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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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WASHINGTON,
DC 20549
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FORM
8-K
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AMENDMENT
NO. 1
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CURRENT
REPORT PURSUANT
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TO
SECTION 13 OR 15(D) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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Date
of report (Date of earliest event reported) December 7,
2009
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NEW
ENERGY SYSTEMS GROUP
(Exact
name of registrant as specified in the Charter)
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Nevada
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000-49715
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91-2132336
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(State
or other jurisdiction of
incorporation
or organization)
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(Commission
File No.)
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(IRS
Employee Identification No.)
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116
West 23rd St.,
5th
FL
New
York, NY 10011
(Address
of Principal Executive Offices)
917-573-0302
(Issuer
Telephone number)
A-3
Xinglian Industrial Zone
He
Hua Ling, Pingxin Road, Xin Nan, Ping Hu Town
Longgang,
Shenzhen China
(Former
name or former address if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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1
Item
2.01 Completion of Acquisition or Disposition
of Assets.
On December 7, 2007, New Energy Systems
Group (the “Company”) closed the transactions contemplated by the share exchange
agreement (the “Share Exchange Agreement”) dated November 19, 2009
with Anytone International (H.K.) Co., Ltd. (“Anytone International”) and
Shenzhen Anytone Technology Co., Ltd. (“Anytone”). Pursuant to the
Share Exchange Agreement, the Company acquired Anytone International and thereby
indirectly acquired Anytone International’s Chinese operating subsidiary
Anytone. Further information about the Share Exchange Agreement was
provided above under Item 1.01 of the Current Report filed by the Company on
November 19, 2009.
Pursuant to the Share Exchange
Agreement, the Company issued to the shareholders of Anytone International,
proportionally among the Anytone International Shareholders in accordance with
their respective ownership interests in Anytone International immediately before
the closing of the Share Exchange, an aggregate of 3,593,939 shares of the
Company’s Common Stock with a restrictive legend, and agreed to pay US
$10,000,000. As of today, $5,000,000 has been paid; the parties have
agreed that the remaining $5,000,000 will be paid on or before June 30, 2010
with no interest.
There were no material relationships
between the Company or its affiliates and any of the parties to the Share
Exchange Agreement, other than in respect of the Share Exchange
Agreement.
Item 3.02 Unregistered
Sales of Equity Securities
Pursuant to the Share Exchange
Agreement, on December 7, 2009, we issued 3,593,939 shares of our Common Stock.
Such securities were not registered under the Securities Act of 1933. The
issuance of these shares was exempt from registration, in part pursuant to
Regulation S under the Securities Act of 1933 and in part pursuant to Section
4(2) of the Securities Act of 1933. We made this determination based on the
representations of the Anytone International Shareholders which included, in
pertinent part, that such shareholders were not a "U.S. person" as that term is
defined in Rule 902(k) of Regulation S under the Act, and that such shareholders
were acquiring our common stock, for investment purposes for their own
respective accounts and not as nominees or agents, and not with a view to the
resale or distribution thereof, and that these Shareholders understood that the
shares of our common stock may not be sold or otherwise disposed of without
registration under the Securities Act or an applicable exemption
therefrom.
Item
9.01. Financial
Statements and Exhibits.
The
following financial statements are hereby included as part of this Current
Report.
(a) Financial
Statements.
Report of
Independent Registered Public Accounting Firm
Balance
Sheets at December 31, 2008 and 2007
Statements
of Income and Comprehensive Income for the Years Ended December 31, 2008
and 2007
Statements
of Stockholders’ Equity for the Years Ended December 31, 2008 and
2007
Statements
of Cash Flows for the Years Ended December 31, 2008 and 2007
Notes to
Financial Statements
2
(b) Financial
Statements.
Balance
Sheets as of September 30, 2009 and December 31, 2008
Statement
of Income and Comprehensive Income for the Nine Months Ended September 30, 2009
and
2008
Statement
of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
Notes to
Financial Statements
(c)
Pro forma financial
information.
Pro Forma Consolidated Financial
Statements:
Pro Forma Consolidated Balance Sheet as
of September 30, 2009
Pro Forma Consolidated Statements of
Income and Comprehensive Income for the Nine Months Ended September 30,
2009
Pro Forma Consolidated Statements of
Income and Comprehensive Income for the Year Ended December 31,
2008
Notes to
Pro Forma Consolidated Financial Statements
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(d)
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Exhibits:
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10.1
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Share
Exchange Agreement dated November 19, 2009 between New Energy Systems
Group, Anytone International (H.K.) Co., Ltd. and Shenzhen Anytone
Technology Co., Ltd.*
*
Filed as an exhibit to the Form 8-K of the Company filed with the SEC on
November 19, 2009.
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99.1
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Press
Release dated December 7, 2009.*
*
Filed as an exhibit to the Form 8-K of the Company filed with the SEC on
December 8, 2009.
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3
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this amended report to be signed on its behalf by the undersigned
hereunto duly authorized.
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NEW
ENERGY SYSTEMS GROUP
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Date:
February 16, 2010
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By:
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/s/
Fushun Li
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Name: Fushun
Li
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Title:
Chief Executive Officer and
Director
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4
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
FINANCIAL
STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
Contents
| Page | |
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Report
of Independent Registered Public Accounting Firm
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F-1
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Financial
Statements:
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Balance
Sheets as of December 31, 2008 and 2007
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F-2
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Statements
of Income and Comprehensive Income
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For
the years ended December 31, 2008 and 2007
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F-3
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Statement
of Stockholders' Equity
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For
the years ended December 31, 2008 and 2007
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F-4
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Statement
of Cash Flows
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For
the years ended December 31, 2008 and 2007
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F-5
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Notes
to Financial Statements
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F-6-F-14
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Report of
Independent Registered Public Accounting Firm
Board of
Directors and Stockholders of
Anytone
International (H.K.) Co., Ltd.
We have
audited the accompanying balance sheets of Shenzhen Anytone Technology Co., Ltd.
as of December 31, 2008 and 2007, and the related statements of income and
comprehensive income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 audit 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 internal control
over financial reporting. Our audit 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 financial statements referred to above present fairly, in all
material respects, the financial position of Shenzhen Anytone Technology Co.,
Ltd. as of December 31, 2008 and 2007, and the results of its operations
and cash flows for the years then ended, in conformity with U.S. generally
accepted accounting principles.
Goldman
Parks Kurland Mohidin, LLP
Encino,
California
November
12, 2009
F-1
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SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
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BALANCE
SHEETS
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ASSETS
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December
31, 2008
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December
31, 2007
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CURRENT
ASSETS
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Cash
& cash equivalents
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$ | 2,367,127 | $ | 493,823 | ||||
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Prepaid expenses
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- | 5,313 | ||||||
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VAT
receivable
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59,399 | 7,593 | ||||||
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Inventory
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599,647 | 214,467 | ||||||
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Total
current assets
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3,026,173 | 721,196 | ||||||
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PROPERTY
AND EQUIPMENT, net
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23,161 | 15,212 | ||||||
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DEPOSITS
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26,550 | 1,675 | ||||||
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TOTAL
ASSETS
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$ | 3,075,884 | $ | 738,083 | ||||
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LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT
LIABILITIES
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Accounts
payable
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$ | 739,239 | $ | 297,340 | ||||
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Accrued liabilities and other payables
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54,237 | 42,224 | ||||||
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Income
tax payable
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101,984 | - | ||||||
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Dividends payable
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1,374,819 | - | ||||||
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Advance from shareholder
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36,258 | 455,241 | ||||||
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Total
current liabilities
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2,306,537 | 794,805 | ||||||
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CONTINGENCIES
AND COMMITMENTS
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||||||||
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STOCKHOLDERS'
EQUITY (DEFICIT)
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||||||||
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Paid
in capital
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498,768 | 124,403 | ||||||
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Statutory reserve
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238,755 | - | ||||||
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Accumulated
other comprehensive income (loss)
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31,824 | (48,684 | ) | |||||
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Retained
earnings (accumulated deficit)
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- | (132,441 | ) | |||||
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Total
stockholders' equity (deficit)
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769,347 | (56,722 | ) | |||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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$ | 3,075,884 | $ | 738,083 | ||||
The accompanying notes are an integral part of
these financial statements.
