EX-99.4 55 v051004_ex99-4.htm Unassociated Document
Cyber Merchants Exchange, Inc.

Pro Forma Condensed
Combined Financial Statements
May 31, 2006 (unaudited)

 
CYBER MERCHANTS EXCHANGE, INC.

Index to Pro Forma Condensed Combined Financial Statements
 
 
   
Pages
     
Report of independent registered public accounting firm  
1
     
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements  
2
     
Unaudited Pro Forma Condensed Combined Balance Sheet  
3
     
Unaudited Pro Forma Condensed Combined Statement of Operations  
4
     
Notes to Unaudited Pro Forma Condensed Combined Financial Statements  
5-6

 
Report of independent registered public accounting firm

To the Board of Directors and Stockholders of
Cyber Merchants Exchange, Inc.


We have reviewed the pro forma adjustments reflecting the transactions described on page 2 and the application of those adjustments to the historical amounts in the accompanying pro forma condensed combined balance sheet of Cyber Merchants Exchange, Inc. (“Cyber”) as of May 31, 2006, and the pro forma condensed combined statement of operations from August 25, 2005 (date of inception) to May 31, 2006. These historical condensed combined financial statements are derived from the historical audited financial statements of Cyber, which were audited by other accountants, and the audited consolidated financial statements of Infosmart Group Limited (“InfoSmart”), which were audited by us, and the unaudited condensed consolidated financial statements of InfoSmart, which were reviewed by us, appearing elsewhere herein. Such pro forma adjustments are based on management's assumptions as described on page 2. Cyber’s management is responsible for the pro forma financial information.

Our review was conducted in accordance with attestation 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 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 financial information might have been had the transactions occurred at an earlier date. However, the pro forma condensed combined 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 transactions 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 transactions described on page 2, 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 May 31, 2006, and the pro forma condensed combined statement of operations from August 25, 2005 (date of inception) to May 31, 2006.


/s/ PKF

PKF
Certified Public Accountants
Hong Kong

August 16, 2006

1

CYBER MERCHANTS EXCHANGE, INC.
May 31, 2006


Introduction to Unaudited Pro Forma Condensed Combined Financial Statements


The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of our acquisition of Infosmart Group Limited (“InfoSmart”) (the “Exchange Transaction”) and the subscription by certain accredited and institutional investors for the purchase of our shares of Series B Convertible Preferred Stock (the “Financing”) on our historical financial position and our results of operations. We have derived our historical financial data for the period from August 25, 2005 (date of inception) to May 31, 2006 from our audited financial statements incorporated by reference herein. We have derived InfoSmart’s historical consolidated financial position as of June 30, 2006 from InfoSmart’s unaudited condensed consolidated financial statements for the six months ended June 30, 2006 and InfoSmart’s results of operations for the year ended June 30, 2006 from InfoSmart’s audited consolidated financial statements for the year ended December 31, 2005 by adding the 2006 Half Year results of operation from unaudited condensed consolidated financial statements for the six months ended June 30, 2006 and deducting the comparable 2005 Half Year results of operation from unaudited condensed consolidated financial statements for the six months ended June 30, 2005. In each case, they are included elsewhere in this Form 8-K.

The unaudited pro forma condensed combined statements of operations for the period from August 25, 2005 (date of inception) to May 31, 2006 assume that the Exchange Transaction and Financing were consummated on August 25, 2005. The unaudited pro forma condensed combined balance sheet as of May 31, 2006 assumes the Exchange Transaction and Financing were consummated on that date. The information presented in the unaudited pro forma condensed combined financial statements does not purport to represent what our financial position or results of operations would have been had the Exchange Transaction and Financing occurred as of the dates indicated, nor is it indicative of our future financial position or results of operations for any period. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the Exchange Transaction and Financing.

The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances.

These unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes and assumptions and the historical financial statements and related notes of us and InfoSmart.

2

CYBER MERCHANTS EXCHANGE, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
May 31, 2006 (Unaudited)
(Stated in US Dollars)
 
     
As of
May 31,
2006
Cyber
    
As of
June 30,
2006
InfoSmart
    
Pro Forma
Adjustments
    
[1]
    
Pro Forma
Combined
Total
  
                                 
ASSETS 
                                
Current assets 
                                
                $   999    
[2]
        
Cash and cash equivalents
  
$
63,670
  
$
188,219
    
6,035,000
    
[4]
 
$
6,287,888
  
Restricted cash
    
-
    
266,411
    
362,500
    
[4]
 
  
628,911
  
Trade receivables
    
-
    
5,776,975
    
-
          
5,776,975
  
Prepaid expenses
    
-
    
2,074,297
    
37,500
    
[4]
 
