<PAGE>
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K FOR REPORT DATED
MARCH 21, 1997
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------------------
CTC Cosmetics Holdings Company, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- ----------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
033-23884-LA 87-0415594
-------------------- ---------------------
(Commission File Number) (IRS Employer Identification No.)
No. 80 Liu Tuang Road Pudong, Shanghai, China
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (852) 2882-5699
Exhibit Index is on page __ of the manually executed copy.
<PAGE>
The Registrant has previously filed its Current Report on Form 8-K,
dated March 21, 1997, without certain financial information required by Item
7 of such Form 8-K. The Registrant hereby amends the Current Report on Form
8-K to file such financial information. Item 7, subparagraphs (a) and (b)
of the Report dated March 21, 1997, are hereby amended to read as follows:
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
- ----------------------------------------------------------------------------
(a) The Consolidated Financial Statements of Cao Tian Cosmetic
Holdings Limited as of September 30, 1994, 1995 and 1996.
(i) Cao Tian Cosmetic Holdings Limited.
Report of Lee & Berg, Independent Public Accountants.
Statements of Income for the fiscal years ended September 30, 1994,
1995 and 1996 (audited) and for the three months ended December 31, 1996
(unaudited).
Balance Sheets as of September 30, 1994, 1995 and 1996 (audited) and as
of December 31, 1996 (unaudited)
Statements of Cash Flows for the years ended September 30, 1995 and
1996 (audited) and for the three months ended December 31, 1996 (unaudited).
Statement of Retained Earnings for the years ended September 30, 1994,
1995 and 1996 (audited).
Notes to Consolidated Financial Statements.
(b) The Unaudited Pro Forma Consolidated Financial Statements of CTC
Cosmetics Holdings Company, Inc. as of August 31, 1996 and February 28,
1997.
Accountants' Opinion
Unaudited Pro Forma Consolidated Statement of Income for the year ended
August 31, 1996 and February 28, 1997.
Unaudited Pro Forma Consolidated Balance sheet as of August 31, 1996
and February 28, 1997.
Notes to Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
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 thereunto duly authorized.
Dated: June 3, 1997 CTC Cosmetics Holdings Company, Inc.
By: /s/ Paul K.W. Tso
------------------------------------
Paul K.W. Tso
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Audited financial statements
----------------------------
Periods from October 1, 1993 to September 30,1996
Contents Pages
- -------- -----
Audit report on financial statements..................................1
Statements of Income and Retained Earnings............................2
Balance Sheet.........................................................3
Statement of cash flows...............................................4
Notes to the financial statements....................................5-8
<PAGE>
LEE & BERG
CERTIFIED PUBLIC ACCOUNTANTS
- ----------------------------------------------------------------------------
US Address: 16 Soundview Road, Glen Cove, New York 11542. U.S.A.
Tel: (718) 274-8375 Fax: (718) 274 8453
Hong Kong Office: Room 1003, 39 Chatham Road South, TST, Kowloon, Hong Kong.
Tel: (852)2882-5699, 2301-4388 Fax (852) 2504-5336
- ----------------------------------------------------------------------------
Report on the Audited Financial Statements
To the Board of Directors of
Cao Tian Cosmetic Holdings Limited and Subsidiaries
We have audited the accompanying balance sheet Of Cao Tian Cosmetic Holdings
Limited as of September 30, 1996, 1995 and 1994, and the related statements
of income, shareholders' equity for each of the three years in the period
ended September 30, 1996, and and cash flows for each of the two years for
1996 and 1995. 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 generally accepted auditing
standards. 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 principals 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 Cao Tian Cosmetic
Holdings Limited as of September 30, 1996, 1995, and 1994 and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ Lee & Berg CPAs LLP
Lee & Berg CPAs, LLP
Glen Cove, New York
November 4,1996
Page 1
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Statements of Income and Expenses
Fiscal years ended September 30
1996 1995 1994
--------------------------------------
Statement of Income
- -------------------
Sales $18,146,691 $13,089,193 $ 8,246,286
Cost of sales 13,026,144 9,124,960 5,737,013
--------------------------------------
Gross profit 5,120,547 3,964,233 2,509,273
Selling expenses 1,257,725 843,542 1,203,825
General and administration expenses 685,790 797,990 45,374
--------------------------------------
Operating profit 3,177,032 2,322,701 1,260,074
Financial expenses 420,690 475,496 208,387
Other income/(expense) (108,770) 1,212 (1,663)
--------------------------------------
Income before tax 2,647,572 1,848,417 1,050,024
Tax (Note 3) 397,136 - -
--------------------------------------
Net Income $2,250,436 $ 1,848,417 $ 1,050,024
======================================
Statements of Retained Earnings
Statement of Retained Earnings
- ------------------------------
Retained Earnings, October 1 $129,615 $242,359 $129,016
Net Income 2,250,436 1,848,417 1,050,024
Less: Distribution (1,081,035) (1,961,161) (936,681)
--------------------------------------
Retained Earnings, September 30 $1,299,016 $129,615 $242,359
======================================
The notes on pages 5 to 8 form an integral part of these financial
statements.
