China Wind Energy, Inc. | |||||
Unaudited Pro Forma Consolidated Balance Sheet | |||||
As of April 31, 2008 | |||||
China Wind | |||||
China Wind | Harbin Sanye | Pro Forma | Proforma | ||
Historical | Historical | Adjustments | Consolidated | ||
ASSETS | |||||
Current Assets | |||||
Cash | $ 15,015 | $ 277,599 | $ - | $ 292,614 | |
Accounts receivable | - | 28,356 | - | 28,356 | |
Advances to suppliers | - | 554,595 | - | 554,595 | |
Inventory | - | 581,645 | - | 581,645 | |
Prepaids | 4,000 | 14,697 | - | 18,697 | |
Total current assets | 19,015 | 1,456,892 | - | 1,475,907 | |
Property and equipment, net | 4,818 | 6,247,298 | - | 6,252,116 | |
Intangible assets, net | - | 730,456 | 11,791,897 | (1) | 12,522,353 |
Goodwill | - | - | 9,477,401 | (1) | 9,477,401 |
Prepayments and deposits | - | 888,653 | - | 888,653 | |
Due from related parties | - | 1,984,821 | - | 1,984,821 | |
Total assets | $ 23,833 | $ 11,308,120 | $ 21,269,298 | $ 32,601,251 | |
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | |||||
Current liabilities | |||||
Accounts payable and accrued liabilities | $ 51,891 | $ 264,527 | $ - | $ 316,418 | |
Loans from shareholders | 49,270 | - | - | 49,270 | |
Customer deposit | - | 57,373 | - | 57,373 | |
Other payables | - | 117,549 | - | 117,549 | |
Short term loans | - | 75,088 | - | 75,088 | |
Due to related parties | - | 3,980 | - | 3,980 | |
Other advance receipts | - | 7,442,393 | - | 7,442,393 | |
Total current liabilities | 101,161 | 7,960,910 | - | 8,062,071 | |
Minority interest in Harbin Sanye | - | - | 4,396,508 | (1) | 4,396,508 |
Stockholders' equity | |||||
Common stock | 3,691 | 10,855,232 | (10,855,232) | (1) | 5,191 |
Additional paid-in capital | 117,202 | - | 20,218,500 | (1) | 20,335,702 |
Accumulated other comprehensive income | 4,399 | 477,826 | (477,826) | (1) | 4,399 |
Accumulated deficit | (202,620) | (7,985,848) | 7,985,848 | (1) | (202,620) |
Total stockholders' equity (deficit) | (77,328) | 3,347,210 | 16,872,790 | 20,142,672 | |
Total liabilities and stockholder's equity (deficit) | $ 23,833 | $ 11,308,120 | $ 21,269,298 | $ 32,601,251 |
China Wind Energy, Inc. | |||||
Unaudited Pro Forma Consolidated Statement of Operations | |||||
Nine Months Ended April 30, 2008 | |||||
China Wind | |||||
China Wind | Harbin Sanye | Pro Forma | Proforma | ||
Historical | Historical | Adjustments | Consolidated | ||
Revenue | $ - | $ 300,490 | $ - | $ 300,490 | |
Cost of Goods Sold | - | 461,770 | - | 461,770 | |
Gross Loss | - | (161,280) | - | (161,280) | |
Selling expenses | - | 23,543 | - | 23,543 | |
General and administrative | 72,345 | 241,735 | - | 314,080 | |
Reverse of allowance of obsolescence | - | (195,468) | - | (195,468) | |
Amortization | - | 14,822 | 260,136 | (2) | 274,958 |
Depreciation | 447 | 6,910 | - | 7,357 | |
Professional fees | 91,680 | - | - | 91,680 | |
Write-off of inventory | 331 | - | - | 331 | |
Loss from operations | (164,803) | (252,822) | (260,136) | (677,761) | |
Other income (expenses) | |||||
Interest income | - | 6,061 | - | 6,061 | |
Interest expense | - | (20,490) | - | (20,490) | |
Loss on physical inventory | - | (32,668) | - | (32,668) | |
Sundry expense, net | - | (526) | - | (526) | |
Total other income | - | (47,623) | - | (47,623) | |
Loss before minority interest | (164,803) | (300,445) | (260,136) | (725,384) | |
Loss attributable to minority interest | - | - | 100,120 | (3) | 100,120 |
Net loss | $ (164,803) | $ (300,445) | $ (160,016) | $ (625,264) | |
Basic and diluted net loss per share | $ (0.00) | $ (0.01) | |||
Weighted average shares outstanding | 36,891,739 | 15,000,000 | (1) | 51,891,739 |
China Wind Energy, Inc. | |||||
Unaudited Pro Forma Consolidated Statement of Operations | |||||
Year Ended July 31, 2007 | |||||
Harbin | China Wind | ||||
China Wind | Sanye | Pro Forma | Proforma | ||
Historical | Historical | Adjustments | Consolidated | ||
Revenue | $ - | $ 282,026 | $ - | $ 282,026 | |
Cost of Goods Sold | - | 343,133 | - | 343,133 | |
Gross Loss | - | (61,107) | - | (61,107) | |
Operating Expenses | |||||
Selling expenses | - | 63,542 | - | 63,542 | |
General and administrative | 2,740 | 317,226 | - | 319,966 | |
Provision for allowance of obsolescence | - | 886 | - | 886 | |
Write-down of advances to suppliers | - | 317,003 | - | 317,003 | |
Amortization | - | 13,606 | 346,848 | (2) | 360,454 |
Depreciation | - | 10,702 | - | 10,702 | |
Professional fees | 35,077 | - | - | 35,077 | |
Loss from operations | (37,817) | (784,072) | (346,848) | (1,168,737) | |
Other income (expenses) | |||||
Interest income | - | 115 | - | 115 | |
Interest expense | - | (1,540) | - | (1,540) | |
Loss on disposal of fixed assets | - | (2,506) | - | (2,506) | |
Gain on physical inventory | - | 57,486 | - | 57,486 | |
Sundry expense, net | - | (35,017) | - | (35,017) | |
Total other income | - | 18,538 | - | 18,538 | |
Loss before minority interest | (37,817) | (765,534) | (346,848) | (1,150,199) | |
Loss attributable to minority interest | - | - | 198,671 | (3) | 198,671 |
Net loss | $ (37,817) | $ (765,534) | $ (148,177) | $ (951,528) | |
Basic and diluted net loss per share | $ (0.00) | $ (0.02) | |||
Weighted average shares outstanding | 36,887,250 | 15,000,000 | (1) | 51,887,250 |
Notes to Unaudited Pro Forma Consolidated Financial Statements
As previously announced, on May 16, 2008 China Wind Energy Inc. (the “Company”) entered into a share exchange agreement (the "Share Exchange Agreement") with Power Profit Technology Development Limited, a company incorporated under the laws of Hong Kong, People’s Republic of China (“Power Profit”), and Wan Yi Tse, the holder of 100% of the issued and outstanding registered share capital of Power Profit.
