Administrative cost of corporate office (mainly audit fees, legal fees and consulting fees) increased by $115,544 to $1,394,493 for the year ended December 31, 2009 from $1,278,949 for the year ended December 31, 2008.•
Selling expenses were increased by $210,964 to $289,743 for the years ended December 31, 2009 from $78,779 for the year ended December 31, 2008. Our selling expenses increased in 2009 as we have promoted and added 15 new projects in 2009. During the fourth quarter of 2009, we reversed $192,176 of commission costs which was recorded in the third quarter of 2009 since related contract was cancelled. This contributed negative selling expenses in the fourth quarter in 2009.





The Company also recorded a bad debt expense of $128,748 and $212,828 for the years ended December 31, 2009 and 2008, respectively.  This decrease in bad debt expense is the result of a change in the methodology of recording the bad debt expense and other writeoffs.  The Company recorded writeoffs for work in process to cost of goods sold, amounting to $562,074, instead of to bad debt expense.  Pursuant to accounting policy, the allowance accounts are based on management’s judgment and  at a minimum are calculated based on the aging of the accounts receivables in accordance with our accounts receivable accounting policy. The increase in allowance was caused by the following changes.




The activities in the allowance accounts are as follows:
  Allowance Account

Balance

December 31, 2008


Bad Debt Allowance Expense


Charge-offs and Recoveries**


Reclassification and Adjustment


Balance

December 31, 2009Accounts receivable – trade

$
227,759


$
97,873


$
-


$
426,308


$
751,940Long-term retention


369,590



30,875



-



(343,308
)


57,157Subtotal


597,349



128,748
*


-



83,000



809,097Work in process


162,380



239,322
***


(278,377
)


-



123,325Long-term work in process


681,114



322,752
***


(486,575
)


-



517,291Subtotal


843,494



562,074



(764,952
)






640,616Total


1,440,843



690,822



(764,952
)


83,000



1,449,713
  *   Amount agrees to income statement caption “Bad debt expenses”.
 ** Recoveries were immaterial in 2009.
 ***Due to write-off costs in work in process where no future benefits are expected .These amounts  are charged to cost of goods sold.   The largest write-off was $196,190 associated with the Daksrong project.
  The Company’s reserve for work in process (including long term) decreased from $843,494 at December 31, 2008  to $640,616 at December 31, 2009. This decrease in the reserve for work in process is due to (i) the writeoffs of work in process for projects in 2009 and (ii) after such writeoffs, a majority of the work in process balance was less than 270 days old which does not need to be reserved under the Company’s policies. For the year ended December 31, 2009, the Company’s reserve for doubtful accounts for long term retention receivable was reduced by $312,433 mainly as a result of reclassification of reserves related to current accounts receivables.


Other Income (expenses)





The total other expenses increased by $1,279,568 to $3,218,461 for the year ended December 31, 2009 from $1,938,893 for the year ended December 31, 2008. This increase in other expense in 2009 is mainly due to an other-than-temporary impairment losses on  available-for-sale securities of $975,724 for the year ended December 31, 2009 compared to none in 2008. The Company recognized losses on available-for-sale securities for Habubank and PHI Group, Inc. (formerly, providential Holdings Inc.) as their reduced values were determined as other than temporary.  Other income also includes gain from disposal of fixed assets of $160,395 for the year ended December 31, 2009 compared to $44,345 in gain in 2008. Other income during the year ended December 31, 2009 was $304,194 compared to $45,258 in 2008. In addition, loss on foreign currency exchange of $232,270 was recorded for the year ended December 31, 2009 compared to $97,061 in the year 2008. This relates to re-measurement of debts in different currencies. Loss from investment in Cavico Mining during the year ended December 31, 2009 was $141,477 compared to an income of $130,131 for the year 2008.





Interest expense excluding capitalized interest increased by $69,624 to $2,603,686 for the year ended December 31, 2009 from $2,534,062 for the year ended December 31, 2008. The increase was mainly due to increase in the interest rate in 2009.





The Company’s income before interest, depreciation and amortization, income tax and non-controlling interest for the years ended December 31, 2009 and 2008 was $ 5,179,445 and $11,000,716, respectively. These amounts do not include other income and expenses.




30




Net Income





The Company had net loss of $4,761,994 for the year ended December 31, 2009, compared to $631,816 net income for the year ended December 31, 2008. Included in the net income and loss was the tax expenses of $447,295 in the year ended December 31, 2009 compared to the tax benefit of $2,392,347 in 2008. The net loss for the Company excluding net loss attributable to non-controlling interest was $5,230,552 compared to net income of $1,415,326 for the year 2008. Other factor of the significant decrease in net income for the year ended December 31, 2009 compared to 2008 was the reduction of the gross profit of $1,746,908. This reduction of gross profit was caused by the higher costs of goods sold recorded for several projects completed during 2009, material write-off of advances on certain projects due to uncertainty of future benefits and recognition of project loss on the projects for which the future expected revenue was lower than the costs totaling $1,021,259.  In addition,  other-than-temporary impairment losses on  available-for-sale securities of $975,724 was recorded for the year ended December 31, 2009.




The below table reflects the allocation of costs initially recorded in the fourth quarter of 2009 to applicable previous quarters in 2009 of $1,021,259 for losses on certain projects where anticipated future costs exceed the expected revenue amounting to $562,074, write-off of advances on certain projects where no future benefits are expected amounting to $459,185, and other expenses of $276,498 for write-off of certain advances and receivables, for total of $1,297,757.
  Mar. 31, 2009


Jun. 30, 2009


Sep. 30, 2009


Dec. 31, 2009Gross profit-Previously reported

$
2,362,680


$
2,977,685



1,052,180



(605,404
)-As restated/adjusted


2,066,577



2,778,299



1,052,180



(109,916
)Operating expenses- Previously reported


1,461,844



1,880,531



2,578,786



1,430,775-As restated/adjusted


1,515,742



1,904,145



2,578,786



1,353,263Net income(loss) before income tax and non-controlling interest - Previously reported


571,283



598,216



(3,084,165
)


(2,868,589
)-As restated/adjusted


221,282



375,216



(3,084,165
)


(2,295,589
)Net income(loss) attributable to Cavico-Previously reported


140,204



163,829



(2,603,989
)


(2,462,036
)-As restated/adjusted


(70,386
)


37,445



(2,603,989
)


(2,125,064
)Net income (loss) per share-Previously reported

$
0.05


$
0.05


$
( 0.85
)

$
( 0.81
)-As restated/adjusted

$
( 0.02
)

$
0.01


$
( 0.85
)

$
( 0.70
)








The net loss per share for the year ended December 31, 2009 was $1.56 compared to $0.21 as income for the year period ended December 31, 2008.  The increase in unrealized gains of $8,772,852 in investments available for sale resulted from an unrealized gain of $2,420,224 in 2009 and an unrealized loss of  $6,352,628 in 2008.  The cost and current fair value of the marketable securities as of December 31, 2009 were $2,988,206 and $2,711,912, respectively.  The majority of marketable securities are invested in Vietnamese companies.





Liquidity and Capital Resources





Our working capital deficit as of December 31, 2009 increased to $(23,628,581) compared to $(19,554,563) as of December 31, 2008 as current assets increased less than the increase in current liabilities. The major factors contributed to this decrease in working capital in 2009 compared to 2008 were a increase of $8,321,376 in current construction work in process compared to an increase of $7,927,559 in current notes payable and an increase of $7,520,401 in trade account payable. Generally in Vietnam, bank loans are granted on a yearly basis and renewed each year. The Company has $54,740,704  in maturing debts in 2010.





As of December 31, 2009, we had $2,391,316 in cash, current accounts receivable of $15,809,989, an inventory of $4,114,075, a construction WIP of $25,881,123 and net fixed assets of $28,249,396. Our current accounts receivable was increased by $4,279,401 from the prior year end. Our accounts receivable increase was due to an increase in sales from completed projects. Our current construction WIP for the current year was increased by $8,321,376 from the prior year end. We anticipate our accounts receivable and inventory will continue to increase in 2010 as we completed and added more new projects.





We have current receivables, long-term receivables and work in process with the following characteristics:





December 31, 2009


December 31, 2008Accounts receivable -trade- net

$
15,809,989


$
11,530,588Receivable - other


10,550,284



7,088,229Work in process


25,881,123



17,559,747Receivables and advances from related parties


984,684



1,048,854Long-term retention receivables


11,400,629



14,042,107Long-term work in process


3,054,564



3,579,799





Accounts receivable - trade are generated from civil construction projects as well as from our other commercial activities. We receive payment on our accounts receivable for major projects after two certificates are received.  The first certificate, a “certificate of completed work,” is a certificate received from the customer we perform the work and the work has passed the customer’s technical quality examination.  The second certificate, a “certificate of payment,” is a certificate that the customer issues to approve payment.  Depending on the project, payment is made within 30 days to 105 days after receiving the certificates.





At December 31, 2009,  $8,590,159 or 52% of our accounts receivable-trade was outstanding less than 90 days and 19 % of our accounts receivable balance was outstanding over 90 days but less than 180 days.  The balance of accounts receivable-trade that was outstanding for more than six months was $4,769,787, $3,358,763 of this amount was from the Buonkuop, Daksrong, Dakmi 4 and Buon tuasha projects.  $153,838 of the balances from these projects was collected by March 31, 2010 and additional $703,994 was collected on other accounts receivable accounts aged more than six months.  The remaining balance in the accounts receivable –trade outstanding for more than six months of $3,911,955 is expected to be paid by the end of year 2010.  The ratio of accounts receivable balance to sales was 26% at December 31, 2009 compared to 22% at December 31, 2008. This increase was due to the higher collection toward the end of the year 2008 compared to 2009.  Management believes reserves for uncollectable amounts, which are provided based on past experience and a specific analysis of the accounts, are sufficient. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of December 31, 2009, we had a reserve for doubtful accounts of $751,940.  We do not have liens or collateral rights on these projects but these projects have the support and financial backing of the Government of Vietnam.





31





Receivable – other consists of $1,364,426 of advances, $8,298,235 of prepayments to suppliers and $887,623 of other short-term receivables. These receivables are generated from civil construction and mining construction projects as well as from our other commercial activities. Advances include monies advanced for miscellaneous expenses such as business travel costs, selling costs and material purchases. As of December 31, 2009, the entire balance is expected to be collected or expensed within the year. Advances and prepayments  to our supplies are for works to be performed on our contracts. The execution of the work and the approval by the necessary Vietnamese agencies can take up to a year. We expect to collect all amounts due and this expectation is supported by past collection history.





Work in process and Long-term work in process includes the costs of production such as materials, labor, overhead and interest cost on projects not yet recognized as revenue.  The revenue is recognized when the work is completed and the customer certifies completion.  There are no contractual provisions that prevent our work in process from being collected.  As of December 31, 2009, the balance of work in process was $28,935,687  of which $11,923,397 or 40% of work in process was outstanding less than 90 days and  approximately 21% of work in process balance was outstanding less than 180 days.  $11,322,648 of the balance was over 6 month from various projects.  These amounts are billed or expected to be billed as follows: billed and collected $1,965,948 by March 31, 2010, expected to bill $6,674,228 by December 31, 2010.   The largest work in process balances are for the Ban Ve Hydropower Project, the Buon Tua Srah Hydropower Project, Song Tranh Hydropower project and A Luoi Hydropower  project, which totals approximately $12,329,160.  As of December 31, 2009, we had reserved $640,616 against work in process balances.





Included in the current work in process over six months old are (1) work completed but the examined by consultant to grant a certificate  of completion for payment (2)preparation and temporary facility work for whole project which is included in the unit rate which will be paid gradually by every certificate of payment to the end of the project (3)additional work performed based on the instruction and agreement with the customer but waiting for the approval of the payment rate from the customer.  Long-term work in process is $3,054,564 as of December 31, 2009. The long-term work in process will be billed and collected after the project owner certifies the work. We are not currently aware of any factors that would cause the ultimate timing of collections to change. We have determined that the reserves against work in process were sufficient for both short term and long term work in process.





Receivables and advances from related parties include advances to management and employees include miscellaneous expenses such as business travel costs, selling costs and material purchases. Our policy is to receive expense reports for these amounts and move them to the appropriate expense account. If an expense report is not turned in, these advances can be deducted from the salary of the related individuals. These loans were made with no interest, not secured and due on demand. We had loans receivable in the amounts of $194,634 and advances of $790,049 as of December 31, 2009.





Long term retention receivable has a balance of $11,400,629 at December 31, 2009. We attempt to shift our construction risks to our customers. We do, however, provide a warranty period of two to three year after completion of the construction contract. Long-term retention receivables are typically paid within two years after the completion of a construction project.  The amounts outstanding for more than two years have not been paid pursuant to the payment terms of the Company’s contracts.  We expect to collect these amounts within two years after the completion of the applicable construction contract. Our customers generally keep the retention of 5 to 15 percent of the contract amount until the warranty period expires. The largest long-term retention receivable balances are for the Dai Ninh Hydropower Project, the Buon Kuop Hydropower Project, ALuoi Hydropower Project and the Buon Tua Srah Hydropower Project. All three projects are current in their payments and there are no known disputes regarding the work performed to date. For example, our construction contract for Buon Kuop hydro power was completed in October 2009. Our accumulated revenue at Buon Kuop from June 2004 to June 2009 is approximately $20 million. Since 5% of the revenue is held by as long-term retention, $1 million is held by the customer as long-term retention. This $1 million and any other long-term retention balance associated with this project is expected to be paid in June 2011. When paid, a portion of the long-term retention receivable will be seven years old but will still be paid in accordance with the contractual terms of the contract. We believe that the Buon Kuop long-term retention receivable, along with our other long-term retention receivables will be collected when due under each contract’s terms.  We have received 100% of the retention from the contracts completed upon the expiration of warranty periods such as 2B Hai Van project or A Loid Road project. The estimated dates and amounts we expect to collect the long term retention receivable are as follows;





Expected dates of collection




December 31, 2011

$
3,715,749



32.6
%December 31, 2012


3,812,750



33.4
%December 31, 2013


3,872,130



34.0
%Total

$
11,400,629



100
%





Current liabilities-Our total current liabilities as of December 31, 2009 were $89,517,730 which was increased by $21,607,748 from the prior year end. The current liabilities were represented mainly accounts payable of $16,441,988, accrued expenses of $6,722,643, advances from customers of $6,887,558, and short term loans, including loans from related parties of $54,960,795. Advances from customers increased mainly due to Ta Trach project for which we received approximately $2.8 million, Song Giang HP project for which we received approximately $0.5 million, Thanh Ha project for which we received approximately $0.4 million, Ngan Truoi project for which we received approximately $1.8 million, HuaNa project for which we received approximately $0.4 million  during the year ended December 31, 2009. Current Notes payable including loans from related parties increased by $7,938,983 from the prior year end. This increase is mainly due to an increase in financial needs for new projects such as A Luoi HP, Ta Trach Dam, Song Giang HP, Dakmi 4 HP, Ngan Truoi Dam. At December 31, 2009, the Company's current liabilities exceeded current assets by $23,628,581.




32




Construction loans-At December 31, 2009, we had $60,115,212 in construction loans, of which $54,740,704 are classified as short-term construction loans with annual interest rates ranging from 10% to 17%. We obtain these short-term construction loans to finance our civil construction and mining projects. Most of these loans are unsecured except a few loan secured by equipment, but the bank controls the disbursement of funds in the following manner. These construction loans are made by the banks for a specific project.




