CTC Cosmetics Holdings Company, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Financial Statements
August 31, 1996
&
February 28, 1997
LEE & BERG CPAs, L.L.P.
Unaudited
CTC Cosmetics Holdings Company, Inc.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contents
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Pages
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Unaudited report on Pro Forma Condensed
Consolidated Financial Statements...................................1-2
Unaudited Balance Sheet.............................................3-6
Unaudited Statement of Income.......................................7-8
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements...................................8-14
LEE & BERG
CERTIFIED PUBLIC ACCOUNTANTS
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U S Address: 16 Soundview Road, Glen Cove, New York 11542, U.S.A.
Tel: (516) 676-8017 Fax: (516) 674-8666
Hong Kong Office: Room 1003, 39 Chatham Road South, TST, Kowloon, Hong Kong
Tel: (852)2882-5699, 2301-4388 Fax (852) 2504-5336
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Accountants' Opinion
CTC Cosmetic Holdings Company, Inc.
Stockholders and Board of Directors
We have reviewed the pro forma adjustments reflecting the reverse merger
transaction described in Note 1 and the application of those adjustements to
the historical amounts in the accompanying pro forma condensed balance sheet
of CTC Cosmetics Holdings Company, Inc. as of August 31, 1996 and February
28, 1997 and the pro forma condensed statement of income for the twelve
months and six months then ended. These historical condensed financial
statements are derived from the historical financial statements of Cao Tian
Cosmetic Holdings Limited, which were reviewed by us, and of CTC Cosmetics
Holdings Company, Inc., a Delaware corporation, which were reviewed by other
accountants, appearing in Note 2. Such pro forma adjustments are based on
management's assumptions as described in Note 3. Our review was conducted
in accordance with standards established by the American Institute of
Certified Public Accountants.
A review is substantially less in scope than an examination, the
objective of which is the is the expression of an opinion on management's
assumptions, the pro forma adjustments and the application of those
adjustments to historical financial information. Accordingly, we do not
express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
Page 1
transaction occurred at an earlier date. However, the pro forma condensed
financial statements are not necessarily indicative of the results of
operations or related effects on financial position that would have been
attained had the above-mentioned transaction actually occurred earlier.
Based on our review, nothing came to our attention that caused us to
believe that management's assumptions do not provide a reasonable basis for
presenting the significant effects directly attributable to the above-
mentioned transaction described in Note 1, that the related pro forma
adjustments do not give appropriate effect to those assumptions, or that the
pro forma column does not reflect the proper application of those
adjustments to the historical financial statement amounts in the pro forma
condensed balance sheet as of August 31, 1996 and February 28, 1997 and the
pro forma condensed statement of income for the twelve months and six months
then ended.
Lee & Berg CPAs, LLP
Glen Cove, New York
April 8, 1997
Page 2
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED AUGUST 31, 1996
(Amounts expressed in thousand dollars)
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetics Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
Current assets
Cash and cash 147 461 (461) Note 3.2 147
equivalents 1800 Note 3.1 1800
Accounts 2,256 22 (22) 2,256
receivable
Inventories 2,652 154 (154) 2,652
(1,292) (1,292)
Prepayments and 87 (87) 0
deferred
Other receivables
current assets 20 102 (102) 20
----------- ----------- ----------- -----------
Total current 5,075 826 (318) 5,583
assets
Prepayments 418 418
Property, plant and 10,919 8 (8) 10,919
equipment, net
Long-term
investment
Note receivable
Other assets 34 (34)
----------- ----------- ----------- -----------
Total assets 16,412 868 (360) 16,920
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 3
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED AUGUST 31, 1996
(Amounts expressed in thousand dollars)
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
LIABILITIES AND
SHAREHOLDERS
EQUITY
- --------------------
Current liabilities
Long-term loans- 3,359 3,359
current portion
Accounts payable 2,275 68 (68) Note 3.2 2.275
Accrued expenses
and other expenses 265 (265)
----------- ----------- ----------- -----------
Total current 5,634 333 (333) 5,634
liabilities
Long-term loans 1,888 1,888
Minority interests 129 309 (309) 129
Shareholders' equity
Common stock 7,482 226 (226) 7,482
500 Note 3.3 500
Paid-in capital
Retained earnings 1,279 508 Note 3.1 1,787
(500) Note 3.3 (500)
----------- ----------- ----------- -----------
Total shareholders'
equity 8,761 226 282 9,269
----------- ----------- ----------- -----------
Total liabilities and
shareholders'
equity 16,412 868 (360) 16,920
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 4
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(Amounts expressed in thousand dollars)
