SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1996
NATURAL WAY TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
33-55354-04
------------------------
(Commission File Number)
Nevada 87-0394341
- ------------------------------- ---------------------------------
(State or other jurisdiction of
incorporation) (IRS Employer Identification No.)
Room 3105, 31/F, Universal Trade Centre
3-5A Arbuthnot Road, Central, Hong Kong
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (852) 2521-6296
Energy Systems, Inc.
1111 Caroline, suite 2905, Houston, Texas 77010
-------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
As a result of the acquisition detailed in Item 2, supra, control of the
Registrant passed to the former shareholders of China Medical Development, Ltd.
The new controlling shareholders are:
Number of Percent
Shares of Class
--------- --------
Beautimate Limited 6,900,000 84.1%
Ongoing Limited 100,000 1.2%
In addition, each of these shareholders were issued the following Series
B Preferred Shares whose vote on al corporate matters is equivalent to 30% of
the total vote:
Number of Percent
Shares of Class
--------- --------
Beautimate Limited 100,000 100%
Ongoing Limited 0 0%
Beautimate Limited is controlled by the following persons, each of whom
may be considered to be beneficial owners of the shares held by Beautimate
Limited: Yiu Yat Hung - 34%; Yiu Yat On - 33%; Yao Yi Le - 13%; Yao Shu Zheng
- 10%; and Yao Yi Ming - 10%.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As of the close of business on June 30, 1996, the Registrant acquired all
of the issued and outstanding capital stock of China Medical Development Co.
Ltd., a British Virgin Islands corporation ("China Medical") in exchange for
7,000,000 shares of the Registrant's Common Stock, $0.001 par value, 100,000
shares of Series B Preferred Stock and infusion into China Medical of
$4,200,000 in cash. The common Stock issued represents approximately 85.37% of
the Registrant's issued and outstanding Common Stock following the acquisition.
The Series B Preferred Stock has voting rights which will always be equal to
30% of the total vote on any corporate matter. The acquisition agreement also
provided that the shareholders of China Medical would receive an aggregate of
21,000,000 warrants to acquire stock of the Registrant, 7 million of which
would be exercisable for a period of two years at $3.00 per share, 7 million of
which would be exercisable for a period of four years at $4.00 per share and 7
million of which would be exercisable for a period of six years at a price of
$5.00 per share.
China Medical was established to participate in a sino-foreign joint
venture with the Dunhua Huakang Pharmaceutical Plant, (DHPP") a state owned
enterprise engaged in the manufacturing of formulated Chinese medicines for
sale within the Peoples Republic of China ("PRC"). Under the joint venture
-2-
agreement dated March 6, 1996, China Medical contributed $4,200,000 in cash for
a 70% interest in the joint venture, while DHPP contributed its production
plant, (buildings, plant and machinery) valued at $1,800,000 for a 30% interest
in the joint venture.
The joint venture will succeed to the business of manufacturing formulated
Chinese medicine which was previously produced by DHPP. As part of the joint
venture agreement, DHPP has delivered a guarantee to China Medical that the
annual net income after tax (as determined under generally accepted accounting
principles) of the joint venture for each of its first four years of operations
will not be less than 25% of the net assets employed by the joint venture. In
the event that the net income of the joint venture is below the guaranteed
amount, DHPP has agreed to reallocate all or a portion of its net income from
the joint venture to China Medical, or make payments to China Medical to cover
any shortfall to China Medical's share of the net income. In addition, DHPP
has agreed to transfer to the joint venture additional operating assets and
liabilities with an estimated value of approximately $1.9 million for a note
which bears interest at an annual rate of 5.5%. The joint venture has the
right to transfer the note back to DHPP if the outstanding accounts receivable
as of December 31, 1995 are not realized in cash by June 30, 1997.
Other key provisions of the joint venture agreement include:
o The joint venture duration is 30 years extending from March, 1996 to
March, 2026;
o The profit and loss sharing ration is the same as the respective
percentage of equity interest (70% to China Medical and 30 % to DHPP);
and
o The Board of Directors will consist of seven members, three designated
by DHPP and four designated by China Medical.
ITEM 4. CHANGES IN IN REGISTRANT'S CERTIFYING ACCOUNTANT
(a) Dismissal of Independent Accounting Firm
(i) D. Brian Maceth (the "principal accountant"), the
independent accountant which audited the financial statements of
the Registrant (formerly, Energy systems, Inc.) during fiscal
years 1994 and 1995, was dismissed in such capacity on July 31,
1996.
