HOME SYSTEM GROUP UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Completion of Acquisition of 90% of Zhongshan Sanfan Electrical Appliances Co., Ltd.
On May 31, 2010, the Company, through its wholly-owned subsidiary, Xxxxx, entered into an Equity Ownership Transfer Agreement (the “Acquisition Agreement”) with Zhongshan Sanfan Electrical Appliance Co., Ltd. (“Sanfan”) and all the shareholders of Sanfan (the “Sellers”), pursuant to which the Company agreed to acquire and Sellers have agreed to sell 90% of the Sellers’ equity interest in Sanfan for cash consideration of approximately $12,000,000. The Company closed this acquisition on October 1, 2010. As of September 30th, 2010, the Company paid a total of $4,835,027 to the shareholders of Sanfan, with the remaining portion of the purchase price to be paid by the end of 2011.
Completion of Acquisition of 100% of Jinxinglong Electrical Appliances Co., Ltd.
On July 15, 2010, the Company, through its wholly-owned subsidiaries, Xxxxx and Asia Forever, entered into an Equity Ownership Transfer Agreement with Jiangmen City Jinxinglong Electrical Appliance Co., Ltd. (“Jinxinglong”) and all the shareholders of Jinxinglong (the “Sellers”), pursuant to which Xxxxx and Asia Forever have agreed to acquire and Sellers have agreed to sell 100% of the Sellers’ equity interest in Jinxinglong for a cash consideration of approximately $15,000,000. The Company closed the acquisition on October 1, 2010. As of November 8, 2010, the Company paid a total of $3,021,892 to the shareholders of Jinxinglong, with the remaining portion of the purchase price to be paid by the end of 2011.
The following pro forma consolidated condensed statements of operations and balance sheets for the nine months ended September 30, 2010 and year ended December 31, 2009 reflect the financial results of Sanfan and Jinxinglong as if the acquisitions had occurred retroactively.
There was no significant accounting policy differences or other items which required adjustment in the accompanying unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements of Xxxxxx and Jinxinglong as well as those of the Company. The unaudited pro forma condensed consolidated financial statements do not purport to be indicative of the financial position or results of operations that would have actually been obtained had such transactions been completed as of the assumed dates and for the periods presented, or which may be obtained in the future. The pro forma adjustments are described in the accompanying notes and are based upon available information and certain assumptions that the Company believes are reasonable.
1
HOME SYSTEM GROUP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2010
|
In USD
|
||||||||||||||||||||
|
Sanfan
|
Jinxinglong
|
HSG
|
Adjustment
|
HSYT
(Pro forma)
|
||||||||||||||||
|
ASSETS
|
30-Sep-10
|
30-Sep-10
|
30-Sep-10
|
30-Sep-10
|
||||||||||||||||
|
CURRENT ASSET
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 556,982 | $ | 121,090 | $ | 657,127 | $ | - | $ | 1,335,199 | ||||||||||
|
Accounts receivable – trade, net of allowance
|
10,954,254 | 10,704,755 | 39,527,768 | - | 61,186,777 | |||||||||||||||
