Boyuan Construction Group Inc fka BOY

[MinnieM]

Take a look at adjusted net income notes:

http://www.boyuangroup.com/usercontent/pdf/BOY_2010Q2.pdf

RESULTS OF OPERATIONS

Total contract revenue earned was $72M for the six months period ended December 31, 2009 which was substantially higher than the contract revenue earned of $44M for the same period last year. Gross profit was $12M for the six months ended December 31, 2009 representing a margin of 17% on revenue. Gross profit for the same period last year was $6M representing a margin of 13.91% on revenue.

Total contract revenue earned for the three months ended December 31, 2009 was $37M compared to $23M for the same period last year. Gross profit was $6.71M for the three months ended December 31, 2009 representing a margin of 17.8% on revenue. Gross profit for the same period last year was $3M representing a margin of 13.61% on revenue.

The increase in our contract revenue earned in the three months period ended December 31, 2009 as compared to the same period last year was due to the increase in the number of sizable construction projects in progress. The increase in gross margin was due to the recognition of revenue of a number of projects with higher margins in this quarter.

Included in the general and administrative expense for the three months period ended December 31, 2008 was a bad debt reversal of $0.25M which led a negative G&A expense of 0.08M. Excluding this item, the G&A expense in this quarter last year was $0.17M which was still substantially lower than this quarter’s expense of $0.9M. The major increase in this quarter came from the increase in staffing cost as a result of the growth of our company, hiring of additional professional staff for our management team, and from our investors relation programs expense relating to our listing on the TSX Venture Exchange.

Interest expense for this quarter was $0.57M which was much higher than the same period in 2008. The higher expense amount was due to the increase in our bank loans in support of the increase in our project backlog and the interest expense on the debenture.

Income tax expense for this period was $1.49M compared to $0.75M for the same period last year. The increase was due to the higher income earned during the period.

The net income for this period was $3.5M which was $1.2M (48%) higher than the same period last year. The substantial growth in net income was underpinned by the continued increase in our projects backlog and the increase in our gross margin.

For the six months period ended December 31, 2009, there was a non- cash make good charge of $3.24M in relation to the financing completed on July 7, 2009 (see additional information under Liquidity and Capital Resources). We have achieved a net income of $9.6M for the fiscal 2009 before this charge which was in excess of our make good target of $8.5 million for that year. In accordance with the make good clause, the common shares deposited into the escrow account by a certain member of our management will be transferred back to that member. The transfer was accounted for as a make good provision (stock-based compensation) under Canadian GAAP.

Adjusted net income defined as net income excluding the make good charge was $6.5M for the six months period ended December 31, 2009 as compared to $4.4M in the same period last year representing a growth of 48% in the period. We believe the adjusted net income is more representative of our profitability for the period as the make good charge is a non-cash accounting charge which is not related to our business activities.