Disbursements on these construction loans are designed to pay for expenses of a project as the work progresses. Banks will typically only disburse funds under these construction loans for equipment, supplies and other expenses for the specific project. In most instances, the bank will allow us to pay only to the supplier or subcontractor that the bank approves for payment. No funds are disbursed for other corporate purposes. The amount of outstanding construction loans secured by equipment and other assets, which are mostly major construction equipment, at December 31, 2009 was approximately $21,000,000, 35% of total construction loans.





These loans mature from January 2010 through September 2013. Each time we begin a construction project, we obtain a loan from one of several banks to purchase equipment supplies and mobilize our employees and materials to the worksite.  As we complete a percentage of each construction project, our customer certifies our work in process and every month, our customer or its financing source, pays us the interim payment for our completed work, less a retention percentage (which we will collect at the end of the warranty period). When the payment is received, it is put into the deposit account which was set up with the bank upon signing the construction loan and from which we repay the bank for monthly interest and principal when due. The remaining balance of this account will be used by the company for expenses related to this contract or corporate purposes.  When we need to pay to the suppliers or sub-contractors and other expenditures related to the contract, we submit to the bank documents such as supply contracts, subcontractor contract, invoices or demand letters. Upon approval of our submission, the bank issues Indebtedness Certificate. After this process, the bank transfers the funds to our bank account so that the payments can be made to our suppliers or sub-contractors.





Events that may prevent us from obtaining additional funding from the banks include: (i) use of presently borrowed funds borrowed for unauthorized purposes, (ii) cash flows from the relevant construction contract being significantly lower than estimated, and (iii) a material downturn in our overall financial position.





We maintain lines of credit with various banks and as of December 31, 2009, the outstanding balance was $33.6 million and available balances were $45.3 million as of December 31, 2009. The banks do not have any financial covenants. Since these lines of credits are linked to construction contracts, however, our ability to draw down on these lines of credit is controlled by the banks.





It is the general practice of Vietnamese banks to give short term loans for each construction contract and make the loans renewable every year until the construction contract completed. As a result, the loans are classified as current liabilities. Our retention receivables and a portion of our work in process, however, are classified as long-term assets. As a result, our working capital deficit as of December 31, 2009 was $23,628,581. As of December 31, 2009, long-term retention receivables and long-term work in process totaled $14,455,193.





We expect to renew these loans with the banks and repay the balances as we complete our projects. During the year 2009, we made $73,634,129 of payments on our notes payable. We also needed to draw down $82,185,846 from our notes payable to finance our construction projects.





Although a substantial majority of our loans are not secured by our assets other than our work in process and receivables, our banks decision not to renew these loans or our failure to repay these loans could have important consequences including the following:





•
it may limit our ability to borrow money or issue equity to finance our working capital, construction projects or capital projects or other purposes;•
it may limit our flexibility in planning for, or reacting to, changes in our operations or business;•
a substantial portion of our cash flow from operations could be dedicated to the repayment of our indebtedness and would not be available for other purposes;•
there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed; and•
It may result in the banks repossessing up to $21,000,000 of our equipment and other assets.





Cash flows





The Company used cash of $2,108,335 in operating activities for the year ended December 31, 2009 compared to $3,229,173 from operating activities for the year ended December 31, 2008. The major reasons are a decrease in advances from customer of $3,494,487 in 2009 compared to $9,756,039 in 2008, an increase in construction WIP of $8,676,361 in 2009 compared to $2,439,873 in 2008, an increase in account payable and accrual expenses in the amount of $11,510,988 and a decrease of $1,421,419 during the year ended December 31, 2009 and 2008, respectively and due to a decrease in account receivable and other current assets of $7,714,909 in 2009 from $16,231,078 in 2008.





33





In investing activities, we used net cash of $6,565,973 for the year ended December 31, 2009 to purchase property, equipment and investments in other entities. The Company spent $7,111,171 for the purchase of fixed assets, which primarily included vehicles, equipment, machinery and intangible assets. The Company also received $819,721 in proceeds from disposal of fixed assets. Additionally, the Company purchased investments in other entities during the December 31, 2009 in the amount of $441,344 and received $166,821 from sale of investments.  The Company used net cash of $12,213,120 for the year ended December 31, 2008 in purchase of property, equipment and investments in other entities. The Company spent $11,856,498 for the purchase of fixed assets, which primary include for the purchase of vehicles, equipment, machinery and intangible assets. The Company also received $363,128 in proceeds from disposal of fixed assets. Also, the Company’s investments in other entities during the year 2008 increased by $935,001 and proceeds from sales of investment were $165,563.





During the year ended December 31, 2009, the Company generated cash flows of $8,201,058 from financing activities, which included $82,280,541 from loan proceeds and repayments of loans in the amount of $73,704,963. The Company also received $275,607 proceeds from additional investments by minority interests during the year ended December 31, 2009. During the year ended December 31, 2008, the Company generated cash flows of $17,228,642 from financing activities, which included $300,000 from common shares issued, and $78,863,350 from loan proceeds and repayments for loans of $63,388,539. The Company also received $1,891,800 proceeds from additional investments by minority interests during the year ended December 31, 2008.





The Company generated net loss of $4,761,994 and net income of $631,816 for the year ended December 31, 2009 and 2008, respectively.





As of December 31, 2009, the Company has approximately $273.5 million for contract backlog. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of materials, and the expansion of our business, through cash flow provided by operations and funds raised through cash investments. We may also use short term loans bank loans to meet our liquidity requirements. There is no assurance, however, that without funds we will ultimately be able to carry out our business.





Off-Balance Sheet Arrangements





The Company has guaranteed a loan with line of credit for approximately $3.8 million and $5.6 million for Cavico Mining, an equity investment entity, as of December 31, 2009 and December 31, 2008, respectively. The loan balances as of December 31, 2009 and December 31, 2008 were $3,337,129 and $2,128,859, respectively. The Company also had a receivable from Cavico Mining for $7,070,665 and $3,826,533 as of December 31, 2009  and December 31, 2008, respectively and payable due to Cavico Mining for $1,190,716 and $155,347 as of December 31, 2009  and December 31, 2008, respectively.





ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The following discussion about Cavico Corp’s market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.





Currency Fluctuations and Foreign Currency Risk





Substantially all of our operations are conducted in Vietnam.  All of our sales and purchases are conducted in Vietnamese Dong, which is the official currency of Vietnam.  As a result, the effect of the fluctuations of exchange rates is considered minimal to our business operations.





Substantially all of our revenues and expenses are denominated in Dong.  However, we use the United States dollar for financial reporting purposes.   Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from its operations in Vietnam. Our total equity for the years ended December 31, 2009 and 2008 was decreased by $641,095 and $1,093,320, respectively by the foreign currency translation adjustments. These foreign currency adjustments in stockholders ‘equity were caused by the increase in conversion rates from Vietnamese Dong to US dollars from 16,977 (Dong) at December 31,2008 to 17,941 (Dong) at December 31, 2009.





Interest Rate Risk





We do not have significant interest rate risk, as most of our debt obligations are primarily short-term in nature, with fixed interest rates.





Credit Risk





We have not experienced significant credit risk, as our major customers are government related and have good payment records.  Our receivables are monitored regularly by our credit managers.





Inflation Risk





Vietnam is currently experiencing high inflation. The average inflation rate for the year ended December 31, 2009 was 6.9%.





34







ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





CAVICO CORP. AND SUBSIDIARIES


FINANCIAL STATEMENTS


December 31, 2009 and 2008


Contents





PageReport of Independent Registered Public Accounting Firm

36Financial Statements:Consolidated Balance Sheets as of December 31, 2009 and 2008

37Consolidated Statements of Operations and Comprehensive Income for Years Ended December 31, 2009 and 2008

38Consolidated Statement of Shareholders’ Equity for the Years Ended December 31, 2009 and 2008

39Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008

40Notes to Consolidated Financial Statements

41-63















35





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors





Cavico Corp. and Subsidiaries





We have audited the accompanying consolidated balance sheet of Cavico Corp. and Subsidiaries (“the Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows 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 financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement 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, 2009 and 2008, and the results of its operations, stockholders’ equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.





/s/ PMB Helin Donovan, LLP





PMB Helin Donovan, LLP





Certified Public Accountants





Dallas, Texas





April 13, 2010




36





CAVICO CORP. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


December 31, 2009 and 2008




2009


2008ASSETSCurrent Assets:Cash

$
2,391,316


$
3,002,239Investments, available for sale


2,711,912



1,820,406Equity method investment in Cavico Mining


1,239,851



1,461,292Accounts receivable -trade- net


15,809,989



11,530,588Receivable - other


10,550,284



7,088,229Inventory


4,114,075



3,420,382Work in process


25,881,123



17,559,747Receivables from and advances to  related parties


984,684



1,048,854Other current assets


2,205,915



1,423,682Total current assets


65,889,149



48,355,419Fixed Assets:Land and building development costs


11,018,893



8,709,525Temporary housing assets


266,632



249,962Machinery and equipment


24,355,935



22,837,606Vehicles


7,268,114



6,905,688Office and computer equipment


727,362



715,37543,636,936



39,418,156Less accumulated depreciation


(15,387,540
)


(12,050,937
)Net fixed assets


28,249,396



27,367,219Intangible Assets:Goodwill


727,073



767,004Licenses - net


255,875



301,884Net intangible assets


982,948



1,068,888Other Non Current Assets:Investments, cost method


2,495,536



2,599,592Long-term retention receivables


11,400,629



14,042,107Prepaid expenses


1,606,973



1,725,660Long-term work in process


3,054,564



3,579,799Long-term advances related parties


55,738



58,903Other assets


2,130,049



703,303Total other assets


20,743,489



22,709,364TOTAL ASSETS

$
115,864,982


$
99,500,890LIABILITIESCurrent Liabilities:Accounts payable

$
16,432,092


$
8,911,691Accounts payable – related parties


9,896



17,876Accrued expenses


6,722,643



4,203,965Advances from customers


6,887,558



3,762,026Payable to employees


4,215,547



3,890,975Notes payable - current


54,740,704



46,813,145Notes payable - related parties


220,091



208,667Current portion of capital lease obligations


289,199



101,637Total current liabilities


89,517,730



67,909,982Long-Term Debt:Long-term advances from customer


10,858,809



10,652,992Capital lease obligations – long-term


858,635



254,020Long-term debt


5,374,508



7,723,485Total long-term debt


17,091,952



18,630,497TOTAL LIABILITIES


106,609,682



86,540,479Commitments and Contingencies (See Note 15)


-



-Stockholders' Equity:Preferred stock:$.001 par value - 25,000,000 authorized, none issued and outstanding


-



-Common stock, $.001 par value; 300,000,000 shares authorized; 3,274,942 shares issued and 3,047,795 shares outstanding


3,048



3,048Additional paid-in capital


13,619,865



13,619,865Accumulated deficit


(11,400,322
)


(6,638,329
)Accumulated other comprehensive income (loss)


(1,388,509
)


(3,739,401
)Total Cavico Corp. stockholders' equity


834,082



3,245,183Non-controlling interest


8,421,218



9,715,228Total stockholders’ equity


9,255,300



12,960,411TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
115,864,982


$
99,500,890





The accompanying notes are an integral part of these consolidated financial statements.




37





CAVICO CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


For the Years Ended December 31, 2009 and 2008




2009


2008Revenues:Civil construction

$
52,575,960


$
47,501,672Commercial activities


8,514,762



4,435,264Total revenue


61,090,722



51,936,936Cost of Goods Sold:Civil construction


47,871,074



40,451,775Commercial activities


7,432,507



3,951,112Total cost of goods sold


55,303,581



44,402,887Gross Profit


5,787,141



7,534,049Operating  Expenses:Selling expenses


289,744



78,779General & administrative expenses


6,933,445



6,280,570Bad debt expense


128,748



212,828Total operating expenses


7,351,937



6,572,177Total income (loss) from operations


(1,564,796
)


961,872Other income (expenses):Gain on disposal of assets


160,395



44,345Other income (expense)


304,194



45,258Income (loss) from investment in Cavico Mining


(141,477
)


130,131Other-than-temporary impairment losses on  available-for-sale securities


(975,724
)


-Loss on sales of marketable securities


(143,634
)


(439,934
)Loss on foreign currency exchange


(232,270
)


(97,061
)Interest income


413,741



912,430Interest expense


(2,603,686
)


(2,534,062
)Total other income ( expense)


(3,218,461
)


(1,938,893
)Loss before income taxes and non-controlling interest


(4,783,257
)


(977,021
)Income taxes benefit (expense)


(447,295
)


2,392,347Income (loss) before non-controlling interest


(5,230,552
)


1,415,326Net income (loss) attributable to non-controlling interest


(468,558
)


783,510Net income (loss) attributable to Cavico Corp.

$
(4,761,994
)

$
631,816Other comprehensive income:Unrealized gain(loss) on  investments available for sale


2,420,224



(6,352,628
)Foreign currency translation adjustment


(641,095
)


(467,881
)Comprehensive income (loss)

$
(3,451,423
)

$
(5,405,183
)Less comprehensive income(loss) attributable to the non-controlling interest


547,412



(783,510
)Comprehensive income(loss) attributable to Cavico Corp

$
(2,904,011
)

$
(6,188,693
)Per Share Information:Weighted average number of common shares outstanding-basic and diluted


3,047,795



2,941,726Net income(loss) per common share-basic and diluted

$
(1.56
)

$
0.21





The accompanying notes are an integral part of these consolidated financial statements.





38




CAVICO CORP. AND SUBSIDIARIES


Consolidated Statement ofStockholders' Equity


For the Years Ended December 31, 2009 and 2008





AccumulatedCommon Stock


Additional

Paid-in


Accumulated


other

Comprehensive


Total Cavico Corp

Stockholders’


Non-controlling


Total

Stockholders’Shares


Amount


Capital


Deficit


Income(loss)


Equity


Interest


EquityBalance, December 31, 2007


2,919,045


$
2,919


$
13,235,244


$
(7,051,005
)

$
3,081,108


$
9,268,266


$
5,600,977


$
14,869,243Shares issued for services


3,750



4



84,746



-



-



84,750







84,750Shares issued for cash


125,000



125



299,875



-



-



300,000







300,000Sale of shares from non-controlling interest


























1,891,800



1,891,800Dividends paid to non-controlling interest


























(372,492
)


(372,492
)Foreign currency translation adjustment


-



-



-



-



(467,881
)


(467,881
)


(625,439
)


(1,093,320
)Unrealized loss on securities available for sale


-



-



-



-



(6,352,628
)


(6,352,628
)






(6,352,628
)Consolidation of additional subsidiaries


-



-



-



(219,140
)


-



(219,140
)


2,436,871



2,217,731Net income














631,816



-



631,816



783,510



1,415,326Balance, December 31, 2008


3,047,795


$
3,048


$
13,619,865


$
(6,638,329
)

$
(3,739,401
)

$
3,245,183


$
9,715,228


$
12,960,411Sale of shares from non-controlling interest


























275,607



275,607Dividends paid to non-controlling interest


























(529,295
)


(529,295
)Reclassification of unrealized loss from non-controlling interest in the prior year


















492,910



492,910



(492,910
)


-Foreign currency translation adjustment


-



-



-



-



(124,825
)


(124,825
)


(516,270
)


(641,095
)Unrealized gain on securities available for sale


-



-



-



-



1,982,807



1,982,807



437,416



2,420,224Net loss














(4,761,994
)


-



(4,761,994
)


(468,558
)


(5,230,552
)Balance, December 31, 2009


3,047,795


$
3,048


$
13,619,865


$
(11,400,322
)

$
(1,388,509
)

$
834,082


$
8,421,218


$
9,255,300





The accompanying notes are an integral part of these consolidated financial statements.





