Exhibit 99.1
Index to Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Financial Statements 1
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2003 2
Unaudited Pro Forma Condensed Combined Statements of Income for the three-month ended March 31, 2003 3
Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 2002 4
Notes to Unaudited Pro Forma Condensed Combined Financial Statements 5 to 7
The following unaudited pro forma condensed combined balance sheet as of March
31, 2003 and the unaudited pro forma condensed combined statements of income for
the three months ended March 31, 2003 and for the year ended December 31, 2002
are based on the historical financial statements of the Industries
International, Incorporated (the "Company") and Li Sun Power International
Limited ("LPI") after giving effect to the acquisition of LPI by the Company
("Acquisition") using the method of accounting similar to a pooling of interest
method and the assumptions and adjustments described in the accompanying notes
to the unaudited pro forma condensed combined financial statements. The
Acquisition was completed on May 14, 2003.
The unaudited pro forma condensed combined balance sheet of the Company and LPI
as of March 31, 2003 is presented to give effect to the Acquisition as if it
occurred on March 31, 2003. The unaudited pro forma condensed combined
statements of income of the Company and LPI for the three months ended March 31,
2003 and for the year ended December 31, 2002 are presented as if the
Acquisition had taken place on January 1, 2002.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the historical combined financial statements and
accompanying notes contained in the Company's Form 10-KSB for the year ended
December 31, 2002 and the Form 8-K/A for the information of Broad Faith Limited
filed on April 14, 2003 and April 22, 2003 respectively and the Form 8-K/A for
the information of LPI for the year ended December 31, 2002 filed on May 19,
2003 and Quarterly Report on Form 10-Q for its quarter ended March 31, 2003
filed on May 20, 2003. The unaudited pro forma condensed combined financial
statements are not intended to represent or be indicative of the combined
results of operations or financial condition of the Company that would have been
reported had the Acquisition been completed as of the dates presented, and
should not be taken as representative of the future combined results of
operations or financial condition of the Company.
Industries International, Incorporated
Unaudited Pro Forman Combined Balance Sheet
As of March 31, 2003
- --------------------------------------------------------------------------------
(in thousands)
Pro forma Pro forma
Pro forma combined combined
INDI LPI adjustments balance balance
RMB RMB RMB RMB USD
ASSETS
Current assets:
Cash and cash equivalents 56,191 88,878 145,069 17,548
Accounts receivable, net 64,913 69,314 134,227 16,236
Due from related parties, director and employees 43,381 762 (30,144) (c) 13,999 1,693
Inventories 32,486 20,063 52,549 6,356
Plant and equipment held for sales receivable 58,850 - 58,850 7,118
Prepaid expenses and other current assets 27,728 24,515 52,243 6,320
---------- ---------- ------------ ------------
Total current assets 283,549 203,532 456,937 55,271
Property, plant and equipment, net 50,606 39,241 89,847 10,868
Goodwill -- 591 591 72
Investment in subsidiaries -- -- 62,561 (b) -- --
(62,561) (d)
---------- ---------- ------------ ------------
Total assets 334,155 243,364 547,375 66,211
========== ========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debts maturing within one year 114,025 28,000 142,025 17,179
Accounts payable - Trade 21,387 28,424 49,811 6,025
Due to related parties -- 32,171 (30,144) (c) 2,027 245
Other payable 44,800 -- 44,800 5,419
Accrued expenses and other accrued liabilities 14,714 31,620 46,334 5,605
---------- ---------- ------------ ------------
Total current liabilities 194,926 120,215 284,997 34,473
---------- ---------- ------------ ------------
Non-current borrowing -- 20,000 20,000 2,419
---------- ---------- ------------ ------------
Minority interests in combined subsidiaries 63,976 62,312 126,288 15,276
---------- ---------- ------------ ------------
Shareholders' equity:
Common stock 5,077 -- 1,303 (b) 6,380 772
Additional paid-in capital 3,890 -- 61,258 (b) 65,148 7,880
Dedicated reserves 15,887 5,881 (5,881) (d) 15,887 1,922
Retained earnings 51,045 34,956 (34,956) (d) 29,321 3,547
(21,724) (d)
Accumulated other comprehensive loss (646) -- (646) (78)
---------- ---------- ------------ ------------
Total shareholders' equity 75,253 40,837 116,090 14,043
---------- ---------- ------------ ------------
Total liabilities and shareholders' equity 334,155 243,364 547,375 66,211
========== ========== ============ ============
Note: As of March 31, 2003, LPI's common stock was only US$1 and there was no
additional paid-in capital.