Page 2
<PAGE>
<TABLE>
Unaudited
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Balance Sheets
<CAPTION>
For the periods ended September 30,
Assets
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents (Note 2) $146,693 $136,452 $80,802
Accounts receivable (Net)(Note 2) 2,275,856 2,469,520 1,593,355
Inventories loss allowances (Notes 2,4) 2,651,750 2,642,245 1,344,714
Deposits, other receivables 20,220 96,599 29,014
-------------------------------------------
Total current assets 5,094,519 5,344,816 3,047,885
Fixed assets (Note 2)
Land & buildings 9,483,815 3,902,964 2,979,108
Machine & others 2,562,952 1,802,095 1,575,135
Less: Acc depreciation 1,127,676 570,157 455,157
-------------------------------------------
Fixed assets (net) 10,919,092 5,134,902 4,099,066
Other Assets
Construction in Progress (Note 2) 417,687 312,105 102,853
-------------------------------------------
Total assets $16,431,298 $10,791,823 $7,249,824
===========================================
Liabilities & owners' equity
Current liabilities
Short term loans (Note 5) $3,358,759 $2,443,554 $2,145,940
Other payables 2,274,757 3,485,489 2,004,118
-------------------------------------------
Total current liabilities 5,633,516 5,929,043 4,150,068
Minority interest 128,879 90,214 63,505
Long Term Liabilities 1,888,192 361,446 0
-------------------------------------------
Total Liabilities 7,850,587 6,380,703 4,213,561
Owners' equity
Stock (Note 6) 7,481,695 4,281,505 2,793,904
Retained earnings 1,299,016 129,615 242,359
-------------------------------------------
Total owners' equity 8,780,711 4,411,120 3,036,263
Total Liabilities -------------------------------------------
and Owners' Equity $16,431,298 $10,791,823 $7,249,824
===========================================
The notes on pages 5 to 8 form an integral part of these financial
statements.
</TABLE>
Page 3
<PAGE>
Unaudited
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Statement of Cash Flows
Periods from October 1 to September 30
1996 1995
------------------------------
Cash flows from operating activities:
Net income $2,250,436 $1,848,417
Depreciation 557,518 115,000
------------------------------
2,807,954 1,963,417
Changes in operating assets and liabilities:
Accounts receivable 193,664 (876,165)
Deposits, prepayments and other receivables 76,379 (67,585)
Inventories (net) (9,505) (1,297,531)
Other payable and charges (1,210,732) 1,796
Minority interest 38,665 26,709
Long term liabilities 1,526,746 361,446
------------------------------
Subtotal 616,217 (1,851,330)
Cash flows from investing activities:
Land, buildings, acquired (4,368,384) (923,856)
Machinery & others acquired (760,857) (226,960)
Construction in progress (105,582) (209,252)
------------------------------
Subtotal (5,234,823) (1,360,068)
Cash flows from financing activities:
Proceeds from bank loans 915,205 297,614
Repayments of bank loans (1,210,732) 1,481,373
Capital increase 3,200,190 1,487,601
Profit distribution (1,081,035) (1,961,161)
------------------------------
Subtotal 1,823,628 1,305,427
------------------------------
Total cash increase 10,241 55,650
Cash and cash equivalents at beginning of
the period (October 1) 136,452 80,802
Cash and cash equivalents at end of the
period (December 31) 146,693 136,452
------------------------------
Net increase in cash and cash equivalents $10,241 $55,650
==============================
The notes on pages 5 to 8 form an integral part of these financial
statements.
