SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 24, 2002
SOYO GROUP, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Nevada 333-42036 95-4502724
--------------------------------------------------------------------------------
(State of Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
41484 Christy Street, Fremont, California 94538
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (510) 226-7696
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
This Form 8-K/A contains the financial statements related to the
Registrant's acquisition of Soyo, Inc. on October 24, 2002, which acquisition
was reported on Form 8-K as filed with the Securities and Exchange Commission on
October 30, 2002.
(a) Financial statements of businesses acquired
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Soyo, Inc.
Fremont, California
We have audited the accompanying balance sheet of Soyo, Inc. as of December 31,
2001 and 2000, and the related statements of operations, stockholders' equity
(deficit), and cash flows for each of the three 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 audit 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 Soyo, Inc. as of December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Malone & Bailey, PLLC
Houston, Texas
July 1, 2002
SOYO, INC.
BALANCE SHEETS
December 31, 2001 and 2000
2001 2000
------------ ------------
ASSETS
Current assets
Cash $ 168,450 $ 260,868
Certificate of deposit, restricted 1,000,000 --
Accounts receivable, net 9,977,648 9,250,768
Inventories 14,601,420 5,476,381
Note receivable -- 734,911
Income taxes receivable -- 63,000
Prepaid expenses 25,261 24,445
------------ ------------
Total current assets 25,772,779 15,810,373
Property and equipment, net 38,711 45,816
Goodwill, net 389,307 806,412
Deposits 109,000 90,122
------------ ------------
$ 26,309,797 $ 16,752,723
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable:
Parent $ 21,191,294 $ 14,973,952
Trade 4,204,343 1,746,982
Accrued expenses 57,853 60,122
Note payable 1,200,000 --
Income taxes payable 75,044 --
------------ ------------
Total current liabilities 26,728,534 16,781,056
------------ ------------
Commitments
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1.00 par value, 1,000,000
shares authorized, 500,000 shares issued
and outstanding 500,000 500,000
Retained earnings (deficit) (918,737) (528,333)
------------ ------------
Total stockholders' equity (deficit) (418,737) (28,333)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 26,309,797 $ 16,752,723
============ ============
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Net revenues $ 63,091,190 $ 62,173,829 $ 15,494,828
Cost of revenues 58,714,548 59,197,437 14,349,456
------------ ------------ ------------
Gross margin 4,376,642 2,976,392 1,145,372
------------ ------------ ------------
Costs and expenses:
General and administrative 3,609,925 2,761,778 1,103,504
Sales and marketing 682,840 447,303 --
Depreciation and amortization 425,950 425,892 27,807
------------ ------------ ------------
Total costs and expenses 4,718,715 3,634,973 1,131,311
------------ ------------ ------------
Income (loss) from operations (342,073) (658,581) 14,061
Other income (expense)
Interest income 37,576 53,430 --
Other income 13,846 12,447 --
Interest expense (25,190) -- --
------------ ------------ ------------
26,232 65,877 --
------------ ------------ ------------
Income (loss) before income taxes (315,841) (592,704) 14,061
Provision (benefit) for income taxes 74,563 (70,275) 19,965
------------ ------------ ------------
Net loss $ (390,404) $ (522,429) $ (5,904)
============ ============ ============
Net loss per share:
Net loss basic and diluted $ (0.78) $ (1.04) $ (0.01)
============ ============ ============
Weighted average shares outstanding:
Basic and diluted 500,000 500,000 500,000
============ ============ ============
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2001, 2000 and 1999
Common stock Retained
--------------------- Earnings
Shares Amount (Deficit) Total
--------- --------- --------- ---------
Balance,
December 31, 1998 500,000 $ 500,000 $ -- $ 500,000
Net loss -- -- (5,904) (5,904)
--------- --------- --------- ---------
Balance,
December 31, 1999 500,000 500,000 (5,904) 494,096
Net loss -- -- (522,429) (522,429)
--------- --------- --------- ---------
Balance,
December 31, 2000 500,000 500,000 (528,333) (28,333)
Net loss -- -- (390,404) (390,404)
