EX-99.5 16 ex99_5.htm PRO FORMA FINANCIAL INFORMATION ex99_5.htm
Exhibit 99.5

 
SONGZAI INTERNATIONAL HOLDING GROUP INC. AND ITS SUBSIDIARY AND
HEILONGJIANG XINGAN GROUP HONGYUAN COAL MINE CO., LTD. AND
HEILONGJIANG XINGAN GROUP SHENGYU MINING CO., LTD.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)


 

 

Contents
  
   
 
Page
   
Pro Forma Combined Financial Statements:
  
   
Pro Forma Combined Balance Sheet
    as of December 31, 2007 (unaudited)
F-2
   
Pro Forma Combined Statements of Operations
   for the Year Ended December 31, 2007 (unaudited)
F-3
   
Pro Forma Combined Statements of Operations
   for the Year Ended December 31, 2006 (unaudited)
F-4
   
Notes to Pro Forma Combined Financial Statements (unaudited)
F-5

 
 

 
F-1
 
SONGZAI INTERNATIONAL HOLDING GROUP INC. AND SUBSIDIARY AND
HEILONGJIANG XINGAN GROUP HONGYUAN COAL MINE CO., LTD. AND
HEILONGJIANG XINGAN GROUP SHENGYU MINING CO., LTD.
Pro forma Combined Balance Sheet
As of December 31, 2007
(unaudited)
 
         
Hongyuan and
    
Pro forma
          
Pro forma
  
   
Songzai (1)
    
Shengyu (2)
    
Adjustments
          
Combined
  
                               
                               
ASSETS
                              
                               
CURRENT ASSETS
                              
Cash and cash equivalents
   $ 4,494,978     $ 9,327,227     $               $ 13,822,205  
Restricted cash
     62,062       -                     62,062  
Accounts receivable, net
     -       3,509,445                     3,509,445  
Advance to suppliers
     185,771       -                     185,771  
Other receivables
     179,620       -                     179,620  
Prepaid mining right
     164,505       405,780                     570,285  
Inventory
     366,514       502,984                     869,498  
Advance to related party
     -       753,982                     753,982  
                                       
TOTAL CURRENT ASSETS
     5,453,450       14,499,418       -               19,952,868  
                                         
PROPERTY AND EQUIPMENT, net
     5,904,310       7,671,122       (1,806,788 )    
c
       11,768,644  
                                         
CONSTRUCTION IN PROGRESS
     157,651       -       (48,243 )    
c
       109,408  
                                         
NONCURRENT ASSETS
                                        
Prepaid mining right
     1,380,017       9,097,484       (422,301 )    
c
       10,055,200  
Asset retirement cost, net
     -       2,901,600                       2,901,600  
Deferred tax asset
     -       -       1,121,670      
e
       1,121,670  
                                         
TOTAL NONCURRENT ASSETS
     1,380,017       11,999,084       699,369               14,078,470  
                                         
TOTAL ASSETS
   $ 12,895,428     $ 34,169,624     $ (1,155,662 )           $ 45,909,390  
                                         
                                         
LIABILITIES AND STOCKHOLDERS' EQUITY
                                        
                                         
CURRENT LIABILITIES
                                        
Accounts payable
   $ 270,385     $ -     $               $ 270,385  
Unearned revenue
     308,388       -                       308,388  
Dividend payable
     -       -                       -  
Other payable and accrued liabilities
     514,919       225,348                       740,267  
Taxes Payable
     190,726       7,253,019                       7,443,745  
Due to stockholder
     636,465       -                       636,465  
                                         
TOTAL CURRENT LIABILITIES
     1,920,883       7,478,367       -               9,399,250  
                                         
NONCURRENT LIABILITIES
                                        
Asset retirement obligation
     -       3,577,759                       3,577,759  
Deferred tax liability
     128,922       744,956                       873,878  
                                         
