EX-99.2 5 e601516_ex99-2.txt PRO FORMA COMBINED FINANCIAL STATEMENTS Diversifax, Inc. and Subsidiaries (DSFX) Unaudited Pro Forma Financial Statements The following unaudited pro forma financial statements for DSFX have been prepared to illustrate the acquisition of Shouguang Yuxin Chemical Industry Co., Limited (YUXIN) in a merger transaction. Since the ownership of DSFX and YUXIN are the same, the merger is accounted for as a transaction between entities under common control, whereby DSFX recognized the assets and liabilities transferred at their carrying amounts. The unaudited pro forma financial information combines the historical financial information of DSFX and YUXIN as of and for the year ended December 31, 2005 and for the nine months ended September 30, 2006. The unaudited pro forma balance sheet as of September 30, 2006 assumes the merger was completed on that date. The unaudited pro forma statements of operations give effect to the merger as if the merger had been completed on January 1, 2005. Under the terms of the merger agreement, as of the effective dates describe therein, upon completion of the proposed merger, all shareholders of YUXIN will receive a total amount of 16,188,118 shares of voting common stock of DSFX in exchange for all shares of YUXIN common stock held by all shareholders. Also, upon the completion of the proposed merger, DSFX will be obligated to pay a $2,550.000 dividend to the original YUXIN shareholder In addition, the following unaudited pro forma financial statements for DSFX have been prepared to illustrate the previous acquisition of Upper Class Group Limited and Subsidiary in a merger transaction. Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Upper Class Group Limited and Subsidiary for the net monetary assets of DSFX, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal aquirer, DSFX, are those of the legal acquiree, Upper Class Group Limited and Subsidairy, which are considered to be the accounting acquirer. The unaudited pro forma financial information combines the historical financial information of DSFX and Upper Class Group Limited as of and for the period ended December 31, 2005 and for the nine months ended September 30, 2006. The unaudited pro forma balance sheet as of September 30, 2006 assumes the merger was completed on that date. The unaudited pro forma statements of operations give effect to the merger as if the merger had been completed on January 1, 2005. Under the terms of the merger agreement, as of the effective dates describe therein, upon completion of the proposed merger, all shareholders of Upper Class Group Limited will receive a total amount of 26,500,000 shares of voting common stock of DSFX in exchange for all shares of Upper Class Group Limited common stock held by all shareholders. These unaudited pro forma financial statements are for information purposes only. They do not purport to indicate the results that would have actually been obtained had the acquisition been completed on the assumed dates or for the periods presented, or which may be realized in the future. The accounting adjustments reflected in these unaudited pro forma consolidated financial statements included herein are preliminary and are subject to change. The accompanying notes are an integral part of these pro forma consolidated financial statements. Proforma Balance Sheet SEPTEMBER 30,2006
UPPER CLASS Shouguang DIVERSIFAX, GROUP Yuxin INC. LTD AND chemical PRO-FORMA (8/31/06) SUB Industry ADJUSTMENT Pro Forma ----------------------------------------------------------------------------- Assets Current Assets Cash 0 3,296,672 2,312,835 5,609,507 Prepayments and other receivables 0 0 11,394 11,394 Accounts receivable 0 0 136,561 136,561 Inventories 0 148,610 419,686 568,296 Prepaid land lease 0 496 506 1,002 Due from realted party 0 0 47,294 47,294 ----------------------------------------------------------------------------- TOTAL CURRENT ASSETS 0 3,445,778 2,928,276 6,374,054 ============================================================================= Due from related party 0 1,166,340 1,266,000 2,432,340 Property, plant and equipment,net 0 2,129,095 790,376 2,919,471 Prepaid land lease, net of current portion 0 23,938 23,421 47,359 Note receivable 0 0 0 0 ----------------------------------------------------------------------------- TOTAL ASSETS 0 6,765,151 5,008,073 11,773,224 ============================================================================= LIABILITIES AND STOCKHOLDERS'EQUITY CURRENT LIABILITIES Current maturities of long-term debt and notes payable 0 0 0 0 Accounts payable and accrued expenses 0 50,704 448,816 499,520 Other current liabilities 0 0 0 0 Accrued payroll, stockholder 0 0 0 0 Loan payable, officer/stockholder 0 0 0 0 Due to director 0 9,111 50,417 59,528 Due to related party 0 47,294 0 47,294 Taxes payable 0 921,433 460,468 1,381,901 Dividend payable 0 0 0 2,550,000 2,550,000 ----------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 0 1,028,542 959,701 2,550,000 4,538,243 ============================================================================= Long-term debt and notes payables, less current . 