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Notes to the financial statements - September 30, 1996
1. General
Cao Tian Cosmetic Holdings Limited (called CTC Holdings Limited) is a leader
in the cosmetic industry in the People's Republic of China (PRC). The
Company was founded by Mr. Paul K. Tso and his family members under the name
CTC Holdings Limited in 1992. Mr. Paul Tso is a British Hong Kong
entrepreneur, who devoted all his energy in developing PRC's cosmetic
industry.
The Company is a Sino-foreign equity joint venture incorporated in PRC with
headquarters located in Shanghai, the largest city in China. The Company
engages in the manufacture and sale of cosmetic products and cosmetic
related chemical ingredients. Products are also being sold to other Asian
countries to meet the growing demand of personal beauty care needs. In
1996, to accelerate its growth, the Company invited Joe Allen Holdings
Limited, a British Virgin Islands (BVI) company, to be its shareholder with
a 30% equity interest.
The Company has two (2) main factories. One is located in the Pu Dong
District of Shanghai (called CTC), which manufactures various cosmetic
products, including skin care cream, perfumes, shampoo, lipsticks, and
tonics. The other factory located at Zang Zha Gang Township, , 60 miles
away from Shanghai (called ZAAF). ZAAF manufactures cosmetic ingredients
including Igepon A, Igepon T-12, ASEA, cleanser, softener, and other
chemical by-products. Currently the Company employs approximately 500 staff
and workers. The Company has established 27 regional marketing offices in
PRC for its sales and distribution network. It also has real estate
investments in Macao, and Shanghai. The Company also maintains a marketing
office in Hong Kong for overseas sales.
The Company has signed an agreement with a French cosmetic company;
Innopharm S.A.R.L., to manufacture and distribute KORI beauty cream and
other products for the PRC market.
To anticipate growing market demand, the Company has strengthened its
management team and invited a senior executive from a well-known Hong Kong
public listed company, to be its shareholder and President. The new
President will be responsible for the receipt of international ISO-9002
quality certificates in 1997.
2. Principal Accounting Policies
(a) Property, plant and equipment
Fixed assets are recorded at cost. Depreciation is calculated to write off
their cost (after deducting the scrap value) on the straight line basis over
their expected useful lives. The useful lives used for this purpose are:
Buildings 30 years
Machinery, equipment and others 8 years
(b) Inventories
Inventories are stated at the lower of cost or market value. Cost includes
direct materials, direct labor and an appropriate proportion of
manufacturing overhead. (Refer to Note 4 for details)
Refer to report on page 1
Page 5
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Notes to the financial statements - September 30, 1996
2. Principal Accounting Policies (cont'd)
(c) Accounts Receivable
Provision has been made against accounts receivable to the extent which they
are considered to be doubtful. Provisions of Bad debt in the amount of US
$49,872, $36,527, $25,689 were made for 1996, 1995 and 1994. Accounts
receivable in the balance sheet are stated net of such a provision.
(d) Foreign Currency Translation
The company maintains its books and records in PRC currency (RMB) and
translates the RMB currency into United States dollars. Foreign currency
transactions are translated into United states dollars at the applicable
rates of exchange prevailing at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into
United States dollars at the applicable rates prevailing at the balance
sheet date. Exchange differences resulting from the above translation
policy are included in the statement of income.
(e) Income Taxes
Current income tax is provided at the applicable tax rates on the estimated
taxable income of the company determined in accordance with the relevant
imcome tax laws and regulations pertinent to Sino-foreign joint venture
companies.
Deferred income taxes are provided using the liability method under
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes". Under the liability method, deferred income taxes are recognized for
all significant temporary differences between the tax and financial
statement basis of assets and liabilities. The tax consequences of these
differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting.