(ii) None of the principal accountant's reports on the financial
statements of the registrant for either of the past two years
has contained an adverse opinion or a disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope, or
accounting principles.
(iii) The decision to change accountants was recommended by the
Board of Directors.
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(iv) During the preceding two years and the subsequent interim
period preceding his dismissal, the Registrant had no
disagreements with the principal accountant on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of the
principal accountant, would have caused him to make reference to
the subject matter of the disagreement(s) in connection with his
report.
(v) None of the kinds of events listed in paragraph (a)(1)(v)
(A) through (D) of Regulation S-K, Item 304 occurred during the
two most recent fiscal years or any subsequent interim periods.
(b) Engagement of New Independent Accountants
On July 31, 1996, the Registrant's Board of Directors formally
engaged Arthur Anderson & co. as its new principal accountants (the "new
accounting firm") to audit the Registrant's financial statements.
The new accounting firm served as the principal accounting firm for
the Registrant's subsidiary joint venture partner, Dunhua Huakang
Pharmaceutical Plant, with respect to its financial statements for fiscal
years 1994 and 1995. Other than its services in that regard, the
Registrant, during the two most recent fiscal years and the subsequent
interim period prior to the engagement of the new accounting firm, did not
consult with the new accounting firm with regard to any of the matters
listed in Regulation S-K Items 304(a)(2)(i) or (ii).
-4-
ITEM 5. OTHER EVENTS
On July 16, 1996, the Registrant filed Articles of Amendment with the
Secretary of State for the State of Nevada to change its name from Energy
Systems, Inc. to Natural Way Technologies, Inc.
During May, 1996, the Registrant sold 4,200,000 of Series A Convertible
Preferred Shares pursuant to the provisions of Regulation S to finance the
acquisition of China Medial. The Series A Convertible Preferred Shares are
convertible into Common Shares of the Registrant at any time after July 56,
1996 at the lesser of the market price of the stock, or $1.00 per share.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
DUNHUA HUAKANG PHARMACEUTICAL PLANT
Report of Independent Public Accountants......................*
Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995............................*
Balance Sheets as of December 31, 1994 and 1994...............*
Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995............................*
Statements of Changes in Equity for the Years Ended
December 31, 1993, 1994, and 1995...........................*
Notes to Financial Statements.................................*
DUNHUA HUAKANG PHARMACEUTICAL CO. LTD.
Balance Sheet as of June 30, 1996 (unaudited).................F-1
Statement of Operations for the Six Months Ended
June 30, 1996 (unaudited)...................................F-2
Notes to Financial Statements (Unaudited).....................F-3
CHINA MEDICAL DEVELOPMENT CO. LTD.
Report of Independent Public Accountants......................F-4
Statement of Operations for the Period From
September 29, 1995 (date of incorporation) to
June 30, 1996...............................................F-5
Balance Sheet as of June 30, 1996.............................F-6
Statement of Cash Flows for the Period From
September 29, 1995 (date of incorporation) to
June 30, 1996...............................................F-7
-5-
Statement of Changes in Shareholders' Equity for the
Period From September 29, 1995 (date of incorporation)
to June 30, 1996............................................F-8
Notes to Financial Statements.................................F-9
(b) PRO FORMA FINANCIAL INFORMATION
Introduction to Pro Forma Condensed Combined
Financial Information.......................................F-12
Pro Forma Condensed Combined Balance Sheet
as of June 30, 1996 (Unaudited).............................F-13
Pro Forma Condensed Combined Statements of
Operations for the Year Ended December 31, 1995
and the Months Ended June 30, 1996 (Unaudited)..............F-14
Notes to Pro Forma Condensed Combined
Financial Statements........................................F-15
(c) EXHIBITS
2.1 Acquisition Agreement, as amended
16.1 Letter from D. Brian Macbeth regarding change in certifying
accountants.*
- -------------------------
* Previously filed.
-6-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
(REGISTRANT) NATURAL WAY TECHNOLOGIES, INC.
BY (SIGNATURE) /s/ Yiu Yat Hung
(NAME AND TITLE) Yiu Yat Hung, Chairman and
Chief Executive Officer
(DATE) November 22, 1996
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FINANCIAL STATEMENTS
OF
DUNHUA HUAKANG PHARMACEUTICAL CO. LTD.
DUNHUA HUAKANG PHARMACEUTICAL CO. LTD.