--------- --------- --------- ---------
Balance,
December 31, 2001 500,000 $ 500,000 $(918,737) $(418,737)
========= ========= ========= =========
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (390,404) $ (522,429) $ (5,904)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 8,844 425,892 27,807
Amortization of goodwill 417,106 -- --
Provision for doubtful accounts 781,791 25,982 --
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (1,508,671) (1,663,940) (7,451,407)
Inventories (9,125,039) (67,039) (2,666,009)
Prepaid expenses (816) 3,725 (118,292)
Note receivable 734,911 70,560 78,120
Income taxes receivable 63,000 -- --
Deposits (18,878) -- --
Increase (decrease) in:
Accounts payable 2,457,361 (4,373,273) 922,912
Accounts payable - Parent 6,217,342 6,229,793 8,744,159
Accrued expenses (2,269) (103,711) 163,833
Income taxes payable 75,044 (82,965) 19,965
----------- ----------- -----------
CASH FLOWS USED IN OPERATING
ACTIVITIES (290,678) (57,405) (284,816)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,740) (9,583) (9,500)
Investment in Soyo, net of cash -- -- 122,172
----------- ----------- -----------
CASH FLOWS (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,740) (9,583) 112,672
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable 1,200,000 -- --
Proceeds from sale of common stock -- -- 500,000
Increase in restricted cash (1,000,000) -- --
----------- ----------- -----------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES 200,000 -- 500,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (92,418) (66,988) 327,856
Cash, beginning of period 260,868 327,856 --
----------- ----------- -----------
Cash, end of period $ 168,450 $ 260,868 $ 327,856
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 25,190 -- --
Income taxes paid -- 800 --
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
Nature of Business
Soyo, Inc. ("Soyo") was incorporated in Nevada on October 22, 1998, to engage in
the import and wholesale distribution of computer components and peripherals to
other distributors in the United States of America.
Soyo is wholly owned by Soyo Computer, Inc. (SCI) of the Republic of China. SCI
is the principal vendor of Soyo.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the balance sheet. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash equivalents include highly liquid, temporary cash investments having
original maturity dates of three months or less. For reporting purposes, cash
equivalents are stated at cost plus accrued interest, which approximates fair
value.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
using the average cost method. Inventories consist primarily of computer parts
and components. Soyo's parent company SCI offers Soyo price protection on
certain inventory items purchased from SCI. Accordingly, Soyo has minimal
reserves for slow moving or obsolete inventories.
Long-Lived Assets
Property, plant and equipment are stated at cost less accumulated depreciation.
Major renewals and improvements are capitalized; minor replacements, maintenance
and repairs are charged to current operations. Depreciation is computed by
applying the straight-line method over the estimated useful lives of machinery
and equipment (three to seven years). Leasehold improvements are amortized over
the shorter of the useful life of the improvement or the life of the related
lease. Soyo performs reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Goodwill
Goodwill relates to the value of a company acquired. The cost of the goodwill is
amortized on a straight-line basis over the estimated life of three years.
Goodwill is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Revenue Recognition
Soyo recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectibility is probable.
Product sales are recognized by Soyo generally at the time product is shipped.
At the time revenue is recognized, Soyo provides for the estimated cost of
product warranties and reduces revenue for estimated product returns. Sales
incentives are generally classified as a reduction of revenue and are recognized
at the later of when revenue is recognized or the incentive is offered. When
other significant obligations remain after products are delivered, revenue is
recognized only after such obligations are fulfilled. Shipping and handling
costs are included in cost of goods sold.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.
