Wonder Auto Technology, Inc.
Pro Forma Condensed
Combined Financial Statements
March 31, 2007 (unaudited)
(Stated in US dollars)
Wonder Auto Technology, Inc.
Pro Forma Condensed Combined Financial Statements
Index to Pro Forma Condensed Combined Financial Statements
Pages | ||||
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements | 1 | |||
Unaudited Pro Forma Condensed Combined Balance Sheet | 2 - 3 | |||
Unaudited Pro Forma Condensed Combined Statements of Operations | 4 - 5 | |||
Notes to Unaudited Pro Forma Condensed Combined Financial Statements | 6 - 7 |
Wonder Auto Technology, Inc.
March 31, 2007
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined financial statements have been prepared to give effect to the combination of the Wonder Auto Technology, Inc. (the “Company”) and Jinzhou Wanyou Mechanical Parts Co., Ltd. (“Wanyou”). The unaudited pro forma condensed combined financial statements were prepared using the historical consolidated financial statements of the Company and historical financial statements of Wanyou. Please note that the unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of the Company and Wanyou, respectively. The Company’s financial information can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and quarterly report on Form 10-Q for the three months ended March 31, 2007. [The financial information of Wanyou are filed together with this Pro Forma Condensed Combined Financial Statements on 8-K.]
The unaudited pro forma condensed combined balance sheet as of March 31, 2007 combines the unaudited condensed consolidated balance sheet of the Company as of March 31, 2007 and the unaudited balance sheet of Wanyou as of March 31, 2007 and gives effect to the acquisition as if the acquisition occurred on March 31, 2007.
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2006 and for the three months ended March 31, 2007 give effect to the acquisition as if the acquisition occurred on January 1, 2006, the first day of the Company’s fiscal year. The unaduited pro forma condensed combined statement of operations for the year ended December 31, 2006 combines the audited consolidated statement of operations of the Company for the year ended December 31, 2006 with the audited statement of operations of Wanyou for the period from September 21, 2006 (date of incorporation) to December 31, 2006. The unaduited pro forma combined statement of operations for the three months ended March 31, 2007 combines the unaudited consolidated statement of operations of the Company for the three months ended March 31, 2007 with the unaudited statement of operations of Wanyou for the three months ended March 31, 2007.
The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances.
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Wonder Auto Technology, Inc.
Pro Forma Condensed Combined Balance Sheet
As of March 31, 2007 (Unaudited)
(Stated in US Dollars)
The Company | Wanyou | ||||||||||||
March 31, | March 31, | Pro Forma | Pro Forma | ||||||||||
2007 | 2007 | Adjustments | Combined | ||||||||||
ASSETS | |||||||||||||
Current assets | |||||||||||||
Cash and cash equivalents | $ | 6,065,302 | $ | 273,515 | $ | - | $ | 6,338,817 | |||||
Restricted cash | 3,919,971 | - | - | 3,919,971 | |||||||||
Trade receivables, net | 26,042,474 | 562,107 | - | 26,604,581 | |||||||||
Bills receivable | 8,100,371 | 64,592 | - | 8,164,963 | |||||||||
Other receivables, prepayments and deposits | 1,445,086 | 192,696 | - | 1,637,782 | |||||||||
Inventories | 15,535,997 | 224,421 | - | 15,760,418 | |||||||||
Amounts due from shareholders | - | 694,267 | (100,136 | )(a) | 594,131 | ||||||||
Amount due from a related company | 70,249 | - | - | 70,249 | |||||||||
Deferred taxes | 217,693 | - | - | 217,693 | |||||||||
Total current assets | 61,397,143 | 2,011,598 | (100,136 | ) | 63,308,605 | ||||||||
Intangible assets | |||||||||||||
Know-how | 1,482,617 | - | - | 1,482,617 | |||||||||
Trademarks and patents | 11,182 | - | - | 11,182 | |||||||||
Customer contracts | - | - | 49,053 | (d) | 49,053 | ||||||||
Property, plant and equipment, net | 14,469,688 | 1,069,720 | - | 15,539,408 | |||||||||
Land use right | 1,202,302 | - | - | 1,202,302 | |||||||||
Deposit for acquisition of property, | |||||||||||||
plant and equipment | 2,864,978 | 18,990 | - | 2,883,968 | |||||||||
Investment in an unconsolidated affiliate | 567,130 | - | (567,130 | )(b) | - | ||||||||
Goodwill | 3,115,227 | - | 4,949,392 | (d) | 8,064,619 | ||||||||
Deferred tax | 221,744 | - | - | 221,744 | |||||||||
TOTAL ASSETS | $ | 85,332,011 | $ | 3,100,308 | $ | 4,331,179 | $ | 92,763,498 |
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Wonder Auto Technology, Inc.