39





CAVICO CORP. AND SUBSIDIARIES


Consolidated Statement of Cash Flows


For the Years Ended December 31, 2009 and 2008





2009


2008Cash Flows From Operating Activities:Net income (loss)

$
(5,230,552
)

$
1,415,326Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization


4,986,536



4,820,554Change in provisions for uncollectible receivables


(157,843
)


212,828Gain on sale of fixed assets


(160,395
)


(44,345
)Other-than-temporary impairment losses on  available-for-sale securities


975,724



-Loss from other investment activities


143,634



439,934Income(loss) from investment in Cavico Mining


141,477



(130,131
)Stock issued for services


-



84,750Changes in assets and liabilities:Increase in accounts receivable and other current assets


(7,714,909
)


(16,231,078
)Increase in inventory


(755,100
)


(1,160,044
)Increase in  work in progress


(8,676,361
)


(2,439,873
)Increase in other assets


(1,226,651
)


(510,937
)Increase in advances from customer


3,494,487



9,756,039Increase in payable to employees


560,630



1,979,223Increase(decrease)  in accounts payables and accrued expenses


11,510,988



(1,421,419
)Net Cash Used in Operating Activities


(2,108,335
)


(3,229,173
)Cash Flows from Investing Activities:Purchase of property, equipment and intangible assets


(7,111,171
)


(11,856,498
)Cash acquired in consolidation  of new entities


-



49,688Proceeds from withdrawals of investments in nonconsolidated companies


166,821



165,563Purchase of investments in nonconsolidated companies and joint stock company


(441,344
)


(935,001
)Proceeds from sales of fixed assets


819,721



363,128Net Cash Used in Investing Activities


(6,565,973
)


(12,213,120
)Cash Flow From Financing Activities:Proceeds from contribution by noncontrolling interests


275,607



1,891,800Payments of dividends to noncontrolling interests


(529,295
)


(372,492
)Proceeds from shares issued


-



300,000Proceeds from notes payable


82,185,846



76,202,548Proceeds from notes payable - related parties


94,695



2,660,802Payments of notes  payable- others


(73,634,129
)


(60,463,105
)Payments of notes payable- related parties


(70,834
)


(2,925,434
)Payments of capital leases obligations


(120,832
)


(65,477
)Net Cash Provided By Financing Activities


8,201,058



17,228,642Increase(decrease) in Cash


(473,250
)


1,786,349Cash at Beginning of period


3,002,239



1,357,390Effect of foreign currency translation


(137,673
)


(141,500
)Cash at End of period

$
2,391,316


$
3,002,239Supplemental Cash Flow Information:Interest paid

$
5,589,041


$
7,951,821Taxes paid

$
41,059


$
43,836Non-Cash  Investing and Financing Activities:Assets acquired under capital lease

$
1,251,691


$
509,482Non cash changes to assets and liabilities due to the consolidation of  subsidiaries previously accounted for as cost method investments:Accounts receivable and other current assets

$
-


$
2,257,815Inventory


-



4,718Construction work in progress


-



325,832Other assets


-



108,753Accounts payable & accrued expenses


-



640,476Payable to employees


-



537,963





The accompanying notes are an integral part of these consolidated financial statements.





40





NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION





The Company





Cavico Corp. and Subsidiaries, (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 November 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 1,975,000 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 2, 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. 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.





On August 19, 2009, the Company affected a reverse stock split on a 40-for-1 basis.





Principles of Consolidation





The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, majority owned subsidiaries and all entities in which the Company has less than fifty percent ownership that are variable interest entities in which the Company is the primary beneficiary. Cavico Energy Construction, Cavico Tower, Cavico Manpower, Cavico Stone and Mineral and Cavico Land are considered to be variable interest entities in which the Company is the primary beneficiary. The Company is the primary beneficiary because the Company expects to absorb more than 50% of expected losses and residual returns from all of these five less than fifty percent owned entities. The Company exercises significant control over all of its consolidated entities though shared management, guarantees of indebtedness, inter-company credit lines, shared use of assets and control of major contracts.  The Company’s ownership and related party ownership in these subsidiaries with less than fifty percent ownership as of December 31, 2009 are as follows;





Ownership %


Ownership %Cavico & Sub


Related Parties


TotalCavico Energy Construction JSC


38
%


22
%


60
%Cavico Tower


33
%


29
%


62
%Cavico Manpower


40
%


28
%


68
%Cavico Land JSC


15
%


13
%


28
%Cavico Stone & Mineral JSC


45
%


26
%


71
%





Per paragraph 16 of ASC Topic 810 or FIN46R, for the purposes of determining whether the Company is the primary beneficiary of a variable interest entity,the Company treated variable interests in the same entity held by its related parties as its own interests. As a result, the ownerships in Cavico Energy Construction JSC, Cavico Tower, Cavico Manpower and Cavico Stone & Mineral JSC were more than fifty percent by combining ownerships of related parties.




The total expected losses absorption was used as a base for determining whether Cavico Land is a VIE, and that Cavico is the primary beneficiary of Cavico Land. The expected losses and expected residual returns amounts were derived from expected cash flows as described in FASB Concept Statement 7, Using Cash Flow Information and Present Value in Accounting Measurements. Based on this calculation, Cavico has the variable interests in Cavico Land that absorb the majority of the expected losses and is considered the primary beneficiary even if another parties receives a majority of the entity’s expected residual return. Cavico’s absorption of a majority of the expected losses because of the following;




A.
There are significant operational barriers. No other entity or party in Vietnam can step in as a new decision maker. There is an absence of adequate qualified replacement decision makers for Cavico Land. The Company is one of the largest construction companies in Vietnam.B.
Cavico Land cannot finance its operations without additional subordinated financial support from the Company or one of its other subsidiaries or sister companies.C.
The Company has a greater financial interest (VI) in Cavico Land than its simple equity interest based on the additional subordinated debt financing provided.D.
Cavico having control of the board of directors and management has the ability and means to constrain the increase in total equity investment in Cavico Land.





Some of these consolidated entities were able to raise working capital by selling the shares to independent third parties without affecting the benefits received from these entities.  Loss generated from the entities in which the Company has less than fifty percent ownership shares was $103,831 and income of $93,716 for the year ended December 31, 2009 and 2008, respectively.





All significant intercompany accounts and transactions have been eliminated.  The consolidated financial statements include the accounts of the parent company, Cavico Corp., and its following subsidiaries:





% of OwnershipSubsidiary

12/31/09


12/31/08Cavico Vietnam Company Limited


100
%


100
%Cavico Bridge and Underground Construction JSC


66
%


66
%Cavico Trading JSC


63
%


63
%Cavico Construction and Infrastructure Investment JSC


69
%


69
%Cavico Power and Resource JSC


76
%


76
%Cavico Transport JSC


69
%


74
%Cavico Hydropower Construction JSC


72
%


72
%Cavico Energy Construction JSC


38
%


38
%Cavico Tower JSC


33
%


34
%Cavico Industry and Technical Service JSC


62
%


65
%Cavico Manpower JSC


40
%


30
%Cavico Stone and Mineral JSC


45
%


36
%Cavico PHI Cement JSC


81
%


81
%Cavico Luong Son JSC


92
%


91
%Cavico Land JSC


15
%


13
%Cavico Son La JSC


100
%


-




41




During the years ended December 31, 2009 and 2008, the following entities were added in the consolidation.





Name of Entity

Consolidation Date

Percentage of ownership


Description of businessCavico Tower

April 01, 2008


33
%

Office for leasesCavico ITS

April 01, 2008


62
%

Steel fabrication productionCavico Manpower

April 01, 2008


40
%

Labor supply for projectsCavico Stone & Mineral

July 01, 2008


45
%

Production of white stoneCavico PHI

July 01, 2008


81
%

Cement factory operationCavico Luong Son JSC

July 01, 2008


92
%

Operation of tourism zoneCavico Land JSC

July 01, 2008


15
%

Land investment and developmentCavico Son La JSC

January 6, 2009


100
%

Stone exploitation





Cavico Mining and Construction JSC





Cavico Vietnam Mining and Construction Joint Stock Company (Cavico Mining) formerly known as Cavico Vietnam Mining and Construction Limited, was established on March 26, 2002 with principal activities in mining construction and civil construction, especially in connection with mining and dam construction, equity investments in mines, power supply plants and land development projects. On June 13, 2006 Cavico Vietnam Mining and Construction Company Limited was changed to joint stock company following Business registration Certificate issued by Hanoi Department of Planning and Investment. The Company’s share capital as stated in its Business Registration Certificate is VND 80,610,060,000 (approximately $4.5 million). Currently, Cavico Mining shares are traded over the Hochiminh City Stock Exchange.





In accordance with current rules promulgated by the Vietnam State Security Committee relating to foreign ownership of publicly traded Vietnamese entities, the Company had to reduce the ownership in this entity to 50.16% in 2006. In 2008, the Company’s percentage of ownership was reduced to 25.55% with total equity amount of $1,315,704 from 39.13% due to additional sale of ownership.





On December 11, 2009, Cavico Corp., Cavico Vietnam and Cavico Mining entered into a Stock Purchase Agreement, pursuant to which the Company and its subsidiaries agreed to purchase from Cavico Mining a total of 4,000,000 ordinary shares of Cavico Mining at Vietnamese Dong 16,894 per share (approximately $0.94 per share based on current exchange rates) in exchange for debt owed to the Company and its subsidiaries by Cavico Mining. The purpose of the acquisition of an additional 4,000,000 shares of Cavico Mining to own over 50% of Cavico Mining’s common stock was to enable the Company to include Cavico Mining in the consolidated financial statements on a going forward basis. On February 11, 2010, this Stock Purchase Agreement was consummated and Cavico Mining will be a consolidated subsidiary starting for the period ending March 31, 2010.





NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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 collectability of accounts receivable. The Company’s consolidation of the entities with less than 50% ownership, such as Cavico Energy, Cavico Manpower, Cavico Tower, Cavico Land and Cavico Stone and Mineral was based on an assumption that these entities are variable interest entities in which the Company is the primary beneficiary and will absorb more than 50% of expected losses and residual returns and has the ability to make economic decisions on behalf of  the variable interest entities.





Cash and Cash Equivalents





The Company maintains the majority of its cash at commercial banks and as cash on hand. The total cash balances in the commercial banks are insured by the state bank of Vietnam. The Company’s bank account in United States at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. 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.




42





Investment in Marketable Securities





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 actively traded 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 as other comprehensive income (loss).  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 other income.  The cost of securities sold is computed using the specific identification method.





Equity Method Investment





Investment in Cavico Mining, a joint stock company is accounted for by the equity method. Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s balance sheets or statements of operations; however, the Company’s share of the earnings or losses of the investee company is reflected in the caption “Income (loss) from investment in Cavico Mining” in the statements of operations. The Company’s carrying value in an equity method joint stock company is reflected in the caption “Equity method investment in Cavico Mining” in the Company’s balance sheets.





Accounts Receivable





The Company grants credit to customers within 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. Reserves for uncollectable amounts are provided, based on past experience and a specific analysis of the accounts, which management believes are sufficient. The Company reserves balances as follows; 100% reserve: Accounts over 365 days with no activities during the year, 15% reserve for account over 365 days with activities during the year , 10% reserve for accounts balances over 271-365 days, and  5% reserve for accounts balances in 180-270 days. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. As of December 31, 2009, the Company had a reserve for doubtful accounts of $751,940. As of December 31, 2008, the Company had a reserve for doubtful accounts of $ 227,579.





Advances





The Company advances to employees for salaries and business expenses. Since the employees traditionally choose to defer their salary payments to a later date, the Company pays the advances to employees throughout the year.  When the salary advances are not paid back, the Company has a right to offset against the salary payable amount. The advances not paid back within the agreed date are expensed or offset against the salaries payable. The advances for business expenses are charged to expenses when the employees turn in the expense report within one months from the date of expense incurred. If the advance amounts are not collectible, the Company can offset against employee payable. The Company netted against the salaries payable a total of $506,878 and $339,515 related to advances to employees during 2009 and 2008, respectively. Advances are included in Receivable-Other. During the year ended December 31, 2009 the Company expensed $107,247 from this account as uncollectable.





Prepayments to Suppliers





Prepayments to supplies include the prepayments to contractors and suppliers. The prepayment amounts are normally expensed in a short period of time as the expenses incur. The prepayments are included in receivable-other account.





Other Short Term Receivable





Other short term receivables included in Receivable-Other account consist of receivable from short term loans and deposits amounting $887,623.  The Company evaluates the collectability of these receivables and writes off the balance if it is determined to be non-collectible. As of December 31, 2009, the Company expensed $15,810 from this account as bad debt. As of December 31, 2009 and 2008, the Company has not accrued any interest on these loans.





Inventories





Inventories consist of supplies and raw materials. Supplies, such as fuel and spare parts, are carried at the weighted average cost. Raw materials are valued at lower of cost or market. The Company regularly reviews it inventory for presence of obsolescence attributed to age, seasonality, and quality. Inventories that are considered obsolete are written off or adjusted to the carrying value.





43




Work in Process





Work in process includes the costs of production such as materials, labor, overhead and interest cost on projects not yet recognized as revenue.  The interest costs included in work in process were $3,133,416 and $3,160,983 at December 31, 2009 and 2008, respectively. The Company had $3,054,564 and $3,579,799 in long term work in process at December 31, 2009 and 2008, respectively, which will be recorded as cost of goods sold when certified revenue is recognized. Reserves for uncollectible amounts are provided and are periodically reviewed for collectability and any costs not expected to have future value are written off. The Company recorded losses of $255,816 and $-0- for the years ended December 31, 2009 and 2008, respectively related to contracts for which the costs of production is higher than projected revenue.   As of December 31, 2009 and 2008, the reserves against work in process were $640,616 and $843,494, respectively.  This decrease in the reserve for work in process is due to (i) the writeoffs of work in process for projects in 2009 and (ii) after such writeoffs, a majority of the work in process balance was less than 270 days old which does not need to be reserved under the Company’s policies.The Company adjusted $332,937 as other income to account for the reduction of  reserve from the prior year amounting $165,625 and reduction of reserve for inventory in the amount of $167,312 with the difference relating to foreign currency conversion deemed immaterial . The Company determined these reserves were sufficient for both short term and long term work in process.





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 yearsMachinery and Equipment
5 to 7 yearsVehicles
3 to 10 yearsOffice Equipment
3-8 yearsComputer software
5 years





Certain machinery and equipment was collateralized for the bank notes (Note 15). The total carrying value of the collateralized machinery and equipment amounted $20,703,225 and $23,603,040 as of December 31, 2009 and 2008, respectively.


Depreciation expense for the years ended December 31, 2009 and 2008 was $4,986,536 and $4,820,554, respectively, of which $3,151,267 and $4,919,510 were included in the cost of goods sold, respectively.





Land and Building Development





Land and building development is stated at cost and includes the cost of construction and other direct costs attributable to the construction of Cavico Tower, a high rise commercial building in Hanoi which is expected to be completed at the end of 2011, and land development costs attributable to Chieng Ngan which is an urban development project in Vietnam. No provision for depreciation is made on land development until such time as the relevant assets are completed and put into use.





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. 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, 2009 and 2008, 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.