F-2
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SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
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STATEMENTS
OF INCOME AND COMPREHENSIVE INCOME
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FOR
THE YEARS ENDED
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||||||||
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DECEMBER
31,
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||||||||
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2008
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2007
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Net
sales
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$ | 10,081,842 | $ | 4,207,315 | ||||
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Cost
of goods sold
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(7,326,989 | ) | (2,951,899 | ) | ||||
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Gross
profit
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2,754,853 | 1,255,416 | ||||||
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Operating
expenses
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Selling
expenses
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(235,170 | ) | (207,183 | ) | ||||
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General
and administrative expenses
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(379,697 | ) | (217,897 | ) | ||||
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Total
operating expenses
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(614,867 | ) | (425,080 | ) | ||||
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Income
from operations
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2,139,986 | 830,336 | ||||||
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Non-operating
income (expenses)
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Interest
income
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5,733 | 750 | ||||||
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Financial
expense
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(1,056 | ) | (944 | ) | ||||
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Total
non-operating income (expenses)
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4,677 | (194 | ) | |||||
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Income
before income taxes
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2,144,663 | 830,142 | ||||||
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Income
tax expense
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(349,398 | ) | - | |||||
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Net
income
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1,795,265 | 830,142 | ||||||
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Other
comprehensive item
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||||||||
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Foreign
currency translation
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80,508 | (24,796 | ) | |||||
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Comprehensive
Income
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$ | 1,875,773 | $ | 805,346 | ||||
The accompanying notes are an integral part of
these financial statements.
F-3
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SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
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STATEMENT
OF SHAREHOLDERS' EQUITY
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||||||||||||||||||||
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FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
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Paid
in capital
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Statutory
reserves
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Other
comprehensive income (loss)
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(Accumulated
deficit) / Retained earnings
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Total
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||||||||||||||||
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Balance
at January 1, 2007
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$ | 124,403 | $ | - | $ | (23,888 | ) | $ | (962,583 | ) | $ | (862,068 | ) | |||||||
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Net
income for the year
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- | - | - | 830,142 | 830,142 | |||||||||||||||
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Foreign
currency translation gain (loss)
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- | - | (24,796 | ) | - | (24,796 | ) | |||||||||||||
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Balance
at December 31, 2007
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124,403 | - | (48,684 | ) | (132,441 | ) | (56,722 | ) | ||||||||||||
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Capital
contribution by shareholders
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374,365 | - | - | - | 374,365 | |||||||||||||||
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Net
income for the year
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- | - | - | 1,795,265 | 1,795,265 | |||||||||||||||
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Transfer
to statutory reserves
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- | 238,755 | - | (238,755 | ) | - | ||||||||||||||
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Dividend
declared
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- | - | - | (1,424,069 | ) | (1,424,069 | ) | |||||||||||||
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Foreign
currency translation gain
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- | - | 80,508 | - | 80,508 | |||||||||||||||
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Balance
at December 31, 2008
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$ | 498,768 | $ | 238,755 | $ | 31,824 | $ | - | $ | 769,347 | ||||||||||
The accompanying notes are an integral part of
these financial statements.
F-4
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SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
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STATEMENTS
OF CASH FLOWS
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||||||||
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FOR
THE YEARS ENDED
|
||||||||
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DECEMBER
31,
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||||||||
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2008
|
2007
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
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Net
income
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$ | 1,795,265 | $ | 830,142 | ||||
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Adjustments to reconcile net income to net cash provided
by operating activities:
|
||||||||
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Depreciation and amortization
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5,186 | 3,408 | ||||||
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(Increase)
decrease in current assets:
|
||||||||
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Prepaid
expenses
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7,339 | (6,702 | ) | |||||
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Deposits
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(26,128 | ) | 1,607 | |||||
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VAT
receivable
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(50,479 | ) | (11,834 | ) | ||||
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Inventory
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(364,847 | ) | (169,103 | ) | ||||
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Increase (decrease) in
current liabilities:
|
||||||||
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Accounts payable
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415,175 | 133,887 | ||||||
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Accrued liabilities and other payables
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9,026 | (68,909 | ) | |||||
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Income tax payable
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100,361 | - | ||||||
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Net
cash provided by operating activities
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1,890,898 | 712,496 | ||||||
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CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
| Acquisition of property & equipment | (12,002 | ) | (3,309 | ) | ||||
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Net
cash used in investing activities
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(12,002 | ) | (3,309 | ) | ||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
| Repayment on shareholder advance | (442,470 | ) | (329,249 | ) | ||||
| Capital contribution | 374,365 | - | ||||||
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Net
cash used in financing activities
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(68,105 | ) | (329,249 | ) | ||||
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EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
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62,513 | 22,585 | ||||||
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NET
INCREASE IN CASH & CASH EQUIVALENTS
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1,873,304 | 402,523 | ||||||
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CASH
& CASH EQUIVALENTS, BEGINNING OF YEAR
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493,823 | 91,300 | ||||||
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CASH
& CASH EQUIVALENTS, END OF YEAR
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$ | 2,367,127 | $ | 493,823 | ||||
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Supplemental
Cash flow data:
|
||||||||
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Income
tax paid
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$ | 249,036 | $ | - | ||||
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Interest
paid
|
$ | - | $ | - | ||||
The accompanying notes are an integral part of
these financial statements.
F-5
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
NOTES
TO THE FINANICAL STATEMENTS
DECEMBER
31, 2008 AND 2007
1.
ORGANIZATION AND DISCRIPTION OF BUSINESS
Shenzhen
Anytone Technology Co., Ltd. (the “Company” or “Anytone”) was incorporated in
Guangdong Province, People’s Republic of China (“PRC”) in 2000. Anytone engages
in research, manufacture and sales of power supplies and batteries for mobile
phones, laptops, solar and AC/DC.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements were prepared in conformity with United States
generally accepted accounting principles (“US GAAP”). The Company’s
functional currency is the Chinese Renminbi; however the accompanying financial
statements were translated and presented in United States Dollars
(“USD”).
Use
of Estimates
In
preparing financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories. Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves.
The
Company normally delivered the finished good to its customers while receiving
the payments at the same time. There were no accounts receivable at December 31,
2008 and 2007.
Inventories
Inventories
are valued at a lower cost or net realization value with cost determined on a
weighted average basis. Management compares the cost of inventories with the net
realization value and allowance is made for writing down their inventories to
net realization value, if lower.
F-6
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation is removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with a 5% salvage value and estimated lives
of 5 years.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, 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.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes on January 1, 2007. As a result of the
implementation of FIN 48, the Company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards established
by FIN 48. As a result of the implementation of Interpretation 48, the Company
recognized no material adjustments to liabilities or stockholders’ equity. When
tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained
upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition threshold are
measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken that exceeds the
amount measured as described above is reflected as a liability for unrecognized
tax benefits in the accompanying balance sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon
examination. Interest associated with unrecognized tax benefits are classified
as interest expense and penalties are classified in selling, general and
administrative expenses in the statements of income. At December 31, 2008 and
2007, the Company did not take any uncertain positions that would necessitate
recording of tax related liability.
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with Securities and
Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104. Sales
revenue is recognized at the date of shipment to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectability is reasonably assured. No revenue is recognized if
there are significant uncertainties regarding the recovery of the consideration
due, the possible return of goods, or when the amount of revenue and the costs
incurred or to be incurred in respect of the transaction cannot be measured
reliably. Payments received before all of the relevant criteria for revenue
recognition are recorded as unearned revenue.
F-7
Sales
revenue represents the invoiced value of goods, net of value-added tax (VAT).