Basic Loss Per Share
Basic loss per share has been calculated based on the weighted average number of
shares of common stock outstanding during the period.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued FAS 142, Goodwill
and Other Intangible Assets. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed at least annually for
impairment. The amortization provisions of FAS 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, Soyo is required to adopt FAS
142 effective January 1, 2002. Application of the non-amortization provisions of
FAS 142 for goodwill is expected to result in an increase in operating income of
approximately $389,000 in 2002. Changes in the estimated useful lives of
intangible assets are not expected to result in a material effect on net income
in 2002. At December 31, 2001, Soyo had goodwill of approximately $389,000.
Pursuant to FAS 142, Soyo will test its goodwill for impairment upon adoption
and, if impairment is indicated, record such impairment as a cumulative effect
of an accounting change. Soyo is currently evaluating the effect that the
adoption may have on its results of operation and financial position.
NOTE 2 - ACCOUNTS RECEIVABLE
Soyo's trade accounts receivable are shown net of allowance for doubtful
accounts of $653,259 and $364,199 at December 31, 2001 and 2000 as follows:
2001 2000
------------ ------------
Accounts receivable $ 10,630,907 $ 9,614,967
Less: Allowance for doubtful accounts (653,259) (364,199)
------------ ------------
$ 9,977,648 $ 9,250,768
============ ============
Soyo records estimated reductions to revenue for incentive offerings and
promotions If market conditions were to decline, Soyo may take actions to
increase customer incentive offerings possibly resulting in an incremental
reduction of revenue at the time the incentive is offered. Soyo maintains
allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition
of Soyo's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. Soyo provides
for the estimated cost of product warranties at the time revenue is recognized.
While Soyo engages in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of its component
suppliers, Soyo's warranty obligation is affected by product failure rates and
material usage and service delivery costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service delivery
costs differ from Soyo's estimates, revisions to the estimated warranty
liability would be required.
NOTE 3 - PROPERTY AND EQUIPMENT:
Components of property and equipment at December 31, 2001 and 2000 are as
follows:
2001 2000
-------- --------
Automobile $ 8,675 $ 8,675
Computer and equipment 19,651 17,911
Furniture and fixtures 18,516 18,516
Leasehold improvements 9,500 9,500
-------- --------
56,342 54,602
Less: accumulated depreciation and amortization (17,631) (8,786)
-------- --------
$ 38,711 $ 45,816
======== ========
Depreciation expense totaled $8,844, $4,827 and $0 in 2001, 2000 and 1999,
respectively.
NOTE 4 - Related Party Transactions
Substantially all of Soyo's inventories are manufactured by SCI and are
purchased either directly from SCI or from an affiliate of SCI.
Soyo is a wholly owned subsidiary of SCI and is dependent on its support. SCI
manufactures and supplies the majority of, and finances all of Soyo's inventory.
SCI has represented to Soyo that for 2002 it will continue to make available
such products and financing.
The following transactions have occurred for the years ended December 31:
2001 2000
------------ ------------
Purchases from SCI $ 41,633,352 $ 52,273,218
Accounts payable $ 21,191,294 $ 14,973,952
Payments to SCI $ 35,416,010 $ 46,043,425
NOTE 5 - Note Payable
Soyo entered into a loan agreement with a financial institution on June 4, 2001.
The note bears interest at 5.3% and is secured by a $1,000,000 certificate of
deposit that matures in June 2003. The note payable matures on June 2, 2003.
$200,000 of the note payable is guaranteed by SCI.
NOTE 6 - Income Taxes
For the years ended December 31, 2001, 2000 and 1999, Soyo incurred net losses
and, therefore, had no tax liability. The net deferred tax asset generated by
the loss carryforward has been fully reserved. The cumulative net operating loss
carryforward is approximately $265,000 at December 31, 2001, and will expire in
the years 2019 through 2021.