Balance Sheet (Unaudited)
(in United States $'000)
ASSETS
June 30, 1996
-------------
Current assets:
Cash $ 3,010
Accounts receivable, net 7,961
Prepayments 353
Inventories, net 527
Due from related companies 1,197
--------
Total current assets 13,048
Deferred value added tax recoverable 142
Property, plant and equipment, net 2,193
--------
Total assets $ 15,383
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 40
Accounts payable 802
Accrued expenses and other payables 1,674
Taxation payable 1,894
Due to a joint venture partner 2,556
Due to related companies 18
--------
Total current liabilities 6,984
Shareholders' equity:
Paid-in capital 4,800
Dedicated capital 1,109
Retained earnings 2,490
--------
Total shareholders' equity 8,399
--------
Total liabilities and shareholders' equity $ 15,383
========
See accompanying notes to financial statements
F-1
DUNHUA HUAKANG PHARMACEUTICAL CO. LTD.
Statement of Operations (Unaudited)
(in United States $'000)
Six Months Ended
June 30, 1996
----------------
Net sales $ 5,410
Cost of goods sold 1,439
--------
Gross profit 3,971
Selling, general and
administrative expense (2,051)
Interest income (expense) (52)
Other expenses, net (9)
--------
Income before income taxes 1,859
Provision for income tax (60)
--------
Net income $ 1,799
========
See accompanying notes to financial statements
F-2
DUNHUA HUAKANG PHARMACEUTICAL CO. LTD.
Notes to Financial Statements (Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the Dunhua
Huakang Pharmaceutical Plant audited financial statements for the year
ended December 31, 1995. In the opinion of management, these interim
financial statements reflect all adjustments of a normal recurring nature
necessary for a fair statement of the results for the interim period
presented.
2. ORGANIZATION
Dunhua Huakang Pharmaceutical Co. Ltd. ("DHPC") was established as a
sino-foreign joint venture in the People's Republic of China on March 6,
1996 pursuant to the terms of a joint venture agreement between Dunhua
Huakang Pharmaceutical Plant ("DHPP") and China Medical Development
Company Limited ("CMDC"). Pursuant to the joint venture agreement, CMDC
is required to contribute to DHPC cash of $4,200,000 as its capital
contribution for 70% equity interest in DHPC, while DHPP is required to
contribute to DHPC its production plant, including buildings and
machinery, with a value of $1,800,000 as its capital contribution for 30%
equity interest in DHPC. As of June 30, 1996, CMDC had contributed
$3,000,000 into DHPC as its capital contribution and the remaining
$1,200,000 will be due for payment on or before March 5, 1997.
F-3
FINANCIAL STATEMENTS
OF
CHINA MEDICAL DEVELOPMENT CO. LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
China Medical Development Company Limited:
We have audited the accompanying parent company balance sheet of China Medical
Development Company Limited (incorporated in the British Virgin Islands; "the
Company") as of June 30, 1996, and the related statements of operations, cash
flows and changes in shareholder's equity for the period from September 29, 1995
(date of incorporation) to June 30, 1996, expressed in United States Dollars.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 audit provides 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 China Medical Development
Company Limited as of June 30, 1996, and the results of its operations and its
cash flows for the period from September 29, 1995 (date of incorporation) to
June 30, 1996, in conformity with generally accepted accounting principles in
the United States of America.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Hong Kong,
November 13, 1996.
-1-
F-4
CHINA MEDICAL DEVELOPMENT COMPANY LIMITED
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 29, 1995 (DATE OF INCORPORATION)
TO JUNE 30, 1996
(Expressed in United States dollars)
Interest income, net $ 35,463
---------
Income before income tax 35,463
Provision for income tax -
---------
Net income $ 35,463
=========
The accompanying notes are an integral part of these financial statements.
-2-
F-5
CHINA MEDICAL DEVELOPMENT COMPANY LIMITED
balance sheet as OF JUNE 30, 1996
(Expressed in Uinted States dollars)
ASSETS
Current assets:
Cash $ 19,660
Due from a related company 56,905
Loan to a related company 1,200,000
----------
Total current assets 1,276,565
Investment in a subsidiary 3,000,000
----------
Total assets $4,276,565
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Due to a director $ 31,102
----------
Shareholder's equity:
Common stock 10,000
Additional paid-in capital 4,200,000
Retained earnings 35,463
----------
Total equity 4,245,463
----------
Total liabilities and shareholder's equity $4,276,565
==========
The accompanying notes are an integral part of these financial statements.