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
ASSETS
- -------------------
Current assets
Cash and cash 155 461 (461) Note 3.2 155
equivalents 949 Note 3.1 949
Accounts 1,898 16 (16) 1,898
receivable
Inventories 3,092 18 (18) 3,092
(627) Note 3.1 (627)
Prepayments and 6 209 (209) 6
deferred
Other receivables 620 1 (1) 620
current assets
----------- ----------- ----------- -----------
Total current 5,771 705 (383) 6,093
assets
Prepayments
Property, plant and 7,464 8 (8) 7,464
equipment, net
Long-term
investment
Note receivable
Other assets 936 53 (53) 936
----------- ----------- ----------- -----------
Total assets 14,171 766 (444) 14,493
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 5
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(Amounts expressed in thousand dollars)
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
LIABILITIES AND
SHAREHOLDERS
EQUITY
- -------------------
Current liabilities
Long-term loans- 3,724 3,724
current portion
Accounts payable 1,301 135 (135) Note 3.2 1,301
Accrued expenses
and other expenses 1,239 264 (264) 1,239
----------- ----------- ----------- -----------
Total current 6,264 399 (399) 6,264
liabilities
Long-term loans 1,132 1,132
Minority interests 219 (219) 0
Shareholders' equity
Common Stock 30 (30) 0
500 Note 3.3 500
Paid-in capital 5,714 115 (115) 5,714
Retained earnings 1,061 3 (3) 1,061
322 Note 3.1 322
(500) Note 3.3 (500)
----------- ----------- ----------- -----------
Total shareholders'
equity 6,775 148 174 7,097
----------- ----------- ----------- -----------
Total liabilities and
shareholders'
equity 14,171 766 (444) 14,493
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 6
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1996
(Amounts expressed in thousand dollars)
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
Sales 17,996 562 1,800 Note 3.1 20,358
Cost of goods sold 12,917 907 1,292 Note 3.1 15,116
Selling and
administrative 1,928 5 1,933
Interest expenses 417 (49) 368
Other expenses 109 (49) 60
----------- ----------- ----------- -----------
Total expenses 15,371 814 1,292 17,477
----------- ----------- ----------- -----------
Income from operations 2,625 (252) 508 2,881
before tax
Provision for tax 394 (40) 354
----------- ----------- ----------- -----------
Income from
continuing
operations 2,231 (212) 508 2,527
Income from dis-
continued operations
Reverse merger
expenses 500 Note 3.3 500
----------- ----------- ----------- -----------
Total assets 2,231 (212) 8 2,027
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 7
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(Amounts expressed in thousand dollars)
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
Sales 9,489 170 949 Note 3.1 10,608
Cost of goods sold 6,274 125 627 Note 3.1 7,026
Selling and 1,595 144 1,739
administrative
Interest expenses 327 (8) 319
Other expenses (130) (16) (146)
Total expenses 8,065 245 627 8,938
----------- ----------- ----------- -----------
Income from operations 1,423 (75) 322 1,670
before tax
Provision for tax 54 54
Income from
continuing
operations 1,369 (75) 322 1,616
----------- ----------- ----------- -----------
Income from dis-
continued operation ----------- ----------- ----------- -----------
Reverse merger
expenses 500 Note 3.3 500
Net income 1,369 (75) (178) 1,116
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 8
CTC Cosmetics Holdings Company Inc. Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
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Note 1 The reverse merger transaction
On March 21, 1997, CTC Cosmetics Holdings Company, Inc. formerly known as
The Westwind Group, Inc. (the "Company" or "Registrant"), a Delaware
corporation consummated a reverse merger transaction, whereby the Registrant
acquired all of the issued and outstanding shares of CTC Cosmetics Holding
(BVI) Co. Ltd. a British Virgin Islands corporation ("CTC Cosmetics") which
operating subsidiary is Cao Tian Cosmetic Holdings Limited, a Sino-foreign
joint venture, in exchange for the issuance by the Registrant of 9,000,000
post-split shares of restricted common stock to CTC Cosmetics shareholders
pursuant to the Agreement and Plan of Reorganization, as amended (the
"Agreement"), dated as of March 21, 1997, by and between the Registrant and
CTC Cosmetics (the "Closing").
The Registrant develops, manufactures and markets skin and hair care
products, cosmetics, and cosmetic related chemical ingredients primarily for
sale in the People's Republic of China and South East Asia.
Under the relevant terms of the Agreement, the Registrant undertook a
reverse split of its common stock, whereby 1 share of common stock was
issued in exchange for 12.93 shares of common stock. Immediately prior to
the share exchange, there were approximately 500,000 post-reverse split
shares of the Registrant's common stock issued and outstanding. Pursuant to
the terms of the Agreement for Divisive Reorganization, which was also
executed at the Closing, the Registrant's two existing subsidiaries were
spun off from the Registrant to its majority shareholders in exchange for
such majority shareholders' cancellation of a total of 960,912 pre-split
shares of common stock of the Registrant. As a result of the acquisition,
there were approximately 9,500,000 shares of Common Stock issued and
outstanding as of the Closing date.