(f) Cash and Cash Equivalents
Cash and short-term highly liquid investments which are readily convertible
into cash and have an original maturity of three months or less at the date
of acquisition, are classified as cash and cash equivalents.
(g) Banking Practice
It is a general banking practice in PRC that banks grant loans to customers
on a revolving basis. Normally, each loan term is for a period of less than
one year. (Refer to Note 5)
(h) Due to market demand, Company has been in expansion mode by building
office. Construction when completed is re-classified as a building under
Fixed assets.
Refer to report on page 1
Page 6
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Notes to the financial statements - September 30, 1996
2. Principal Accounting Policies (cont'd)
(i) Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
CTC and its subsidiary ZAAF. CTC owns 90% of ZAAF. For the consolidated
financial statements purposes, all significant inter company balances and
transactions have been eliminated in the consolidation. ZAAF's 10% minority
interest in CTC is disclosed as a liability and the related profit is
deducted as other expenses, which is in accordance with FASB-94.
(j) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(k) Revenue Recognition
Product sales revenue is recognized upon transfer of title to goods.
3 Income Tax
In accordance with the relevant income tax laws applicable to foreign joint
venture companies established in the PRC, the company is entitled to full
exemption from income tax for two years from the first profit-making year of
operations, followed by 50% reduction in tax rate for the next three years.
In 1996, the company has recorded a 15% tax (50% of 30% of tax rate) for
income tax purposes. The company is also exempt from paying the local tax
of 3% on the taxable income for the period.
4 Inventories
In addition to the information stated in the Note 2(b), the components of
inventories are as follows.
1996 1995 1994
---- ---- ----
Raw materials $1,203,802 $1,152,019 $629,326
Work in process 240,964 295,931 168,089
Finished goods 1,206,984 1,194,295 547,299
---------- ---------- ---------
$2,651,750 $2,642,245 $1,344,714
Refer to report on page 1
Page 7
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Notes to the financial statements - September 30, 1996
5 Short Term Bank Loans
For interest rate control purposes, it is the PRC banking practice to give
customer loans for a period normally less than one year. However, the loan
upon maturity can be automatically rolled-over on a revolving basis in the
following year, upon re-application of the same loans.
6 Stock
There are 200,000,000 shares of common stock with par value US$.10/share
authorized, and 74,816,950 shares, 42,815,050 shares, and 27,939,040 shares
are issued in 1996, 1995 and 1994 respectively.
7 Commitments and Contingencies
(a) The company owns its buildings and therefor has no rental commitments.
(b) Some of the export sales, less than 10% of total ZAAF sales, are made
through government agencies: the import and export companies. The
percentage of export sales through government export agencies is being
reduced, because of the companies own marketing effort. This is being done
by the establishment of a sales office in Hong Kong.
8 Infomation by Industry Segment and Geographic Region.
Currently, all of the company's sales are made in Asia with a majority of
these sales in the PRC. Although products made by the ZAAF factory are
intended as CTC raw material, some ZAAF by-products are sold to the PRC
chemical industry or exported. Management has signed contracts in the
amount of US$3 millions for cosmetics with three Southeast Asian dealers for
export of the company's cosmetics to Malaysia, Thailand and Singapore in
October and November 1996. Management has advised that export sales are
expected to increase in the coming years.
9 Related Party Transactions
All related party transactions are reviewed and disclosed in accordance with
FASB-57.
Page 8
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Unaudited Interim Financial Statements
Contents
--------
Pages
-----
Accountant's Disclaimer of Opinion 1
Unaudited Statements of Income and Expenses for the
three months ended December 31, 1996 and 1995 2
Unaudited Balance Sheets as of December 31, 1996, and
September 1995 3
Unaudited Statements of Cash Flows for the three months
ended December 31, 1996, and 1995 4
Notes to the unaudited interim financial statements 5-8
<PAGE>
Unaudited
LEE & BERG
CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------------------------------------------------------------
U S Address: 16 Soundview Road, Glen Cove, New York 11542, U.S.A.