-3-
F-6
CHINA MEDICAL DEVELOPMENT COMPANY LIMITED
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 29, 1995 (DATE OF INCORPORATION)
TO JUNE 30, 1996
(Expressed in Uinted States dollars)
Cash flows from operating activities:
Net income $ 35,463
-----------
Net cash provided from operating activities 35,463
-----------
Cash flows from investing activities:
Acquisition of a subsidiary (3,000,000)
Advance to a related company (56,905)
Loan to a related company (1,200,000)
-----------
Net cash used in investing activities (4,256,905)
-----------
Cash flows from financing activities:
Loan from a director 31,102
Proceeds from issuance of common stock 10,000
Additional shareholder contributions 4,200,000
-----------
Net cash provided by financing activities 4,241,102
-----------
Net increase in cash 19,660
Cash, as of beginning of period -
-----------
Cash, as of end of period $ 19,660
===========
The accompanying notes are an integral part of these financial statements.
-4-
F-7
CHINA MEDICAL DEVELOPMENT COMPANY LIMITED
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD FROM SEPTEMBER 29, 1995 (DATE OF INCORPORATION)
TO JUNE 30, 1996
(Expressed in United States dollars)
Common stock
------------------ Additional
Number of Paid In Retained
Shares Amount Capital Earnings
--------- ------ ---------- --------
Balance as of September 25, 1995
(date of incorporation) - $ - $ - $ -
Issuance of common stock 10,000 10,000 - -
Additional shareholder
contributions - - 4,200,000 -
Net income - - - 35,463
------ ------- ---------- -------
Balance as of June 30, 1996 10,000 $10,000 $4,200,000 $35,463
====== ======= ========== =======
The accompanying notes are an integral part of these financial statements.
-5-
F-8
CHINA MEDICAL DEVELOPMENT COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS
(Amounts expressed in United States dollars)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
China Medical Development Company Limited (the "Company") was incorporated in
the British Virgin Islands on September 29, 1995.
On February 14, 1996, the Company allotted and issued 7,000 shares of common
stock, par value $1 each, to Beautimate Group Limited ("BGL"; a company
incorporated in the British Virgin Islands) and 3,000 shares of common stock,
par value $1 each, to Ongoing Limited ("OL"; a company incorporated in the
British Virgin Islands), for $10,000. BGL is owned and controlled by Yiu Yat
Hung (director of the Company), Yiu Yat On (director of the Company), Yao Yile
and Yao Suzhen, and OL is owned and controlled by Guan Wu (director of the
Company).
Joint venture
On March 6, 1996, the Company entered into a joint venture agreement with
Dunhua Huakang Pharmaceutical Plant ("DHPP") to establish a sino-foreign joint
venture in the People's Republic of China ("the PRC") - Dunhua Huakang
Pharmaceutical Co. Ltd. ("DHPC"). Pursuant to this joint venture agreement,
the Company is required to contribute to DHPC cash of $4,200,000 as its capital
contribution for 70% equity interest in DHPC, while DHPP is required to
contribute to DHPC its production plant, including buildings and machinery,
with a value of $1,800,000 as its capital contribution for 30% equity interest
in DHPC. As of June 30, 1996, the Company had contributed $3,000,000 into DHPC
as its capital contribution, and the remaining $1,200,000 will be due for
payment on or before March 5, 1997.
DHPC has succeeded to the business of manufacturing formulated Chinese medicine
which was previously undertaken by DHPP. In connection with the establishment
of DHPC, DHPP has delivered to the Company a guarantee that the annual net
income after tax (as determined under generally accepted accounting principles
in the United States of America) of DHPC for each of its first four years of
operations will not be less than 25% of the net assets employed by DHPC. In
the event that the net income of DHPC is below the guaranteed amount, DHPP has
agreed to reallocate all or a portion of its entitlement to the net income of
DHPC to the Company or make payments to the Company so as to cover any
shortfall with respect to the Company's share of the net income. In addition,
DHPP has transferred into DHPC additional operating assets and liabilities with
an estimated valuation of approximately $4,288,000 for a note receivable which
bears interest at an annual rate of 5.5%. DHPP has also given a guarantee to
the Company to transfer DHPP's accounts receivable as of December 31, 1995 back
to DHPP if such accounts receivable are not realized in cash by June 30, 1997.
-6-
F-9
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Cont'd)
The other key provisions of the joint venture agreement include:
o the joint venture period is 30 years from March 1996 to March
2026;
o the profit and loss sharing ratio is the same as the respective
percentage of equity interest; and
o the Board of Directors consists of seven members, with four designated
by the Company and three designated by DHPP.