Industries International, Incorporated
Unaudited Pro Forman Combined Statement of Income
Three Months ended March 31, 2003
- --------------------------------------------------------------------------------
(in thousands)
Pro forma Pro forma
Pro forma combined combined
INDI LPI adjustments balance balance
RMB RMB RMB RMB USD
Operating revenues:
Net sales 54,913 39,780 -- (a) 94,693 11,454
Rental income 240 -- 240 29
----------- ---------- ----------- ------------
55,153 39,780 94,933 11,483
----------- ---------- ----------- ------------
Operating expenses:
Manufacturing and other costs of sales 42,402 23,860 -- (a) 66,262 8,015
Sales and marketing 2,211 2,253 4,464 540
General and administrative 2,429 1,353 3,782 457
Research and development 1,677 724 2,401 291
Depreciation and amortization 921 207 1,128 136
Other operating costs and expenses 780 460 1,240 150
----------- ---------- ----------- ------------
Total operating expenses 50,420 28,857 79,277 9,589
----------- ---------- ----------- ------------
Operating income 4,733 10,923 15,656 1,894
Interest expenses (1,482) (687) (2,169) (262)
Other income, net 97 127 224 27
----------- ---------- ----------- ------------
Income before income taxes and minority
interests 3,348 10,363 13,711 1,659
Provision for income taxes (356) (1,086) 1,442 (175)
----------- ---------- ----------- ------------
Income before minority interests 2,992 9,277 12,269 1,484
Minority interest in income of combined (4,854)
subsidiaries (1,479) (3,375) (587)
----------- ---------- ----------- ------------
Net income 1,513 5,902 7,415 897
=========== ========== =========== ============
Earning per share:
Basic common shares outstanding
(retroactively stated (note 1)) 15,315 -- 3,941 (f) 19,256 19,256
=========== ========== =========== ============
Basic net income per common share 0.099 -- -- 0.39 0.05
=========== ========== =========== ============
Industries International, Incorporated
Unaudited Pro Forma Combined Statement of Income
Year ended December 31, 2002
- --------------------------------------------------------------------------------
(in thousands)
Pro forma Pro forma
Pro forma combined combined
INDI LPI adjustment balance balance
RMB RMB RMB RMB USD
Operating revenues:
Net sales 288,236 159,455 (516) (a) 447,175 54,090
Rental income 8,160 -- 8,160 987
Government grant -- 300 300 36
----------- ---------- ----------- ------------
296,396 159,755 (516) 455,635 55,113
----------- ---------- ----------- ------------
Operating expenses:
Manufacturing and other costs of sales 211,106 98,607 (516) (a) 309,197 37,400
Sales and marketing 10,410 6,445 16,855 2,039
General and administrative 11,768 6,341 18,109 2,190
Research and development 8,025 3,868 11,893 1,438
Depreciation and amortization 10,306 1,139 11,445 1,384
Write-down of assets to be disposal of -- 2,078 (2,078) (e) -- --
Other operating costs and expenses 662 443 1,105 134
----------- ---------- ----------- ------------
Total operating expenses 252,277 118,921 (516) 368,604 44,585
----------- ---------- ----------- ------------
Operating income 44,119 40,834 87,031 10,528
Interest expenses (10,072) (3,172) (13,244) (1,602)
Other income, net 1,569 567 2,136 258
----------- ---------- ----------- ------------
Income before income taxes and minority
interests 35,616 38,229 75,923 9,184
Provision for income taxes (2,820) (4,521) (7,341) (888)
----------- ---------- ----------- ------------
Income before minority interests 32,796 33,708 68,582 8,296
Minority interest in income of combined
subsidiaries (12,346) (12,539) (24,975) 3,021
----------- ---------- ----------- ------------
Net income 20,450 21,169 43,607 5,275
=========== ========== =========== ============
Earning per share:
Basic common shares outstanding
(retroactively stated (note 1)) 15,315 -- 3,941 (f) 19,256 19,256
=========== ========== =========== ============
Basic net income per common share 1.34 -- 2.26 0.27
=========== ========== =========== ============
Industries International, Incorporated
Notes to unaudited pro forma condensed combined financial statements
- --------------------------------------------------------------------------------
(in thousands except shares and per share data)
1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the historical combined financial statements and
accompanying notes contained in the Company's Form 10-KSB for the year ended
December 31, 2002 and the Form 8-K/A for the information of Broad Faith Limited
filed on April 14, 2003 and April 22, 2003 respectively and the Form 8-K/A for
the information of LPI for the year ended December 31, 2002 filed on May 19,
2003 and Quarterly Report on Form 10-Q for its quarter ended March 31, 2003
filed on May 20, 2003. The historical INDI financial information for year ended
December 31, 2002 is that of the Form 8-K/A for the information of Broad Faith
Limited filed on April 22, 2003.