Tel: (718) 274-8375 Fax: (718) 274-8453
Hong Kong Office: Room 1003, 39 Chatham Road South, TST, Kowloon, Hong Kong
Tel: (852)2882-5699, 2301-4388 Fax (852) 2504-5336
- ----------------------------------------------------------------------------
Accountants Disclaimer of Opinion
Cao Tian Cosmetic Holdings Limited
Stockholders and Board of Directors
We have made a review of the balance sheet of Cao Tian Cosmetic Holdings
Limited as of December 31, 1996, which is the end of the first quarter of
the 1997 fiscal year, and the related statements of income and expenses, and
cash flows for the three-month period then ended, in accordance with
standards established by the American Institute of Certified Public
Accountants. The Company's 1997 fiscal year starts on October 1, 1996 and
ends on September 30, 1997. These interim financial statements are the
responsibility of the Company's management.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of interim
financial information, applying analytical procedures to financial data, and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an examination in
accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
On the basis of our review, we are not aware of any material
modifications that should be made to the accompanying financial statements
for them to be in conformity with generally accepted accounting principles.
/s/ Lee & Berg CPAs, LLP
Lee & Berg CPAs, LLP
Glen Cove, New York
March 20. 1997
<PAGE>
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Unaudited Statements of Income and Expenses
For the Quarter ended December 31, 1996 and 1995
December 31 December 31
1996 1995
------------------------------
Sales $5,701,384 $4,536,673
Cost of sales 3,880,591 3,256,536
------------------------------
Gross profit 1,820,793 1,280,137
Selling expenses 540,727 314,431
General & administration expenses 249,641 171,448
------------------------------
Operating profit 1,030,425 794,258
Financial expenses 167,879 105,173
Other Income / (expense) 227,234 (27,193)
------------------------------
Income before tax 1,089,780 661,892
Tax (Note 3) 163,467 99,284
------------------------------
Net Income $926,313 $562,608
==============================
The notes on pages 5 to 8 form an integral part of these financial
statements.
Page 2
<PAGE>
Unaudited
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Unaudited Balance Sheets
For the Quarter Ended December 31, 1996 and 1995
Assets December 31 December 31
1996 1995
------------------------------
Current assets
Cash and cash equivalents (Note 2) $65,568 $146,693
Accounts receivable (Net)(Note 2) 4,101,255 2,275,856
Inventories loss allowances (Notes 2,4) 1,788,080 2,651,750
Deposits, other receivables 667,591 20,220
------------------------------
Total current assets 5,822,494 5,094,519
Fixed assets (Note 2)
Land & buildings 10,357,446 9,106,764
Machine & others 2,441,191 2,062,952
Less: Acc depreciation 1,797,772 1,127,675
------------------------------
Fixed assets (net) 11,000,865 10,042,041
Other Assets
Construction in Progress (Note 2) 75,615 417,687
------------------------------
Total assets $17,698,974 $15,554,247
==============================
Liabilities & owners' equity
Current liabilities
Short term loans (Note 5) $3,703,071 $3,358,759
Other payables 3,240,844 2,274,757
------------------------------
Total current liabilities 6,943,915 5,633,516
Minority interest 341,501 128,879
Long Term Liabilities 1,474,012 1,888,192
------------------------------
Total Liabilities 8,759,428 7,650,587
Owners' equity
Stock (Note 6) 7,481,695 7,481,695
Retained earnings 1,457,851 421,965
------------------------------
Total owners' equity 8,939,546 7,903,660
Total Liabilities ------------------------------
and Owners' Equity $17,698,974 $15,554,247
==============================
The notes on pages 5 to 8 form an integral part of these financial
statements.