The provision for federal income taxes consists of the following for the years
ended December 31:
2001 2000 1999
----------- ----------- -----------
Current provision (benefit) $ 74,563 $ (70,275) $ 19,965
Deferred provision -- -- --
----------- ----------- -----------
$ 74,563 $ (70,275) $ 19,965
=========== =========== ===========
Deferred income taxes consist of the following at December 31:
2001 2000 1999
----------- ----------- -----------
Long-term:
Deferred tax assets $ 375,000 $ 237,000 $ 2,000
Valuation allowance (375,000) (237,000) (2,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
The following is a reconciliation of income taxes, calculated at the United
States federal statutory rate to the income tax provision (benefit) for the
years ended December 31:
2001 2000 1999
--------- --------- ---------
Provision (benefit) for income
taxes at U.S. statutory rate (34%) (34%) 34%
Depreciation recorded in excess of
tax depreciation 24% 24% 110%
Effect of Section 263a 16% -- --
Effect of utilization of net
operating loss 20% -- --
Other items, net (2%) (2%) (2%)
--------- --------- ---------
Income tax provision (benefit) 24% (12%) 142%
========= ========= =========
The Company had taxable income (loss) of approximately $228,000, $(265,000) and
$201,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
NOTE 7 - MAJOR CUSTOMERS
The Company had two customers and one customer that accounted for more than 10%
of net revenues, and collectively, these customers accounted for 11% and 12% of
net revenues for the year ended December 31, 2001 and 13% of net revenues for
the year ended December 31, 2000. The breakdown is as follows at December 31:
Customer 2001 2000
-------- ---------- ----------
A $7,122,235 $8,314,581
B $7,319,665 --
NOTE 8 - COMMITMENTS
Soyo currently leases its office and warehouse premises under a five year
non-cancelable agreement which expires September 30, 2003. The lease provides
for monthly payments of base rent and an unallocated portion of building
operating costs.
Minimum future lease rentals are as follows:
December 31,
------------
2002 $ 270,717
2003 210,375
---------------
$ 481,092
===============
Rent expense was $308,422, $298,246 and $67,456 for the years ended December 31,
2001, 2000 and 1999, respectively.
SOYO, INC.
CONDENSED BALANCE SHEET (Restated - Note 2)
(Unaudited)
September 30, 2002
ASSETS
Current assets
Cash $ 291,537
Certificate of deposit, restricted 1,000,000
Accounts receivable, net 8,770,128
Inventories 9,648,621
Prepaid expenses 42,840
------------
Total current assets 19,753,126
------------
Property and equipment, net 64,130
Goodwill, net 389,307
Deposits 67,918
------------
$ 20,274,481
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable:
Parent $ 20,587,930
Trade 3,021,312
Accrued expenses 324,246
Note payable 1,200,000
------------
Total current liabilities 25,133,488
------------
Commitments
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1.00 par value, 1,000,000
shares authorized, 500,000 shares issued
and outstanding 500,000
Retained earnings (deficit) (5,359,007)
------------
Total stockholders' equity (deficit) (4,859,007)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 20,274,481
============
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(Restated (Restated
- Note 2) - Note 2)
Net revenues $ 13,625,372 $ 13,746,980 $ 39,924,692 $ 48,514,465
Cost of revenues 13,485,301 12,746,261 39,972,073 45,544,212
------------ ------------ ------------ ------------
Gross margin (deficit) 140,071 1,000,719 (47,381) 2,970,253
------------ ------------ ------------ ------------
Costs and expenses:
General and administrative 1,243,933 873,323 3,478,898 2,264,062
Sales and marketing 383,372 170,012 1,025,595 516,485
Depreciation and amortization 3,891 85,618 9,633 256,853
------------ ------------ ------------ ------------
Total costs and expenses 1,631,196 1,128,953 4,514,126 3,037,400
------------ ------------ ------------ ------------
Loss from operations (1,491,125) (128,234) (4,561,507) (67,147)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 404 9,992 42,204 36,783
Other income -- -- 55,225 4,855
Interest expense (8,863) (8,108) (37,871) (12,878)
------------ ------------ ------------ ------------
(8,459) 1,884 59,558 28,760
------------ ------------ ------------ ------------
Loss before income taxes (1,499,584) (126,350) (4,501,949) (38,387)
Provision (benefit) for