The condensed consolidated balance sheet and accompanying condensed
consolidated financial statements illustrate the effect of the acquisition
("Pro Forma") on CTC Cosmetics and the Company, Inc. as of that date and
assumes the acquisition took place one year earlier. The condensed
consolidated statements of income for the year ended August 31, 1996 is
based on the historical statements of income of the Company and CTC
Cosmetics for that period. The pro forma condensed consolidated statements
of income assume the acquisition took place on October 1, 1995. The pro
forma condensed consolidated financial statements may not be
Refer to report on page 1
Page 9
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
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indicative of the actual results of the reverse merger. In particular, the
pro forma condensed consolidated financial statements are based on
management's estimate of possible sales impact of the reverse merger.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of the
Company and CTC Cosmetics
The pro forma statements should assist investors in analyzing the future
Prospects of the Registrant, because they illustrate the possible scope of
the change in the Registrant's historical financial position and results of
the operations caused by the merger transaction.
Note 2 Review of CTC Cosmetics Holdings Company Inc. financial statements.
The financial statements ended August 31, 1996 of CTC Cosmetics Holdings
Company Inc. have been reviewed by another CPA firm; Pritchett, Siler &
Hardy, PC.
Note 3 Description of pro forma adjustments.
Note 3.1 Management assumption on the impact of the reverse merger.
Management believes that had the reverse merger occurred at one year
earlier the total sales amount may be increased by a 10%, which is directly
due to the benefit of such a merger.
Note 3.2 Acceptance of no assets and liabilities.
Pursuant to the Plan of Reorganization Agreement dated on March 21, 1997,
by and between the Company and certain CTC Cosmetics' shareholders, and the
Agreement for Divisive Reorganization, the Company's assets and liabilities
were spun off from the Company to its majority shareholders.
Note 3.3 Cost of the reverse merger.
The management indicated that additional 1,155,600 shares of CTC
Cosmetics Holding Company, Inc. were issued in connection with the reverse
merger. In additional, The Company obtained a financing at the merger
pursuant to which convertible debentures were sold to two overseas financial
institutions to raise $ 500,000.
Refer to report on page 1
Page 10
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
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Note 3.4 Principal Accounting Policies for CTC Cosmetics Holding Company,
Inc.
(a) Property, plant and equipment
Fixed assets are recorded at cost. Depreciation is calculated to write
off their cost (after deducting the scrap value) on the straight line basis
over their expected useful lives. The useful lives used for these purposes
are:
Buildings 30 years
Machinery, equipment and others 8 years
(b) Inventories
Inventories are stated at the lower of cost or market value. Cost
includes direct materials, direct labor and an appropriate proportion of
manufacturing overhead.
(c) Accounts Receivable
A provision has been made against accounts receivable to the extent
which they are considered to be doubtful. Accounts receivable on the
balance sheet are stated net of such provisions.
(d) Foreign Currency Translation
The company maintains its books and records in PRC currency (RMB) and
translates the RMB currency into United States dollars. Foreign currency
transactions are translated into United States dollars at the applicable
rates of exchange prevailing at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into
United States dollars at the applicable rates prevailing at the balance
sheet date. Exchange differences resulting from the above translation
policy are included in the statement of income.
c) Income Taxes
Current income tax is provided at the applicable tax rates on the
Refer to report on page 1
Page 11
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
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estimated taxable income of the Company determined in accordance with the
relevant income tax laws.
Deferred income taxes are proded using the liability method under
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes". Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement basis of assets and liabilities. The tax consequences of these
differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting.
(f) Cash and Cash Equivalents
Cash and short-term highly liquid investments which are readily
convertible into cash and have an original maturity of three months or less
at the date of acquisition, are classified as cash and cash equivalents.
(g) Banking Practice
It is a general banking practice in PRC that banks grant loans to
customers on a revolving basis. Normally, each loan term is for a period of
less than one year.
(h) Due to market demand, the company has been in an expansion mode by
building offices. Construction, when completed is re-classified as a
building under Fixed assets.
(i) Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of CTC Cosmetics Holdings Company, Inc. and its subsidiary CTC Cosmetics
Holding (BVI) Company Ltd.
(j) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and
Refer to report on page 1
Page 12
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
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accompanying notes. Actual results could differ from those estimates.
(k) Revenue Recognition
Product sales revenue is recognized upon transfer of title to goods.
(l) Fiscal Year
The Company adopts the fiscal year which ends on August 31 for its
financial reporting purposes.
Note 3.5 Income Tax
In accordance with the relevant income tax laws applicable to foreign
joint venture companies established in the PRC, the Company is entitled to
full exemption from income tax for two years from the first profit-making
year of operations, followed by a 50% reduction in tax rate for the next
three years.
Note 3.6 Short Term Bank Loans
For interest rate control purposes, it is the PRC banking practice to
give customer loans for a period normally less than one year. However, the.
loan upon maturity can be automatically rolled-over on a revolving basis in
the following year, upon re-application of the same loan.
Note 3.7 Stock
There are 50,000,000 shares of common stock with par value
US$0.04/share authorized, and 9,500,000 shares are outstanding.
Note 3.8 Commitments and Contingencies.
(a) The Company owns its buildings and therefor has no office rental
commitments.
(b) All material contingencies are properly reflected in the financial
statement.
Note 3.9 Information by Industry Segment and Geographic Region.
Refer to report on page 1
Page 13
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
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Currently, all of the Company's sales are made in Asia with a majority
of these sales in the PRC.
Refer to report on page 1
Page 14