Intangible Assets





The Company reviews annually for impairment of intangible assets in accordance with ASC Topic 360, Accounting for Impairment on Disposed of Long lived Assets. In accordance with ASC 360, an impairment loss will be recognized if carrying amount of the intangible asset is not recoverable and its carrying amount exceeds its value. As of December 31, 2009 and 2008, no impairment was recorded.





Goodwill





The Company performs the impairment tests annually during the fourth quarter and more frequently when events and circumstances occur that indicate a possible impairment of goodwill. In determining whether there is an impairment of goodwill, the Company calculates the estimated fair value of the reporting unit. The Company then compares the resulting fair value to the net book value of the reporting unit, including goodwill. If the net book value of a reporting unit exceeds its fair value, the Company measures and records the amount of the impairment loss by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. As of December 31, 2009 and 2008, no impairment of goodwill was recorded.




44




Real Estate Activities





Cavico Tower’s, one of our subsidiaries,  principal business activities consist of civil and industrial construction; internal and external fitting out; land leveling and surface improvement; building leasing; real estate business; restaurants and supermarkets operation; real estate consulting; machine and equipment leasing; materials, machinery and equipment trading for construction, transport, hydropower; dealers for buying and selling goods, construction materials trading. During the year 2009 and 2008, the major activities of the Company were capital expenditures related to building construction in the amount of $1,066,299 and $1,431,912, respectively.





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.





Effective January 1, 2008, the Company reports the financial assets and liabilities at fair value as categorized in one of the following types of investments based upon the methodology for determining fair value.





Level 1 - Quoted prices in active markets for identical assets or liabilities.





Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.





Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.





The Company utilizes various approaches to measure fair value for available- for-sale securities.





Long-term Retention Receivable





Construction contracts include a two to three year warranty period that is part of the construction contract. The Company has recorded $11,400,629  and $14,042,107 as long term retention receivable at December 31, 2009 and 2008, respectively. The retention receivable is reviewed each month (at minimum each quarter) to determine if any account needs to be reserved when the collection of receivable is doubtful or when the future realization of WIP on the project into revenues is uncertain. The Company reserved for doubtful accounts of $57,157 and $369,590 as of December 31, 2009 and 2008.  Based on the collection history, the reserve for doubtful account was reduced at December 31, 2009 to approximately 0.5% of total balance. To date, the Company has not incurred any warranty costs.





Restricted Cash





The restricted cash represents deposits made by the Company while bidding on contracts.  Deposits are held at a Bank in the Company’s  name and returned to the Company whether or not contract is awarded. The restricted cash amounting $604,360 and $438,672 as of December 31, 2009 and 2008, respectively were recorded in other assets.





Income Taxes





The Company recognizes the deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. 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.




45




VAT assessed on revenues-purchases





The Company records and pays value added tax calculated under Vietnamese tax law. The amount of tax recorded in receivable and payable amount at December 31, 2009 were $378,912 and $4,197,421, respectively and $280,959 and $2,539,800 at December 31, 2008.  VAT rates for major activities are as follows: construction 10%, machine or equipment leasing 10%, stone trading 10%,  materials trading 5%.





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.





Concentration of Debts





The Company  finances a majority of its construction projects through financing arrangements  with banks in Vietnam. The banks in Vietnam are controlled by the Vietnamese government through the Ministry of Finance. The Company has good financial ratings and strong relationships with the financial institutions.





Concentration of Market





The Company’s operations are currently in the Socialist Republic of Vietnam which is a highly centralized operating environment that is tightly controlled by the Vietnamese government. Because of this concentration in a specific geographic location, the Company is susceptible to fluctuations in its business by economic or other conditions in the country. The Company is considering expanding its operations to other countries such as Laos and Algeria.





Country Risk





As the Company's principal operations are conducted in Vietnam, the Company is subject to special considerations and significant risks not typically associated with companies in the US. These risks include, among others, risks associated with the political, economic and legal environments and foreign currency exchange limitations encountered in Vietnam. The Company's results of operations may be adversely affected by changes in the political and social conditions in Vietnam, and by changes in governmental policies with respect to laws and regulations, among other things.





In addition, all of the Company's transactions undertaken in Vietnam are denominated in Vietnamese Dong (VND), which must be converted into other currencies before remittance out of Vietnam may be considered. Both the conversion of VND into foreign currencies and the remittance of foreign currencies abroad require the approval of the Vietnamese government.





Labor Union





Effective January 20, 2009, the Company’s management and employees joined in the Collective Labor Agreement pursuant to Labor Code of the Socialist Republic of Vietnam for  three year term. This agreement can be extended for one year if both parties agree. This Collective  Agreement is registered in Hanoi Department of Labor. In accordance with the collective agreement, each employee signs on the employment contract with the Company. As of December 31, 2009, the Company had no labor disputes.





Major Customers and Suppliers





The Company generated 54% and 73% of total revenues from major customers, in the years ended December 31, 2009 and 2008, respectively. During the years ended December 31, 2009, the Company had two major customers. The Company generated $17,588,952 from Electricity of Vietnam and $10,463,694 from Mien Trung HP JSC under civil construction in 2009. During the year ended December 31, 2008, the Company had two major customers. The Company generated $27,200,837 from Electricity of Vietnam and $7,896,737 from Mien Trung HP JSC under civil construction. Electricity of Vietnam was our major customer since 2003. As a civil contractor, the Company can provide civil construction work to any customer without relying on current major customer. However, based on the government plan of power development, the market of hydro power construction is expected to be in demand for next 10 years.  The accounts receivable balance for these customers at December 31, 2009 and 2008 was $14,637,061 and $12,179,055, respectively. The Company did not have long-term contracts with any of its suppliers for the years ended December 31, 2009 and 2008.




46




Revenue Recognition





The Company recognizes revenues from construction projects based upon work that is periodically certified as completed by the customer or which is virtually complete. The Company considers the title to work performed passes to the customer upon certification by the customer. Production costs, including materials, labor and subcontractor costs are allocated to revenue based upon the ratio of total costs incurred to date compared to total work to date. Costs related to work performed but not completed are included in work in progress. Any losses from damages to work in process are generally covered by the customer. Customer-furnished materials, labor, and equipment, and in certain cases subcontractor materials, labor, and equipment are included in revenues and cost of goods sold when management believes that we are responsible for the acceptability of the project by client. Contracts are not segmented between types of services such as engineering and construction, and accordingly, gross margin is recognized under construction services.


The Company recognizes uncollectible work-in- process as a contract loss in the period it is determined to be not collectible. Claims against customers are recognized as revenue upon settlement. The Company had $3,054,564 and $3,579,799 for the claims included in work-in-progress as of December 31, 2009 and 2008, respectively. In most of these claims, the work has been completed based on specification, but the pricing was not approved by the customer. During the years ended December 31, 2009 and 2008, the Company recognized $3,810,647 and $3,641,465, respectively as revenue. 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 advances from customers.





The zero profit method permits the recognition of work performed (uncertified) as revenue at zero profit. Under this method, the Company would recognize the current increases in work in process as revenue and cost of goods sold with zero profit. The Company would recognize additional revenue and expenses at zero profit of $8,321,376 and $-0-, respectively as of December 31, 2009 and 2008.





Sales revenue from commercial activities, such as sales of construction materials or steel fabrication, is recognized at the date when goods are delivered and accepted by the buyer and all significant risks and rewards relating to the ownership of the goods have been passed to the buyer.





Other Comprehensive Income





The Company reports and displays comprehensive income and its components in a full set of general-purpose financial statements. The Company’s unrealized losses of $641,095 and $1,093,320 for the years ended December 31, 2009 and 2008, respectively relate to the translation of financial statements from Vietnamese Dong to US Dollars. The Company also recorded an unrealized gain of $2,420,224 and unrealized loss of $6,352,628 on investments available for sale for the year ended December 31, 2009 and 2008, respectively. During the year ended December 31, 2009 and 2008, the Company realized $975,724 and $-0-, respectively as impairment loss for securities available for sale.





Foreign Currency Translation





All assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income gains and losses resulting from foreign currency transactions are reflected in the income statement.





Earnings (Loss) Per Share of Common Stock





Net earnings (loss) per share of common stock are 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 the years ended December 31, 2009 and 2008.





Reclassifications





Certain prior year items have been reclassified to conform to the current year presentation. These reclassifications had no impact on our consolidated financial statements.





47





Recent Pronouncements





In February 2008, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update that delayed the effective date of fair value measurements accounting for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of 2009. The Company adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have any impact on the Company’s consolidated financial statements.





The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. No impairment indicators were present during the three and nine month periods ended September 30, 2009. When impairment indicators are present, the Company utilizes various methods to determine the fair value of its non-financial assets. For example, to value property plant and equipment, we would use the cost method for determining fair value; for goodwill we would use a combination of analyzing the Company’s market capitalization based on the market price of the Company’s common stock and a determination of discounted cash flows of the Company’s operations.





Effective January 1, 2009, the Company adopted an accounting standard that requires unvested share-based payments that entitle employees to receive nonrefundable dividends to also be considered participating securities, as codified in ASC 260. The adoption of this accounting standard had no impact on the calculation of our earnings per share because the Company has not issued participating securities.





Effective April 1, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have any impact on the Company’s consolidated financial statements.





Effective April 1, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have any impact on the Company’s consolidated financial statements.





Effective July 1, 2009, the Company adopted the “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (“ASC 105”). This standard establishes only two levels of U.S. GAAP, authoritative and non-authoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of 2009. As the Codification was not intended to change or alter existing GAAP, it did not have any impact on the Company’s consolidated financial statements.





In October 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its consolidated financial statements.





48




In October 2009, the FASB issued Update No. 2009-14, “Certain Revenue Arrangements that Include Software Elements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-14”). ASU 2009-14 amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. ASU 2009-14 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its consolidated financial statements.





In December 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update for improvements to financial reporting by enterprises involved with Variable Interest Entities.  The subsections clarify the application of the General Subsections to certain legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support [FIN 46(R), paragraph 1, sequence 55.1] or, as a group, the holders of the equity investment at risk lack any one of the following three characteristics: [FIN 46(R), paragraph 1, sequence 55.2]





a.
The power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the   entity’s economic performance [FIN 46(R), paragraph 1, sequence 55.2.1]





b.
The obligation to absorb the expected losses of the legal entity [FIN 46(R), paragraph 1, sequence 55.2.2]





c.
The right to receive the expected residual returns of the legal entity. [FIN 46(R), paragraph 1, sequence 55.2.3]





The amendments in this update to the Accounting Standards Codification are the result of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R).  The adoption of this update to improving the financial reporting by enterprises involved with Variable Interest Entities, as codified in ASC 810, did not have any impact on the Company’s financial statements.





In December 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets.  The amendments in this update to the Accounting Standards Codification are the result of FASB Statement No. 166, Accounting for Transfers of Financial Assets. The adoption of this update did not have any impact on the Company’s financial statements.





Other recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present condensed consolidated financial statements.





In January 2010, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements.  The Update would affect all entities that are required to make disclosures about recurring and nonrecurring fair value measurements.  The Board concluded that users will benefit from improved disclosures in this Update and that the benefits of the increased transparency in financial reporting will outweigh the costs of complying with the new requirements.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 30, 2010, and for interim periods within those fiscal years.  The adoption of this update for improving disclosures about fair measurements, as codified in ASC 820 did not have any impact on the Company’s financial statements.





In January 2010,  the Financial Accounting Standards Board (“FASB”) issued an accounting standard update to address implementation issues related to the changes in ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards CodificationTM, originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements.Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction.





While Subtopic 810-10 provides general guidance on accounting for the decreases in ownership of a subsidiary, including a deconsolidation, some constituents raised concerns that the guidance appears to conflict with the gain or loss treatment or derecognition criteria of other U.S. generally accepted accounting principles (GAAP), such as the guidance for sales of real estate, transfers of financial assets, conveyances of oil and gas mineral rights, and transactions with equity method investees.





49




Some constituents also questioned whether the Board intended for the decrease in ownership provisions of Subtopic 810-10 to apply to all entities because a subsidiary is defined as an entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. Those constituents were concerned that such an interpretation could result in the accounting for a transaction being driven by its form rather than its substance. For example, different accounting might be applied to a transaction involving the same underlying assets depending on whether those assets were transferred in asset or entity form.” The amendments in this update are effective beginning in the period that an entity adopts Statement 160 (now included in Subtopic 810-10).  If an entity has previously adopted Statement 160 as of the date of the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the interim or annual reporting period ending on or after December 31, 2009.  The amendments in this update should be applied retrospectively to the first period that an entity adopted 160.  The adoption of this update for the changes in the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary, as codified in ASC 810-10, did not have any impact on the Company’s financial statements.





Other recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present condensed consolidated financial statements.





NOTE 3-
RECEIVABLE – OTHER





Other receivables at December 31, 2009 and 2008 by major classification were comprised of the following:





2009


2008Advances

$
1,364,426


$
2,934,532Prepayments to suppliers


8,298,235



2,169,684Other short-term receivable


887,623



1,984,013Total

$
10,550,284


$
7,088,229





The advances to employees consist of salary advances to employees, loans to employees, and advances to employees for business related expenses.  Under Vietnamese culture, some wages to employees are paid during the national holidays and other times of year. As of December 31, 2009 and December 31, 2008, the related payables to employees were $4,215,547 and $3,890,975. For many of Cavico’s construction employees, accrued wages are paid at the national holidays when workers can return home.  Salary advances area made to these employees during the year for living expenses.





The amount of prepayment to suppliers has significantly increased at December 31, 2009 compared to 2008. The Company commenced new construction contracts that require the Company to pay its suppliers in advance during the year 2009. As the contract progresses, the prepayments are expensed over the contract term.





NOTE 4-
INVENTORY





Inventories at December 31, 2009 and 2008 by major classification, were comprised of the following:





2009


2008Goods in transit

$
589,122


$
593,574Material and supplies


2,456,457



2,456,948Tools, instruments


106,666



49,356Merchandises


968,585



495,842Inventory reserve


(6,755
)


(175,338
)Inventory – net

$
4,114,075


$
3,420,382





The reserve for inventory was evaluated as of December 31, 2009 based on the analysis of aging and movement of inventory. As a result, the reserve for inventory was reduced by $168,583 as less than 1% of the inventory is over 180 days old.  The Company determined that the reserve for inventory is adequate at December 31, 2009.





50




NOTE 5- OTHER CURRENT ASSETS





Other current assets at December 31, 2009 and  2008 by major classifications were comprised of the following:





2009


2008Prepaid loan interest

$
15,373


$
282,690Other prepaid expenses


608,295



216,781Tools and instruments


679,313



400,256Deductible Value Added Tax


382,132



280,962Other current assets


520,802



242,993TOTAL

$
2,205,915


$
1,423,682





Tools and instruments which do not meet the accounting policy to be classified in property and equipment are included in other current assets and amortized over 12 months. These amounts were $1,054,078 and $1,015,569 for the year ended December 31, 2009 and, 2008, respectively and are amortized over 2 to 4 years. The remaining non-current prepaid expenses of $552,875 and $710,092 as of December 31, 2009 and 2008 are amortized over 2 to 4 years based on the benefiting periods. The Company recognized amortization expenses of $1,435,806 and $891,285 from these non-current prepaid expenses for the year ended December 31, 2009 and 2008, respectively.





NOTE 6 – INVESTMENTS IN NON-CONSOLIDATED COMPANIES AND JOINT STOCK COMPANYIES





Equity Method Investment — Cavico Mining and Construction JSC





The Company’s investment amount is $1,239,851 and $1,461,292 as of December 31, 2009 and 2008, respectively. The Company’s share of income and losses is 25.55% as of December 31, 2009 and 2008. During the years ended December 31, 2009 and 2008, the Company recorded loss of $141,477 and income of $130,131, respectively as its proportionate share of income (loss) in the joint stock company.