income taxes -- -- (61,679) 101,595
------------ ------------ ------------ ------------
Net loss $ (1,499,584) $ (126,350) $ (4,440,270) $ (139,982)
============ ============ ============ ============
Basic and diluted loss per
common share $ (3.00) $ (0.25) $ (8.88) $ (0.28)
============ ============ ============ ============
Weighted average common
shares outstanding 500,000 500,000 500,000 500,000
============ ============ ============ ============
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) Nine Months Ended September 30,
2002 and 2001
2002 2001
----------- -----------
(Restated (Restated
- Note 2) - Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,440,270) $ (139,982)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 9,633 256,853
Provision for doubtful accounts 1,225,001 250,000
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (17,481) 363,648
Inventories 4,952,799 (6,075,877)
Prepaid expenses and other
assets 23,503 (34,572)
Note receivable -- 734,911
Increase (decrease) in:
Accounts payable (1,183,031) (1,151,179)
Accounts payable - Parent (603,364) 5,831,427
Accrued expenses 266,393 (10,789)
Income taxes payable (75,044) 163,795
----------- -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 158,139 188,235
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (35,052) --
----------- -----------
CASH FLOWS USED IN INVENTING ACTIVITIES (35,052) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable -- 1,200,000
Increase in restricted cash -- (1,000,000)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES -- 200,000
----------- -----------
NET INCREASE IN CASH 123,087 388,235
Cash, beginning of period 168,450 260,868
----------- -----------
Cash, end of period $ 291,537 $ 649,103
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 34,788 $ 12,878
Income taxes paid -- --
See accompanying summary of accounting policies
and notes to financial statements.
SOYO, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2002
Note 1 - Presentation
The condensed balance sheet of the Company as of September 30, 2002, the related
condensed statements of operations for the three and nine months ended September
30, 2002 and 2001 and the condensed statements of cash flows for the nine months
ended September 30, 2002 and 2001 included in the condensed financial statements
have been prepared by the Company without audit. In the opinion of management,
the accompanying condensed financial statements include all adjustments
(consisting of normal, recurring adjustments) necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the three and nine months ended September 30, 2002 are not
necessarily indicative of the results of operations for the full year or any
other interim period. Notes to the financial statements which would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year 2001 as separately provided have been
omitted.
Note 2 - Restatement
At December 31, 2002, the Company reviewed the collectibility of its accounts
receivable, particularly in light of the deterioration in its business
operations during the three months ended December 31, 2002, and increased the
provision for doubtful accounts by $1,939,694, to $2,009,218 for the year ended
December 31, 2002, as compared to $69,524 as originally reported for the nine
months ended September 30, 2002. With respect to the $2,009,218, the Company
determined that $700,000 was applicable to the three months ended March 31,
2002, $70,624 was applicable to the three months ended June 30, 2002, $454,377
was applicable to the three months ended September 30, 2002, and $784,217 was
applicable to the three months ended December 31, 2002.
At December 31, 2002, the Company also reviewed the realizability of its
inventory, and reduced the carrying amount by $2,123,307, of which $1,500,000
was applicable to the three months ended March 31, 2002, $200,001 was applicable
to the three months ended June 30, 2002, and $423,306 was applicable to the
three months ended December 31, 2002.
The Company has revised its unaudited financial statements for the three months
and nine months ended September 30, 2002 to reflect the $1,225,001 provision for
doubtful accounts and the $1,700,001 inventory write-down applicable to such
interim periods.
The Company also revised its unaudited statement of cash flows for the nine
months ended September 30, 2001 to reflect a $1,000,000 increase in restricted
cash.