|
Notes receivable - short term
|
- | 8,126,205 | - | 8,126,205 | ||||||||||||||||
|
Deposits and advances
|
- | 21,808 | 1,947,901 | - | 1,969,709 | |||||||||||||||
|
Inventories
|
503,098 | 823,021 | 14,239,186 | - | 15,565,305 | |||||||||||||||
|
Other assets
|
750 | 322,640 | 1,722,845 | - | 2,046,235 | |||||||||||||||
|
TOTAL CURRENT ASSET
|
12,015,084 | 11,993,314 | 66,221,032 | - | 90,229,430 | |||||||||||||||
|
Notes receivable - long-term
|
- | - | 1,302,802 | - | 1,302,802 | |||||||||||||||
|
Acquisition deposit
|
- | - | 7,856,919 | (7,856,919 | ) | - | ||||||||||||||
|
Property, plant and equipment – net
|
290,725 | 340,118 | 8,552,156 | - | 9,182,999 | |||||||||||||||
|
Goodwill and intangible assets
|
- | - | 26,522,325 | 16,406,740 | 42,441,670 | |||||||||||||||
|
TOTAL ASSETS
|
$ | 12,305,809 | $ | 12,333,432 | $ | 110,455,234 | $ | 8,549,821 | $ | 143,644,296 | ||||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Accounts payable – trade
|
$ | 7,390,723 | $ | 2,717,973 | $ | 16,854,036 | $ | - | $ | 26,962,732 | ||||||||||
|
Bills payable
|
- | - | 5,564,111 | - | 5,564,111 | |||||||||||||||
|
Accrued expenses and other payables
|
95,225 | 81,961 | 7,481,164 | - | 7,658,350 | |||||||||||||||
|
Short term bank loans
|
- | 1,417,678 | 17,341,340 | - | 18,759,018 | |||||||||||||||
|
Income taxes and other taxes payable
|
467,491 | 462,092 | 2,788,787 | - | 3,718,370 | |||||||||||||||
|
Notes payable – current portion
|
- | - | 2,779,109 | - | 2,779,109 | |||||||||||||||
|
Due to stockholder & related parties – current portion
|
- | - | 3,203,702 | - | 3,203,702 | |||||||||||||||
|
Acquisition costs payables
|
- | - | - | 19,143,081 | 19,143,081 | |||||||||||||||
|
TOTAL CURRENT LIABILITIES
|
7,953,439 | 4,679,704 | 56,012,249 | 19,143,081 | 87,788,473 | |||||||||||||||
|
NON-CURRENT LIABILITIES
|
||||||||||||||||||||
|
Due to stockholder – long term portion
|
- | - | 1,605,414 | - | 1,605,414 | |||||||||||||||
|
Long term bank loan
|
- | - | 1,641,522 | - | 1,641,522 | |||||||||||||||
|
TOTAL LIABILITIES
|
7,953,439 | 4,679,704 | 59,259,185 | 19,143,081 | 91,035,409 | |||||||||||||||
|
STOCKHOLDERS' EQUITY
|
||||||||||||||||||||
|
Share capital
|
146,308 | 388,014 | 67,490 | (534,322 | ) | 67,490 | ||||||||||||||
|
Additional paid-in capital
|
- | 717,755 | 25,942,241 | - | 26,659,996 | |||||||||||||||
|
Statutory reserve
|
73,154 | 194,007 | 681,914 | 949,075 | ||||||||||||||||
|
Retained earnings
|
4,075,038 | 6,147,112 | 22,321,807 | (10,222,150 | ) | 22,321,807 | ||||||||||||||
|
Other comprehensive income
|
57,870 | 206,840 | 2,182,597 | (264,710 | ) | 2,182,597 | ||||||||||||||
|
Non-controlling interests
|
- | - | - | 427,922 | 427,922 | |||||||||||||||
|
TOTAL STOCKHOLDERS' EQUITY
|
4,352,370 | 7,653,728 | 51,196,049 | (11,080,655 | ) | 52,608,807 | ||||||||||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 12,305,809 | $ | 12,333,432 | $ | 110,455,234 | $ | 8,062,426 | $ | 143,644,296 | ||||||||||
2
HOME SYSTEM GROUP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
|
In USD
|
||||||||||||||||||||
|
Items
|
Sanfan
|
Jinxinglong
|
HSG
|
Adjustment
|
HSYT
(Pro forma)