The following is the condensed financial position and results of operations of Cavico Mining as of and for the years ended presented below:





December 31,


December 31,2009


2008Financial position:Current assets

$
15,017,000


$
11,774,000Property and equipment, net

$
3,444,000


$
4,538,000Total assets

$
21,313,000


$
19,058,000Liabilities

$
14,938,000


$
11,447,000Equity

$
6,375,000


$
7,611,000Operations:Net revenue

$
8,987,000


$
9,167,000Expenses

$
(9,741,000
)

$
(8,624,000
)Interest income

$
317,000


$
143,000Net income

$
(506,000)


$
589,000





The above financial information does not include any inter-company adjustments.





51




Investment in companies, cost method;





Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statement of operations. However, impairment changes are recognized in the consolidated statement of operations. The Company classifies as “Investments, cost method” 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. These investments are in private companies, which are carried at the lower of cost or net realized value. The estimated aggregate fair value of these investments approximated their carrying amount. The fair value of these investments were estimated based on a combination of the most recent financing and securities transactions and on other pertinent information, including financial condition and operating results of the investees. These investments are initially recorded at cost and reviewed at the end of each quarter for other than temporary impairment and discloses the impairment when the fair value of the investment is less than 95% of the amortized cost and has been in a continuous unrealized loss position for more than 12 months or at any time when immediate impairment is apparent. The review for impairment procedures include review of the financial reports, discussion with the investee’s officers, on-site visit, trends and prospects, relevant economic factors and review of investee company operations on website, if available. The Company determined that the impairment was temporary for some investments whose fair values were measured below the cost. Therefore, as of December 31, 2009 and 2008, no impairment was necessary. The Company invested $386,111 and $131,591 in various companies during 2009 and 2008, respectively.





During the year ended December 31, 2009, the Company withdrew its investments of $67,739 in Agriculture Construction Corporation, $80,422 in Nam Viet Investment and Consultant JSC,  $19,545 in Lilamavico Joint Venture and recorded $28,561 loss on the sale of the investments. During the year ended December 31, 2009, one of our investees, Vietnam Power Investment and Development JSC became public and was reclassified to available for sale security. During the year ended December 31, 2008, we withdrew our investment of $124,116 in Vietravico as this company was not formed and received our investment back. There was no sale of investments during the year ended December 31, 2008.





The cost basis at December 31, 2009 and 2008 and the fair value at December 31, 2009 consisted of the following:





2009


2008


Fair Value at

Dec 31,20091. Agriculture Construction Corporation

$
-


$
67,739


$

(a)2. Tour Zones Investment and Construction JSC  *


553,436



581,610



385,312
(b)(e)3. Vietnam Power Investment and Development JSC *


-



238,3894. Mai Son Cement Joint Stock Company


434,758



459,445



539,870
(b)5. Van Chan Hydropower Company


27,869



29,452



(a)6. Ha Tay Investment and Development JSC


13,377



14,137



(a)7. Businessman Culture Development JSC


27,869



29,452



(a)8. Vietnam Media Financial JSC


108,037



114,172



108,162
(b)9. Vietnam Industry Investment and Construction JSC


55,738



58,903



(a)10. Nam Viet Investment and Consultant JSC


-



80,422



(a)11. Sao Mai-Ben Dinh Petrolium Investment JSC


557,383



589,032



674,203
(b)12. IDICO Industry Zone Investment Development JSC


8,361



8,835



(a)13. Vietnam Power Development JSC


55,738



58,903



(a)14. IDICO Long Son Petroleum Industry Zone Investment


111,477



117,806



179,206
(b)15. Nhan Tri JSC


13,935



14,726



(a)16. North and South Investment Development JSC


5,574



5,890



(a)17. Lilamavico Joint Venture


-



19,545



(a)18. Vietnam Design JSC


15,049



15,904



(a)19. Song Tranh Hydropower JSC


2,787



2,945



(a)20. Kasvina JSC


102,124



75,526


125,524
(c)21. Vietnam Anti-counterfeit and trading promotion JSC


11,148



11,781



(a)22. Song Thanh Hydropower JSC


27,869



-23. MuongHom Mining JSC


354,848



-



(d)24. Ha An Trading Industry Ltd


3,394



-25. Others


4,765



4,977



(a)TOTAL

$
2,495,536


$
2,599,592


* Related entity by common directors.





(a) For investments under $100,000, the Company reviews all available general financial information to determine if impairment is necessary.  It was not practical to measure the fair value.





(b) Fair value was calculated using average PE ratios and expected income estimated based on average rate of return on assets and discounted at 40% in comparable public companies in the same industry in Vietnam as these companies were in various stages of startup.





52





(c) Fair value was calculated using average PE ratios and expected income estimated based on average rate of return on equity discounted at 40% in comparable public companies in the same industry in Vietnam as this company is in the development phase. Using average rate of return on assets in the comparable companies resulted in higher fair value.





(d) It was not practical to measure the fair value of this company since the financial statements were not available as the company is in the process of formation.





(e) The decrease in fair value less than 95% of investment, using average PE ratios and expected income based on average rate of return on assets from comparable companies, was less than 6 months. Using net present value of expected cashflow, the fair value is estimated to be $569,295.





NOTE 7- INVESTMENTS, AVAILABLE FOR SALE





Assets measured at fair value on a recurring basis are summarized below. The Company has no financial liabilities measured at fair value on a recurring basis.





December 31, 2009

Level 1


Level 2


Level 3


TotalAvailable-for-sale securities

$
1,062,433


$
1,649,479


$
-


$
2,711,912





Available- for- sale securities consisted of the following at December 31, 2009:





CommonStock:

Number of

shares


Cost


Fair Value


Accumulated

unrealized

gain/(loss)PHI Group, Inc. (formerly Providential Holdings, Inc.)


2,000,000


$
60,000


$
120,000


$
60,000Habubank Stock*


659,995



574,735



459,837



(114,898
)Vinavico*


470,200



632,511



786,244



153,733Vietnam Growth Investment Fund (VF2)*


2,000,000



1,131,487



869,181



(262,306
)Military Bank Stock


215,332



363,893



320,460



(43,433
)Vietnam Power Investment and Development**


389,194



225,580



156,190



(69,390
)Total Securities





$
2,988,206


$
2,711,912


$
(276,294
)


* Collateral for notes payable





** This company became public in July 2009, quoted under symbol VPC at UPCOM – HaNoi Stock Exchange.





The Company’s short-term investments comprise equity and debt securities, all of which are classified as available-for-sale securities. These securities are carried at their fair market value based on either quoted market prices of the securities, and/or trading prices of over the counter market. VF2 securities were measured by HSBC Bank at December 31, 2009.  Net realized gains and losses are included in net earnings while unrealized gains and losses are included in other comprehensive income for available for sale securities. For purpose of determining realized gains and losses, the cost of securities sold is based on specific identification. The Company reviews the securities for possible other than temporary impairment when the fair value of security is less than 95% of the amortized cost and has been in a continuous unrealized loss position for more than 12 months.  If the investment market value has been less than 75% of cost longer than 12 months, impairment will be recognized to reduce the value of investment to the market value unless immediate impairment is apparent. For PHI Group, Inc., the market value of these securities had declined by 40% and due to poor financial results  it was determined that Company’s would not recover its original cost of the investment at December 31, 2009.  In addition, Habubank Stock had a significant decline in the market value by 61% and due to poor finance industry market in Vietnam, the recovery of the original cost of the investment was not anticipated at December 31, 2009. Based on the evaluation of the securities’ fair value, the Company wrote down $40,000 for PHI Group, Inc. and $935,724 for Habubank Stock as these reductions appeared to be other than temporary as these securities were in unrealized loss position for more than 12 months. These impairment changes were recognized in the consolidated statement of operations.  The Company’s determination for impairment on  the available-for-sale securities are based on evaluations of performance indicators of the underlying assets in the securities, industry analyst reports, volatility of the securities’ fair value and other relevant information.





During the year ended December 31, 2009, the Company sold 300,000 shares of Military Bank and 29,995 shares of Habubank. The company recorded $143,634 loss on the sale of the securities using average cost method. The Company purchased 159,525 shares of Military Bank during the year ended December 31, 2009.





53




Available-for-sale securities consisted of the following at December 31, 2008:





CommonStock:

Number of

shares


Cost


Fair Value


Accumulated

unrealized

gain/(loss)Providential Holdings, Inc.


2,000,000


$
100,000


$
40,000


$
(60,000
)Habubank Stock


630,000



1,549,155



332,230



(1,216,925
)Vinavico


470,200



668,427



340,223



(328,204
)Vietnam Growth Investment Fund (VF2)


2,000,000



1,195,735



685,553



(510,182
)Military Bank Stock


355,807



828,589



296,724



(531,865
)Military Bank Bond


150,700



133,145



125,676



(7,469
)Total Securities





$
4,475,051


$
1,820,406


$
(2,654,645
)





The Company recorded $439,934 loss using average method on sales of marketable securities during the year ended December 31, 2008.





NOTE 8 – INTANGIBLE ASSETS





Intangible assets consist of goodwill and licenses for land use rights.  Net intangible assets at December 31, 2009 and 2008 are as follows:





2009


2008Goodwill

$
727,073


$
767,004Amortizable Intangible Assets:Licenses for land use rights


313,149



330,930Less Accumulated amortization


(57,274
)


(29,046
)Amortizable Intangibles, net


255,875



301,884Total Intangible Assets

$
982,948


$
1,068,888





The Company recorded goodwill when the Company purchased stock at a premium from the minority shareholders in its subsidiaries, These stock purchases were accounted for using purchase  method. The changes in goodwill was resulted in fluctuation of  foreign exchange rates between 2008 and 2009. The Company has license for land use rights from Hanoi Home Investment and Development Department and City of Hanoi. The land use rights are amortized over a period of 50 years. Amortization expenses for the Company’s intangible assets for the years ended December 31, 2009 and 2008 were $26,675 and $32,065, respectively.





NOTE 9- OTHER ASSETS





Other assets consist of deposits and other assets. Other assets at December 31, 2009 and 2008 are as follows:





2009


2008Deposits

$
1,037,813


$
438,672Other long-term receivable


1,092,236



264,631Total

$
2,130,049


$
703,303





The increase in other assets in 2009 was mainly due to an increase in long-term loans receivable reclassified from advances by $693,801. This reclassification of the advances account which was included in Receivable-other from current asset to other long term receivable was made for the loans receivable from employees with maturity dates more than one year. No reserve was made on this receivable balance since the Company has a right to offset against the salary payable amount if the balance is not collected upon maturity.  Deposits made by the Company for bidding on contracts are held at a Bank in the Company’s  name and returned to the Company whether or not the contract is awarded. The restricted cash amounting to $1,037,813 and $438,672 as of December 31, 2009 and 2008, respectively were recorded in other assets. The increase in deposits resulted from increased deposits for new contract bids in 2009 and a deposit of $263,848 to an open credit line for trading activities.





54


.





NOTE 10 – ACCRUED EXPENSES





Accrued expenses consisted of the following at December 31, 2009 and 2008:




2009


2008Accrued interest

$
647,906


$
546,409Accrued taxes


5,610,411



3,481,356Other accrued Expenses


464,326



176,200TOTAL

$
6,722,643


$
4,203,965





NOTE 11 – ADVANCES FROM CUSTOMERS





Advances from customers represent the payments received from customers on the contract on which the work has not been performed or reduced by billed amount. As of December 31, 2009 and 2008, the Company had current balances of $6,887,558 and $3,762,026, respectively and long-term amount of $10,858,809 and $10,652,992 as of December 31, 2009 and 2008, respectively.





NOTE 12 – PAYABLE TO EMPLOYEES





It is customary in Vietnam that some wages to employees are paid during the national holidays and other times a year. As of December 31, 2009 and 2008, the payable to employees were $4,215,547 and $3,890,975.  The Company recorded payroll expenses for salaries and wages of $2,505,291 and $2,313,399 in administration expenses and of $10,207,140 and $5,832,455 in cost of goods sold for the years ended December 31, 2009 and 2008, respectively.





NOTE 13-  CAPITAL LEASE OBLIGATIONS





The Company is a lessee of certain equipment under capital leases that expire on various dates through September 2014. Terms of the leases call for quarterly payments from $1,944 to $10,407 at implicit interest rates of 12% 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, 2009 are as follows:





2010

$
435,5402011


401,1762012


325,5182013


220,7922014


73,774Total minimum lease payments


1,456,800Less: amount representing interest


(308,966
)Present value of net minimum lease payments


1,147,834Less: current portion


(289,199
)Long-term portion

$
858,635





The following is an analysis of the equipment under capital leases as of December 31, 2009 and 2008, which is included in property and equipment:





2009


2008Equipment and vehicles

$
1,653,823


$
489,405Less accumulated depreciation


(153,845
)


(24,345
)Net

$
1,499,978


$
465,060





Depreciation expenses on the equipment under capital leases for the years ended December 31, 2009 and 2008 were $129,500 and $36,575 respectively.





55





NOTE 14 – RENTAL OF VEHICLES





The Company generated income from rental of vehicles. The vehicles rented of available for rental as of December 31, 2009 and 2008 are as follows:





2009


2008Vehicles

$
47,477


$
50,173Less accumulated depreciation


(38,622
)


(33,648
)Net

$
8,855


$
16,525





The company and its subsidiaries did not have any rental revenue from non-cancelable leases.





Cancelable rentals included in income for the years ended December 31, 2009 and 2008 are $7,110 and $4,961, respectively.





NOTE 15 - COMMITMENTS AND CONTINGENCIES





Operating Rental Leases





The Company leases its office and warehouse facilities in Hanoi, Vietnam from various lessors under operating leases that require minimum monthly payments of approximately $41,400.  The leases, which require the Company to pay property taxes and maintenance,  expire on December 31, 2010, January 23, 2011, October 25, 2011, November 1, 2011 and April 15, 2016. For the years ended December 31, 2009 and 2008, building rent expenses were $483,112 and $420,691, respectively.





The Company’s principal executive offices in the United States are leased on a month to month basis which is included in a monthly management fee of $2,000 which includes use of office space, equipment and administrative services. These offices are made available to the Company under the terms of a Management Services Agreement dated May 15, 2006, with PHI Group, Inc. For the years ended December 31, 2009 and 2008, the Company recorded management fees of  $24,000 for each year.





Future minimum operating lease payments for long term operating leases are as follows:





Year Ending December 31,

Total Lease2010

$
497,1122011

$
82,4452012


48,0002013


48,0002014


48,000Thereafter


62,000Total

$
785,557





Long term land lease





Cavico Tower, a subsidiary of the Company has a land lease agreement which expires year 2055 in Hanoi.  The annual lease payment is $2,953.  Future minimum  lease payments relating to this lease are as follows:





Year Ending December 31,

Total Lease2010


2,9532011


2,9532012


2,9532013


2,9532014


2,953Thereafter


121,073Total

$
135,838





Environmental Remediation Costs





The Company had no environmental remediation obligation under the current regulation in Vietnam as of December 31, 2009 and 2008.




56





Tax Liabilities





The Company filed its tax returns based on the subsidiaries’ income and loss. The final tax liability will be determined by the tax authority of Vietnam.





Litigation





The Company may be involved from time to time in various claims, lawsuits, and disputes with third parties, actions 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.