0 0 0 0 maturities TOTAL LIABILITIES 0 1,028,542 959,701 2,550,000 4,538,243 ============================================================================= STOCKHOLDERS'EQUITY Paid-in capital 0 1,332,430 1,329,592 256,743 2,918,765 Retained earnings unappropriated 0 3,239,875 1,684,042 (2,550,000) 2,373,917 Retained earnings-appropriated Statutory common reserve fund 0 669,447 571,761 1,241,208 Statutory public welfare fund 0 334,738 285,880 620,618 Cumulative translation adjustment 0 128,489 177,097 305,586 Common stock, $0.001par value, 70,000,000 shares authorized; 27,017,262 shares issued; 27,013,997 shares outstanding 517 31,600 0 11,088 43,205 Additional paid-in capital 14,617,735 0 0 -14,617,735 0 Accumulated deficit -14,349,904 0 0 14,349,904 0 ----------------------------------------------------------------------------- 268,348 5,736,609 0 6,004,957 ----------------------------------------------------------------------------- Less:Treasury stock; 3,265 shares at cost -268,348 0 0 -268,348 TOTAL STOCKHOLDERS'EQUITY 0 5,736,609 4,048,372 0 9,784,981 ============================================================================= TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY 0 6,765,151 5,008,073 11,773,224 =============================================================================
Pro-Forma Adjustments: 1.) To record the issuance of 26,500,000 shares of DSFX common stock to acquire Upper Class Group Limited. 2.) To record the issuance of 16,188,118 shares of DSFX common stock to acquire Shouguang Yuxin Chemical Industry Co., Limited and dividend payable PROFORMA STATEMENTS OF OPERATIONS 30-Sep-06
SHOUGUANG Upper Class YUXIN Group Limited CHEMICAL DSFX and sub INDUSTRY Pro Forma -------------------------------------------------------------------- REVENUE Net sales 0 12,760,106 11,507,636 24,267,742 Maintenance service income 0 0 106,168 106,168 0 12,760,106 11,613,804 24,373,910 -------------------------------------------------------------------- OPERATING EXPENSES 0 -------------- Cost of net sales 0 7518749 8362876 15,881,625 -------------- General and administrative expenses 0 206,589 114,643 321,232 -------------------------------------------------------------------- 0 7,725,338 8,477,519 16,202,857 -------------------------------------------------------------------- INCOME FROM OPERATIONS 0 5,034,768 3,136,285 8,171,053 -------------------------------------------------------------------- 0 0 OTHER(INCOME)EXPENSES 0 Rental income 0 0 -11,248 -11,248 Other income -31 0 0 -31 (Gain) on sale of investments -64,002 0 0 -64,002 Interest income 0 -791 -423 -1,214 Interest expense 30,054 0 0 30,054 -------------------------------------------------------------------- -33,979 -791 -11,671 -46,441 -------------------------------------------------------------------- NETINCOME (LOSS) FROM DISCONTINUED OPERATIONS,NET OF TAX -225,420 0 0 -225,420 INCOME TAXES 0 1,653,018 1,085,311 2,738,329 NET INCOME (LOSS) -191,441 3,382,541 2,062,645 5,253,745 ==================================================================== EPS 0.12280666 Weighted Average Number of Shares Outstanding 42,780,618
PROFORMA STATEMENTS OF OPERATIONS 31-Dec-05
SHOUGUANG Upper Class YUXIN Group Limited CHEMICAL DSFX and sub INDUSTRY Pro Forma -------------------------------------------------------------------- (year ended 11/30/2005) REVENUE Net sales 1,023,476 14,344,296 9,776,858 25,144,630 Maintenance service income 0 0 1,371,535 1,371,535 1023476 14,344,296 11,148,393 26,516,165 -------------------------------------------------------------------- OPERATING EXPENSES Cost of net sales 331,301 9,095,301 7013513 16,440,115 Depreciation expense 9,191 0 0 General and administrative expenses 511,139 304,451 797,879 1,613,469 -------------------------------- 851,631 9,399,752 7,811,392 18,062,775 -------------------------------------------------------------------- INCOME FROM OPERATIONS 171,845 4,944,544 3,337,001 8,453,390 -------------------------------------------------------------------- OTHER(INCOME)EXPENSES Rental income 0 0 14,666 14,666 Other income 259,776 0 0 259,776 (Gain) on sale of investments on Evovle One -430,000 0 0 -430,000 Interest income 6,984 446 415 7,845 Interest expense -42,005 0 0 -42,005 -------------------------------------------------------------------- -205,245 446 15,081 -189,718 -------------------------------------------------------------------- NETINCOME (LOSS) FROM DISCONTINUED OPERATIONS,NET OF TAX 0 0 0 0 INCOME TAXES 0 1,632,760 1,048,512 2,681,272 NET INCOME (LOSS) -33,400 3,312,230 2,303,570 5,582,400 ==================================================================== EPS 0.1283 Weighted Average Number of Shares Outstanding 43,511,701