Pro Forma Condensed Combined Balance Sheet
As of March 31, 2007 (Unaudited)
(Stated in US Dollars)
The Company | Wanyou | ||||||||||||
March 31, | March 31, | Pro Forma | Pro Forma | ||||||||||
2007 | 2007 | Adjustments | Combined | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||
LIABILITIES | |||||||||||||
Current liabilities | |||||||||||||
Trade payables | $ | 12,411,172 | $ | 306,116 | $ | - | $ | 12,717,288 | |||||
Bills payable | 6,717,565 | - | - | 6,717,565 | |||||||||
Other payables and accrued expenses | 2,833,675 | 15,507 | - | 2,849,182 | |||||||||
Provision for warranty | 980,551 | - | - | 980,551 | |||||||||
Income tax payable | 446,084 | - | - | 446,084 | |||||||||
Amount due to an unconsolidated affiliate | 100,136 | - | (100,136 | )(a) | - | ||||||||
Dividend payable to minority stockholders | 691,152 | - | - | 691,152 | |||||||||
Dividend payable to Winning | 343,934 | - | - | 343,934 | |||||||||
Payable for acquisition of Wanyou | - | - | 7,210,000 | (d) | 7,210,000 | ||||||||
Secured short-term bank loans | 6,459,198 | - | - | 6,459,198 | |||||||||
Total current liabilities | 30,983,467 | 321,623 | 7,109,864 | 38,414,954 | |||||||||
Secured long-term bank loans | 10,916,984 | - | - | 10,916,984 | |||||||||
TOTAL LIABILITIES | 41,900,451 | 321,623 | 7,109,864 | 49,331,938 | |||||||||
COMMITMENTS AND CONTINGENCIES | |||||||||||||
MINORITY INTERESTS | 2,124,794 | - | 2,124,794 | ||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||||
Preferred stock: par value $0.0001 per share; | |||||||||||||
Authorized 10,000,000 shares, none | |||||||||||||
issued and outstanding | |||||||||||||
Common stock: par value $0.0001 per share; | |||||||||||||
authorized 90,000,000 shares, issued and | (500,000 | )(b) | |||||||||||
outstanding 23,959,994 shares in 2007 | 2,396 | 2,450,000 | (1,950,000 | )(d) | 2,396 | ||||||||
Additional paid-in capital | 22,140,143 | - | 22,140,143 | ||||||||||
Statutory and other reserves | 3,148,265 | 10,919 | (10,919 | )(d) | 3,148,265 | ||||||||
(10,811 | )(b) | ||||||||||||
Accumulated other comprehensive income | 1,819,467 | 53,034 | (42,223 | )(d) | 1,819,467 | ||||||||
(56,319 | )(b) | ||||||||||||
Retained earnings | 14,196,495 | 264,732 | (208,413 | )(d) | 14,196,495 | ||||||||
TOTAL STOCKHOLDERS’ EQUITY | 41,306,766 | 2,778,685 | (2,778,685 | ) | 41,306,766 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 85,332,011 | $ | 3,100,308 | $ | 4,331,179 | $ | 92,763,498 |
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Wonder Auto Technology, Inc.