  
2,111,797
  
Inventories
    
-
    
1,115,094
    
-
          
1,115,094
  
                                 
Total current assets
    
63,670
    
9,420,996
    
6,435,999
          
15,920,665
  
Plant and equipment net
    
-
    
18,751,977
    
-
          
18,751,977
  
                                 
TOTAL ASSETS
  
$
63,670
  
$
28,172,973
  
$
6,435,999
        
$
34,672,642
  
                                 
LIABILITIES, REDEEMABLE
                                
CONVERTIBLE PREFERRED
                                
STOCK AND STOCKHOLDERS’
                                
EQUITY
                                
                                 
LIABILITIES
                                
Current liabilities
                                
Trade payables
  
$
52,500
  
$
2,790,117
  
$
-
        
$
2,842,617
  
Other payables
    
-
    
974,600
    
-
          
974,600
  
Bank borrowings
    
-
    
4,658,594
    
-
          
4,658,594
  
Current portion of other loans
    
-
    
1,991,971
    
-
          
1,991,971
  
                                 
Total current liabilities
    
52,500
    
10,415,282
    
-
          
10,467,782
  
Other loans
    
-
    
1,746,061
    
-
          
1,746,061
  
Advance from a related party
    
-
    
2,098,903
    
-
          
2,098,903
  
                 
(271,000
)
  
[3]
 
      
                 
(85,500
)
  
[4]
 
      
                 
(119,000
)
  
[7]
 
      
Deferred tax liabilities
    
-
    
2,882,047
    
(6,000
)
  
[8]
 
  
2,400,547
  
                                 
TOTAL LIABILITIES
    
52,500
    
17,142,293
    
(481,500
)
        
16,713,293
  
                                 
COMMITMENTS AND
                                
CONTINGENCIES
                                
                                 
REDEEMABLE CONVERTIBLE
                
3,736,007
    
[4]
 
      
PREFERRED STOCK
    
-
    
-
    
(644,801
)
  
[5]
 
  
3,091,206
  
                                 
STOCKHOLDERS’ EQUITY
                                
                 
999
    
[2]
 
      
                 
1,426,794
    
[3]
 
      
                 
2,297,157
    
[4]
 
      
                 
531,047
    
[6]
 
      
                 
627,000
    
[7]
 
      
Common stock
    
100,000
    
1
    
29,500
    
[8]
 
  
5,012,498
  
Paid in capital from common stock
    
-
    
619,877
    
(619,877
)
  
[6]
 
  
-
  
                 
3,148,993
    
[4]
 
      
Paid in capital from warrants
    
-
    
-
    
644,801
    
[5]
 
  
3,793,794
  
Accumulated other
                                
comprehensive income
    
-
    
7,507
                
7,507
  
                 
(1,155,794
)
  
[3]
 
      
                 
(2,661,657
)
  
[4]
 
      
                 
88,830
    
[6]
 
      
                 
(508,000
)
  
[7]
 
      
Retained earnings
    
(88,830
)
  
10,403,295
    
(23,500
)
  
[8]
 
  
6,054,344
  
                                 
TOTAL STOCKHOLDERS’ EQUITY
    
11,170
    
11,030,680
    
3,826,293
    
*
    
14,868,143
  
                                 
TOTAL LIABILITIES, REDEEMABLE
                                
CONVERTIBLE PREFERRED
                                
STOCK AND STOCKHOLDERS
                                
EQUITY
  
$
63,670
  
$
28,172,973
  
$
6,435,999
        
$
34,672,642
  
                                 
* Increase to equity:                                
Cash received for shares to InfoSmart
         $ 
999
                    
Tax effect on non-cash issuances
          
481,500
                    
Relative fair value of common stock warrants
          
3,148,993
                    
Issuance cost preferred B paid in warrants
          
644,801
                    
Reverse merger fee deducted from cash proceeds
                                
disbursed to InfoSmart
          
(450,000
 )                   
          $ 
3,826,293
                    
 
See accompanying notes to these financial statements.
3

CYBER MERCHANTS EXCHANGE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
May 31, 2006 (Unaudited)
(Stated in US Dollars)
 
     
August 25, 2005 (date of inception) to
May 31, 2006 Cyber
 
  
Year ended June 30,
2006 InfoSmart
    
Pro Forma Adjustments
    
[1]
    
Pro Forma
Combined Total
  
       
 
                        
Net sales
  
$
-
  
$
22,649,851
  
$
-
        
$
22,649,851
  
Cost of sales
    
-
    
(17,048,908
)
  
-
          
(17,048,908
)
                                 
Gross profit
    
-
    
5,600,943
    
-
          
5,600,943
  
Administrative expenses
    
(88,830
)
  
(1,029,065
)
  
(1,426,794
)
  
[3]
 
  
(3,201,189
)
                 
(627,000
)
  
[7]
 
      
                 
(29,500
)
  
[8]
 
      
Depreciation
    
-
    
(234,963
)
  