All of the Company’s products that are sold in the PRC are subject to Chinese
value-added tax of 17% of the gross sales price. This VAT may be offset by VAT
paid by the Company on raw materials and other materials included in the cost of
producing the finished product. The Company records VAT payable and VAT
receivable net of payments in the financial statements. The VAT tax return is
filed offsetting the payables against the receivables. Sales and
purchases are recorded net of VAT collected and paid as the Company acts as
an agent for the government.
Cost
of Revenue
Cost of
goods sold consists primarily of material costs, labor costs, and related
overhead which are directly attributable to the production of the
products. Write-down of
inventory to lower of cost or net realizable value is also recorded in cost of
goods sold.
Concentration
of Credit Risk
The
operations of the Company are located in the PRC. Accordingly, the
Company's business, financial condition, and results of operations may be
influenced by the political, economic, and legal environments in the PRC, as
well as by the general state of the PRC economy.
Statement
of Cash Flows
In
accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
Company's operations are calculated based upon local currencies. As a
result, amounts related to assets and liabilities reported on the statement of
cash flows may not necessarily agree with changes in the corresponding balances
on the balance sheet.
Basic
and Diluted Net Income per Share
The
Company is a limited company formed under the laws of the PRC. Like limited
liability companies (LLC) in the United States, limited companies in the PRC do
not issue shares to the owners. The owners however, are called
shareholders. Ownership interest is determined in proportion to capital
contributed. Accordingly, earnings per share data are not
presented.
Fair
Value of Financial Instruments
SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires the
Company disclose estimated fair values of financial instruments. The
carrying amounts reported in the statements of financial position for current
assets and current liabilities qualifying as financial instruments are a
reasonable estimate of fair value.
Foreign
Currency Translation and Comprehensive Income
The
Company’s functional currency is the Renminbi (RMB). For financial reporting
purposes, RMB were translated into United States dollars (USD) as the reporting
currency. Assets and liabilities are translated at the exchange rate in effect
at the balance sheet date. Revenues and expenses are translated at the average
rate of exchange prevailing during the reporting period. Translation adjustments
arising from the use of different exchange rates from period to period are
included as a component of stockholders' equity as "Accumulated other
comprehensive income (loss)". Gains and losses resulting from foreign
currency
transactions are included in income. There was no significant fluctuation in
exchange rate for the conversion of RMB to USD after the balance sheet
date.
F-8
The
Company uses SFAS 130 “Reporting Comprehensive Income”. Comprehensive income is
comprised of net income and all changes to the statements of stockholders’
equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders. Comprehensive income for the years
ended December 31, 2008 and 2007 included net income and foreign currency
translation adjustments.
Segment
Reporting
SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
requires use of the “management approach” model for 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.
SFAS 131
has no effect on the Company's financial statements as substantially all of the
Company's operations are conducted in one industry segment. The
Company consists of one reportable business segment. All of the
Company's assets are located in the PRC.
New
Accounting Pronouncements
The Hierarchy of Generally
Accepted Accounting Principles
In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS 162 identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with USA GAAP in the United States (the GAAP hierarchy). SFAS
162 adoption did not have an impact on the Company’s financial
statements.
Determination of the Useful
Life of Intangible Assets
In
April 2008, the FASB issued FASB Staff Position FAS 142-3, “Determination
of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),
and requires additional disclosures. The objective of FSP FAS 142-3 is to
improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141 (R), “Business Combinations” (“SFAS 141(R)”),
and other accounting principles generally accepted in the USA. FSP FAS 142-3
applies to all intangible assets, whether acquired in a business combination or
otherwise and shall be effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those
fiscal years. The guidance for determining the useful life of intangible assets
shall be applied prospectively to intangible assets acquired after the effective
date. The disclosure requirements apply prospectively to all intangible assets
recognized as of, and subsequent to, the effective date. Early adoption is
prohibited.
F-9
Fair value of
measurements
On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements,” SFAS 157 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosures requirements for fair value measurements. The three levels are
defined as follow:
|
▪
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
▪
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
▪
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
As of
December 31, 2008, the Company did not identify any assets and liabilities that
are required to be presented on the balance sheet at fair value.
Non-Controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No.
51
In
December 2007, FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51." SFAS 160
establishes new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a non-controlling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent’s equity. The amount of net income attributable to
the non-controlling interest
will be included in consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement requires
that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its non-controlling interest. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company expects SFAS 160 will have an impact on
accounting for business combinations, but the effect is dependent upon
acquisitions at that time.
Business
Combinations
SFAS 141
(Revised 2007), Business Combinations (SFAS 141(R)), is effective for the
Company for business combinations for which the acquisition date is on or after
January 1, 2009. SFAS 141(R) changes how the acquisition method is applied in
accordance with SFAS 141. The primary revisions to this Statement require an
acquirer in a business combination to measure assets acquired, liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, at their fair values as of that date, with limited exceptions specified in
the Statement. This Statement also requires the acquirer in a business
combination achieved in stages to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full
amounts of their fair values (or other amounts determined in accordance with the
Statement). Assets acquired and liabilities assumed arising from contractual
contingencies as of the acquisition date are to be
measured at their acquisition-date fair values, and assets or liabilities
arising from all other contingencies as of the acquisition date are to be
measured at their acquisition-date fair value, only if it is more likely than
not that they meet the definition of an asset or a liability in FASB Concepts
Statement No. 6, Elements of Financial Statements. This Statement significantly
amends other Statements and authoritative guidance, including FASB
Interpretation No. 4, Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method, and now requires the
capitalization of research and development assets acquired in a business
combination at their acquisition-date fair values, separately from goodwill.
FASB Statement No. 109, Accounting for Income Taxes, was also amended by this
Statement to require the acquirer to recognize changes in the amount of its
deferred tax benefits that are recognizable because of a business combination
either in income from continuing operations in the period of the combination or
directly in contributed capital, depending on the circumstances. The Company
expects SFAS 141R will have a significant impact on accounting for business
combinations, but the effect is dependent upon acquisitions at that
time.
F-10
Accounting for
Non-Refundable Advance Payments for Goods or Services Received for Use in Future
Research and Development Activities
In June
2007, FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities,” which addresses whether non-refundable
advance payments for goods or services that used or rendered for research and
development activities should be expensed when the advance payment is made or
when the research and development activity has been performed. EITF 07-03
is effective for fiscal years beginning after December 15, 2008. The
adoption of EITF 07-03 did not have a significant impact on the Company’s
financial statements.
3.
INVENTORY
Inventory
at December 31, 2008 and 2007 consisted of raw material at December 31, 2008 and
2007 was $599,647 and $214,467, respectively.
4.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following at December 31, 2008 and 2007,
respectively:
| 2008 | 2007 | |||||||
| Office equipment and machinery | $ | 34,339 | $ | 20,747 | ||||
| Less: Accumulated depreciation | (11,178 | ) | (5,535 | ) | ||||
| $ | 23,161 | $ | 15,212 | |||||
Depreciation
expense for the years ended December 31, 2008 and 2007 was $5,186 and $3,408,
respectively.
5.
DEPOSITS
Deposits
for office and exhibition facilities rental at December 31, 2008 and 2007, was
$26,550 and $1,675, respectively.
F-11
6.
CONCENTRATION
The
Company purchased its products from two vendors during 2008 with each vendor
accounting for 26% and 23% of total purchases, respectively. Accounts payable to
these vendors was approximately $404,000 as of December 31, 2008. The
Company had three vendors during 2007 with each vendor accounting for 28%, 13%
and 10% of total purchases, respectively. Accounts payable to these
vendors was approximately $67,000 as of December 31, 2007.
7.
OTHER PAYABLE AND ACCRUED LIABILITIES
Other
payables and accrued liabilities consisted of the following at December 31, 2008
and 2007:
| 2008 | 2007 | |||||||
| Other taxes payable | $ | 2,489 | $ | 1,973 | ||||
| Other payables | 12,971 | 7,024 | ||||||
| Accrued salaries | 38,777 | 33,227 | ||||||
| Total | $ | 54,237 | $ | 42,224 | ||||
8.