Pro Forma Condensed Combined Statement of Operations
Year ended December 31, 2006 (Unaudited)
(Stated in US Dollars)
Wanyou | |||||||||||||
For the period | |||||||||||||
from September | |||||||||||||
21, 2006 (date of | |||||||||||||
The Company | incorporation) to | ||||||||||||
December 31, | December 31, | Pro Forma | Pro Forma | ||||||||||
2006 | 2006 | Adjustments | Combined | ||||||||||
Net sales | $ | 72,150,483 | $ | 731,399 | $ | (31,795 | )(c) | $ | 72,850,087 | ||||
Cost of sales | (57,831,251 | ) | (567,365 | ) | 31,795 | (c) | (58,366,821 | ) | |||||
Gross profit | 14,319,232 | 164,034 | - | 14,483,266 | |||||||||
Operating expenses | |||||||||||||
Administrative expenses | 1,907,816 | 16,593 | - | 1,924,409 | |||||||||
Research and development costs | 458,652 | - | - | 458,652 | |||||||||
Selling expenses | 2,147,854 | - | - | 2,147,854 | |||||||||
4,514,322 | 16,593 | - | 4,530,915 | ||||||||||
Income before the following items and taxes | 9,804,910 | 147,441 | - | 9,952,351 | |||||||||
Interest income | 96,810 | 1,593 | - | 98,403 | |||||||||
Other income | 356,590 | - | - | 356,590 | |||||||||
Finance costs | (1,033,551 | ) | (610 | ) | - | (1,034,161 | ) | ||||||
Equity in net income of unconsolidated | |||||||||||||
affiliates | 371,005 | - | (22,172 | )(b) | 348,833 | ||||||||
Income before income taxes | 9,595,764 | 148,424 | (22,172 | ) | 9,722,016 | ||||||||
Income taxes | (1,270,391 | ) | (40,078 | ) | - | (1,310,469 | ) | ||||||
Minority interests | (101,827 | ) | - | - | (101,827 | ) | |||||||
Net income | $ | 8,223,546 | $ | 108,346 | $ | (22,172 | ) | $ | 8,309,720 | ||||
Earnings per share: basic and diluted | $ | 0.40 | - | $ | 0.40 | ||||||||
Weighted average number of shares | |||||||||||||
outstanding: | |||||||||||||
basic and diluted | 20,787,279 | - | 20,787,279 |
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Wonder Auto Technology, Inc.
Pro Forma Condensed Combined Statement of Operations
Three months ended March 31, 2007 (Unaudited)
(Stated in US Dollars)
The Company | Wanyou | ||||||||||||
Three months | Three months | ||||||||||||
ended March 31, | ended March 31, | Pro Forma | Pro Forma | ||||||||||
2007 | 2007 | Adjustments | Combined | ||||||||||
Net sales | $ | 21,566,796 | $ | 921,368 | $ | (85,251 | )(c) | $ | 22,402,913 | ||||
Cost of sales | (16,251,790 | ) | (742,104 | ) | 85,251 | (c) | (16,908,643 | ) | |||||
Gross profit | 5,315,006 | 179,264 | - | 5,494,270 | |||||||||
Operating expenses | |||||||||||||
Administrative expenses | 666,566 | 16,330 | - | 682,896 | |||||||||
Research and development costs | 263,446 | - | - | 263,446 | |||||||||
Selling expenses | 651,616 | 147 | - | 651,763 | |||||||||
Total operating expenses | 1,581,628 | 16,477 | - | 1,598,105 | |||||||||
Income from operations | 3,733,378 | 162,787 | - | 3,896,165 | |||||||||
Interest income | 16,709 | 1,014 | - | 17,723 | |||||||||
Other income | 23,795 | 3,630 | - | 27,425 | |||||||||
Finance costs | (419,392 | ) | (126 | ) | - | (419,518 | ) | ||||||
Equity in net income of an unconsolidated | |||||||||||||
affiliate | 34,147 | - | (34,147 | )(b) | - | ||||||||
Income before income taxes | 3,388,637 | 167,305 | (34,147 | ) | 3,521,795 | ||||||||
Income taxes | (466,814 | ) | - | - | (466,814 | ) | |||||||
Minority interests | (209,371 | ) | - | - | (209,371 | ) | |||||||
Net income | $ | 2,712,452 | $ | 167,305 | $ | (34,147 | ) | $ | 2,845,610 | ||||
Earnings per share: basic and diluted | $ | 0.11 | - | $ | 0.12 | ||||||||
Weighted average number of shares outstanding: | |||||||||||||
basic and diluted | 23,959,994 | - | 23,959,994 |
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Wonder Auto Technology, Inc.