On March 10, 2003, the Company entered into an agreement to purchase all issued
and outstanding shares of LPI from Mr. Tsui Kit, who is the majority stockholder
of the Company as well as the Chief Executive Officer and a director of the
Company. By acquiring the capital stock of LPI, the Company will become the
beneficial owner of LPI's approximately 72.83% interest in Wuhan Lixing Power
Sources Company Limited ("WLPS"), a leading lithium and lithium-ion battery
manufacturer in China.
The consideration for the acquisition will be 15,765,432 shares of common stock
of the Company, based on a share price of US$0.48 per share; and cash of
US$7,662,000, which shall be in the form of a promissory note payable in cash or
common stock of the Company. Up to the date of this report, the form for
settling the US$7,662,000 has not been determined.
Since the Company acquires shares in LPI from its controlling stockholder, Mr.
Tsui Kit, the transaction was considered a transfer among companies under common
control. The method of accounting for such transfer of equity interests was
similar to pooling of interest method. Consistent with the provisions of
Accounting Principle Board Opinion 16 " Business Combination", Statement of
Financial Accounting Standards No. 141 "Business Combination" indicates that the
assets and liabilities transferred in such transaction should be accounted for
at existing carrying amounts. Any difference between considerations paid for the
assets acquired and the existing carrying amounts of such assets to the
controlling stockholder would be recorded as a dividend or a capital
contribution, as appropriate. Accordingly, the difference between the
consideration and the net carrying value of 100% interest in LPI was treated as
dividend to the controlling stockholder of both companies (i.e., the Company and
LPI), Mr. Tsui Kit.
On May 12, 2003, the Company declared a one-for-four reverse stock split. The
reverse stock split became effective on June 2, 2003.
For the purpose of calculating earning per share of the Company in the unaudited
pro forma combined statements of income, the basic common stocks outstanding
have been retroactively stated for the effect of the reverse split and is
presented as if the Recapitalzation of Broad Faith Limited had taken place on
January 1, 2002.
For the convenience of the readers of these combined financial statements,
translation of amounts from Renminbi (Rmb) into United States dollars (USD) has
been made at the exchange rate of Rmb 1.00 = USD0.12096. No representation is
made that the Renminbi amounts could have been or could be converted into the
United States dollars at the rates or at any other rates on all the periods
presented.
Industries International, Incorporated
Notes to unaudited pro forma condensed combined financial statements
- --------------------------------------------------------------------------------
(in thousands except shares and per share data)
2. PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the purchase price, to adjust
difference between considerations paid for the assets acquired and the
historical cost of such assets to the controlling stockholder of the Company and
to eliminate intercompany balances or transactions between the Company and LPI.
Certain reclassifications have been made to conform LPI's historical amounts to
the Company's presentation.
The pro forma combined provision for income taxes does not reflect the amounts
that would have resulted had the Company and LPI filed combined income tax
returns during the periods presented.
The pro forma adjustments included in the unaudited pro forma condensed combined
financial statements are as follows:
(a) Adjustment to reflect the elimination of intercompany transaction
between a subsidiary of the Company and LPI. There was no such
transaction occurred during three months ended March 31, 2003.
(b) Adjustment to record the consideration for the acquisition of 100%
interest in LPI through Mr. Tusi Kit by 3,941,358 (after reverse split)
shares of common stock of the Company. Any difference in par value of
the Company's stock of US$ 0.04 (after reverse split) a share and
agreed price of US$1.92 per share, was credited to additional paid-in
capital. Due to the form for settling the US$7,662,000 has not been
determined, this obligation to Mr. Tsui Kit has not been accounted for
in the unaudited pro forma financial statements.
(c) Adjustment to reflect the elimination of inter-company current account
balances.
(d) Elimination of
(in thousand) (in thousand)
RMB USD
------- -------
Consideration (issuance of 3,941,358 shares of common stock
(after adjusting the effect of the reverse split)) 62,561 7,567
LPI's equity accounts
Common Stock -- --
Dedicated reserves (5,881) (712)
Retained earnings (34,956) (4,228)
------- -------
Difference 21,724 2,627
======= =======
The difference between consideration paid for the assets acquired and the
existing carrying amounts of such assets was recorded as a dividend to the
controlling stockholder, Mr. Tsui Kit. Adjustment was made to record the
dividend by way of charging to retained earnings.
Industries International, Incorporated
Notes to unaudited pro forma condensed combined financial statements
- --------------------------------------------------------------------------------
(in thousands except shares and per share data)
2. PRO FORMA ADJUSTMENTS (Continued)
(e) Adjustment to eliminate the effect of a non-recurring transaction
relating to write-down of LPI's properties to be disposed to its staff.
(f) Adjustment to reflect the increase in weighted average number of shares
outstanding of 3,941,358 (after adjusting the effect of the reverse
split) common stock as if they were issued on January 1, 2002 for the
Acquisition for unaudited pro forma combined statement of income for
the year ended December 31, 2002 and three months ended March 31, 2003.