TOTAL NONCURRENT LIABILITIES
     128,922       4,322,715                       4,451,637  
                                         
TOTAL LIABILITIES
     2,049,805       11,801,082                       13,850,887  
                                         
STOCKHOLDERS' EQUITY
                                     -  
Common Stock
     6,932       -       8,000      
a
       14,932  
Preferred stock
     400       -              
f 
       400  
Additional paid in capital
     4,665,349       1,329,062       5,009,280       b, c, d, e       11,003,691  
Other comprehensive income
     943,935       1,405,103       (943,935 )    
b
       1,405,103  
Statutory reserve
     1,794,559       2,943,658       (1,794,559 )  
 
b
       2,943,658  
Retained earnings
     3,434,448       16,690,719       (3,434,448 )    
b
       16,690,719  
                                         
TOTAL STOCKHOLDERS' EQUITY
     10,845,623       22,368,542       (1,155,662 )             32,058,503  
                                         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 12,895,428     $ 34,169,624     $ (1,155,662 )           $ 45,909,390  
                                         
      0       -       -               0  
(1) Source:  audited financial statements of  Songzai International Holding Group Inc. and Subsidiaries as of December 31, 2007 as included in this form 10KSB.
(2) Source:  audited combined financial statements of Heilongjiang Xingan Group Hongyuan Coal Mine Co., Ltd. and Heilongjiang Xingan Group Shengyu Mining Co., Ltd. as of December 31, 2007 included in this form 10-KSB.
a
Issuance of 8,000,000 shares (after 10:1 reverse stock split) to the shareholder of Hongyuan and Shengyu.
b
Elimination of capital accounts, other comprehensive income, statutory reserve and retained earnings of Songzai as a result of recapitalization.
c
Allocation of the net purchase price to the assets acquired and liabilities assumed. The negative goodwill is being allocated to fixed assets and prepaid mining right proportionally.
d
Net purchase price of $8,568,291 paid by accounting acquirer (Hongyuan and Shengyu) represents the fair value of the legal acquirer's (Songzai) 6,932,374 outstanding
 
common shares (after 10:1 reverse stock split) and 400,000 convertible preferred shares (1 common for 1 preferred) of $38,568,291
 
less the cash consideration of $30,000,000 receivable from Songzai.
e
Deferred tax asset resulting from tax and book basis difference in noncurrent assets resulting from allocation of negative goodwill.
f
Outstanding of 400,000 Series A preferred stock (1 commons for 1 preferred) at par value of 0.001, with no privilege of claiming and receiving dividends.
 
See accompanying notes to pro forma combined financial statements
F-2

SONGZAI INTERNATIONAL HOLDING GROUP INC. AND SUBSIDIARY AND
        
HEILONGJIANG XINGAN GROUP HONGYUAN COAL MINE CO., LTD. AND
        
HEILONGJIANG XINGAN GROUP SHENGYU MINING CO., LTD.
        
Pro forma Combined Statement of Operations
        
For the Year Ended December 31, 2007
        
(unaudited)
        
 
         
Hongyuan and
    
Pro forma
    
Pro forma
  
   
Songzai (1)
    
Shengyu (2)
    
Adjustments
    
Combined
  
                         
                         
Net Revenue
   $ 12,351,166     $ 34,580,611     $ -     $ 46,931,777  
                                 
Cost of Revenue
     5,586,468       12,964,485       -       18,550,953  
                                 
Gross Profit (Loss)
     6,764,698       21,616,126       -       28,380,824  
                                 
Operating expenses:
                                
Selling expenses
     -       750,026       -       750,026  
General and administrative expenses
     1,808,966       639,865       (273,099 ) a   2,175,732  
                                 
Total operating expenses
     1,808,966       1,389,891       (273,099 )     2,925,758  
                                 
Income from operations
     4,955,732       20,226,235       273,099       25,455,066  
                                 
Non-operating income (expense):
                                
Other income (expense)
     (23,791 )     -       -       (23,791 )
Interest income
     1,730       2,118       -       3,848  
Interest expense
     (27,017 )     (134,511 )     -       (161,528 )
Financial expense
     (345 )     (203 )                
                                 