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(Stated in US Dollars)
1. Basis of presentation
On April 2, 2007, the Company’s subsidiaries Wonder Auto Limited (“Wonder”) and Jinzhou Halla Electrical Equipment Co., Ltd (“Jinzhou Halla”), acquired an aggregate 79.59% equity interest in Wanyou at total consideration of $16.4s million including contingent consideration of $9.21 million through two separately negotiated equity purchase transactions with two former equity owner of Wanyou. The contingent consideration will be payable if Wanyou achieves certain minimum net income threshold in future. After completion of these two equity purchase transactions, Wanyou become a wholly-owned subsidiary of the Company.
The unaudited pro forma condensed combined balance sheet gives effect to the acquisition of Wanyou as if it had occurred on March 31, 2007. The Company’s condensed consolidated balance sheet information was derived from its three months ended March 31, 2007 condensed consolidated balance sheet included in its quarterly report on Form 10-Q for the three months ended March 31, 2007.
The unaudited pro forma condensed combined statements of operations give effect to the acquisition of Wanyou as if it had occurred on January 1, 2006, the first day of the Company’s fiscal year. The Company’s consolidated statement of operations and condensed consolidated statement of operations information was derived from its fiscal year ended December 31, 2006 consolidated statement of operations and for the three months ended March 31, 2007 condensed consolidated statement of operations included in its annual report on Form 10-K for the year ended December 31, 2006 and quarterly report on Form 10-Q for the three months ended March 31, 2007 respectively.
The acquisition was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No.141, Business Combinations. Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets of the business acquired in connection with the Share Purchase Agreement, based on the estimated fair value as of the completion of acquisition. Management has estimated the fair value of assets acquired and liabilities assumed based on the fair value attributable to the actual net tangible and intangible assets and liabilities of Wanyou that existed as of the date of the completion of the acquisition.
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Wonder Auto Technology, Inc.
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(Stated in US Dollars)
2. Purchase price allocation
Under the purchase method of accounting, the initial purchase price is allocated to the acquired net assets based on their estimated fair values as of the completion of the acquisition. Based on management estimates of the attributable share (i.e. 79.59%) of fair values of assets and liabilities of Wanyou, the initial purchase price allocation is as follows:
Assets acquired: | ||||
Current assets | $ | 1,601,031 | ||
Property, plant and equipment | 851,390 | |||
Deposit for acquisition of property, | ||||
plant and equipment | 15,114 | |||
Intangible assets | ||||
Customer contracts | ||||
(Estimated life : 1 year) | 49,053 | |||
Liabilities assumed: | ||||
Current liabilities | (255,980 | ) | ||
Net assets acquired | 2,260,608 | |||
Goodwill | 4,949,392 | |||
Initial purchase price of acquisition | $ | 7,210,000 |
The above initial purchase price for Wanyou does not include the $9.21 million of contingent consideration pursuant to the Share Purchase Agreement. The remaining consideration shall be payable upon Wanyou’s fulfillment of targeted net profit. The recognition and allocation of contingent consideration will be treated as additional purchase price and allocated to goodwill subsequently.
3. Unaudited pro forma adjustments
The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
(a) | Represents adjustment to eliminate amounts due from/(to) shareholders |
(b) | Represents adjustment to eliminate equity-pickup of Wanyou. |
(c) | Represents adjustment to eliminate sales and purchases with Wanyou. |
(d) | Represents adjustment to record the estimated goodwill resulting from the allocation of the purchase price to the fair value of assets acquired and liabilities assumed. |
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