ADVANCE FROM SHAREHOLDER
The
Company received a short team advance from shareholder for funding the Company’s
operation needs. At December 31, 2008 and 2007, it was $36,258 and
$455,241, respectively. The advance is payable on demand and is non-interest
bearing.
9.
INCOME TAXES
The
Company is governed by the Income Tax Law of the PRC concerning the private-run
enterprises in special district, which was subject to tax at a statutory rate of
15% before year 2008, and 18% for 2008 on income reported in the statutory
financial statements after appropriated tax adjustments.
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the years ended December 31, 2008 and 2007:
|
2008
|
2007
|
|||||||
|
US
statutory rates
|
34.0
|
%
|
(34.0
|
)%
|
||||
|
Tax
rate difference
|
(16.0
|
)%
|
19.0
|
%
|
||||
|
NOL
utilized
|
(1.7
|
)%
|
-
|
%
|
||||
|
Valuation
allowance
|
-
|
%
|
15.0
|
%
|
||||
|
Tax
per financial statements
|
16.3
|
%
|
-
|
%
|
||||
10.
STATUTORY RESERVES
Pursuant
to the corporate law of the PRC effective January 1, 2006, the Company is now
only required to maintain one statutory reserve by appropriating from its
after-tax profit before declaration or payment of dividends. The statutory
reserve represents restricted retained earnings.
F-12
Surplus reserve
fund
The
Company is now only required to transfer 10% of its net income, as determined
under PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Company’s registered capital. For
the year ended December 31 2008, the Company transferred $238,755 to the
reserve. For the year ended December 31, 2007, the Company transferred $0 to
this reserve as the Company had accumulated deficit at December 31,
2007.
The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.
11.
COMMITMENTS
On July
8, 2005, the Company entered into a five-year, non-cancelable, and renewable
operating lease for its office with an unrelated third party for monthly rent of
approximately $1,450 (RMB 10,222). The lease expires on August 8,
2010.
The
Company leased a warehouse under a long term, non-cancelable, and renewable
operating lease agreement on August 30, 2005 expiring on January 31, 2009 for
monthly rent of approximately $285 (RMB 2,000).
The
Company leased a facility under a long term, non-cancelable, and renewable
operating lease agreement on January 1, 2009 with expiration date on December
30, 2013 for monthly rent of approximately $12,385 (RMB 84,617). Based on the
lease agreement, the Company is exempt from the rent for the first two months
and is required to pay $12,385 (RMB 84,617) monthly for the period from March 1,
2009 to December 30, 2011; the rent is to-be-determined for the period from
January 1, 2012 to December 30, 2013.
Future
minimum rental payments required under this operating lease are as follows as of
December 31, 2008:
| Year ending December 31, | Amount | |||
| 2009 | $ | 166,570 | ||
| 2010 | 158,923 | |||
| 2011 | 148,620 | |||
| 2012 | 148,620 | |||
| 2013 | 148,620 | |||
| Total | $ | 771,353 | ||
Total
rent expense for the years ended December 31, 2008 and 2007 was $23,077 and
$19,880, respectively.
F-13
12.
CONTINGENCIES
The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.
F-14
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
FINANICAL
STATEMENTS
SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
Contents
| Page | |
|
Financial
Statements:
|
|
|
Balance
Sheet as of September 30, 2009 and Year Ended December 31,
2008
|
F-2
|
|
Statements of
Income and Comprehensive Income for the nine Months Ended September 30,
2009
|
F-3 |
|
|
|
| Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 | F-4 |
| Notes to Financial Statements |
F-5
- F-12
|
F-1
|
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
|
||||||||
|
BALANCE
SHEETS
|
||||||||
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
(UNAUDITED)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
& cash equivalents
|
$ | 1,841,366 | $ | 2,367,127 | ||||
|
VAT
receivables
|
- | 59,399 | ||||||
|
Inventory
|
1,098,038 | 599,647 | ||||||
|
Due
from shareholder
|
658,954 | - | ||||||
|
Total
current assets
|
3,598,358 | 3,026,173 | ||||||
|
PROPERTY
AND EQUIPMENT, net
|
44,202 | 23,161 | ||||||
|
DEPOSITS
|
461,511 | 26,550 | ||||||
|
TOTAL
ASSETS
|
$ | 4,104,071 | $ | 3,075,884 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable
|
$ | 1,570,184 | $ | 739,239 | ||||
|
Accrued
liabilities and other payables
|
71,278 | 54,237 | ||||||
|
VAT
payable
|
86,273 | - | ||||||
|
Income
tax payable
|
256,686 | 101,984 | ||||||
|
Dividends
payable
|
872,733 | 1,374,819 | ||||||
|
Advance
from shareholder
|
- | 36,258 | ||||||
|
Total
current liabilities
|
2,857,154 | 2,306,537 | ||||||
|
CONTINGENCIES
AND COMMITMENTS
|
||||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Paid in
capital
|
498,768 | 498,768 | ||||||
|
Statutory
reserves
|
715,478 | 238,755 | ||||||
|
Accumulated
other comprehensive income
|
32,671 | 31,824 | ||||||
|
Retained
earnings
|
- | - | ||||||
|
Total
stockholders' equity
|
1,246,917 | 769,347 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 4,104,071 | $ | 3,075,884 | ||||
The accompanying notes are an integral part of
these financial statements.
F-2
|
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
|
||||||||
|
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
|
||||||||
|
(UNAUDITED)
|
||||||||
|
FOR
THE NINE MONTHS ENDED
|
||||||||
|
SEPTEMBER
30, 2009
|
SEPTEMBER
30, 2008
|
|||||||
|
Net
sales
|
$ | 17,330,544 | $ | 7,463,584 | ||||
|
Cost
of goods sold
|
12,697,048 | 5,428,876 | ||||||
|
Gross
profit
|
4,633,496 | 2,034,708 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
expenses
|
214,633 | 177,411 | ||||||
|
General
and administrative expenses
|
459,207 | 281,424 | ||||||
|
Total
operating expenses
|
673,840 | 458,835 | ||||||
|
Income
from operations
|
3,959,656 | 1,575,873 | ||||||
|
Non-operating
income (expenses)
|
||||||||
|
Interest
income
|
13,351 | 3,431 | ||||||
|
Financial
expense
|
(313 | ) | (864 | ) | ||||
|
Total
non-operating expenses
|
13,038 | 2,567 | ||||||
|
Income
before income tax
|
3,972,694 | 1,578,440 | ||||||
|
Income
tax expense
|
794,539 | 247,678 | ||||||
|
Net
income
|
3,178,155 | 1,330,762 | ||||||
|
Other
comprehensive income
|
||||||||
|
Foreign
currency translation gain
|
847 | 28,279 | ||||||
|
Comprehensive
Income
|
$ | 3,179,002 | $ | 1,359,041 | ||||
The accompanying notes are an integral part of
these financial statements.