Credit Limit onNotes





The Company maintains approximately $45.3 million in short term lines of credit with various banks. The average interest rate on these lines of credit is 11.4%, although it may vary based on market conditions. These credit lines mature throughout 2009 and management expects to renew and extend its credit lines as they become due. As of December 31, 2009 and 2008, the outstanding balances were $33,606,015 and $27,213,250, respectively.





Contract under Guarantee





The Company has several contracts under guarantee.  These guarantees are made through the banks to meet certain conditions under the contracts with customers. The Company pays the guarantee fees to banks, normally 1.0% to 2% annually of guaranteed amount. These fees are recorded in general and administrative expenses. For the years ended December 31, 2009 and 2008, these fees totaled $321,639 and $347,168, respectively.





The Company has guaranteed a loan with line of credit for approximately $3.8 million and $5.6 million for Cavico Mining, an equity investment entity, as of December 31, 2009 and December 31, 2008, respectively. The loan balances as of December 31, 2009 and December 31, 2008 were $3,337,129 and $2,128,859, respectively. The Company also had a receivable from Cavico Mining for $7,070,665 and $3,826,533 as of December 31, 2009  and December 31, 2008, respectively and payable to Cavico Mining for $1,190,716 and $155,347 as of December 31, 2009  and December 31, 2008, respectively.





NOTE 16 - NOTES PAYABLE


Notes payable consisted of the following at December 31, 2009 and 2008:




2009


2008Notes payable to Hanoi Building Commercial Joint Stock Bank*, unsecured, annual interest rates ranging from 10.5% to 12%, maturity dates ranging from January 21, 2010 to  December 31, 2010.

$
5,570,194


$
5,721,798Notes payable to Hanoi Building Commercial Joint Stock Bank, secured by machinery and equipment, annual interest rate of 10.5%, matures on August 15, 2010 and June 25, 2012


125,132



1,452,718Notes payable to Agribank - Eastern Hanoi Branch*, unsecured, annual interest rate of 10.5% and 11.5%, matures on August 31, 2010 and September 28, 2012.


3,728,889



3,571,408Notes payable to Agribank - Tu Liem Branch*, unsecured, annual interest rates ranging from 10.5% to 12%, maturity dates ranging from January 11, 2010 to November 22, 2010.


5,501,474



5,359,843Notes payable to Agribank - Tu Liem Branch, secured by machinery and equipment, annual interest rate of 12%, matures on April 16, 2012


780,001



830,801Notes payable to Military Commercial Joint Stock Bank*, secured by machinery, equipment, annual interest rate of 10.5%, matures on June 28, 2010 and July 14, 2010.


1,011,468



837,859Notes payable toMilitary Commercial Joint Stock Bank, secured by machinery, equipment, annual interest rates ranging from 10.5% to 15%, maturity dates ranging from December 31, 2010 to  May 17, 2017


2,715,668



3,187,975Notes payable to North Asia Commercial Joint Stock Bank - Nghe An Branch, secured by VF2 Fund Certificate, annual interest rate of 12.75%, matures on December 31, 2009, Currently negotiating to extend maturity date to June 30, 2010


1,950,839



2,061,612Notes payable to Agribank - Northern Hanoi Branch*, unsecured, annual interest rates ranging from 10.5% to 12%,  maturity dates ranging from January 22, 2010 to October 29, 2010.


9,841,978



9,679,137





57




Notes payable to Agribank - Northern Hanoi Branch, secured by machinery and equipment, interest rate of 10.5% and 11.5%, maturity dates ranging from October 25, 2010  to September 11, 2013.


1,091,268



1,103,440Notes payable to Agribank - Southern Hanoi Branch, secured by machinery and equipment, annual interest rate of 18%, matures on December 17, 2009.


-



493,756Notes payable to BIVD – Son La Branch*,unsecured, annual interest rate of 12%, matures on September 21, 2010.


26,369



186,085Notes payable to BIVD – Son La Branch, secured by machinery and equipment, annual interest rate of 10.5%, matures on August 8, 2010.


38,627



77,576Notes payable to Agribank - Hoang Mai Branch*, unsecured,  annual interest rate of 10.5%, matures on April 24, 2010 and June 30, 2010


4,867,475



3,715,132Notes payable to Agribank-Hoang Mai Branch, secured by machinery and equipment, annual interest rate of 10.5%, matures on September 7, 2012.


2,166,399



1,938,877Notes payable to Saigon Commercial JS Bank, secured by machinery and equipment, annual interest rate of 13.2%, matured on November 1, 2009, paid off on February 5, 2010.


62,892



125,366Notes payable to BIDV - North Hanoi Branch, secured by machinery and equipment, annual interest rate of 10.5%, matures on March 25, 2012


514,666



676,423Notes payable to VID Public Bank*, unsecured, annual interest rate of 10.5%, matures on June 10, 2010


2,787



8,835Notes payable to Housing Development Bank*, unsecured, annual interest rate of 10.5%, matures on September 14, 2012


26,113



37,845Notes payable to Vinashin Financial Company*, unsecured, annual interest rate of 10.5%, matured on January 7, 2010, paid off on April 5, 2010.


557,383



589,032Notes payable to Petroleum Financial Company*, unsecured, annual interest rate of 10.8%, matured on December 31, 2008..


-



543,264Notes payable to Petroleum Financial Company , secured by machinery and equipment, annual interest rate of 10.5%, matures on March 18, 2010. Currently negotiating to extend maturity date to June 30, 2010.


40,277



127,693Notes payable to Vietnam Development Bank - Thua Thien Hue Branch, secured by machinery and equipment, annual interest rate of 10.08%, matures on April 23, 2010.


1,672,148



1,178,064Notes payable to Thang Long Securities JSC, secured by stock of subsidiaries, annual interest rate of 17.4%, matures on March 18, 2010


65,034



618,484Notes payable to Agribank – Hoang Quoc Viet branch*, unsecured, annual interest rate ranging from 10.5% to 12%, maturity dates ranging from January 8, 2010 to November 30, 2010.


5,733,534



4,492,027Notes payable to Agribank – Hoang Quoc Viet branch, secured by machinery and equipment, annual interest rate of 10.5%, matures on December 31, 2011 and July 31, 2012.


932,966



1,269,198Notes payable to Agribank - Muong La branch*, unsecured, annual interest rate of 10.5%, matures on June 23, 2010


389,792



200,271Notes payable to Global Petrolium JS Bank, secured by machinery and equipment, annual interest rate of 10.5%, matured on December 16, 2009, paid off on March 29, 2010.


40,620



47,123Notes payable to Techcombank, secured by machinery and equipment, annual interest rate of 10.5% and 15.2%, matures on October 27, 2011 and April 3, 2012.


69,208



84,781Notes payable to AnBinh JS bank, secured by machinery and equipment, annual interest rate of 10.5%, matures on July 20, 2011


28,751



14,726Notes  payable to SEA bank – Dong Da branch, secured by machinery and equipment, annual interest rate of 10.5%, matures on June 1, 2012.


57,768



-Notes  payable to Vietnam-Russia JV Bank, unsecured, annual interest rate of 10.5%, matures on February 23, 2009 and June 26, 2010. Currently negotiating to extend maturity date to April 30, 2010.


1,835,140



-





58





Notes  payable to Eastern Bank – Khanh Hoa, unsecured, annual interest rate of 10.5%, matures on January 21, 2010


282,660



-Notes  payable to VietinBank – Ha noi, secured by machinery, annual interest rate of 10.5%, matures on July 4, 2010 and September 23, 2012


176,969



-Notes  payable to VIB – Lam Dong, unsecured, annual interest rate of 10.5%, matures on December 31, 2010


274,529



-Notes payable to various individuals, unsecured, annual interest rates ranging from 12% to 16.8%, matures on December 31, 2010 and December 31, 2012


7,936,194



4,305,481Total Notes Payable

$
60,115,212


$
54,536,630ST Note payable and current portion of LT notes, weighted average interest rates of 11.4% for 2009 and 15.7% for 2008

$
54,740,704


$
46,813,145Long-term Notes Payable

$
5,374,508


$
7,723,485





*  The bank must approve all funding and controls the use of funds.





Future maturities on long-term debt as of December 31 are as follows:




2010

$
54,740,7042011


2,424,9802012


1,580,7792013


520,1602014


263,085Thereafter


585,504$
60,115,212





As of December 31, 2009, the amounts of long-term and short term notes payable are stated at contract amounts which approximate fair value based on current interest rates of Vietnam.





NOTE 17 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





The Company had loans receivable in the amounts of $194,634 and $334,196, short term advances of $790,049 and $714,658 and long-term advances of $55,738 and $0 from various officers and directors of the Company as of December 31, 2009 and 2008, respectively. The loans to officers were made with no interest, not secured and due on demand.





The Company had other payables of $9,896 and $20,520 to officers and directors of the Company as of December 31, 2009 and 2008, respectively.





The Company had loans payable to officers and directors of $220,091 and $208,667 as of December 31, 2009 and 2008, respectively. These loans are unsecured, and due on demand with annual interest from 12% to 24%.





The Company has investments, which are accounted for on the cost method, in Vietnam Power Investment and Development, JSC and Tour Zones Investment and Construction JSC (Note 6). These entities share common directors with the Company.





The Company has guaranteed a loan with line of credit for approximately $3.8 million and $5.6 million for Cavico Mining, an equity investment entity, as of December 31, 2009 and December 31, 2008, respectively. The loan balances as of December 31, 2009 and December 31, 2008 were $3,337,129 and $2,128,859, respectively. The Company also had a receivable from Cavico Mining for $7,070,665 and $3,826,533 as of December 31, 2009  and December 31, 2008, respectively and payable due to Cavico Mining for $1,190,716 and $155,347 as of December 31, 2009  and December 31, 2008, respectively.





NOTE 18 - STOCKHOLDERS’ EQUITY





On August 19, 2009, the Company affected a reverse stock split on a 40-for-1 basis. The effect has been reflected retroactively in the historical financial statements.




59




Preferred Stock





The Company has 25,000,000 authorized shares of blank check Preferred Stock with $0.001 par value. As of December 31, 2009 and 2008, no shares of Preferred Stock were issued and outstanding.





Common Stock





The Company has 300,000,000 authorized shares of Common Stock with $0.001 par value. As of December 31, 2009 and 2008, 3,274,942 shares were issued, 3,047,795 shares were outstanding.





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.





During the year ended December 31, 2008, the Company issued 1,250 shares of common stock for legal services and 2,500 shares of common stock for consulting services. The total fair market value of these shares on date of issuance was $84,750.





During the year ended December 31, 2008, the Company sold 125,000 shares of common stock for cash at a price of $2.40 per share and received $300,000.





2008 Stock Compensation Plan





In March 2009, the Board approved the 2008 Stock Award and Incentive Plan which was subsequently approved by at a special meeting of shareholders on April 27, 2009.  The purpose of this Stock Award and Incentive Plan is to give the Company a competitive advantage in attracting, retaining, and motivating officers, employees, directors, and consultants and to provide us with an incentive plan that gives officers, employees, directors, and consultants financial incentives directly linked to shareholder value.





The maximum number of shares that may be issued pursuant to incentive stock options granted under the plan is 1,250,000.  The maximum number of shares of our common stock that may be issued per individual pursuant to awards granted under the Stock Award and Incentive Plan is 125,000. Options may be of two types: Incentive Stock Options and Nonqualified Options. The Award Agreement for an Option shall indicate whether the Option is intended to be an Incentive Stock Option or a Nonqualified Option; provided,that any Option that is designated as an Incentive Stock Option but fails to meet the requirements, and any Option that is not expressly designated as intended to be an Incentive Stock Option will be treated as a Nonqualified Option. The option exercise price per share will be determined by the Committee and set forth in the applicable Award Agreement, and will not be less than the Fair market value of a share of the Common Stock on the applicable grant date.  The term of each option will be fixed by the Committee, but will not exceed 10 years from the grant date.  Options will be exercisable at terms and conditions determined by the Committee.





The Committee can issue Restricted Stock certificates to participant with an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award with a condition for the vesting or transferability of an Award of Restricted Stock upon the continued service of the applicable participant or the attainment of performance goals. The conditions for grant, vesting, or transferability and the other provisions of Restricted Stock Awards need not be the same with respect to each participant. The participant will have, with respect to Shares of Restricted Stock, all of the rights of a shareholder of the Company holding the class or series of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any dividends and other distributions.





As of the issuance date of the report, there are no awards granted under the Stock Award and Incentive Plan.





NOTE 19- INCOME TAX





Pursuant to the tax laws of Vietnam, general enterprises are subject to income tax at an effective rate of 25%. Each subsidiary files a separate tax return in Vietnam.





In addressing the realizability 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.





60




The principal components of the Company’s income tax provision at December 31, 2009 and 2008 are as follows:





2009


2008Current Taxes:US Federal

$
-


$
-US State


-



-Vietnam


447,295



(2,392,347
)Total

$
447,295


$
(2,392,347
)Deferred Taxes:US Federal


-



-US State


-



-Vietnam


-



-Total

$
-


$
-





The principal components of the Company’s deferred tax assets at December 31, 2009 and 2008 are as follows:





2009


2008U.S. operations loss carry forward at statutory rate

$
1,049,976


$
626,590Non-U.S. operations loss carry forward at statutory rate


1,694,393



1,318,920Total

$
2,744,369


$
1,945,510Less Valuation Allowance


(2,744,369
)


(1,945,510
)Net Deferred Tax Assets

$
-


$
-Change in Valuation allowance

$
798,860


$
65,077





A reconciliation of the statutory federal and state tax in the United States and Vietnam income tax rates to the Company’s effective tax rates is as follows:





2009


2008Tax on income/loss using federal income tax rate

$
(1,713,668
)

$
(332,187
)Foreign tax rate difference


453,618



58,621Permanent difference


2,506,205



844,624PY accrual reversed in CY


-



(2,898,328
)Change in valuation allowance


(798,860
)


(65,077
)Total

$
447,295


$
(2,392,347
)





At December 31, 2009 and 2008, the Company had net operating loss carry forwards from US operation of $3,088,164 and $1,842,911, respectively. Since the Internal Revenue Code limits the availability of net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company, the Company reserved 100% of the losses from US operation as this tax asset will not be realized.





At December 31, 2009 and 2008, the Company had net operating loss carry forwards from Vietnam of approximately $6,777,574 and $4,710,427, respectively, which were derived from subsidiaries with operating losses and will be available to offset future taxable income.





These net operating loss carry forwards expire through year 2015. 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.





During the year ended December 31, 2008, the Vietnamese tax authorities determined that the Company’s tax obligation was lower than the Company’s originally estimated amount. The Company estimates the tax obligation based on 28% under Vietnamese law. During 2008, the Company recorded a tax benefit of $2,898,328 which was offset against the 2008 tax expense of $551,396. The Company uses a gross method to estimate the Company’s tax obligation assessed by Vietnam governmental authorities on sales in the income statement.





NOTE 20- SEGMENT REPORTING





The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.