A summary of the effect of these adjustments is as follows:
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
------------------ ------------------
Net loss, as reported $ (1,050,992) $ (1,555,174)
Adjustments:
Provision for doubtful accounts (454,377) (1,225,001)
Inventory write-down -- (1,700,001)
Other 5,785 39,906
------------------ ------------------
Net loss, as revised $ (1,499,584) $ (4,440,270)
================== ==================
Basic and diluted loss per common share:
As reported $ (2.10) $ (3.11)
Adjustments:
Provision for doubtful accounts (0.91) (2.45)
Inventory write-down -- (3.40)
Other 0.01 .08
------------------ ------------------
As adjusted $ (3.00) $ (8.88)
================== ==================
Weighted average common
shares outstanding 500,000 500,000
================== ==================
(b) Pro Forma Financial information
Pro Forma Condensed Consolidated Balance Sheet
The following pro forma balance sheet has been derived from the balance sheet of
Vermont Witch Hazel Company, Inc. ("Vermont") at July 31, 2002 and adjusts such
information to give effect to the acquisition of Soyo, Inc. ("Soyo"), as if the
acquisition had occurred at December 31, 2001. The pro forma balance sheet is
presented for informational purposes only and does not purport to be indicative
of the financial condition that would have resulted if the acquisition had been
consummated at December 31, 2001. The pro forma balance sheet should be read in
conjunction with the notes thereto and the Company's financial statements and
related notes thereto contained elsewhere in this document.
Since Vermont's balance sheet is insignificant, a pro forma condensed
consolidated balance sheet is essentially the same as Soyo's balance sheet, and
is presented below.
Vermont Soyo
7/31/02 12/31/01 Adjustments Pro Forma
------------ ------------ ------------ ------------
Current Assets:
Cash $ -- $ 168,450 $ -- $ 168,450
Certificate of deposit, restricted -- 1,000,000 -- 1,000,000
Accounts receivable, net -- 9,977,648 -- 9,977,648
Inventories -- 14,601,420 -- 14,601,420
Prepaid expenses -- 25,261 -- 25,261
------------ ------------ ------------ ------------
Total current assets -- 25,772,779 -- 25,772,779
Property and equipment, net -- 38,711 -- 38,711
Goodwill -- 389,307 -- 389,307
Deposits -- 109,000 -- 109,000
------------ ------------ ------------ ------------
$ -- $ 26,309,797 -- $ 26,309,797
============ ============ ============ ============
Current Liabilities:
Accounts payable:
Parent $ -- $ 21,191,294 -- $ 21,191,294
Trade -- 4,204,343 -- 4,204,343
Accrued expenses -- 57,853 -- 57,853
Note payable -- 1,200,000 -- 1,200,000
Income taxes payable -- 75,044 -- 75,044
------------ ------------ ------------ ------------
Total current liabilities -- 26,728,534 -- 26,728,534
------------ ------------ ------------ ------------
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value,
10,000,000 shares authorized,
1,000,000 shares issued and
outstanding -- -- 1,000 1,000
Common stock, $0.001 par value,
75,000,000 shares authorized,
40,000,000 shares issued and
outstanding 668,042 500,000 (1,128,042) 40,000
Additional paid-in capital -- -- 459,000 459,000
Accumulated deficit (668,042) (918,737) 668,042 (918,737)
------------ ------------ ------------ ------------
Net stockholders' equity (deficit) -- (418,737) (418,737)
------------ ------------ ------------ ------------
$ -- $ 26,309,797 $ $ 26,309,797
============ ============ ============ ============
Notes to Pro Forma Condensed Consolidated Balance Sheet:
(1) Purchaser "Ming Tung Chok and Nancy Chu" paid $300,000 to seller for
6,026,798 shares or 51% of the outstanding common stock of Vermont.
(2) Issuance of 1,000,000 shares of convertible preferred stock and 28,182,750
shares of common stock of Vermont for all of the outstanding stock of Soyo.
After the reorganization and stock purchase, the combined entity will have
40,000,000 shares of common stock and 1,000,000 shares of convertible preferred
stock outstanding.
SIGNATURES
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.
SOYO GROUP, INC.
Date: June 24, 2003 By: /s/ Ming Tung Chok
------------------------------------------
Name: Ming Tung Chok
Title: President, Chief Executive Officer
and Director