Total non-operating income (expense)
     (49,423 )     (132,596 )     -       (181,471 )
                                 
Income before income tax
     4,906,309       20,093,639       273,099       25,273,595  
                                 
Income tax expense
     (818,438 )     (6,631,364 )     (45,557 ) a   (7,495,359 )
                                 
Net income
     4,087,871       13,462,275       227,543       17,778,237  
                                 
Other comprehensive income
                                
Foreign currency translation gain
     649,641       1,118,284               1,767,925  
                                 
Comprehensive income
   $ 4,737,512     $ 14,580,559       227,543     $ 19,546,162  
                                 
Net income per common share
                                
Basic
   $ 0.59     $ 1.68             $ 1.19  
Diluted
   $ 0.56     $ 1.68             $ 1.16  
                                 
Weighted average number of shares outstanding during the period
                                
Basic
     6,932,375       8,000,000               14,923,375  
Diluted
     7,332,375       8,000,000               15,332,375  

(1)      Source:  audited financial statements of Songzai International Holding Group Inc. and Subsidiaries for the year ended December 31, 2007 included in this form 10-KSB.
(2)      Source:  audited combined financial statements of Heilongjiang Xingan Group Hongyuan Coal Mine Co., Ltd. and Heilongjiang Xingan Group Shengyu Mining Co., Ltd. for the year ended December 31, 2007 included in this form 10-KSB.
a       Adjustments of depreciation and amortization expenses and related income tax effect as a result of negative goodwill allocation to noncurrent assets.
 
See accompanying notes to pro forma combined financial statements
 
F-3
 
SONGZAI INTERNATIONAL HOLDING GROUP INC. AND SUBSIDIARY AND
  
HEILONGJIANG XINGAN GROUP HONGYUAN COAL MINE CO., LTD. AND
  
HEILONGJIANG XINGAN GROUP SHENGYU MINING CO., LTD.
  
Pro forma Combined Statement of Operations
  
For the Year Ended December 31, 2006
  
(unaudited)
  
 
                         
   
Restated
    
Hongyuan and
    
Pro forma
    
Pro forma
  
   
Songzai (1)
    
Shengyu (2)
    
Adjustments
    
Combined
  
                         
Net Revenue
   $ 3,835,427     $ 21,316,745     $ -     $ 25,152,172  
                                 
Cost of Revenue
     2,402,459       9,455,308       -       11,857,767  
                                 
Gross Profit
     1,432,968       11,861,437       -       13,294,405  
                                 
Operating expenses:
                                
Selling expenses
     13,311       331,105       -       344,416  
General and administrative expenses
     697,338       527,503       (181,712 ) a   1,043,129  
                                 
Total operating expenses
     710,649       858,608       (181,712 )     1,387,545  
                                 
Income from operations
     722,319       11,002,829       181,712       11,906,860  
                                 
Non-operating income (expense):
                                
Other income (expense)
     463       (544 )     -       (81 )
Interest income
     211       2,273       -       2,484  
Interest expense
     (7,540 )     (123,298 )     -       (130,838 )
                                 
Total non-operating income (expense)
     (6,866 )     (121,569 )     -       (128,435 )
                                 
Income before income tax
     715,453       10,881,260       181,712       11,778,425  
                                 
Income tax expense
     (10,197 )     (3,590,816 )     -       (3,601,013 )
                                 
Net income
     705,256       7,290,444       181,712       8,177,412  
                                 
Other comprehensive income
                                
Foreign currency translation gain
     306,221       237,757               543,978  
                                 
Comprehensive income
   $ 1,011,477     $ 7,528,201       181,712     $ 8,721,390  
                                 
Net income per common share
                                
Basic
   $ 0.09     $ 0.91             $ 0.54  
Diluted
   $ 0.09     $ 0.91             $ 0.53  
                                 