Pursuant to the Share Exchange Agreement, on May 26, 2008, the Company completed the acquisition of 100% of the equity interests of Power Profit and 82.14% of the equity interests of its subsidiary, Harbin Sanye Wind Energy Technology Co., Ltd. (formerly Harbin Lian Chuang Co., Ltd)(“Harbin Sanye”). Harbin Sanye is a company incorporated under the laws of the People’s Republic of China. Together, Power Profit and Harbin Sanye become the subsidiaries of the Company. Power Profit becomes the Company’s wholly owned subsidiary and Harbin Sanye becomes the Company’s majority owned subsidiary.
Pursuant to the terms of the Share Exchange Agreement, the Company issued 15,000,000 shares of its common stock to Wan Yi Tse, or her designees, in exchange for 100% of Power Profit’s issued and outstanding registered share capital. Power Profit owns 72,660,000 common shares of Harbin Sanye, representing 82.14% of the registered share capital of Harbin Sanye.
The unaudited “China Wind Energy Consolidated” financial data has been prepared to give effect to China Wind’s acquisition of Harbin Sanye. Information under the heading “Pro Forma Adjustments” gives effect to the adjustments related to the acquisition of Harbin Sanye. The unaudited pro forma consolidated financial statements are not necessarily indicative of the results of China Wind’s future operations.
China Wind will account for this merger using the purchase method of accounting for business combinations. Under the purchase method of accounting, China Wind is deemed to be the acquirer for accounting purposes based on a number of factors determined in accordance with GAAP. The purchase method of accounting requires that assets acquired and liabilities assumed by China Wind be recorded at their estimated fair values.
Pro Forma Adjustments
The unaudited pro forma consolidated balance sheet includes the following adjustments:
(1) These adjustments reflect the elimination of the components of Harbin Sanye’s historical stockholders’ equity, the purchase price paid by China Wind and adjustments to the historical book values of Harbin Sanye’s assets and liabilities as of April 30, 2008 to their estimated fair values, in accordance with purchase accounting. The following table represents the allocation of the total purchase price of Harbin Sanye to the assets acquired and the liabilities assumed based on the estimates of fair value.
Amount | ||
Shares of China Wind common stock issued to Harbin Sanye | 15,000,000 | (i) |
Average China Wind common stock price | $ 1.35 | (i) |
Total purchase price | $ 20,220,000 | |
Plus: Estimated fair value of Harbin Sanye's liabilities: | ||
Current liabilities | $ 7,960,910 | |
Minority interest in Harbin Sanye | 4,396,508 | (ii) |
Total purchase price plus liabilities assumed | $ 32,577,418 | |
Estimated fair value of Harbin Sanye's assets: | ||
Current assets | $ 1,456,892 | |
Prepayments and deposits | 888,653 | |
Due from related parties | 1,984,821 | |
Property and equipment, net | 6,247,298 | |
Intangible assets, net | 12,522,353 | |
Goodwill | 9,477,401 | (iii) |
Total fair value of Harbin Sanye's assets | $ 32,577,418 |
(i) Under the terms of the Share Exchange Agreement, the total consideration for the shares of Power Profit was 15,000,000 common shares of China Wind for 100% of the share capital of Power Profit. Power Profit owns 82.14% of the registered share capital of Harbin Sanye. The total consideration given was valued at $20,220,000 based upon China Wind’s average common stock price of $1.35. The average stock price was based upon the average closing prices of China Wind’s common stock during the five business days commencing two days before the share exchange was announced.
(ii) The total purchase price represents the consideration given for an 82.14% ownership interest in Harbin Sanye. The minority interest in Harbin Sanye represents the value of the remaining 17.86% interest in Harbin Sanye.
(ii) The allocation of the purchase price includes $9,477,401 of goodwill. Goodwill represents the excess of the purchase price paid by China Wind for Harbin Sanye over the estimated fair market value of the tangible net assets acquired.
The unaudited pro forma consolidated statements of operations include the following adjustments:
(2) This adjustment was to adjust the historical amortization based upon the allocation of the purchase price to the land use right’s fair value. The land use rights are amortized on a straight line basis over 40 years.
(3) This adjustment was to record the 17.86% minority interest owner’s portion of Harbin Sanye’s net loss. The minority interest owner’s portion of the additional amortization from Adjustment (2) was included in this adjustment.