|
|||||||||||||||
|
30-Sep-10
|
30-Sep-10
|
30-Sep-10
|
30-Sep-10
|
|||||||||||||||||
|
Net Sales
|
$ | 17,132,548 | $ | 17,028,721 | $ | 86,607,478 | $ | - | $ | 120,768,747 | ||||||||||
|
Cost of Sales
|
(13,455,112 | ) | (13,955,606 | ) | (66,877,268 | ) | - | (94,287,986 | ) | |||||||||||
|
GROSS PROFIT
|
3,677,436 | 3,073,115 | 19,730,210 | - | 26,480,761 | |||||||||||||||
|
General, selling and administrative expenses
|
(274,195 | ) | (327,547 | ) | (5,314,898 | ) | - | (5,916,640 | ) | |||||||||||
|
INCOME FROM OPERATIONS
|
3,403,241 | 2,745,568 | 14,415,312 | 20,564,121 | ||||||||||||||||
|
OTHER (EXPENSE) INCOME
|
||||||||||||||||||||
|
Loss on debt conversion
|
- | - | (1,747,762 | ) | - | (1,747,762 | ) | |||||||||||||
|
Other income (expense)
|
45,125 | 723 | 815,951 | - | 861,799 | |||||||||||||||
|
Interest expense, net
|
1,487 | (58,952 | ) | (1,007,428 | ) | - | (1,064,902 | ) | ||||||||||||
|
INCOME BEFORE INCOME TAXES
|
$ | 3,449,853 | $ | 2,687,339 | $ | 12,476,073 | $ | - | $ | 18,613,265 | ||||||||||
|
INCOME TAXES
|
(862,463 | ) | (354,839 | ) | (3,045,826 | ) | - | (4,263,128 | ) | |||||||||||
|
NET INCOME
|
$ | 2,587,390 | $ | 2,332,500 | $ | 9,430,247 | $ | - | $ | 14,350,137 | ||||||||||
|
Less: income attributable to non controlling interest
|
- | - | - | (258,739 | ) | (258,739 | ) | |||||||||||||
|
Net income attributable to HSYT shareholders
|
2,587,390 | 2,332,500 | 9,430,247 | (258,379 | ) | 14,091,398 | ||||||||||||||
|
Basic & Diluted Weighted Average Shares
|
65,837,787 | 65,837,787 | 65,837,787 | - | 65,837,787 | |||||||||||||||
|
Basic & Diluted Earnings per Share
|
0.04 | 0.03 | 0.14 | - | 0.21 | |||||||||||||||
3
HOME SYSTEM GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
The following adjustments to the unaudited pro forma financial statements are based on the assumption that the acquisitions of subsidiaries were consummated as of September 30, 2010.
|
To recognize the 90% interests in Sanfan and recognize the goodwill occurred during the acquisition of Sanfan and eliminate the long term equity investments
|
Dr
|
Cr
|
||||||
|
Paid in capital
|
131,677 | |||||||
|
Retained earnings
|
3,667,534 | |||||||
|
Other comprehensive income
|
52,083 | |||||||
|
Acquisition deposit
|
(4,835,027 | ) | ||||||
|
Goodwill and Intangible assets*
|
8,148,706 | |||||||
|
Acquisition costs payable
|
(7,164,973 | ) | ||||||
|
To recognize the 10% minority interests of the equity in Sanfan.
|
||||||||
|
Minority interest
|
(427,922 | ) | ||||||
|
Paid in capital
|
14,631 | |||||||
|
Retained earnings
|
407,504 | |||||||
|
Other comprehensive income
|
5,787 | |||||||
|
To recognize the goodwill occurred during the acquisition of Jinxinglong and eliminate the long term equity investments
|
||||||||
|
Acquisition deposit
|
(3,021,892 | ) | ||||||
|
Goodwill and intangible assets*
|
8,258,034 | |||||||
|
Acquisition costs payable
|
(11,978,108 | ) | ||||||
|
Paid in capital
|
388,014 | |||||||
|
Retained earnings
|
6,634,507 | |||||||
|
Other comprehensive income
|
206,840 | |||||||
* Adjustment subject to finalization to valuation and possible adjusts to recognize intangible assets.