Change in shareholders
On June 30, 1996, BGL and OL, the then shareholders of the Company, entered
into an agreement with Natural Way Technologies, Inc. ("NWYT"; previously named
Energy Systems, Inc.; a Nevada, U.S.A. corporation) underwhich NWYT acquired a
100% interest in the Company by issuing to BGL and OL an aggregate of 7,000,000
shares of common stock, par value of $0.001, 100,000 shares of Series B
convertible and redeemable preferred stock and 21,000,000 shares of warrants.
Among the warrants, 7,000,000 of Class A warrants are exercisable at a price of
$3.00 for one share of common stock at any time up to June 30, 1998; 7,000,000
of Class B warrants are exercisable at a price of $4.00 for one share of common
stock at any time up to June 30, 2000; and 7,000,000 of Class C warrants are
exercisable at a price of $5.00 for one share of common stock at any time up to
June 30, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Subsidiary
A subsidiary is a company in which the Company holds, directly or
indirectly, more than 50% of its issued voting share capital. Investment
in a subsidiary is stated at cost which approximate equity.
b. Income taxes
Income tax is provided under the provisions of Statement of Financial
Accounting Standards No. 109, which requires recognition of deferred tax
assets and liabilities for expected future tax consequences of events that
have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognised for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
-7-
F-10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
c. Foreign currency translation
The translation of the financial statements of the foreign subsidiary into
United States dollars is performed for balance sheet accounts using closing
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during each reporting
period.
3. INCOME TAX
The Company is incorporated in the British Virgin Islands under the
International Business Companies Act and, accordingly, is exempted from the
payment of income tax in the British Virgin Islands.
4. COMMON STOCK
During the period, the Company issued 10,000 shares of common stock at par
value of $1 per share for $10,000.
5. RELATED PARTY TRANSACTIONS
The Company entered into the following transactions with related parties:
a. The loan to Shen Po Holdings Limited, a related company which is owned and
controlled by Yiu Yat Hung (a director of the Company), of approximately
$1,200,000 is unsecured, bears interest at 15% per annum and is repayable
on or before November 15, 1996. The recoverablility of this loan is also
guaranteed by Mr. Yiu Yat Hung. During the period, the Company earned from
this related company interest income of approximately $23,000.
b. The amount due from a related company and the amount due to a director are
unsecured, non-interest bearing and without pre-determined repayment terms.
PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
NATURAL WAY TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
reflects the June 30, 1996 acquisition of 100% of the stock of China Medical
Development Company Limited ("CMDC") in exchange for the issuance of 7,000,000
shares of common stock, 100,000 shares of Series B preferred stock, 7,000,000
Class A Warrants, 7,000,000 Class B Warrants and 7,000,000 Class C Warrants.
CMDC is a British Virgin Island corporation formed on September 29, 1995. On
March 6, 1996, CMDC entered into a joint venture agreement with Dunhua Huakang
Pharmaceutical Plant ("DHPP") to establish a sino-foreign joint venture in the
People's Republic of China (the "PRC") - Dunhua Huakang Pharmaceutical Co. Ltd.
("DHPC"). Pursuant to this joint venture agreement, CMDC was required to
contribute to DHPC cash of $4,200,000 as its capital contribution for a 70%
equity interest in DHPC, while DHPP was required to contribute to DHPC its
production plant, including buildings and machinery, with a value of $1,800,000
as its capital contribution for a 30% equity interest in DHPC. As of June 30,
1996, CMDC had contributed $3,000,000 into DHPC as its capital contribution and
the remaining $1,200,000 will be due for payment on or before March 5, 1997.
The pro forma balance sheet data at June 30, 1996 assumes the formation of DHPC
and the acquisition of CMDC occurred at June 30, 1996. The pro forma
statements of operations for the six months ended June 30, 1996 and the year
ended December 31, 1995 assumes the formation of DHPC and acquisition of CMDC
occurred on December 31, 1994.
The historical financial information of DHPP, DHPC and CMDC as of and for the
six months ended June 30, 1996 and the year ended December 31, 1995 have been
derived from the respective companies' financial statements included elsewhere
herein and such information with respect to the Company has been derived from
reports filed by the Company on Form 10-KSB and Form 10-QSB for such periods.
The pro forma financial information should be read in conjunction with the
acompanying notes thereto and with the financial statements of the Company,
DHPP, DHPC and CMDC.
The pro forma condensed combined financial information does not purport to be
indicative of the financial position or operating results which would be
achieved had the formation of DHPC and the acquisition of CMDC been consummated
as of the dates indicated and should not be construed as representative of
future financial position or operating results. In management's opinion, all
adjustments necessary to reflect the effects of the transactions described have
been made.
