-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKNUSm+PMaCP7AneCxHJp+T9LiPimWLHRiCIjouW5UqiIBLKsJMEM/19pEM5TC9G MJDm0mUN1CE3EpRJRTT1+A== 0000939802-07-000033.txt : 20070228 0000939802-07-000033.hdr.sgml : 20070228 20070227202112 ACCESSION NUMBER: 0000939802-07-000033 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060915 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070228 DATE AS OF CHANGE: 20070227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA DIRECT TRADING CORP CENTRAL INDEX KEY: 0000814926 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 841047159 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28831 FILM NUMBER: 07654942 BUSINESS ADDRESS: STREET 1: 12535 ORANGE DRIVE, SUITE 613 CITY: DAVIE STATE: FL ZIP: 33330 BUSINESS PHONE: (954) 474-0224 MAIL ADDRESS: STREET 1: 12535 ORANGE DRIVE, SUITE 613 CITY: DAVIE STATE: FL ZIP: 33330 FORMER COMPANY: FORMER CONFORMED NAME: CBQ INC DATE OF NAME CHANGE: 19981207 FORMER COMPANY: FORMER CONFORMED NAME: FREEDOM FUNDING INC DATE OF NAME CHANGE: 19961205 FORMER COMPANY: FORMER CONFORMED NAME: YORKSHIRE LEVERAGED GROUP INC DATE OF NAME CHANGE: 19890301 8-K/A 1 form8ka1091506.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------------------------ FORM 8-K Amendment Number One ------------------------------------------------------------------------ CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) February 13, 2007 (September 15, 2006) ------------------------------------------------------------------------ CHINA DIRECT TRADING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------------------------------------------------------ FLORIDA 0-28331 84-1047159 (State of Incorporation or (Commission File Number) (I.R.S. Employer organization) Identification No.) 10400 Griffin Road Suite 109 Cooper City, Florida 33328 (Address of principal executive offices) (954) 252-3440 (Registrant's telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 FR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Explanatory Note: This amendment number one is being filed to amend and supplement Item 9.01 of the Current Report on Form 8-K filed by China Direct Trading Corp., a Florida corporation, ("Company" or "China Direct") on September 18, 2006 with the Commission, to include the historical financial statements of the business acquired, Capstone Industries, Inc. ("Capstone"), and the unaudited pro forma financial information required pursuant to Article 11 of Regulation S-X. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. The following financial statements of Capstone Industries, Inc. are filed as Exhibit 99.2 to this report and incorporated in their entirety into this Item 9.01(a) by reference: audited balance sheets as of December 31, 2005 and 2004, audited statements of operations and retained earnings for the years ended December 31, 2005 and 2004, and audited statements of cash flows for the years ended December 31, 2005 and 2004 in each case with a report by Goldstein Lewin & Co., Certified Public Accountants, and (b) Pro Forma Financial Information. The Pro Forma Condensed Combined Financial Information for the year ended December 31, 2005, and the nine months ended September 30, 2006 is furnished as Exhibit 99.3 to this report and incorporated in its entirety into this Item 9.01(b) by reference. The Pro Forma Condensed Combined Financial Information is a presentation of historical results with accounting adjustments necessary to reflect the estimated pro forma effect of China Direct's acquisition of Capstone on the financial position and results of operation of China Direct and is presented for information purposes only. The Pro Forma Condensed Combined Financial Information does not reflect the effects of any anticipated changes to be made by China Direct to the operations of the combined companies, including synergies and cost savings and does not include one time charges expected to result from the merger. The Pro Forma Condensed Combined Financial Information should not be construed to be indicative of China Direct's future results of operations or financial position. (c) Exhibits See the Exhibit Index immediately following the signature page. SIGNATURE 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. CHINA DIRECT TRADING CORPORATION Date: February 20, 2007 By: /s/ Howard Ullman_______________________ Howard Ullman, Chief Executive Officer, President and Chairman EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 2.1 Stock Purchase Agreement, dated September 15, 2006, by and among China Direct Trading Corporation, Capstone Industries, Inc. and Certain Selling Shareholders (1). 23.1 Consent of Independent Registered Public Accountants 99.1 Press Release, dated September 18, 2006, issued by China Direct Trading Corp. concerning the acquisition of Capstone Industries, Inc. (2) 99.2 Financial Statements of Capstone Industries, Inc.: Report of Independent Auditors Balance Sheets as of December 31, 2005 and 2004 Statements of Operations and Retained Earnings for the years ended December 31, 2005 and 2004 Statements of Cash Flows for the years ended December 31, 2005 and 2004 Notes to Financial Statements 99.3 Pro forma condensed combined financial information as of and for year ended December 31, 2005 - ------------ (1) Attached as Exhibit 2.1 to the Form 8-K, dated September 15, 2006, and filed by China Direct Trading Corporation with the Commission on September 18, 2006. (2) Attached as Exhibit 99.1 to the Form 8-K, dated September 15, 2006, and filed by China Direct Trading Corporation with the Commission on September 18, 2006. EX-23 2 form8ka1091506ex23-1.