4
HOME SYSTEM GROUP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2009
|
In USD
|
||||||||||||||||||||
|
ASSETS
|
Sanfan April 1, 2009 (Date of Inception) to December 31, 2009)
|
Jinxinglong
31-Dec-09
|
HSG
31-Dec-09
|
Adjustment
|
HSYT
(Pro forma)
31-Dec-09
|
|||||||||||||||
|
CURRENT ASSET
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 4,890 | $ | 55,507 | $ | 3,985,782 | $ | - | $ | 4,046,179 | ||||||||||
|
Accounts receivable – trade, net of allowance
|
6,699,987 | 5,237,826 | 23,909,114 | - | 35,846,927 | |||||||||||||||
|
Notes receivable - short term
|
- | 3,704,137 | - | 3,704,137 | ||||||||||||||||
|
Deposits and advances
|
- | - | 1,344,070 | - | 1,344,070 | |||||||||||||||
|
Inventories
|
649,285 | 1,332,930 | 18,304,015 | - | 20,286,230 | |||||||||||||||
|
Other assets
|
988 | - | 1,161,057 | - | 1,162,045 | |||||||||||||||
|
TOTAL CURRENT ASSET
|
7,355,150 | 6,626,263 | 52,408,175 | - | 66,389,588 | |||||||||||||||
|
Notes receivable - long-term
|
- | - | 236,334 | - | 236,334 | |||||||||||||||
|
Property, plant and equipment – net
|
296,704 | 351,480 | 9,027,828 | - | 9,676,012 | |||||||||||||||
|
Goodwill and intangible assets
|
- | - | 26,776,859 | 15,919,345 | 42,696,204 | |||||||||||||||
|
TOTAL ASSETS
|
$ | 7,651,854 | $ | 6,977,743 | $ | 88,449,196 | $ | 15,919,345 | $ | 118,998,138 | ||||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Accounts payable – trade
|
$ | 5,402,871 | $ | 625,185 | $ | 18,870,277 | $ | - | $ | 24,898,333 | ||||||||||
|
Bills payable
|
- | - | 3,478,223 | - | 3,478,223 | |||||||||||||||
|
Accrued expenses and other payables
|
61,121 | 71,228 | 7,109,157 | - | 7,241,506 | |||||||||||||||
|
Short term bank loans
|
- | 1,098,386 | 12,548,441 | - | 13,646,827 | |||||||||||||||
|
Income taxes and other taxes payable
|
479,834 | 180,199 | 1,028,403 | - | 1,688,429 | |||||||||||||||
|
Notes payable – current portion
|
- | - | 6,575,000 | - | 6,575,000 | |||||||||||||||
|
Due to stockholder & related parties – current portion
|
- | - | 4,040,896 | - | 4,040,896 | |||||||||||||||
|
Acquisition costs payables
|
- | - | - | 21,681,279 | 21,681,279 | |||||||||||||||
|
TOTAL CURRENT LIABILITIES
|
5,943,826 | 1,974,998 | 53,650,390 | 21,681,279 | 83,250,493 | |||||||||||||||
|
NON-CURRENT LIABILITIES
|
||||||||||||||||||||
|
Due to stockholder – long term portion
|
- | - | 1,308,433 | - | 1,308,433 | |||||||||||||||
|
Long term bank loan
|
- | - | 1,464,515 | - | 1,464,515 | |||||||||||||||
|
Notes payable - long term portion
|
- | - | 9,868,421 | - | 9,868,421 | |||||||||||||||
|
TOTAL LIABILITIES
|
5,943,826 | 1,974,998 | 66,291,759 | 21,681,279 | 95,891,862 | |||||||||||||||
|
STOCKHOLDERS' EQUITY
|
||||||||||||||||||||
|
Share capital
|
146,308 | 388,014 | 62,478 | (534,322 | ) | 62,478 | ||||||||||||||
|
Additional paid-in capital
|
- | 518,190 | 6,581,717 | - | 7,099,907 | |||||||||||||||
|
Statutory reserve
|
73,154 | 194,007 | 681,914 | - | 949,075 | |||||||||||||||
|
Retained earnings
|
1,487,648 | 3,814,612 | 12,891,560 | (5,302,260 | ) | 12,891,560 | ||||||||||||||
|
Other comprehensive income
|
918 | 87,922 | 1,939,768 | (88,840 | ) | 1,939,768 | ||||||||||||||
|
Non-controlling interest
|
- | - | - | 163,488 | 163,488 | |||||||||||||||
|
TOTAL STOCKHOLDERS' EQUITY
|
1,708,028 | 5,002,745 | 22,157,437 | (5,761,934 | ) | 23,106,276 | ||||||||||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 7,651,854 | 6,977,743 | $ | 88,449,196 | $ | 15,919,345 | 118,998,138 | ||||||||||||