F-3
|
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
|
||||||
|
STATEMENTS
OF CASH FLOWS
|
||||||
|
(UNAUDITED)
|
||||||
|
FOR
THE NINE MONTHS ENDED
|
||||||
|
SEPTEMBER
30, 2009
|
SEPTEMBER
30, 2008
|
|||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||
|
Net
income
|
$ |
3,178,155
|
$ |
1,330,762
|
||
|
Adjustments
to reconcile net income to net cash
|
||||||
|
provided
by operating activities:
|
||||||
|
Depreciation
and amortization
|
7,761
|
3,571
|
||||
|
(Increase)
decrease in current assets:
|
||||||
|
Prepaid
expenses
|
-
|
7,299
|
||||
|
Inventory
|
(497,674
|
) |
(12,886
|
) | ||
|
Increase
(decrease) in current liabilities:
|
||||||
|
Accounts
payable
|
829,962
|
4,023
|
||||
|
Accrued
liabilities and other payables
|
16,989
|
9,350
|
||||
|
VAT payable
|
145,654
|
43,433
|
||||
|
Income
tax payable
|
154,547
|
91,881
|
||||
|
Net
cash provided by operating activities
|
3,835,394
|
1,477,433
|
||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||
|
Acquisition
of property and equipment
|
(28,773
|
) |
(11,292
|
) | ||
|
Increase
in deposits
|
(434,742
|
) |
(1,750
|
) | ||
|
Net
cash used in investing activities
|
(463,515
|
) |
(13,042
|
) | ||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||
|
Dividend
payable
|
(3,204,417
|
) |
-
|
|||
|
Due
from shareholder
|
(694,925
|
) |
(389,363
|
) | ||
|
Net
cash used in financing activities
|
(3,899,342
|
) |
(389,363
|
) | ||
|
EFFECT
OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS
|
1,702
|
60,568
|
||||
|
NET
(DECREASE) INCREASE IN CASH & CASH EQUIVALENTS
|
(525,761
|
) |
1,135,596
|
|||
|
CASH
& CASH EQUIVALENTS, BEGINNING OF PERIOD
|
2,367,127
|
493,823
|
||||
|
CASH
& CASH EQUIVALENTS, END OF PERIOD
|
$ |
1,841,366
|
$ |
1,629,419
|
||
|
Supplemental
Cash flow data:
|
||||||
|
Income
tax paid
|
$ |
794,539
|
$ |
247,678
|
||
|
Interest
paid
|
$ |
-
|
$ |
-
|
||
The accompanying notes are an integral part of
these financial statements.
F-4
SHENZHEN
ANYTONE TECHNOLOGY CO., LTD.
NOTES
TO THE FINANICAL STATEMENTS
SEPTEMBER
30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Shenzhen
Anytone Technology Co., Ltd. (the “Company” or “Anytone”) was incorporated in
Guangdong Province, People’s Republic of China (“PRC”) in 2000. Anytone engages
in research, manufacture and sell of power supplies and batteries for mobile
phones, laptops, solar and AC/DC.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements were prepared in conformity with United States
generally accepted accounting principles (“US GAAP”). The Company’s functional
currency is the Chinese Renminbi; however the accompanying financial
statements were translated and presentation in United States Dollars
(“USD”).
Use
of Estimates
In
preparing financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories. Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Accounts
Receivable
The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves.
The
Company normally delivers finished goods to its customers while receiving
payment at the same time. Thus there were no trade receivable balance at the
date of the Balance Sheet; and the accounts receivable allowance was
$0.
Inventories
Inventories
are valued at a lower cost or net realization value with cost determined on a
weighted average basis. Management compares the cost of inventories with the net
realization value and allowance is made for writing down their inventories to
net realization value, if lower.
F-5
Property and
Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures
for maintenance and repairs are expensed as incurred; additions, renewals and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation is removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with a 5% salvage value and estimated lives
of five years.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” (codified in FASB
ASC Topic 740), which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, 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.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, (codified in FASB ASC Topic 740) on January 1,
2007. As a result of the implementation of FIN 48, the Company made a
comprehensive review of its portfolio of tax positions in accordance with
recognition standards established by FIN 48. As a result of the implementation
of Interpretation 48, the Company recognized no material adjustments to
liabilities or stockholders’ equity. When tax returns are filed, it is highly
certain that some positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty about the merits of
the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial
statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other
positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that
exceeds the amount measured as described above is reflected as a liability for
unrecognized tax benefits in the accompanying balance sheets along with any
associated interest and penalties that would be payable to the taxing
authorities upon examination. Interest associated with unrecognized tax benefits
are classified as interest expense and penalties are classified in selling,
general and administrative expenses in the statements of income. At September
30, 2009 and December 31, 2008, the Company did not take any uncertain positions
that would necessitate recording of tax related liability.
Revenue
Recognition
The
Company's revenue recognition policies are in compliance with Securities and
Exchange Commission (SEC) Staff Accounting Bulletin (“SAB”) 104, (codified in
FASB ASC Topic 480). Sales revenue is recognized at the date of
shipment to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectability is reasonably assured. No revenue is
recognized if there are significant uncertainties regarding the recovery of the
consideration due, the possible return of goods, or when the amount of revenue
and the costs incurred or to be incurred in respect of the transaction cannot be
measured reliably. Payments received before all of the relevant criteria for
revenue recognition are recorded as unearned revenue.
Sales
revenue represents the invoiced value of goods, net of value-added tax (“VAT”).
All of the Company’s products that are sold in the PRC are subject to Chinese
value added tax of 17% of the gross sales price. This VAT may be offset by VAT
paid by the Company on raw materials and other materials included in the cost of
producing the finished product. The Company records VAT payable and VAT
receivable net of payments in the financial statements. The VAT tax return is
filed offsetting the payables against the receivables. Sales and purchases are
recorded net of VAT collected and paid as the Company acts as an agent for the
government.
F-6
Cost
of Revenue
Cost of
goods sold consists primarily of material costs, labor costs, and related
overhead which are directly attributable to the production of the
products. Write-down of inventory to lower of cost or net realizable value
is also recorded in cost of goods sold.
Concentration
of Credit Risk
The
operations of the Company are located in the PRC. Accordingly, the
Company's business, financial condition, and results of operations may be
influenced by the political, economic, and legal environments in the PRC, as
well as by the general state of the PRC economy.
Statement
of Cash Flows
In
accordance with SFAS No. 95, “Statement of Cash Flows,” (codified in FASB ASC
Topic 230), cash flows from the Company's operations are calculated based upon
local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows may not necessarily agree
with changes in the corresponding balances on the balance sheet.
Basic
and Diluted Net Income per Share
The
Company is a limited company formed under the laws of the PRC. Like limited
liability companies in the United States, limited companies in the PRC do
not issue shares to the owners. The owners however, are called
shareholders. Ownership interest is determined in proportion to capital
contributed. Accordingly, earnings per share data are not
presented.
Fair
Value of Financial Instruments
SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” (codified in FASB
ASC Financial Instruments, Topic 825), requires the Company disclose estimated
fair values of financial instruments. The carrying amounts reported
in the statements of financial position for current assets and current
liabilities qualifying as financial instruments are a reasonable estimate of
fair value.
Foreign
Currency Translation and Comprehensive Income
The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB has been translated into USD as the reporting currency. Assets and
liabilities are translated at the exchange rate in effect at the balance sheet
date. Revenues and expenses are translated at the average rate of exchange
prevailing during the reporting period. Translation adjustments arising from the
use of different exchange rates from period to period are included as a
component of stockholders' equity as "Accumulated other comprehensive income
(loss)". Gains and losses resulting from foreign currency transactions are
included in income. There was no significant fluctuation in exchange rate for
the conversion of RMB to USD after the balance sheet date.
The
Company uses SFAS 130 “Reporting Comprehensive Income” (codified in FASB ASC
Topic 220). Comprehensive income is comprised of net income and all changes to
the statements of stockholders’ equity, except those due to investments by
stockholders, changes in paid-in capital and distributions to stockholders.
Comprehensive income for the nine months ended September 30, 2009 and 2008
included net income and foreign currency translation adjustments.
F-7
Segment
Reporting
SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(codified in FASB ASC Topic 280) requires use of the “management approach” model
for 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.
SFAS 131
has no effect on the Company's financial statements as substantially all of the
Company's operations are conducted in one industry segment. The
Company consists of one reportable business segment. All of the
Company's assets are located in the PRC.
New
Accounting Pronouncements
On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the Consolidated Financial
Statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), codified as FASB ASC Topic 810-10, which modifies how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. SFAS 167
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. SFAS 167 requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. SFAS 167 also requires additional disclosures about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. SFAS 167 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 167 will have an impact on its financial condition, results of operations
or cash flows.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets — an amendment of FASB Statement No. 140” (“SFAS 166”), codified as FASB
Topic ASC 860, which requires entities to provide more information regarding
sales of securitized financial assets and similar transactions, particularly if
the entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company does not believe the adoption of
SFAS 166 will have an impact on its financial condition, results of operations
or cash flows.