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the inclusion of our report dated January 10, 2007, accompanying the financial statements of Capstone Industries, Inc. as of December 31, 2005 and 2004 and for the years then ended, in this Current Report on Form 8-K, Amendment Number One, of China Direct Trading Corporation to be filed on February 27, 2007. /s/ Goldstein Lewin & Co. Certified Public Accountants Boca Raton, Florida February 27, 2007 EX-99 3 form8ka1091506ex99-2.txt CAPSTONE INDUSTRIES, INC. FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 CAPSTONE INDUSTRIES, INC. TABLE OF CONTENTS DECEMBER 31, 2005 AND 2004 PAGE INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Balance Sheets 2 Statements of Operations and Retained Earnings 3 Statements of Cash Flows 4 Notes to the Financial Statements 5-9 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Capstone Industries, Inc. Deerfield Beach, Florida We have audited the accompanying balance sheets of Capstone Industries, Inc. (the "Company"), as of December 31, 2005 and 2004, and the related statements of operations and retained earnings and cash flows for the years then ended. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide 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 Capstone Industries, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Goldstein Lewin & Co. Certified Public Accountants Boca Raton, Florida January 10, 2007 CAPSTONE INDUSTRIES, INC. BALANCE SHEETS DECEMBER 31, 2005 AND 2004
ASSETS 2005 2004 ----------------- ----------------- CURRENT ASSETS Cash and Cash Equivalents $ 101,021 $ 69,440 Accounts Receivable 300,463 132,983 Inventory 15,805 350,558 Loan Receivable 51,500 - Due from Related Parties 25,005 52,282 ----------------- ----------------- Total Current Assets 493,794 605,263 PROPERTY AND EQUIPMENT, Net 7,065 18,684 OTHER ASSETS 5,624 2,500 ----------------- ----------------- $ 506,483 $ 626,447 ================= ================= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts Payable and Accrued Liabilities $ 125,255 $ 98,858 Line of Credit - 285,000 Note Payable - Stockholder - 30,000 ----------------- ----------------- Total Current Liabilities 125,255 413,858 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY Common Stock - Par Value $1.00; 1,000,000 Shares Authorized; 100 Shares Issued and Outstanding 100 100 Additional Paid-in Capital 900 900 Retained Earnings 380,228 211,589 ----------------- ----------------- 381,228 212,589 ----------------- ----------------- $ 506,483 $ 626,447 ================= =================
The Accompanying Notes are an Integral Part of these Financial Statements CAPSTONE INDUSTRIES, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS YEARS ENDED DECEMBER 31, 2005 AND 2004
2005 2004 --------------------- --------------------- REVENUE $ 2,167,369 $ 1,254,788 RETURNS AND ALLOWANCES (84,463) (65,636) --------------------- --------------------- Revenue, Net 2,082,906 1,189,152 COST OF GOODS SOLD 1,401,918 715,329 --------------------- --------------------- Gross Profit 680,988 473,823 --------------------- --------------------- OPERATING EXPENSES General and Administrative 404,551 500,898 Product Development 28,678 37,813 Selling 79,120 120,195 --------------------- --------------------- Total Operating Expenses 512,349 658,906 --------------------- --------------------- Income (Loss) from Operations 168,639 (185,083) OTHER INCOME Miscellaneous Income - 967 --------------------- --------------------- Net Income (Loss) 168,639 (184,116) Retained Earnings, Beginning 211,589 395,705 --------------------- --------------------- Retained Earnings, End $ 380,228 $ 211,589 ===================== =====================
The Accompanying Notes are an Integral Part of these Financial Statements CAPSTONE INDUSTRIES, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2004
CASH FLOWS FROM OPERATING ACTIVITIES 2005 2004 ----------------- ------------------ Net Income (Loss) $ 168,639 $ (184,116) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Depreciation 11,619 14,552 Change in Assets and Liabilities: (Increase) Decrease in: Accounts Receivable (167,480) 554,314 Inventory 334,753 (247,453) Other Assets (3,124) - Increase (Decrease) in: Accounts Payable and Accrued Liabilities 26,397 (254,648) ----------------- ------------------ Net Cash Provided by (Used In) Operating Activities 370,804 (117,351) ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment - (13,750) Advances on Loan Receivable (51,500) - Repayments from Related Parties 27,277 30,000 ----------------- ------------------ Net Cash Provided by (Used In) Investing Activities (24,223) 16,250 ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Borrowings (Repayments) on Line of Credit (285,000) 285,000 Repayments to Stockholder, Net (30,000) (140,000) ----------------- ------------------ Net Cash Provided by (Used In) Financing Activities (315,000) 145,000 ----------------- ------------------ Increase in Cash and Cash Equivalents 31,581 43,899 Cash and Cash Equivalents: Beginning 69,440 25,541 ----------------- ------------------ End $ 101,021 $ 69,440 ================= ================== Supplemental Schedule of Cash Flow Information: Cash Paid for Interest $ 9,180 $ 6,804 ================= ==================
