Attached files
Exhibit 99.2
Unaudited Pro Forma Condensed Consolidated Financial Information
On January 11, 2016, the Company's wholly owned subsidiary, Baichuang Information Consulting (Shenzhen) Co. Ltd ("Baichuang Consulting"), exercised its option to acquire all of the registered equity of the Company's operating subsidiary, Jiangsu Xuefeng Environmental Protection Science and Technology Co., Ltd. ("Jiangsu Xuefeng") from its stockholders Yi Yuan and Li Yuan, who are also the members of the Company's Board of Directors, without any consideration.
Prior to the acquisition, Baichuang Consulting controlled Jiangsu Xuefeng through a series of contractual agreements, which made Jiangsu Xuefeng a variable interest entity (the "VIE"), the effect of which was to cause the balance sheet and operating results of Jiangsu Xuefeng to be consolidated with those of Baichuang Consulting in the Company's financial statements. As a result of the acquisition by Baichuang Consulting of the registered ownership of Jiangsu Xuefeng, the balance sheet and operating results of Jiangsu Xuefeng will hereafter continue to be consolidated with those of Baichuang Consulting as its 100% owned subsidiary.
On August 4, 2016, Baichuang Consulting entered into an agreement with Mr. Li Yuan, the sole shareholder of Linyi County Xuefeng Renewable Resources Utilization Technology Co., Ltd ("Linyi Xuefeng"), to purchase his 100% ownership of Linyi Xuefeng. Mr. Li Yuan is the Chief Executive Officer and one of the main shareholder of the Company. The purchase price was originally to be determined by the audited net assets of the Company as of May 31, 2016, ("payment anticipated to be RMB10,000,000 ($1,500,000 US) in cash and the remaining balance to be paid in the form of common shares of China Xuefeng at 75% of the closing price of the last trading day of the stock delivery"). In any event, the payment method of specific amount and securities shall be separately accounted for and discussed after the audit report is issued.
On October 7, 2016, a supplementary agreement was entered between both parties to finalize the purchase based upon the audited net asset value of Linyi Xuefeng at $ 23,462,612 on May 31, 2016 with the payments to be made in full in stock of the Company at a price of $3 per share. Accordingly, 7,820,871 shares were issued to Mr. Li Yuan. Upon acquisition, Linyi Xuefeng will become a wholly-owned subsidiary of China Xuefeng. The acquisition of Linyi Xuefeng was treated as a combination of entities under common as Mr. Li Yuan was the chief executive officer and major shareholder of both companies. An acquisition of an entity under common control is treated similar to a "pooling of interest."
The following unaudited pro forma condensed consolidated income statements have been derived from the audited consolidated statement of income and comprehensive income of the China Xuefeng Environmental Engineering Inc. and subsidiaries for the year ended May 31, 2016, and the audited statement of income and comprehensive income of Linyi Xuefeng for the year ended May 31, 2016, and such information were adjusted and to reflect to the effect as if the foregoing transactions occurred on June 1, 2015 and for the year ended May 31, 2016.
The following unaudited pro forma consolidated balance sheet has been derived from the audited consolidated balance sheet of China Xuefeng Environmental Engineering Inc. and subsidiaries as of May 31, 2016, and the audited balance sheet of Linyi Xuefeng as of May 31, 2016, and such information were adjusted to reflect the effect as if the foregoing transactions occurred on May 31, 2016.
All of the following financial statements are presented in U.S. dollars.