Page 3
<PAGE>
Unaudited
Cao Tian Cosmetic Holdings Limited and Subsidiaries
Unaudited Statements of Cash Flows
For the Quarter Ended December 31, 1996 and 1995
December 31 December 31
1996 1995
------------------------------
Cash flows from operating activities:
Net income $926,313 $562,608
Depreciation 670,097 557,518
------------------------------
1,596,410 1,120,126
Changes in operating assets and liabilties:
Accounts receivable (1,825,399) 193,664
Deposits, prepayments and other receivables (647,371) 76,379
Inventories (net) 863,670 (9,505)
Other payable and charges 965,087 (1,210,732)
Minority interest 212,622 38,665
Long term liabilities (414,180) 1,526,746
------------------------------
Subtotal (844,571) 615,217
Cash flows from investing activities:
Land, buildings, machinery & other acquired (net) (958,824) (5,159,242)
Construction in progress 342,072 (105,582)
------------------------------
Subtotal (616,752) (5,264,824)
Cash flows from financing activities:
Proceeds from bank loans 344,312 915,205
Repayments of bank loans 0 0
Capital increase 0 3,200,190
Profit distribution (560,524) (575,673)
------------------------------
Subtotal (216,212) 3,539,722
------------------------------
Total cash increase (81,125) 10,241
Cash and cash equivalents at beginning of
the period (October 1) 146,693 138,452
Cash and cash equivalents at end of the
period (December 31) 65,568 146,693
------------------------------
Net increase in cash and cash equivalents ($81,125) $10,241
==============================
The notes on pages 5 to 8 form an integral part of these financial
statements.
<PAGE>
Cao Tian Cosmetic Holdings Limited
Notes to the unaudited interim financial statements - December 31, 1996
1. General
Cao Tian Cosmetic Holdings Limited (called CTC Holdings Limited) is a leader
in the cosmetic industry in the People's Republic of China (PRC). The
Company was founded by Mr. Paul K. Tso and his family members under the name
CTC Holdings Limited in 1992. Mr. Paul Tso is a British Hong Kong
entrepreneur, who devoted all his energy in developing PRC's cosmetic
industry.
The Company is a Sino-foreign equity joint venture incorporated in PRC with
headquarters located in Shanghai, the largest city in China. The Company
engages in the manufacture and sale of cosmetic products and cosmetic
related chemical ingredients. Products are also being sold to other Asian
countries to meet the growing demand of personal beauty care needs.
The Company has two (2) main factories. One is located in the Pu Dong
District of Shanghai (called CTC), which manufactures various cosmetic
products, including skin care cream, perfumes, shampoo, lipsticks, and
tonics. The other factory located at Zang Zha Gang Township, , 60 miles
away from Shanghai (called ZAAF). ZAAF manufactures cosmetic ingredients
including Igepon A, Igepon T-12, ASEA, cleanser, softener, and other
chemical by-products. Currently the Company employs approximately 500 staff
and workers. The Company has established 27 regional marketing offices in
PRC for its sales and distribution network. It also has real estate
investments in Macao, and Shanghai. The Company also maintains a marketing
office in Hong Kong for overseas sales.
The Company has signed an agreement with a French cosmetic company;
Innopharm S.A.R.L., to manufacture and distribute KORI beauty cream and
other products for the PRC market.
To anticipate growing market demand, the Company has strengthened its
management team and invited a senior executive from a well-known Hong Kong
public listed company, to be its shareholder and President. The new
President will be responsible for the receipt of international ISO-9002
quality certificates in 1997.
2. Principal Accounting Policies
(a) Property, plant and equipment
Fixed assets are recorded at cost. Depreciation is calculated to write off
their cost (after deducting the scrap value) on the straight line basis over
their expected useful lives. The useful lives used for this purpose are:
Buildings 30 years
Machinery, equipment and others 8 years
<PAGE>
Cao Tian Cosmetic Holdings Limited
Notes to the unaudited financial statements - December 31, 1996
2 Principal Accounting Policies (cont'd)
(b) Inventories
Inventories are stated at the lower of cost or market value. Cost includes
direct materials, direct labor and an appropriate proportion of
manufacturing overhead. (Refer to Note 4 for details)
(c) Accounts Receivable
A provision has been made against accounts receivable to the extent which
they are considered to be doubtful. Provisions for Bad debts in the amount
of $49,872 and $36,527 were made for the first quarter's of the fiscal year
of 1997 and 1996. Accounts receivable on the balance sheet are stated net
of such provisions.