The Accompanying Notes are an Integral Part of these Financial Statements CAPSTONE INDUSTRIES, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Capstone Industries, Inc. (the "Company") was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling novelties to retailers throughout the United States. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. ALLOWANCE FOR DOUBTFUL ACCOUNTS An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. The allowance for bad debts is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the receivables. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. As of December 31, 2005 and 2004, management has determined that the accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts. INVENTORY Inventory, consisting of finished goods, is recorded at the lower of cost (first in, first out) or market. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. No impairments were recognized by the Company during 2005 or 2004. REVENUE RECOGNITION Product sales are recognized when an agreement of sale exists, product delivery has occurred, pricing is final or determinable, and collection is reasonably assured. CAPSTONE INDUSTRIES, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCRUED LIABILITIES Accrued liabilities contained in the accompanying balance sheet include accruals for estimated amounts of credits to be issued in future years based on potentially defective products, other product returns and various allowances. These estimates could change significantly in the near term. ADVERTISING Costs of advertising, included in selling expenses, are expensed as incurred and amounted to $10,853 and $4,950 for the years ended December 31, 2005 and 2004, respectively. INCOME TAXES The Company, with the consent of its stockholder, has elected under the Internal Revenue Code to be an S Corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial statements. SHIPPING AND HANDLING The Company's shipping and handling costs are included in selling expenses and amounted to $19,405 and $17,333 for the years ended December 31, 2005 and 2004, respectively. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and the differences could be material. NOTE 2: CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk consist principally of accounts receivable. The Company grants credit to its customers, substantially all of whom are retail establishments located throughout the United States. The Company typically does not require collateral from customers. Credit risk is limited due to the financial strength of the customers comprising the Company's customer base and their dispersion across different geographic regions. The Company monitors exposure to credit losses and maintains allowances for anticipated losses, as considered necessary under the circumstances. CAPSTONE INDUSTRIES, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 3: PROPERTY AND EQUIPMENT Property and Equipment at December 31, 2005 and 2004 consists of:
LIFE IN 2005 2004 YEARS ------------- --------------- --------------- Furniture and Fixtures $ 22,686 $ 22,686 5 Machinery and Equipment 74,764 74,764 3 Leasehold Improvements 11,975 11,975 3 ------------- --------------- 109,425 109,425 Less: Accumulated Depreciation (102,360) (90,741) ------------- --------------- $ 7,065 $ 18,684 ============= ===============
NOTE 4: LINE OF CREDIT The Company has a line of credit with a financial institution with an available limit of $300,000. The line is due on demand and requires monthly payments of interest at prime plus 1% (8.25% and 6.25% as of December 31, 2005 and 2004, respectively). The sole stockholder of the Company and a related corporation that is wholly owned by the same stockholder guarantee the line. The line is collateralized by substantially all of the Company's assets. As of December 31, 2005 the Company did not have an outstanding balance related to the line of credit. As of December 31, 2004, the outstanding balance was $285,000. Interest expense charged to operations related to the line of credit amounted to $7,884 and $7,841 for the years ended December 31, 2005 and 2004, respectively. The line of credit expired on September 12, 2006, and the Company did not renew the line. On September 15, 2006, the Company was acquired by China Direct Trading Corp. (Note 8). NOTE 5: RELATED PARTY TRANSACTIONS At December 31, 2004, the Company had working capital advances receivable from an affiliated company of $27,277, which the Company collected during 2005. The advances were non-interest bearing and due on demand. The affiliated company also provided employees and services to the Company in exchange for a management fee. The management fee charged