-
          
(234,963
)
Selling and distribution costs
    
-
    
(270,592
)
  
-
          
(270,592
)
                                 
Income (loss)before
                               
non-operating expenses
    
(88,830
)
  
4,066,323
    
(2,083,294
)
        
1,894,199
  
Professional fees related to listing
    
-
    
(320,892
)
  
-
          
(320,892
)
Reversal of commission payable
    
-
    
1,675
    
-
          
1,675
  
Other income (expense)
    
-
    
273,591
    
(450,000
)
  
[4]
 
  
(176,409
)
Interest expense
    
-
    
(566,238
)
  
-
          
(566,238
)
                                 
Net income (loss) before income tax
    
(88,830
)
  
3,454,459
    
(2,533,294
)
        
832,335
  
                                 
                  271,000    
[3]
        
                 
85,500
    
[4]
        
                 
119,000
    
[7]
 
      
Income tax expense
    
-
    
(665,572
)
  
6,000
    
[8]
 
  
(184,072
)
                                 
Net income (loss)
    
(88,830
)
  
2,788,887
    
(2,051,794
)
        
648,263
  
                                 
Deemed dividend attributable to
                                
beneficial conversion feature of
                                
preferred stock
    
-
    
-
    
(2,297,157
)
  
[4]
 
  
(2,297,157
)
                                 
Net loss available to common
                                
shareholders
  
$
(88,830
)
$
2,788,887
  
$
(4,348,951
)
      
$
(1,648,894
)
                                 
Earnings (loss) per common share
  
$
(0.01
)
$
453.92
              
$
(0.01
)
                                 
Weighted average shares
                                
outstanding - basic and dilutive
    
8,874,417
    
6,144
          
[9]
 
  
129,824,500
  

See accompanying notes to these financial statements.

4

CYBER MERCHANTS EXCHANGE, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
May 31, 2006 (Unaudited)
(Stated in US Dollars)

[1]
The Exchange Transaction is deemed to be a reverse acquisition. In accordance with the Accounting and Financial Reporting Interpretations and Guidance prepared by the staff of the U.S. Securities and Exchange Commission, Cyber (the legal acquirer) is considered the accounting acquiree and InfoSmart (the legal acquiree) is considered the accounting acquirer. The consolidated financial statements of the combined entity will in substance be those of InfoSmart, with the assets and liabilities, and revenues and expenses, of Cyber being included effective from the date of consummation of the Exchange Transaction. Cyber is deemed to be a continuation of the business of InfoSmart. The outstanding stock of Cyber prior to the Exchange Transaction will be accounted for at their net book value and no goodwill will be recognized.

[2]
To record issuance of 999 shares of InfoSmart Common Stock at $1 per share (par value) immediately prior to the Exchange Transaction.

[3]
To record issuance of 58.82352 shares of InfoSmart Common Stock (exchanged for 55,555.55 shares of to be issued Cyber Series A Preferred Stock which then automatically converts into 6,484,519 shares of Cyber Common Stock upon closing of the Exchange Transaction) to Hamptons Investment Group, Ltd. (“HIG”) for finders fee / services rendered associated with the Exchange Transaction (valued at $0.22 per common share of Cyber Common Stock).

[4]
To record issuance of Series B Preferred Stock ($7 per share less 10% placement agent fee), detachable Common Stock Warrants, and Beneficial Conversion Feature associated with the Series B Preferred Stock, which is issued / outstanding concurrent with the closing of the Exchange Transaction and Series B Private Placement.

[5]
To record issuance of placement agent Common Stock Warrants (considered preferred stock issuance costs) concurrent with the closing of the Exchange Transaction and Series B Private Placement.

[6]
To recapitalize for the Exchange Transaction (or Reverse Merger).

[7]
To record issuance of 2,850,000 shares of Cyber Common Stock upon closing of the Exchange Transaction to Worldwide Gateway Co., Ltd. (“Gateway”) for services rendered associated with the Exchange Transaction (valued at $0.22 per common share of Cyber Common Stock).

[8]
To issuance of 134,100 shares of Cyber Common Stock upon closing of the Exchange Transaction to Richardson & Patel LLP (“Richardson”) for services rendered associated with the Exchange Transaction (valued at $0.22 per common share of Cyber Common Stock).

5
 
[9]
The Proforma assumes transactions occurred at the beginning of the period presented, weighted average therefore equals number of shares outstanding at the end of the completion of the transactions, but before the conversion of the Series B Preferred Stock.

Previously Existing Cyber Shares
    
10,119,040
  
         
From Series A Preferred:
        
InfoSmart Shareholders
    
110,236,841
  
HIG
    
6,484,519
  
         
Finder’s shares
        
Gateway
    
2,850,000
  
Richardson
    
134,100
  
         
Total, as if converted, post exchange
    
129,824,500
  
 
6