F-12
NATURAL WAY TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1996
(Amounts in United States $'000)
(Unaudited)
Natural Pro Forma Pro Forma
Way CMDC DHPC Adjustments Combined
------- ------- ------- ----------- ---------
ASSETS
Current assets
Cash $ - $ 19 $ 3,010 $ - $ 3,029
Accounts receivable - - 7,961 - 7,961
Prepayments - - 353 - 353
Inventories - - 527 - 527
Due from related company - 57 1,197 (40)<F3> 1,214
Loan to a related company - 1,200 - - 1,200
Deposit 1,400 - - - 1,400
Deferred value added tax - - 142 - 142
Investment in subsidiary 4,207 3,000 - (7,207)<F2> -
Property, plant and
equipment - - 2,193 - 2,193
------ ------ ------- ------- -------
Total assets $5,607 $4,276 $15,383 $(7,247) $18,019
====== ====== ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8 $ - $ 802 $ - $ 810
Short-term borrowings - - 40 - 40
Accrued expenses - - 1,674 - 1,674
Taxes payable - - 1,894 - 1,894
Due to joint venture
partner - - 2,556 (2,556)<F1><F3> -
Due to related companies - - 18 - 18
Due to a director - 31 - - 31
Minority interest - - - 2,519<F1> 2,519
Shareholders' equity:
Common stock 8 10 - (10)<F2> 8
Preferred stock - - - - -
Additional paid-in capital 5,601 4,200 4,800 (7,200)<F2> 7,401
Dedicated capital - - 1,109 - 1,109
Subscription monies
receivable - - - - -
Retained earnings
(deficit) (10) 35 2,490 - 2,515
------ ------ ------- ------- -------
Total stockholders'
equity 5,599 4,245 8,399 (7,210) 11,033
------ ------ ------- ------- -------
Total liabilities and
stockholders' equity $5,607 $4,276 $15,383 $(7,247) $18,019
====== ====== ======= ======= =======
<FN>
<F1>
To record minority interest in net assets acquired of DHPC.
<F2>
To eliminate investments in subsidiaries.
<F3>
To eliminate intercompany payables.
</FN>
See accompanying notes
F-13
NATURAL WAY TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1996
(Amounts in United States $'000)
(Unaudited)
Natural Pro Forma Pro Forma
Way CMDC DHPC Adjustments Combined
------- ------- ------- ----------- ---------
Net sales $ - $ - $ 5,410 $ - $ 5,410
Cost of goods sold - - 1,439 - 1,439
----- ----- ------- ---------
Gross profit - - 3,971 - 3,971
Selling, general and
administrative expense - - (2,051) - (2,051)
Interest income (expense) - 35 (52) - (17)
Other expenses, net - - (9) - (9)
----- ----- ------- -------- -------
Income before income
taxes - 35 1,859 - 1,894
Provision for income tax - - (60) - (60)
----- ----- ------- -------- -------
Income before minority
interest - 35 1,799 - 1,834
Minority interest - - - (540) (540)
----- ----- ------- -------- -------
Net income $ - $ 35 $ 1,799 $ (540) $1,294
===== ===== ======= ======== =======
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1995
(Amounts in United States $'000)
(Unaudited)
Natural Pro Forma Pro Forma
Way CMDC DHPC Adjustments Combined
------- ------- ------- ----------- ---------
Net sales $ - $ - $10,348 $ - $10,348
Cost of goods sold - - 2,683 - 2,683
----- ----- ------- --------- -------
Gross profit - - 7,665 - 7,665
Selling, general and
administrative expense (8) - (4,364) - (4,372)
Interest income (expense) - - 19 - 19
Other expenses, net - - (6) - (6)
----- ----- ------- --------- -------
Income before income
taxes (8) - 3,314 - 3,306
Provision for income tax - - (120) - (120)
----- ----- ------- --------- -------
Income before minority
interest (8) - 3,194 - 3,186
Minority interest - - - (958) (958)
----- ----- ------- --------- -------
Net income $ (8) $ - $ 3,194 $ (958) $ 2,228
===== ===== ======= ========= =======
See accompanying notes
F-14
NATURAL WAY TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
PRO FORMA ADJUSTMENTS:
(1) To record minority interest in net assets acquired of DHPC.
(2) To eliminate investments in subsidiaries.
(3) To eliminate intercompany payables.
F-15