by the affiliated company for the years ended December 31, 2005 and 2004 amounted to $243,545 and $271,749, respectively, of which $23,017 was included in accounts payable at December 31, 2004. At December 31, 2005 and 2004, the Company had an unsecured, noninterest-bearing receivable of $25,005 from its stockholder. This receivable had no specific repayment terms. During July 2006, the Company charged this balance to a stockholder distribution. During 2004, the Company borrowed funds from the sole stockholder. The outstanding balance was due on demand and required monthly payments of interest at 4.75%. The total outstanding balance of $30,000 at December 31, 2004 was repaid in full during 2005, along with interest of $215. CAPSTONE INDUSTRIES, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 6: COMMITMENTS AND CONTINGENCIES LICENSE AGREEMENT The Company has entered into royalty agreements for design and marketing services. These agreements call for royalty payments to be paid either at fixed periodic amounts or at varying rates, based on sales volume of specific products. Royalty expense under these agreements, included in selling expenses on the statements of operations and retained earnings, amounted to $38,037 and $80,686 for the years ended December 31, 2005 and 2004, respectively. OPERATING LEASE The Company's operating facility is owned by an affiliated company. Charges for rent are included as part of its management fee. Prior to the lease expiration date of June 14, 2005, the Company also leased office space pursuant to a non-cancelable operating lease. The lease provided for fixed monthly payments of $2,061 plus sales tax and a pro-rata share of the common area maintenance expenses. Rent expense, included in general and administrative expenses, for the years ended December 31, 2005 and 2004 amounted to $17,923 and $35,511, respectively. NOTE 7: CONCENTRATIONS MAJOR CUSTOMERS The Company had six customers who comprised at least ten percent of gross revenue during either 2005 or 2004. The percentage of gross revenue and the accounts receivable from each of these customers is as follows:
Gross Revenue (%) Accounts Receivable 2005 2004 2005 2004 ------------- -------------- ------------ --------------- Customer A 35% 7% $ 81,000 $ - Customer B 20 - - - Customer C 13 13 212,493 6,722 Customer D 5 27 - 30,688 Customer E 4 21 - 2,641 Customer F - 15 - 32,393 ------------- -------------- ------------ --------------- 77% 83% $ 293,493 $ 72,444 ============= ============== ============ ===============
CAPSTONE INDUSTRIES, INC. NOTES TO THE FINANCIAL STATEMENTS NOTE 7: CONCENTRATIONS (CONTINUED) MAJOR VENDORS The Company purchased 90% of its products from a single wholesale vendor in 2004 and had accounts payable to that vendor at December 31, 2004 totaling $17,286. During 2005, the Company made purchases from this vendor amounting to 54% of its total purchases and made purchases from another wholesale vendor amounting to 44% of its total purchases. There were no accounts payable to either of these vendors at December 31, 2005. Both of these wholesale vendors acquire product from numerous manufacturers. NOTE 8: SUBSEQUENT EVENT On September 15, 2006, the Company and its stockholder entered into a Stock Purchase Agreement (the "Agreement") with China Direct Trading Corp. ("China Direct"). Under the Agreement, China Direct acquired 100% of the outstanding shares of the Company's common stock in exchange for cash and preferred stock of China Direct, which is convertible into China Direct common stock. These shares are "restricted" securities, as defined in Rule 144 promulgated under the Securities Act of 1933, as amended. The Company continues to operate as a wholly-owned subsidiary of China Direct, with the Company's former stockholder continuing to serve as its chief executive officer. (b) Pro forma financial presentation EX-99 4 form8ka1091506ex99-3.txt UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS On September 15, 2006, Capstone Industries, Inc., a Florida corporation, merged into China Direct Trading Corporation., a Florida corporation, with Capstone Industries, Inc. becoming a wholly-owned subsidiary of China Direct Trading Corporation.. The following unaudited pro forma condensed combined financial statements are based on the December 31, 2005 historical financial statements of China Direct Trading Corporation and Capstone Industries, Inc. and the September 30, 2006 historical unaudited financial statements of China Direct Trading Corporation and Capstone Industries, Inc. contained elsewhere herein, giving effect to the transaction under the purchase method of accounting, with China Direct Trading Corporation treated as the acquiring entity for financial reporting purposes. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2005 presents the results of operations of the Surviving Corporation, assuming the acquisition was completed on January 1, 2005. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2006 presents the results of operations of the Surviving Corporation, assuming the acquisition was completed on January 1, 2006. The unaudited pro forma condensed combined financial statements have been prepared by management of Capstone Industries, Inc. and China Direct Trading Corporation based on the financial statements included elsewhere herein. The pro forma adjustments include certain assumptions and preliminary estimates as discussed in the accompanying notes and are subject to change. These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. These pro forma financial statements should be read in conjunction with the accompanying notes and the historical financial information of Capstone Industries, Inc., including the notes thereto, included in this Form, and the historical financial information of China Direct Trading Corporation, including the notes thereto (see 10KSB filed April 17, 2006 and 10QSB filed November 15, 2006). UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
China Direct Trading Corp. Capstone Pro Forma and Industries, Pro Forma Combined Subsidiaries Inc. Adjustments Balance ------------------ ------------------ ----------------- ----------------- Revenues $ 911,583 $ 2,082,906 $ - 2,994,489 Cost of Sales 658,084 1,401,918 - 2,060,002 ------------------ ------------------ ----------------- ----------------- Gross Profit 253,499 680,988 - 934,487 ------------------ ------------------ ----------------- ----------------- Expenses: Sales & Marketing 15,998 78,795 - 94,793 Product Development - 28,678 - 28,678 Compensation 229,580 - - 229,580 Professional Fees 92,930 21,609 - 114,539 Consulting 252,000 325 - 252,325 Legal Settlements 28,000 - - 28,000 General & Administrative 208,833 382,942 - 591,775 ------------------ ------------------ ----------------- ----------------- Total Operating Expenses 827,341 512,349 - 1,339,690 ------------------ ------------------ ----------------- ----------------- Net Operating Income (Loss) (573,842) 168,639 - (405,203) Other Income (Expense): Dividend Income 18 - - 18 Interest Expense (15,347) - - (15,347) ------------------ ------------------ ----------------- ----------------- Net Income (Loss) $ (589,171) $ 168,639 $ - $ (420,532) ================== ================== ================= ================= Earnings per share $ - $ 1,686.39 $ - ================== ================== ================= Weighted average shares outstanding 525,402,195 100 525,402,195 ================== ================== =================
See accompanying notes to unaudited pro forma condensed combined financial statements. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
China Direct Trading Corp. Capstone Pro Forma and Industries, Pro Forma Combined Subsidiaries Inc. Adjustments Balance ------------------ ------------------ ----------------- ----------------- Revenues $ 573,344 $ 1,134,883 $ - 1,708,227 Cost of Sales 419,637 584,135 - 1,003,772 ------------------ ------------------ ----------------- ----------------- Gross Profit 153,707 550,748 - 704,455 ------------------ ------------------ ----------------- ----------------- Expenses: Sales & Marketing 63,583 20,286 - 83,869 Product Development - 11,269 - 11,269 Compensation 344,354 230,368 - 574,722 Professional Fees 131,622 - - 131,622 Legal Settlements 35,821 - - 35,821 General & Administrative 92,981 70,174 - 163,155 ------------------ ------------------ ----------------- ----------------- Total Operating Expenses 668,361 332,097 - 1,000,458 ------------------ ------------------ ----------------- ----------------- Operating Income (Loss) (514,654) 218,651 - (296,003) Other Income (Expense): Interest Income - 5,158 - 5,158 Interest Expense (68) (647) - (715) ------------------ ------------------ ----------------- ----------------- Net Income (Loss) from continuing operations (514,722) 223,162 - (291,560) Discontinued Operations Income from discontinued operations 714,508 - - 714,508 ------------------ ------------------ ----------------- ----------------- Net Income $ 199,786 $ 223,162 $ - $ 422,948 ================== ================== ================= ================= Income per common share Continuing Operations $ - $ 2,231.62 $ - Discontinued Operations $ - $ - $ - ------------------ ------------------ ----------------- Net Income $ - $ 2,231.62 $ - ================== ================== ================= Weighted average shares outstanding 545,462,954 100 545,462,954 ================== ================== =================
See accompanying notes to unaudited pro forma condensed combined financial statements. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (1) GENERAL In the acquisition involving China Direct Trading Corporation and Capstone Industries, Inc., Capstone Industries, Inc. was acquired by China Direct Trading Corporation, with Capstone Industries, Inc. becoming a wholly- owned subsidiary of China Direct Trading Corporation. Under the Plan of Acquisition, China Direct Trading Corporation acquired 100% of the issued and outstanding common shares of Capstone Industries, Inc. in exchange for $750,000 in cash and $1.25 million of China Direct Trading Corporation's series B Preferred Stock. (2) FISCAL YEAR ENDS The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2005, include China Direct Trading Corporation's and Capstone Industries, Inc.'s operations on a common fiscal year. -----END PRIVACY-ENHANCED MESSAGE-----