(d) Foreign Currency Translation
The company maintains its books and records in PRC currency (RMB) and
translates the RMB currency into United States dollars. Foreign currency
transactions are translated into United states dollars at the applicable
rates of exchange prevailing at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into
United States dollars at the applicable rates prevailing at the balance
sheet date. Exchange differences resulting from the above translation
policy are included in the statement of income.
(e) Income Taxes
Current income tax is provided at the applicable tax rates on the estimated
taxable income of the company determined in accordance with the relevant
imcome tax laws and regulations pertinent to Sino-foreign joint venture
companies.
Deferred income taxes are provided using the liability method under
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes". Under the liability method, deferred income taxes are recognized for
all significant temporary differences between the tax and financial
statement basis of assets and liabilities. The tax consequences of these
differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting.
(f) Cash and Cash Equivalents
Cash and short-term highly liquid investments which are readily convertible
into cash and have an original maturity of three months or less at the date
of acquisition, are classified as cash and cash equivalents.
Refer to report on page 1
<PAGE>
Cao Tian Cosmetic Holdings Limited
Notes to the unaudited interim financial statements - December 31, 1996
2 Principal Accounting Policies (cont'd)
(g) Banking Practice
It is a general banking practice in PRC that banks grant loans to customers
on a revolving basis. Normally, each loan term is for a period of less than
one year. (Refer to Note 5)
(h) Due to market demand, Company has been in expansion mode by building
office. Construction when completed is re-classified as a building under
Fixed assets.
(i) Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
CTC and its subsidiary ZAAF. CTC owns 90% of ZAAF. For the consolidated
financial statements purposes, all significant inter company balances and
transactions have been eliminated in the consolidation. ZAAF's 10% minority
interest in CTC is disclosed as a liability and the related profit is
deducted as other expenses, which is in accordance with FASB-94.
(j) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(k) Revenue Recognition
Product sales revenue is recognized upon transfer of title to goods.
(l) Fiscal Year
The Company adopts the fiscal year which ends on September 30 for its
financial reporting purposes. The first quarter of 1997 operates from
October 1 to December 31 of 1996.
3 Income Tax
In accordance with the relevant income tax laws applicable to foreign joint
venture companies established in the PRC, the company is entitled to full
exemption from income tax for two years from the first profit-making year of
operations, followed by 50% reduction in tax rate for the next three years.
In the first quarter of fiscal year 1997, the company has recorded a 15% tax
(50% of 30% of tax rate) for income tax purposes. The company is also
exempt from paying the local tax of 3% on the taxable income for the period.
Refer to report on page 1
<PAGE>
Cao Tian Cosmetic Holdings Limited
Notes to the unaudited interim financial statements - December 31, 1996
4 Inventories
In addition to the information stated in the Note 2(b), the components of
inventories are as follows.
Decembre 31 December 31
1996 1995
---- ----
Raw materials $1,225,468 $1,203,802
Work in process 60,553 240,964
Finished goods 502,059 1,206,984
---------- ----------
$1,788,080 $2,651,750
5 Short Term Bank Loans
For interest rate control purposes, it is the PRC banking practice to give
customer loans for a period normally less than one year. However, the loan
upon maturity can be automatically rolled-over on a revolving basis in the
following year, upon re-application of the same loans.
6 Stock
There are 200,000,000 shares of common stock with par value US$.10/share
authorized, and 74,816,950 shares are issued in the first quarter's of
fiscal year 1997 and 1996.
7 Commitments and Contingencies
(a) The company owns its buildings and therefor has no rental commitments.
(b) Some of the export sales, less than 10% of total ZAAF sales, are made
through government agencies: the import and export companies. The
percentage of export sales through government export agencies is being
reduced, because of the companies own marketing effort. This is being done
by the establishment of a sales office in Hong Kong.
8 Infomation by Industry Segment and Geographic Region.
Currently, all of the company's sales are made in Asia with a majority of
these sales in the PRC. Although products made by the ZAAF factory are
intended as CTC raw material, some ZAAF by-products are sold to the PRC
chemical industry or exported. Management has signed contracts in the
amount of US$3 millions for cosmetics with three Southeast Asian dealers for
export of the company's cosmetics to Malaysia, Thailand and Singapore in
October and November 1996. Management has advised that export sales are
expected to increase in the coming years.