F-8
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”) codified in
FASB ASC Topic 855-10-05, which provides guidance to establish general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued.
SFAS 165 also requires entities to disclose the date through which subsequent
events were evaluated as well as the rationale for why that date was selected.
SFAS 165 is effective for interim and annual periods ending after June 15, 2009,
and accordingly, the Company adopted this pronouncement during the second
quarter of 2009. SFAS 165 requires that public entities evaluate subsequent
events through the date that the financial statements are issued. The Company
has evaluated subsequent events through November 11, 2009.
In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” which is codified in FASB ASC Topic
825-10-50. This FSP essentially expands the disclosure about fair value of
financial instruments that were previously required only annually to also be
required for interim period reporting. In addition, the FSP requires certain
additional disclosures regarding the methods and significant assumptions used to
estimate the fair value of financial instruments. These additional disclosures
are required beginning with the quarter ending June 30, 2009. This
FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which is codified in FASB
ASC Topic 320-10. This FSP modifies the requirements for recognizing
other-than-temporarily impaired debt securities and changes the existing
impairment model for such securities. The FSP also requires additional
disclosures for both annual and interim periods with respect to both debt and
equity securities. Under the FSP, impairment of debt securities will be
considered other-than-temporary if an entity (1) intends to sell the security,
(2) more likely than not will be required to sell the security before recovering
its cost, or (3) does not expect to recover the security’s entire amortized cost
basis (even if the entity does not intend to sell). The FSP further indicates
that, depending on which of the above factor(s) causes the impairment to be
considered other-than-temporary, (1) the entire shortfall of the security’s fair
value versus its amortized cost basis or (2) only the credit loss portion would
be recognized in earnings while the remaining shortfall (if any) would be
recorded in other comprehensive income. FSP 115-2 requires entities to initially
apply the provisions of the standard to previously other-than-temporarily
impaired debt securities existing as of the date of initial adoption by making a
cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. The cumulative-effect adjustment potentially reclassifies
the noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulate other comprehensive income. The Company adopted FSP No. SFAS 115-2
and SFAS 124-2 beginning April 1, 2009. This FSP had no material impact on the
Company’s financial position, results of operations or cash flows.
In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP
No. SFAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (“FSP No. SFAS 157-4”). FSP
No. SFAS 157-4, which is codified in FASB ASC Topics 820-10-35-51 and
820-10-50-2, provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
The Company adopted FSP No. SFAS 157-4 beginning April 1, 2009.
This FSP had no material impact on the Company’s financial position, results of
operations or cash flows.
3.
INVENTORY
Inventory
consisted of raw materials at September 30, 2009 and December 31, 2008 was
$1,098,038 and $599,647, respectively.
4.
PROPERTY AND EQUIPMENT, NET
As of
September 30, 2009 and December 31, 2008, Property and equipment consisted of
the following:
F-9
| September 30, 2009 | December 31, 2008 | |||||
| Office equipment and machinery | $ | 63,153 | $ | 34,339 | ||
| Less: Accumulated depreciation | (18,951 | ) | (11,178 | ) | ||
| $ | 44,202 | $ | 23,161 |
Depreciation
expenses were approximately $7,761 and $3,571 for the nine months ended
September 30, 2009 and 2008 respectively.
5.
DEPOSITS
Deposits
for office and exhibition, facilities rentals at September 30, 2009 and December
31, 2008, were $461,511 and $26,550, respectively.
6.
CONCENTRATION
One
customer accounted for 11.1% of total sales during the nine months ended
September 30, 2009. Accounts receivable from this customer amounted to $0 as of
September 30, 2009. The Company had no major customer for the nine months ended
September 30, 2008.
The
Company purchased its products from two vendors during the nine months ended
September 30, 2009, each accounting for 25.2% and 22.5% of total purchases.
Accounts payable to these vendors amounted to $365,074 and $365,406 as of
September 30, 2009. The Company had two vendors during the nine months ended
September 30, 2008 with each accounting for 24.7% and 23.9% of total
purchases.
7.
OTHER PAYABLE AND ACCRUED LIABILITIES
Other
payables and accrued liabilities consisted of the following at September 30,
2009 and December 31, 2008, respectively:
| September 30, 2009 | December 31, 2008 | |||||||
| Other taxes payable | $ | 14,424 | $ | 2,489 | ||||
| Other payables | 4,344 | 12,971 | ||||||
| Accrued salaries | 52,510 | 38,777 | ||||||
| Total | $ | 71,278 | $ | 54,237 | ||||
8.
RELATED PARTY TRANSACTIONS
At
September 30, 2009, the Company advanced $658,954 to the shareholders for
acquiring certain properties on behalf of the Company. The shareholders repaid
this amount to the Company at the end of 2009 as a result of failure of the
acquisition.
The
Company received a short term advance from a shareholder for the Company’s
operating needs. At September 30, 2009 and December 31, 2008, it was $0 and
$36,258, respectively. The advance was payable on demand and non-interest
bearing.
F-10
9.
INCOME TAXES
The
Company is governed by the Income Tax Law of the PRC concerning the private-run
enterprises in special district, which was subject to tax at a statutory rate of
15% before year 2008, 18% for 2008 and 20% for 2009 on income reported in the
statutory financial statements after appropriated tax adjustments.
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the nine months ended September 30, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
US
statutory rates
|
34.0
|
%
|
34.0
|
%
|
||||
|
Tax
rate difference
|
(14.0
|
)%
|
(16.0
|
)%
|
||||
|
NOL
utilized
|
-
|
%
|
(2.3)
|
%
|
||||
|
Valuation
allowance
|
-
|
%
|
-
|
%
|
||||
|
Tax
per financial statements
|
20.0
|
%
|
15.7
|
%
|
||||
10.
STATUTORY RESERVES
Pursuant
to the corporate law of the PRC effective January 1, 2006, the Company is now
only required to maintain one statutory reserve by appropriating from its
after-tax profit before declaration or payment of dividends. The statutory
reserve represents restricted retained earnings.
Surplus reserve
fund
The
Company is now only required to transfer 10% of its net income, as determined
under PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Company’s registered capital. For
the nine months ended September 30, 2009, the Company transferred approximately
$476,723 to the reserve. For the year ended December 31, 2008, the Company
transferred $238,755 to this reserve.
The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.
11.
COMMITMENTS
On July
8, 2005, the Company entered into a five-year, non-cancelable, and renewable
operating lease for its office with an unrelated third party for monthly rent of
approximately $1,450 (RMB 10,222). The lease expires on August 8,
2010.
The
Company leased a warehouse under a long term, non-cancelable, and renewable
operating lease agreement on August 30, 2005 expiring on January 31, 2009 for
monthly rent of approximately $285 (RMB 2,000).
F-11
The
Company leased a facility under a long term, non-cancelable, and renewable
operating lease agreement on January 1, 2009 with expiration date on December
30, 2013 for monthly rent of approximately $12,385 (RMB 84,617). Based on the
lease agreement, the Company is exempt from the rent for the first two months
and is required to pay $12,385 (RMB 84,617) monthly for the period from March 1,
2009 to December 31, 2011; the rent is to-be-determined for the period from
January 1, 2012 to December 31, 2013.
As of
September 30, 2009, future minimum rental payments required under this operating
lease are as follows:
| Year ending September 30, | Amount | |
| 2010 | $ | 163,100 |
| 2011 | 148,620 | |
| 2012 | 148,620 | |
| 2013 | 148,620 | |
| 2014 | 37,155 | |
| Total future lease payments | 646,115 |
Total
rental expense for the nine months ended September 30, 2009 and 2008 was
$106,432 and $16,401, respectively.
12.
CONTINGENCIES
The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The RMB
is not freely convertible into foreign currencies under the current law. In
China, foreign exchange transactions are required by law to be transacted only
by authorized financial institutions. Remittances in currencies other than RMB
may require certain supporting documentation in order to affect the
remittance.