61





Following is a summary of segment information for the year ended December 31, 2009:





Civil


CommercialConstruction


Activities


Unallocated


TotalSales

$
52,575,960


$
8,514,762


$
-


$
61,090,722Operating income/(loss)


(81,055
)


139,758



(1,623,499
)


(1,564,796
)Total Assets


86,352,883



6,926,933



22,585,166



115,864,982Capital Expenditure


6,742,507



356,094



12,570



7,111,171Interest Income


-



-



413,741



413,741Interest Expense


169,108



600,778



1,833,800



2,603,686Depreciation/Amortization


4,695,724



60,847



229,965



4,986,536





Following is a summary of segment information for the year ended December 31, 2008:





Civil


CommercialConstruction


Activities


Unallocated


TotalSales

$
47,501,672


$
4,435,264


$
-


$
51,936,936Operating income/(loss)


3,750,877



(80,161
)


(2,708,844
)


961,872Total Assets


47,157,104



4,686,363



47,657,423



99,500,890Capital Expenditure


9,539,869



289,119



2,036,510



11,856,498Interest Income


-



-



912,430



912,430Interest Expense


63,032



436,532



2,034,498



2,534,062Depreciation/Amortization


4,633,894



77,997



108,663



4,820,554





NOTE 21 – OFFERING





On January 12, 2009, the Company engaged Rodman & Renshaw, LLC as the Company’s exclusive advisor in connection with the proposed Offering or any other debt or equity financing for a term of 12 months. The Offering consists of  sale of approximately $15 million worth of common stock of the Company. The Underwriting Agreement provides that the Company will grant to Rodman an option, exercisable within 45 days after the closing of the Offering to acquire up to an additional 15% of the total number of shares to be offered by the Company in the Offering to cover over-allotments. The Company paid $25,000 advance which will be applied against the non-accountable expense allowance equal to 1% of the public offering price. In addition, Rodman is entitled to the delivery of $100 option, if requested, at closing to purchase additional shares of common stock equal to 5% of the total number of shares sold pursuant to the Offering. The Underwriter’s option will be exercisable during the four year period commencing one year from the closing at the price per share equal to 125% of the public offering price per share at the Offering. The Underwriter’s warrant will provide for registration rights and customary anti-dilution provisions. As of this date, the Offering has not been closed.





NOTE 22 – SUBSEQUENT EVENT





On February 11, 2010, the Securities Purchase Agreement between the Company, Cavico Vietnam, the Company’s wholly-owned subsidiary, and Cavico Mining and Construction JSC (“Cavico Mining”), to purchase a total of 4,000,000 shares of Cavico Mining at VND16,894 per share, which is approximately $0.94 per share based on current exchange rates, in exchange for debt owed to Cavico and its subsidiaries by Cavico Mining,  was consummated. The purpose of the acquisition of an additional 4,000,000 shares of Cavico Mining to own over 50% of Cavico Mining’s common stock was to enable the Company to include Cavico Mining in the consolidated financial statements on a going forward basis.





The following table presents summary unaudited pro forma consolidated financial data for the years ended December 31, 2009 and 2008 that give effect to the purchase of a controlling interest in Cavico Mining . The unaudited pro forma consolidated statement of operations data for the year ended December 31, 2009 and 2008 give effect to the Cavico Mining Acquisition as if it had occurred at the beginning of the respective years, and the unaudited pro forma consolidated balance sheet data at December 31, 2009 give effect to the Cavico Mining Acquisition as if it had occurred on December 31, 2009.




62





Pro Forma Statement of Operations Data Summary:





Pro Forma

Year Ended

December 31,

2009


Year Ended

December 31,

2009


Pro- Forma

Year Ended

December 31,

2008


Year Ended

December 31,

2008(unaudited)





(unaudited)Sales

$
62,895,075


$
61,090,722


$
58,006,269


$
51,936,936Cost of sales


56,185,961



55,303,582



48,712,916



44,402,887Gross Profit


6,709,114



5,787,141



9,293,353



7,534,049Operating Expenses


8,502,442



7,351,936



6,980,042



6,572,177Income (loss) from operations


(1,793,328
)


(1,564,796
)


2,313,311



961,872Net Income (loss)


(4,639,821
)


(4,761,994
)


769,630



631,816





Pro Forma Balance Sheet Data Summary;





Pro Forma, as adjusted

December 31, 2009


December 31, 2009


December 31, 2008(unaudited)Assets

$
127,438,682


$
115,864,982


$
99,500,890Liabilities


113,233,173



106,609,682



86,540,479Noncontrolling Interest


12,792,890



8,421,218



9,715,228Cavico Corp.’s Stockholders’ Equity


1,412,619



834,082



3,245,183Total Stockholders' Equity


14,,205,509



9,255,300



12,960,411Liabilities, Noncontrolling Interest and Stockholders’ Equity

$
127,438,682


$
115,864,982


$
99,500,890



















63


ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES





On April 15, 2008, we dismissed Jaspers + Hall PC (“Jaspers + Hall”) as our independent certified public accountant. Effective April 15, 2008, we engaged PMB Helin Donovan, LLP (“PMBHD”), as our independent certified public accountant. Our decision to dismiss Jaspers + Hall and retain the PMBHD was approved by our Board of Directors on April 15, 2008. In October 2008, the PCAOB revoked the registration of Jaspers + Hall.  As a result, the financial statements for the fiscal year ended December 31, 2007 were re-audited by PMBHD to be included in our filing with the Commission.





We did not consult with PMBHD regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and no written or oral advice was provided by PMBHD that was a factor considered in reaching our decision as to the accounting, auditing or financial reporting issues.





ITEM 9A.      CONTROLS AND PROCEDURES





(a)           Evaluation of Disclosure Controls and Procedures





Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of the design and operation ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and (2) accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.  Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K as a result of material adjustments to our financial statements for the years covered by this report .





This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.





MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed by, or under the supervision of our chief executive and chief financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:





1.
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;2.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial  statements in accordance   with U.S. GAAP, and that our receipts and  expenditures are being made only in  accordance  with  the  authorization  of our  management  and directors; and3.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.





Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections  of any evaluation  of  effectiveness  to future  periods  are  subject to the risk that controls may become  inadequate  because of changes in  conditions,  or that the degree of compliance with the policies or procedures may deteriorate.





Management, under the supervision and with the participation of our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2009.  Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below.  In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of   Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control  environment,  (ii) risk  assessment,  (iii)  control  activities,  (iv) information and communication,  and (v) monitoring.  This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.





64


IDENTIFIED MATERIAL WEAKNESS
  A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
  Management identified the following material weakness during its assessment of internal controls over financial reporting as of December 31, 2009:
  ·
We lack an effective and efficient period end closing process to timely prepare the financial statements for audits to meet financial reporting deadlines.·
We lack effective accounting policies to record bad debts on receivables, write-down advances for which have no benefit s, and analysis work-in-process for contract losses.·
We lack an effective period-end financial statement reconciliation process to transition from Vietnamese Accounting Standards to U.S. Generally Accepted Accounting Principles (“GAAP”).·
We lack formal guidance or checklist of procedures to facilitate the reconciliation of the financial statements reported under Vietnamese accounting standards to GAAP.·
We lack sufficient accounting personnel that have appropriate knowledge of GAAP to fully implement our transition to GAAP and we were required to record material adjustments to the December 31, 2009 and 2008 financial statements to bring them into compliance.
  MANAGEMENT'S REMEDIATION INITIATIVES
  We are undertaking the remedial measures to establish effective disclosure controls and procedures and internal control over financial reporting, including improving the supervision and training of our accounting staff to understand and implement accounting requirements over complex issues, such as variable interest entities and draft guidelines, policies and procedures to improve our accounting. and preparation of financial statements under US GAAP.  We are reviewing the qualifications of qualified GAAP consultants who can work with the Company’s Chief Financial Officer and Vietnamese accounting team to indentify GAAP related issues and help evaluate and address such issues before they present problems in reporting in the United States.  We are planning to utilize a qualified consultant on an on-going basis. We also appointed an independent director who is knowledgeable in US GAAP to our board of directors and as an audit committee member and he will be involved in monitoring the internal audit functions within the Company.
  In light of the identified material weaknesses, management, performed (1) significant additional substantive review of those areas described above, and (2) performed additional analyses, including but not limited to a detailed balance sheet and statement of operations analytical review that compared changes from the prior period's financial statements and analyzed all significant differences. These procedures were completed so management could gain assurance that the financial statements and schedules included in this Form 10-K fairly present in all material respects the Company's financial position, results of operations and cash flows for the periods presented.  The additional substantive review and additional analysis will lead to a more effective and efficient period end closing process to identify accounting issues prior to the closing process.  Later in 2010, to expedite and improve the consolidation and closing processes we plan to investigate and implement new accounting software
  (b)  Changes In Internal Control Over Financial Reporting
  In connection with the evaluation required under the Exchange Act that occurred during our last fiscal quarter, we made the following changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:
  In light of the identified material weaknesses, management, instituted directives to require staff to perform (1) significant additional substantive review of those areas described above, and (2) additional analyses, including but not limited to a detailed balance sheet and statement of operations analytical review that compared changes from the prior period's financial statements and analyzed all significant differences.
  We adopted new guidelines to analyze the collectability of accounts receivable, retention receivables, and advances and future benefits of work-in-process when costs exceed expected revenue, for which management believes are more indicative of current economic conditions in the industries and economic climate we operates in.
  We also appointed Philip Bolles as an independent director who is knowledgeable in US GAAP to our board of directors and as an audit committee member and he will be involved in monitoring the internal audit functions within the Company.


ITEM 9B.     OTHER INFORMATION





None.





65





PART III





ITEM 10.      DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE





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.





Name

Age

Current Position/Office

Position Held SinceHa Quang Bui

46

CEO/Chairman

April 28, 2006Hung Manh Tran

47

Executive Vice-President/Director

April 28, 2006Timothy Pham

43

Vice-President/Director

April 28, 2006Hieu Van Phan

45

Vice-President

April 28, 2006Hai Thanh Tran

47

Vice-President

April 28, 2006Giang Linh Bui

38

Vice-President

April 28, 2006Tuan Duong Hoang

46

Director

May 2007Thanh Binh Huynh

54

Director

May 2007Madhava Rao Mankal

59

Director

October 2007June Kim

54

Chief Financial Officer

September 3, 2009Philip Bolles

66

Director

November 13, 2009





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 May 2003 to present, Ha Quang Bui has served as chairman of the board of directors and Chief Executive Officer of Cavico Vietnam and as chairman of the board of directors of Cavico Tower Company.  Mr. Bui became the Chief Executive Officer and Chairman of the Board of Directors of Cavico Corp. on April 28, 2006. He currently is Chief Executive Officer and Chairman of Cavico Corp.  From March 2001 to May 2003, Ha Quang Bui served as Vice President of Lung Lo Construction Company. He is a director of Energy Investment Company and a director of Mai Son Concrete Company. He graduated from the Military Technology Institute, Department of Defense, in 1986 with a degree in engineering. Mr. Bui’s history of leadership and engineering experience in the construction industry and his involvement in working with Vietnam Governrnment were significant to the decision to nominate him and remain important in his role as Chairman of the board.





Hung Manh Tran. Hung Manh Tran has been a director and Executive Vice President of Cavico Corp. since 2006 and 2007, respectively (and Vice President from 2006 to 2007) to the present time.  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. 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 physics. He also did course work in law at Hanoi University during 1992-1996. Mr. Tran also holds a degree in international trade from Hanoi International Trade University in 1991. Mr. Tran’s engineering experience and technological acumen, along with his extensive knowledge of Cavico’s operations and previous executive experience, are attributes we value in our directors.





Timothy Dac Pham . Timothy Dac Pham has been a Vice President and director of Cavico Corp. since June 2006.  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.  During 2004, he worked as a registered representative at Golden Beneficial Securities Corp. From 2002 through 2003, Mr. Pham was a registered representative at NT Securities in Chicago, Illinois. 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. Mr Pham’s experience and understanding of security trading laws in US and education in business administration are important attributes as a director.





Hieu Van Phan .  Hieu Van Phan became a Vice-President and Director of Cavico Corp. on April 28, 2006.  He resigned as a director of Cavico Corp. in April 2009.  From July 2003 to present, Hieu Van Phan has been a vice president and a director of Cavico Vietnam.  Hieu Van Phan is currently Chief Operating Officer 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.  From 2001 to July 2003, Hieu Van Phan served as president of Power Installation Company. Hieu Van Phan graduated from the Military Technology Institute, Department of Defense, in 1986 with a degree in engineering.





Hai Thanh Tran . Hai Thanh Tran became a Vice-President and Director of Cavico Corp. on April 28, 2006.  He resigned as a director of Cavico Corp. in April 2009.  From July 2003 to present, he has been a director and vice president of Cavico Vietnam.  He currently is Chief Executive Officer of Cavico Vietnam, chairman of the Board of Directors of CAVICO Hydropower Construction Co.  From April 2002 to July 2003, Hai Thanh Tran was president of Bridge and Underground Construction Cavico Company.  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. He graduated from the Military Technology Institute, Department of Defense, in 1986 with a degree in engineering.





66





Giang Linh Bui.   Giang Linh Bui became a Vice-President and Director of Cavico Corp. on April 28, 2006.  He resigned as a director of Cavico Corp. in April 2009.  Giang Linh Bui is currently a director of Nam Chien Hydropower Company, Director of CAVICO PHI Cement Construction Co., and chairman of the Board of Directors of CAVICO Infrastructure Construction Co.  Mr. Bui is also a director of Cavico Vietnam.  From March 2001 to November 2002, Giang Linh Bui worked in the Projected Technology Department at Lung lo Construction Company.  Giang Linh Bui graduated from Hanoi University of Architecture in 1994 with a degree in architecture.





Tuan Duong Hoang. Tuan Duong Hoang has been a director of Cavico Corp. since May 2007. Mr. Hoang has been Professor of Education at The University of New South Wales since 2003. From 1999 to 2003, he was an associate professor in the Department of Electrical and Computer Engineering at the Toyota Technical Institute, Nagoya, Japan. He holds a masters degree and a Ph.D. from the University of Odessa in the Ukraine. Mr. Hoang’s knowledge in Vietnamese government regulations and policies compared to foreign policies that he had understanding through his work experience in various countries provide valuable attributes as a director.





Thanh Binh Huynh. Thanh Binh Huynh has been a director of Cavico Corp. since May 2007. 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’s executive experience andfamiliarity with public company governance issues and business practices were important attributes for his nomination to the Board of Directors.





Madhava Rao Mankal. Madhava Rao Mankal has been a director of Cavico Corp. 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 30 years experience in finance and accounting and holds accounting certifications from India and the United States. He has a Bachelors Degree in commerce from Bangalore University. Mr. Mankal’s executive experiences in various public companies   and knowledge in financial reporting along with his independency were significant values for his nomination to the Board of Directors and his service as the Audit Committee Chairman.





June Kim. June Kim has been the Chief Financial Officer of Cavico Corp. since September 2009 after serving as a director and member of the audit committee from April 2009 to August 2009.  Prior to accepting the position of Chief Financial Officer, she worked for PHI Group, Inc. (formerly Providential Holding, Inc.) from July 2007 to August 2009 as a consultant. She prepared annual and quarterly SEC filings for public companies and assisted auditors for audits and reviews.  Prior to joining PHI Group, Inc., she worked for Stonefield Josephson, a CPA firm, as audit manager from August 2005 through March 2007 and Kabani & Company, Inc., a CPA firm, as a full time audit manager from February 2000 to June 2005.  She is a Certified Public Accountant and holds CPA licenses in the state of Washington and California. She graduated with a Bachelor of Science in accounting degree in 1980 from California State University.





Philip Bolles. Philip Bolles has been a director of Cavico Corp. since November 2009.  He has been a consultant providing services related to business combinations, financial reconstructions, and GAAP and SEC reporting compliance to a variety of public companies and private companies preparing to register as public companies for the past fifteen years,. From 2007 to 2008 he served as Chief Financial Officer for Retail Pro, Inc.  Mr. Bolles holds a Bachelor of Science degree in Accounting, with Honors from the University of San Diego. Mr. Bolles knowledge in US GAAP and SEC reporting compliance from his extensive experience, as well as his independency, are important attributes we value as a director.