Weighted average number of shares outstanding during the period
                                
Basic
     6,926,840       8,000,000               14,926,840  
Diluted
     7,326,840       8,000,000               15,326,840  

(1)   Source:  audited financial statements of Songzai International Holding Group Inc. and Subsidiaries for the year ended December 31, 2006 as filed in Annual Report on Form 10-KSB filed with the SEC on May 04, 2007.
(2)
Source:  audited combined financial statements of Heilongjiang Xingan Group Hongyuan Coal Mine Co., Ltd. and Heilongjiang Xingan Group Shengyu Mining Co., Ltd. for the year ended December 31, 2006 included in this form 10-KSB.
a
Adjustments of depreciation and amortization expenses as a result of negative goodwill allocation to noncurrent assets.
 
See accompanying notes to pro forma combined financial statements
 
F-4
 
SONGZAI INTERNATIONAL HOLDING GROUP INC. AND ITS SUBSIDIARY AND
HEILONGJIANG XINGAN GROUP HONGYUAN COAL MINE CO., LTD. AND
HEILONGJIANG XINGAN GROUP SHENGYU MINING CO., LTD.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

On or about December 31, 2007 (the "Effective Date"), Songzai International Holding Group Inc. (“Songzai”) entered into a Stock Purchase Agreement with Heilongjiang Xingan Group Hongyuan Coal Mine Co., Ltd. and Heilongjiang Xingan Group Shengyu Mining Co., Ltd. (collectively “Hongyuan Shengyu”).  Pursuant to the terms of the Agreement, Songzai acquired 90% of the registered capital, representing 90% of the outstanding equity interests, of each of Hongyuan and Shengyu from the selling shareholders for an aggregate purchase price of thirty million dollars (the "Cash Consideration") and 80,000,000 shares (pre-reverse stock split of Songzai effective on January 07, 2008) of Songzai’s common stock ("Stock Consideration"). The remaining 10% equity interest will be in trust by the selling shareholders of Hongyuan and Shengyu for the benefit of Songzai. The transaction is completed and closed on April 4, 2008.
 
The accompanying pro forma combined balance sheet presents the accounts of Songzai and Hongyuan Shengyu as if the acquisition of Hongyuan Shengyu by Songzai occurred on December 31, 2007 for balance sheet purposes.  The accompanying pro forma combined statements of operations present the accounts of Songzai and Hongyuan Shengyu for the year ended December 31, 2006 and 2007 as if the acquisition occurred on January 1, 2006 and January 1, 2007 for income statement purposes. As a result of the transaction, the shareholders of Hongyuan Shengyu will own approximately 54% of the combined companies.  Accordingly, the transaction has been accounted for as a reverse acquisition of Songzai by Hongyuan. For accounting purposes, the shares issued to Hongyuan have been accounted for as a recapitalization of Hongyuan Shengyu.

The following adjustments would be required if the acquisition occurred as indicated above:

a.
Recapitalization of Hongyuan Shengyu to account for issuance of an aggregate  80,000,000 common shares of Songzai to the shareholders of Hongyuan Shengyu, the total issued and outstanding common shares after the reverse merge were 149,323,748;
   
b. Elimination of capital accounts, other comprehensive income, statutory reserve and retained earnings of Songzai as a result of recapitalization;
   
c. Allocation of the net purchase price to the assets acquired and liabilities assumed.  The negative goodwill is being allocated to fixed assets and prepaid mining right proportionally;
   
d. Net purchase price paid by accounting acquirer (Hongyuan Shengyu) represents the fair value of the legal acquirer's (Songzai) 6,932,374 outstanding common shares and 400,000 convertible preferred shares (1 common for 1 preferred) of $38,568,291 less the cash consideration of $30,000,000 receivable from Songzai;
   
e. Recording of deferred tax assets as a result of basis differences arising from allocation of negative goodwill to non-current assets;
   
f. Outstanding of 400,000 Series A preferred stock (10 commons for 1 preferred) at par value of 0.001, with no privilege of claiming and receiving dividends.
 
 
 
F-5