5
HOME SYSTEM GROUP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 2009
|
In USD
|
||||||||||||||||||||
|
Items
|
Sanfan
|
Jinxinglong
|
HSYT
|
Adjustment
|
HSYT
(Pro forma)
|
|||||||||||||||
|
31-Dec-09
|
31-Dec-09
|
31-Dec-09
|
31-Dec-09
|
|||||||||||||||||
|
Net Sales
|
$ | 11,003,719 | $ | 17,604,997 | $ | 61,828,792 | $ | - | $ | 90,437,508 | ||||||||||
|
Cost of Sales
|
8,770,567 | 14,440,618 | 45,875,295 | - | 69,086,480 | |||||||||||||||
|
GROSS PROFIT
|
2,233,152 | 3,164,379 | 15,953,497 | - | 21,351,028 | |||||||||||||||
|
General, selling and administrative expenses
|
153,476 | 513,430 | 5,437,139 | - | 6,104,045 | |||||||||||||||
|
Amortization of intangible assets
|
- | - | 339,380 | - | 339,380 | |||||||||||||||
|
INCOME FROM OPERATIONS
|
2,079,676 | 2,650,949 | 10,176,978 | - | 14,907,603 | |||||||||||||||
|
OTHER (EXPENSE) INCOME
|
||||||||||||||||||||
|
Gain on the transfer of the building
|
- | - | 2,356,327 | - | 2,356,327 | |||||||||||||||
|
Income on the reversal of rent
|
- | - | 1,372,121 | - | 1,372,121 | |||||||||||||||
|
Other income, net
|
22 | - | 640,839 | - | 904,350 | |||||||||||||||
|
Interest income (expense), net
|
1,371 | (86,192 | ) | (2,242,517 | ) | - | (2,238,590 | ) | ||||||||||||
|
INCOME BEFORE INCOME TAXES
|
$ | 2,081,069 | $ | 2,564,757 | $ | 12,303,748 | $ | - | $ | 16,949,574 | ||||||||||
|
INCOME TAXES
|
(520,267 | ) | (363,359 | ) | (2,977,716 | ) | - | (3,861,342 | ) | |||||||||||
|
NET INCOME
|
$ | 1,560,802 | $ | 2,201,398 | $ | 9,326,032 | $ | - | $ | 13,088,232 | ||||||||||
|
Less: income attributable to non controlling interest
|
- | - | - | (156,080 | ) | (156,080 | ) | |||||||||||||
|
Net income attributable to HSYT shareholders
|
$ | 1,560,802 | $ | 2,464,887 | $ | 9,326,032 | $ | (156,080 | ) | $ | 12,932,152 | |||||||||
|
Basic & Diluted Weighted Average Shares
|
62,477,949 | 62,477,949 | 62,477,949 | - | 62,477,949 | |||||||||||||||
|
Basic & Diluted Earnings per Share
|
0.02 | 0.04 | 0.15 | - | 0.21 | |||||||||||||||
6
HOME SYSTEM GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009
The following adjustments to the unaudited pro forma financial statements are based on the assumption that the acquisitions of subsidiaries were consummated as of September 30, 2010.
|
To recognize the 90% interests in Sanfan and recognize the goodwill occurred during the acquisition of Sanfan and eliminate the long term equity investments
|
Dr
|
Cr
|
||||||
|
Paid in capital
|
131,677 | |||||||
|
Retained earnings
|
1,338,883 | |||||||
|
Other comprehensive income
|
826 | |||||||
|
Xxxxxxxx and identifiable intangible assets
|
10,528,613 | |||||||
|
Acquisition costs payable
|
(12,000,000 | ) | ||||||
|
To recognize the 10% minority interests of the equity in Sanfan.
|
||||||||
|
Minority interest
|
(163,487 | ) | ||||||
|
Paid in capital
|
14,631 | |||||||
|
Retained earnings
|
148,765 | |||||||
|
Other comprehensive income
|
92 | |||||||
|
To recognize the goodwill occurred during the acquisition of Jinxinglong and eliminate the long term equity investments
|
||||||||
|
Goodwill and identifiable intangible assets
|
7,770,639 | |||||||
|
Acquisition costs payable
|
(15,000,000 | ) | ||||||
|
Paid in capital
|
388,014 | |||||||
|
Retained earnings
|
4,102,442 | |||||||
|
Other comprehensive income
|
87,922 | |||||||
* Adjustment subject to finalization to valuation and possible adjusts to recognize intangible assets
7