Messrs. Ha Quang Bui and Giang Linh Bui are brothers.





Director Compensation





Effective March 9, 2009, each board member is entitled to receive $2,500 per quarter for director fee, $500 per meeting fee and $300 per telephone meeting fee. A chairman of the board is entitled to receive $10,000 per quarter. Each chairman of committee will receive $2,000 per quarter.





The following table provides information concerning the compensation of our non-executive directors for the year ended December 31, 2009.





Name

Fees earned or

paid in cash($)


Stock Awards

($)


Option Awards ($)


Total ($)Tuan Duong Hoang

$
13,500


$
-


$
-


$
13,500Thanh Binh Huynh

$
13,500


$
-


$
-


$
13,500Madhava Rao Mankal

$
14,400


$
-


$
-


$
14,400Philip Bolles

$
2,500
*

$
-


$
-


$
2,500


*Started November 2009





67





During the year 2008, Madhava Rao Mankal received 1,250 shares of the Company’s common stock valued at $9,750 for his service.





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.





Compensation under the employment agreements for each is as follows:





Name

Current Position/Office

Annual CompensationHa Quang Bui

Chief Executive Officer/Chairman

$
76,924
(1)June Kim

Chief Financial Officer

$
123,600
(5)Hung Manh Tran

Executive Vice-President/Director

$
70,049
(2)Hieu Van Phan

Vice-President

$
44,479
(3)Hai Thanh Tran

Vice-President

$
48,195
(3)Giang Linh Bui

Vice-President

$
26,198
(3)Timothy Pham

Vice-President/Director

$
67,500
(4)(5)





(1)
$70,000 payable by Cavico Corp and $6,924 payable by Subsidiaries of Cavico Corp.(2)
$40,000 payable by Cavico Corp and $22,549 payable by Subsidiaries of Cavico Corp. $2,500 per quarter for director fee effective March 9, 2009, amounting $7,500 was included.(3)
Payable by Subsidiaries of Cavico Corp.(4)
$2,500 per quarter for director fee effective March 9, 2009, amounting $7,500 was included.(5)
Payable by Cavico Corp.





Incentive Plans





In March 2009, the Board approved the Cavico Corp. Stock Award and Incentive Plan which was subsequently approved by at a special meeting of shareholders on April 27, 2009. The purpose of the Cavico Corp. Stock Award and Incentive Plan is to give us a competitive advantage in attracting, retaining, and motivating officers, employees, directors, and consultants and to provide us with an incentive plan that gives officers, employees, directors, and consultants.





The maximum number of shares that may be issued pursuant to incentive stock options granted under the plan is 1,250,000. The maximum number of shares of our common stock that may be issued per individual pursuant to awards granted under the Cavico Stock Award and Incentive Plan is 125,000. As of the date hereof, there are no awards granted under this the Cavico Stock Award and Incentive Plan.





Equity Compensation Plan InformationPlan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights



(a)
Weighted-average exercise price of outstanding options, warrants and rights



(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))



(c)Equity compensation plans approved by security holders


1,250,000Equity compensation plans not approved by security holdersTotal


1,250,000




Committees of the Board





Our Board of Directors has established an Audit Committee, Compensation Committee, a Nominating Committee and Governance 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), Tuan Duong Hoang and Philip Bolles.  The Board of Directors has identified Madhava Rao Mankal and Philip Bolles as audit committee financial experts under the listing requirements of the NASDAQ Capital Market and has determined that both are independent of the Company based on the NASDAQ Capital Market’s definition of “independence.”


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 Tuan Duong Hoang and Philip Bolles.





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), Thanh Binh Huynh and Madhava Rao Mankal.




68





Code of Ethics





On July 31, 2009,  we have adopted a "Code of Business Conduct and Ethics", a code of ethics that applies to all directors and executive officers, which includes the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer or Controller.  A copy of our Code of Business Conduct and Ethics is available at www.cavicocorp.com, our website.





ITEM 11.      EXECUTIVE COMPENSATION





The following table sets forth compensation information for the Company’s Chief Executive Officer for the years ended December 31, 2009, 2008 and 2007. 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

Year

Salary ($)


Bonus ($)


Stock Awards

($)


Option Awards($)


All Other

Compensation ($)


Total ($)Ha Quang Bui

Chief Executive

Officer/Chairman

2009

$
106,924(b)



15,424(C)



-



-





$
122,3482008

$
77,246



-



-



-





$
77,2462007

$
75,398



-



-



-





$
75,398June Kim

Chief Financial Officer

2009
(a)
$
41,200



-



-



-



-


$
41,200





* In accordance with the rules of the Securities and Exchange Commission, this table omits columns that are not relevant.




(a) Started September 2009
 (b) $10,000 per quarter for board chairmanship fees effective March 9, 2009, amounting to $30,000 was included.
 (c) The bonus was designed and paid to recognize those responsible for an increase in revenue and backlog from new contracts.




ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The following table sets forth the beneficial ownership of Common Stock of the Company as of December 31, 2009 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.





69





Name And AddressOf Beneficial Owner

Amount And

Nature Of

Beneficial

Ownership


Percent Of

Class (1)Ha Quang Bui

Group 10, Ward Tu Lien, Tay Ho District,

Ha Noi, Vietnam


252,095
(2)


8.3
%Hung Manh Tran

14A Alley 123A, Thuy Khue Street

Thuy Khue Ward, Tay Ho District

Ha Noi, Vietnam


73,690
(3)


2.4
%Hieu Van Phan

No. 304, 24T2, Trung Hoa Nha Chinh Ward

Cau Giay District, Ha Noi, Vietnam


54,665
(4)


1.8
%Hai Thanh Tran

34 Alley 178/1, Tay Son Square

Trung Liet Ward, Dong Da District

Ha Noi, Vietnam


48,373
(5)


1.6
%Timothy Dac Pham

14721 Wilson Street

Midway City, CA 92647


7,675
(6)


*Giang Linh Bui

No. 1103, 17T1, Trung Hoa Nha Chinh Ward

Cau Giay District, Ha Noi, Vietnam


64,093
(7)


2.1
%Tuan Duong Hoang

26 Warwick St., Killara, NSW 2071,Australia


20,768



*Thanh Binh Huynh

262 Beach Road

Bay Farm Island, CA 94502


5,000
(8)


*Madhava Rao Mankal

7476 Sungold Ave.

Corona, California 92880


1,250



*All Officers and Directors as a group


527,609



17.3
%





*   Less than one percent.





(1)
Based upon 3,047,795shares outstanding as of December 31, 2009.(2)
Includes 109,535 shares held by Mr. Bui’s wife.(3)
Includes 6,300 shares held by Mr. Tran’s wife.(4)
Includes 5,000 shares held by Mr. Phan’s wife.(5)
Includes 9,183 shares held by Mr. Tran’s wife.(6)
Shares held by Mr. Pham’s wife.(7)
Includes 9,353 shares held by Mr. Bui’s wife.(8)
Shares held by Mr. Huynh’s wife.





ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Except as set forth below, since January 1, 2006, there has been no transaction, and there is no currently proposed transaction with any executive officer, director or 5% or greater stockholder of the Company or any affiliate or immediate family member of any such person in which the Company was or is to be a participant and the amount involved exceeds $120,000.





Cavico Vietnam, our wholly-owned subsidiary, had a loan payable to Mr. Ha Quang Bui, our Chief Executive Officer, a balance of $87,249 at December 31, 2009. The loan was originated in January 2008 and renewed for second times a one-year term in January 2010. The highest loan balance owed by Cavico Vietnam to Mr. Bui was $458,673 on March 31, 2008. This loan had an annual interest rate of 12%. Cavico Vietnam, our subsidiary, borrowed on December 1, 2006 from Ms. Ty Thi Pham, vice-chairman of Cavico Vietnam, at an interest rate of 12%. The highest loan balance owed by Cavico Vietnam to Ms. Pham was $1,246,883, as of December 31, 2006. This loan was paid off during the year ended December 31, 2007 with interest payment of $132,551.





Our subsidiaries made advances of $790,049 and $714,658 to their officers and directors as of December 31, 2009 and December 31, 2008, respectively. Advances to management and employees include miscellaneous expenses such as business travel costs, selling costs and material purchases. Our policy is to receive expense reports for these amounts and move them to the appropriate expense account. If an expense report is not turned in, these advances can be deducted from the salary of the related individuals. Our subsidiaries had other payables of $9,896 and $20,520 to their officers and directors as of December 31, 2009 and December 31, 2008, respectively.





70





We had loans receivable of $194,634 and $334,196 from their officers and directors as of December 31, 2009 and December 31, 2008, respectively. These loans were made with no interest, not secured and due on demand.





Our subsidiaries had loans payable to their officers and directors of $220,091 and $208,667 as of December 31, 2009 and December 31, 2008, respectively. These loans are unsecured, and due on demand with annual interest from 12% to 24%.





We had investments, which are accounted for on the cost method, in Vietnam Power Investment and Development, JSC and Tour Zones Investment and Construction JSC. These entities share common directors with the Company. Tour Zones Investment and Construction JSC owns 6.4% of Cavico Luong Son JSC, a subsidiary of which Cavico Vietnam owns the remaining 93.6%.





The Company has guaranteed a loan with line of credit for approximately $3.8 million and $5.6 million for Cavico Mining, an equity investment entity, as of December 31, 2009 and December 31, 2008, respectively. The loan balances as of December 31, 2009 and December 31, 2008 were $3,337,129 and $2,128,859, respectively. The Company also had a receivable from Cavico Mining for $7,070,665 and $3,826,533 as of December 31, 2009 and December 31, 2008, respectively and payable due to Cavico Mining for $1,190,716 and $155,347 as of December 31, 2009 and December 31, 2008, respectively.





ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES





Accounting Fees





The following table sets forth fees billed to us by PMB Helin Donavan, LLP for professional services rendered for 2009 and 2008:





2009


2008Audit Fees (including interim 404 audit fees in 2009 and quarterly reviews)

$
286,000


$
410,000All Other Fees

$
164,000


$
-Total

$
450,000


$
410,000





These fees were approved by audit committee.





Audit Fees





This category includes the aggregate fees billed for professional services rendered for the audits of our consolidated financial statements for fiscal years 2009 and 2008, for the reviews of the financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided by PMB Helin Donavan, LLP in connection with regulatory filings or engagements for the relevant fiscal years.





All Other Fees





This category includes the aggregate fees billed during the fiscal year 2009, for services by PMB Helin Donavan, LLP related to filing of our registration statements.





Policy for Approval of Audit and Non-audit Services





The chairman of the audit committee, who is delegated by our audit committee, has the authority to grant pre-approvals of non-audit services provided by PMB Helin Donavan, LLP. The audit committee has adopted an approval policy which describes the procedures and the conditions pursuant to which the audit committee may grant general pre-approval for services proposed to be performed by our independent accountants.





In determining whether to approve a particular audit or non-audit service, the audit committee will consider, among other things, whether such service is consistent with maintaining the independence of the independent accountant. The audit committee will also consider whether the independent accountant is best qualified to provide the most effective and efficient service to our company.





During fiscal year 2009, PMB Helin Donavan, LLP did not utilize any personnel in connection with the audit other than its full-time, permanent employees.




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PART IV





ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





Financial Statements





The following consolidated financial statements of Cavico Corp. and its subsidiaries are included:





Consolidated Balance Sheets
— December 31, 2009 and 2008Consolidated Statements of Operations and Comprehensive Income
— For the  years ended December 31, 2009 and 2008Consolidated Statements of Cash Flows
— For the years ended December 31, 2009 and 2008Consolidated Statements of Stockholders’ Equity
— For the  years ended December 31, 2009 and 2008Notes to Consolidated Financial Statements.Report of Independent Registered Public Accounting Firm





Index to Exhibits*





Exhibit No.
Description1.1
Form of Underwriting Agreement(2)2.1
Asset Purchase Agreement, dated April 18, 2006(1)3.3
Bylaws(1)3.4
Amended and Restated Certificate of Incorporation (3)3.5
Certificate of Designation of Series A Preferred Stock (7)3.6
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (5)10.2
Employment Agreement dated January 8, 2007 between the Company and Giang Linh Bui(1)10.3
Employment Agreement dated January 8, 2007 between the Company and Ha Quang Bui(1)10.4
Employment Agreement dated January 8, 2007 between the Company and Hai Thanh Tran(1)10.5
Employment Agreement dated January 8, 2007 between the Company and Hieu Van Phan(1)10.6
Employment Agreement dated January 8, 2007 between the Company and Hung Manh Tran(1)10.7
Employment Agreement dated April 28, 2007 between the Company and Timothy Pham(1)10.8
Management Service Agreement dated May 15, 2006 between Cavico Corp. and Providential Holdings, Inc.(1)10.9
Loan Agreements with Thi Ty Pham (3)10.10
Loan Agreement with Ha Quang Bui (3)10.11
Revised Loan Agreement with Ha Quang Bui (4)10.12
Employment Agreement, dated September 3, 2009, between the Company and June Kim (6)10.13
Stock Purchase Agreement, by and among Cavico Corp., Cavico Vietnam Company Limited and Cavico Mining and Construction JSC (8)14.1
Code of Ethics (9)21
Subsidiaries*31.1
Certification of the Company’s Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
Certification of the Company’s Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
Certification of the Company’s Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
Certification of the Company’s Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*





* Filed herewith.





(1)
Incorporated by reference to the Company’s Registration Statement on Form 10-SB filed October 23, 2007.(2)
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed May 22, 2009.(3)
Incorporated by reference to the Company’s Amendment No.1 to the Registration Statement on Form S-1 filed July 9, 2009.(4)
Incorporated by reference to the Company’s Amendment No.2 to the Registration Statement on Form S-1 filed August 6, 2009.(5)
Incorporated by reference to the Company’s Current Report on Form 8-K filed August 19, 2009.(6)
Incorporated by reference to the Company’s Current Report on Form 8-K filed September 4, 2009.(7)
Incorporated by reference to the Company’s Amendment No.4 to Registration Statement on Form S-1 filed September 28, 2009(8)
Incorporated by reference to the Company’s Current Report on Form 8-K filed December 11, 2009.(9)
Incorporated by reference to the Company’s Amendment No. 1 to the Annual Report on Form 10-K/A filed September 28, 2009.





72








SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 16, 2010




CAVICO CORP.By:
/s/ Ha Quang BuiHa Quang Bui, Chairman and Chief Executive OfficerPrincipal Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:





Pursuant to the requirements of the Securities Act of 1933, this report has been signed below by the following persons in the capacities and on the date indicated.





Name

Title

Date/s/ Ha Quang Bui

Chairman and Chief Executive Officer

September 16, 2010Ha Quang Bui

Principal Executive Officer/s/ June Kim

Chief Financial Officer

September 16, 2010June Kim

Principal Financial Officer/s/ Bao Quoc Tran

Principal Accounting Officer

September 16, 2010Bao Quoc Tran/s/ Hung Manh Tran

Executive Vice-President/Director

September 16, 2010Hung Manh Tran/s/ Timothy Pham

Vice-President/Director

September 16, 2010Timothy Pham/s/ Madhava Rao Mankal

Director

September 16, 2010Madhava Rao Mankal/s/ Tuan Duong Hoang

Director

September 16, 2010Tuan Duong Hoang/s/ Thanh Binh Huynh

Director

September 16, 2010


Thanh Binh Huynh