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Unaudited Pro Forma Statements of Operations and Other Comprehensive Income
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For the year ended May 31, 2016
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(U.S. Dollars)
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|||||||||||||||
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China Xuefeng
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Linyi
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and subsidiaries
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Xuefeng
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Debits
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Credits
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Pro Forma
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Sales
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$
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21,287,515
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$
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-
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$
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21,287,515
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Lease income
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899,579
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-
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899,579
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||||||||||||
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Total Revenue
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22,187,094
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-
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22,187,094
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||||||||||||
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Cost of Sales
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12,116,076
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-
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12,116,076
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Depreciation expense - leased equipment
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434,474
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434,474
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Total cost of goods sold
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12,550,550
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-
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12,550,550
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Gross profit
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9,636,544
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-
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9,636,544
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Operating expenses
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Selling and marketing
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1,229,968
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-
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1,229,968
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General and administrative
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795,516
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498,755
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1,294,271
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Total operating expenses
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2,025,484
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498,755
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2,524,239
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Other Income
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Interest income
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420,513
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-
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420,513
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Non-operating expense
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-
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(4,196
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)
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(4,196
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)
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Government Subsidy
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-
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937,878
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937,878
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Total Other Income
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420,513
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933,682
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1,354,195
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Income before provision for income taxes
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8,031,573
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434,927
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8,466,500
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Provision for income taxes
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2,038,643
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(125,729
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)
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1,912,914
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Net income before noncontrolling interests
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5,992,930
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560,656
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6,553,586
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Noncontrolling interests
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(299,235
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)
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-
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B
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299,235
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-
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Net income attributable to controlling interests
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5,693,695
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560,656
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6,553,586
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Comprehensive Income:
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Net Income
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5,992,930
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560,656
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6,553,586
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Foreign currency translation adjustment
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(1,805,473
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)
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(687,507
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)
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(2,492,980
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)
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Comprehensive income
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4,187,457
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(126,851
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)
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4,060,606
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Comprehensive income attributable to noncontrolling interests
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(235,533
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)
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-
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B
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235,533
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-
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Net Comprehensive income attributable to common stockholders
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$
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3,951,924
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$
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(126,851
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)
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$
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4,060,606
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Unaudited Pro Forma Balance Sheet
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At May 31, 2016
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(U.S. Dollars)
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China Xuefeng
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Linyi
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ASSETS
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and subsidiaries
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Xuefeng
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Debits
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Credits
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Pro Forma
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Current assets:
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Cash
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$
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5,771,831
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$
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140,275
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$
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5,912,106
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Accounts receivable
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4,172,406
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750
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4,173,156
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Prepaid expenses
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88,477
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-
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88,477
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Total current assets
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10,032,714
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141,025
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10,173,739
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Fixed assets, net
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17,070,774
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24,532,523
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41,603,297
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Other assets:
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Prepaid VAT
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2,286,570
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1,449,005
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3,735,575
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Prepaid leases and construction
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-
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5,913,880
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5,913,880
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Deferred tax assets
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-
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280,184
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280,184
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Accounts receivable-non-current
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5,907,361
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-
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5,907,361
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Total other assets
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8,193,931
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7,643,069
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15,837,000
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TOTAL ASSETS
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35,297,419
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32,316,617
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67,614,036
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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774,668
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472,731
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1,247,399
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Deferred revenue
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2,967,016
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-
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2,967,016
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Taxes payable
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809,415
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1,013
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810,428
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Loans from stockholders
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480,561
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8,300,910
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8,781,471
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Accrued liabilities
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85,746
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79,351
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165,097
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Total current liabilities
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5,117,406
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8,854,005
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13,971,411
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Security deposit payable
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2,794,868
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-
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2,794,868
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TOTAL LIABILITIES
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7,912,274
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8,854,005
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16,766,279
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Stockholders' equity:
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Common stock, $0.001 par value per share, 75,000,000 shares authorized; 63,020,871 shares issued and outstanding
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55,200
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-
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A
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7,821
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63,021
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Registered capital
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-
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22,137,020
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A
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22,137,020
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-
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Additional paid-in capital
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11,389,049
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-
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A
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7,821
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A
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22,137,020
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34,584,997
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B
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1,066,749
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Statutory reserve fund
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1,681,564
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161,956
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1,843,520
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Retained earnings
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14,390,964
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1,843,067
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16,234,031
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Other comprehensive income
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(1,159,422
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)
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(679,431
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)
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B
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(38,959
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) |
(1,877,812
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)
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Stockholders' equity before noncontrolling interests
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26,357,355
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23,462,612
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50,847,757
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Noncontrolling interests
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1,027,790
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-
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B
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1,027,790
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-
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Total stockholders' equity
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27,385,145
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23,462,612
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50,847,757
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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35,297,419
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$
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32,316,617
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$
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67,614,036
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Adjustments:
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A. To reflect China Xuefeng issues 7,820,871 shares to Linyi's original shareholder for the acquisition. Registered captial of Linyi Xuefeng is reclassified into additional paid-in capital.
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B. To reflect the removal of VIE structure and Baichuang Consulting became 100% owner of the Jiangsu Xuefeng
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