F-12
NEW
ENGEGY SYSTEMS GROUP AND
ANYTONE
INTERNATIONAL (H.K.) CO., LTD
PRO
FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Contents
| Page | ||
|
Pro
Forma Consolidated Financial Statements:
|
||
|
Pro
Forma Consolidated Balance Sheet
|
||
|
as
of September 30, 2009
|
F-2
|
|
|
Pro
Forma Consolidated Statement of Income and Comprehensive
Income
|
||
|
for
the Nine Months Ended September 30, 2009
|
F-3
|
|
|
Pro
Forma Consolidated Statement of Income and Comprehensive
Income
|
||
|
for
the Year Ended December 31, 2008
|
F-3
|
|
|
Notes
to Pro Forma Consolidated Financial Statements
|
F-4
|
|
F-1
NEW
ENGEGY SYSTEMS GROUP AND
ANYTONE
INTERNATIONAL (H.K.) CO., LTD
PRO
FORMA CONSOLIDATED BALANCE SHEET
AS
OF SEPTEMBER 30, 2009
(UNAUDITED)
|
|
|||||||||||||||||
|
New
Energy
|
Anytone
HK
|
Pro
Forma
|
Pro
Forma
|
||||||||||||||
| (1) | (2) |
Adjustments
|
Consolidated
|
||||||||||||||
|
(historical)
|
(historical)
|
||||||||||||||||
|
ASSETS
|
|||||||||||||||||
|
CURRENT
ASSETS
|
|||||||||||||||||
|
Cash
and cash equivalents
|
$ | 9,453,933 | $ | 2,041,337 | $ | (5,000,000 | ) | B | $ | 6,495,270 | |||||||
|
Accounts
receivable, net
|
6,455,354 | - | - | 6,455,354 | |||||||||||||
|
Advance
to employee
|
- | 434,983 | - | 434,983 | |||||||||||||
|
Due
from shareholder
|
- | 921,303 | - | 921,303 | |||||||||||||
|
Inventory
|
208,026 | 1,098,038 | - | 1,306,064 | |||||||||||||
|
TOTAL
CURRENT ASSETS
|
16,117,313 | 4,495,661 | (5,000,000 | ) | 15,612,974 | ||||||||||||
|
NONCURRENT
ASSETS
|
|||||||||||||||||
|
Property
and equipment, net
|
694,465 | 44,202 | - | 738,667 | |||||||||||||
|
Deposit
|
26,528 | - | 26,528 | ||||||||||||||
|
Intangible
assets
|
810,352 | - | 15,162,518 | C | 15,972,870 | ||||||||||||
|
Goodwill
|
- | - | 19,848,063 | A | 19,848,063 | ||||||||||||
|
TOTAL
NONCURRENT ASSETS
|
1,504,817 | 70,730 | 35,010,581 | 36,586,128 | |||||||||||||
|
TOTAL
ASSETS
|
$ | 17,622,130 | $ | 4,566,391 | $ | 30,010,581 | $ | 52,199,102 | |||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||||||||||||
|
CURRENT
LIABILITIES
|
|||||||||||||||||
|
Accounts
payable
|
$ | 2,662,632 | $ | 1,570,184 | $ | - | $ | 4,232,816 | |||||||||
|
Accrued
liabilities and other payables
|
- | 71,730 | - | 71,730 | |||||||||||||
|
Tax
payable
|
360,486 | 342,959 | - | 703,445 | |||||||||||||
|
Loan
payable to related party
|
174,600 | 498,768 | - | 673,368 | |||||||||||||
|
Dividends
payable
|
- | 872,733 | - | 872,733 | |||||||||||||
|
Note
payable
|
- | - | 5,000,000 | B | 5,000,000 | ||||||||||||
|
TOTAL
CURRENT LIABILITIES
|
3,197,718 | 3,356,374 | 5,000,000 | 11,554,092 | |||||||||||||
|
DEFERRED
TAX LIABILITY
|
- | - | 3,032,503 | D | 3,032,503 | ||||||||||||
|
STOCKHOLDERS'
EQUITY
|
|||||||||||||||||
|
Preferred
Stock
|
7,576 | - | - | 7,576 | |||||||||||||
|
Common
Stock
|
5,446 | - | 3,594 | A | 9,040 | ||||||||||||
|
Additional
paid in capital
|
16,999,362 | 464,642 | 22,719,858 | A | 40,183,862 | ||||||||||||
|
Statutory
reserve
|
994,429 | 715,478 | (715,478 | ) | A | 994,429 | |||||||||||
|
Accumulated
other comprehensive income
|
1,078,457 | 32,419 | (32,418 | ) | A | 1,078,458 | |||||||||||
|
Accumulated
deficit
|
(4,660,858 | ) | (2,522 | ) | 2,522 | A | (4,660,858 | ) | |||||||||
|
TOTAL
STOCKHOLDERS' EQUITY
|
14,424,412 | 1,210,017 | 21,978,078 | 37,612,507 | |||||||||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 17,622,130 | $ | 4,566,391 | $ | 30,010,581 | $ | 52,199,102 | |||||||||
|
(1)(1)((1)
|
Source: unaudited
financial statements of New Energy Systems Group (FKA: China Digital
Communication Group Co. Inc.) as of September 30, 2009 as filed in
Quarterly Report on Form 10Q filed with the SEC on November 17,
2009.
|
|
(2)
|
Source: unaudited
financial statements of Anytone International (H.K.) Co., Ltd. included in
this 8-K.
|
|
(A)
|
Allocation
of the purchase price to the fair value of assets acquired and liabilities
assumed. The excess purchase price of $19,848,063 is allocated
to goodwill.
|
|
(B)
|
Payment
of $5 million and outstanding balance of $5 million for total of $10
million cash portion of the acquisition price.
|
|
(C)
|
Recording
fair value of intangible assets of $15,162,518.
|
|
(D)
|
Deferred
tax liability on intangible assets acquired.
|
|
(E)
|
Reversal
of deferred tax liability arising from the book and tax basis difference
of the intangible assets.
|
|
See
accompanying notes to pro forma consolidated financial
statements.
|
F-2
NEW
ENGEGY SYSTEMS GROUP AND
ANYTONE
INTERNATIONAL (H.K.) CO., LTD
PRO
FORMA CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED)
|
New
Energy
|
Anytone
HK
|
Pro
Forma
|
Pro
Forma
|
||||||||||||||
| (1) | (2) |
Adjustments
|
Consolidated
|
||||||||||||||
|
(historical)
|
(historical)
|
||||||||||||||||
|
Net
Revenue
|
$ | 15,858,311 | $ | 17,330,544 | $ | - | $ | 33,188,855 | |||||||||
|
Cost
of Revenue
|
11,098,279 | 12,697,048 | - | 23,795,327 | |||||||||||||
|
Gross
Profit
|
4,760,032 | 4,633,496 | - | 9,393,528 | |||||||||||||
|
Operating
expenses:
|
|||||||||||||||||
|
Selling
expenses
|
74,697 | 214,633 | - | 289,330 | |||||||||||||
|
General
and administrative expenses
|
319,198 | 459,207 | 1,337,869 | C | 2,116,274 | ||||||||||||
|
Total
operating expenses
|
393,895 | 673,840 | 1,337,869 | 2,405,604 | |||||||||||||
|
Income
from operations
|
4,366,137 | 3,959,656 | (1,337,869 | ) | 6,987,924 | ||||||||||||
|
Non-operating
income (expenses):
|
|||||||||||||||||
|
Interest
income (expense)
|
(66,331 | ) | 13,351 | - | (52,980 | ) | |||||||||||
|
Finance
expenses
|
- | (313 | ) | - | (313 | ) | |||||||||||
|
Miscellaneous
income (expense)
|
1,346 | - | - | 1,346 | |||||||||||||
|
Total
non-operating expenses
|
(64,985 | ) | 13,038 | - | (51,947 | ) | |||||||||||
|
Income
before income tax
|
4,301,152 | 3,972,694 | (1,337,869 | ) | 6,935,977 | ||||||||||||
|
Income
tax
|
445,538 | 794,539 | (267,574) | C | 972,503 | ||||||||||||
|
Net
income
|
3,855,614 | 3,178,155 | (1,070,295 | ) | 5,963,474 | ||||||||||||
|
Other
comprehensive item
|
|||||||||||||||||
|
Foreign
currency translation
|
(65,713 | ) | 847 | - | (64,866 | ) | |||||||||||
|
Comprehensive
Income
|
$ | 3,789,901 | $ | 3,179,002 | $ | (1,070,295 | ) | $ | 5,898,608 | ||||||||
|
Earnings
per share - basic
|
$ | 0.71 | $ | 0.66 | |||||||||||||
|
Earnings
per share - diluted
|
$ | 0.62 | $ | 0.61 | |||||||||||||
|
Weighted
average shares outstanding
|
5,446,105 | 3,593,939 | 9,040,044 | ||||||||||||||
|
Diluted
average shares outstanding
|
6,203,680 | 3,593,939 | 9,797,619 | ||||||||||||||
|
(1)
|
Source: unaudited financial statements of New Energy Systems
Group (FKA: China Digital Communication Group Co. Inc.) for the nine
months ended September 30, 2009 as filed in Quarterly Report filed with
the SEC on November 17, 2009.
|
|
(2)
|
Source: unaudited
financial statements of Anytone International (H.K.) Co., Ltd. included in
this Form 8-K.
|
|
(C)
|
Amortization
of the intangible assets acquired and the effect to income
tax.
|
|
See
accompanying notes to pro forma consolidated financial
statements.
|
F-3
NEW
ENGEGY SYSTEMS GROUP AND
ANYTONE
INTERNATIONAL (H.K.) CO., LTD
PRO
FORMA CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR
THE YEAR ENDED DECEMBER 31, 2008
(UNAUDITED)
|
New
Energy
|
Anytone
HK
|
Pro
Forma
|
Pro
Forma
|
||||||||||||||
| (1) | (2) |
Adjustments
|
Consolidated
|
||||||||||||||
|
(historical)
|
(historical)
|
||||||||||||||||
|
Net
Revenue
|
$ | 19,716,408 | $ | 10,081,842 | $ | - | $ | 29,798,250 | |||||||||
|
Cost
of Revenue
|
14,009,995 | 7,326,989 | - | 21,336,984 | |||||||||||||
|
Gross
Profit
|
5,706,413 | 2,754,853 | - | 8,461,266 | |||||||||||||
|
Operating
expenses:
|
|||||||||||||||||
|
Selling
expenses
|
135,456 | 235,170 | - | 370,626 | |||||||||||||
|
General
and administrative expenses
|
586,433 | 379,697 | 1,783,826 | C | 2,749,956 | ||||||||||||
|
Total
operating expenses
|
721,889 | 614,867 | 1,783,826 | 3,120,582 | |||||||||||||
|
Income
from operations
|
4,984,524 | 2,139,986 | (1,783,826 | ) | 5,340,684 | ||||||||||||
|
Non-operating
income (expenses):
|
|||||||||||||||||
|
Interest
income (expense)
|
(38,525 | ) | 5,733 | - | (32,792 | ) | |||||||||||
|
Finance
expenses
|
- | (1,056 | ) | - | (1,056 | ) | |||||||||||
|
Miscellaneous
income (expense)
|
(40,257 | ) | - | - | (40,257 | ) | |||||||||||
|
Total
non-operating income (expenses)
|
(78,782 | ) | 4,677 | - | (74,105 | ) | |||||||||||
|
Income
before income tax
|
4,905,742 | 2,144,663 | (1,783,826 | ) | 5,266,579 | ||||||||||||
|
Income
tax
|
454,670 | 349,398 | (321,089) | C | 482,979 | ||||||||||||
|
Net
income
|
4,451,072 | 1,795,265 | (1,462,737 | ) | 4,783,600 | ||||||||||||
|
Other
comprehensive item
|
|||||||||||||||||
|
Foreign
currency translation
|
289,772 | 80,508 | - | 370,280 | |||||||||||||
|
Comprehensive
Income
|
$ | 4,740,844 | $ | 1,875,773 | $ | (1,462,737 | ) | $ | 5,153,880 | ||||||||
|
Earnings
per share
|
$ | 0.82 | $ | 0.53 | |||||||||||||
|
Weighted
average shares outstanding
|
5,446,063 | 3,593,939 | 9,040,002 | ||||||||||||||
|
((1)
|
Source: audited
financial statements of New Energy Systems Group (FKA: China Digital
Communication Group Co. Inc.) for the year endedDecember 31, 2008 as filed
in Annual Report on Form 10K filed with the SEC on April 15,
2009.
|
|
(2)
|
Source: unaudited
financial statements of Anytone International (H.K.) Co., Ltd. included in
this Form 8-K.
|
|
(C)
|
Amortization
of the intangible assets acquired and the effect to income
tax.
|
|
See
accompanying notes to pro forma consolidated financial
statements
|
|
|
|
|
F-3
NEW
ENGEGY SYSTEMS GROUP AND
ANYTONE
INTERNATIONAL (H.K.) CO., LTD
NOTES
TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - BASIS OF PRESENTATION
On
November 19, 2009, New Energy Systems Group (the "Company" or “New Energy”)
entered into a share exchange agreement (the "Share Exchange Agreement") with
Anytone International (H.K.) Co., Ltd. ("Anytone International") and Shenzhen
Anytone Technology Co., Ltd. ("Anytone"). Anytone is a subsidiary of Anytone
International. Pursuant to the Share Exchange Agreement, the Company issued to
the shareholders of Anytone International 3,593,939 shares of the Company's
Common Stock with a restrictive legend, and agreed to pay US $10,000,000. As of
today, $5,000,000.00 has been paid; the remaining $5,000,000 will be paid on or
before June 30, 2010 with no interest. The acquisition was completed on December
7, 2009.
The
accompanying pro forma consolidated balance sheet presents the accounts of New
Energy and Anytone International as if the acquisition of Anytone International
by New Energy occurred on September 30, 2009 for balance sheet
purposes. The accompanying pro forma consolidated statements of
income and comprehensive income present the accounts of New Energy and Anytone
International for the nine months ended September 30, 2009 and for the year
ended December 31, 2008 as if the acquisition occurred on January 1, 2009 and
January 1, 2008, respectively. The fair values of the assets acquired
and liabilities assumed at agreement date are used for the purpose of purchase
price allocation. The excess of the purchase price over the fair
value of the net assets acquired of $19,848,063 is recorded as
goodwill.
Anytone
International acquired Anytone on November 10, 2009 for RMB 3.6
million. This acquisition was considered as a related party
transaction as the shareholders of Anytone became the majority shareholders of
Anytone International through nominee shareholders after the acquisition. The
pro forma balance sheet of Anytone International presents the accounts of
Anytone International and Anytone as if the acquisition of Anytone occurred on
September 30, 2009. The pro forma statements of income of Anytone
International for the nine months ended September 30, 2009 and for the year
ended December 31, 2008 present the accounts of Anytone International and
Anytone as if the acquisition of Anytone International and Anytone occurred on
January 1, 2009 and 2008, respectively.
The
following adjustments would be required if the acquisition of Anytone
International by New Energy occurred as indicated above:
|
A)
|
Allocation
of the net purchase price to the fair value of assets acquired and
liabilities assumed. The excess purchase price of $19,848,063
is allocated to goodwill.
|
|
B)
|
Payment
of $5 million and outstanding balance of $5 million for total of $10
million cash consideration portion of the acquisition
price. The outstanding payable of $5 million is non-interest
bearing and payable on or before June 30,
2010.
|
The
following adjustments would be required if the acquisition of Anytone by Anytone
International occurred as indicated above:
|
C)
|
Recording
fair value of intangible assets of
$15,162,518.
|
|
D)
|
Deferred
tax liabilities on intangible assets
acquired.
|
|
E)
|
Reversal
of deferred tax
liability arising from the book and tax basis difference of the intangible
assets.
|
F-4