9 Related Party Transactions
All related party transactions are reviewed and disclosed in accordance with
FASB-57.
Refer to report on page 1
<PAGE>
CTC Cosmetics Holdings Company, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Financial Statements
August 31, 1996
&
February 28, 1997
LEE & BERG CPAs, L.L.P.
<PAGE>
Unaudited
CTC Cosmetics Holdings Company, Inc.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contents
--------
Pages
-----
Unaudited report on Pro Forma Condensed
Consolidated Financial Statements...................................1-2
Unaudited Balance Sheet.............................................3-6
Unaudited Statement of Income.......................................7-8
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements...................................8-14
<PAGE>
LEE & BERG
CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------------------------------------------------------------
U S Address: 16 Soundview Road, Glen Cove, New York 11542, U.S.A.
Tel: (516) 676-8017 Fax: (516) 674-8666
Hong Kong Office: Room 1003, 39 Chatham Road South, TST, Kowloon, Hong Kong
Tel: (852)2882-5699, 2301-4388 Fax (852) 2504-5336
- ----------------------------------------------------------------------------
Accountants' Opinion
CTC Cosmetic Holdings Company, Inc.
Stockholders and Board of Directors
We have reviewed the pro forma adjustments reflecting the reverse merger
transaction described in Note 1 and the application of those adjustements to
the historical amounts in the accompanying pro forma condensed balance sheet
of CTC Cosmetics Holdings Company, Inc. as of August 31, 1996 and February
28, 1997 and the pro forma condensed statement of income for the twelve
months and six months then ended. These historical condensed financial
statements are derived from the historical financial statements of Cao Tian
Cosmetic Holdings Limited, which were reviewed by us, and of CTC Cosmetics
Holdings Company, Inc., a Delaware corporation, which were reviewed by other
accountants, appearing in Note 2. Such pro forma adjustments are based on
management's assumptions as described in Note 3. Our review was conducted
in accordance with 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 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 information might have been had the
Page 1
<PAGE>
transaction occurred at an earlier date. However, the pro forma condensed
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 transaction 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 transaction described in Note 1, 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 August 31, 1996 and February 28, 1997 and the
pro forma condensed statement of income for the twelve months and six months
then ended.
Lee & Berg CPAs, LLP
Glen Cove, New York
April 8, 1997
Page 2
<PAGE>
<TABLE>
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED AUGUST 31, 1996
(Amounts expressed in thousand dollars)
<CAPTION>
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetics Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash 147 461 (461) Note 3.2 147
equivalents 1800 Note 3.1 1800
Accounts 2,256 22 (22) 2,256
receivable
Inventories 2,652 154 (154) 2,652
(1,292) (1,292)
Prepayments and 87 (87) 0
deferred
Other receivables
current assets 20 102 (102) 20
----------- ----------- ----------- -----------
Total current 5,075 826 (318) 5,583
assets
Prepayments 418 418
Property, plant and 10,919 8 (8) 10,919
equipment, net
Long-term
investment
Note receivable
Other assets 34 (34)
----------- ----------- ----------- -----------
Total assets 16,412 868 (360) 16,920
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 3
</TABLE>
<PAGE>
<TABLE>
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED AUGUST 31, 1996
(Amounts expressed in thousand dollars)
<CAPTION>
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS
EQUITY
- --------------------
Current liabilities
Long-term loans- 3,359 3,359
current portion
Accounts payable 2,275 68 (68) Note 3.2 2.275
Accrued expenses
and other expenses 265 (265)
----------- ----------- ----------- -----------
Total current 5,634 333 (333) 5,634
liabilities
Long-term loans 1,888 1,888
Minority interests 129 309 (309) 129
Shareholders' equity
Common stock 7,482 226 (226) 7,482
500 Note 3.3 500
Paid-in capital
Retained earnings 1,279 508 Note 3.1 1,787
(500) Note 3.3 (500)
----------- ----------- ----------- -----------
Total shareholders'
equity 8,761 226 282 9,269
----------- ----------- ----------- -----------
Total liabilities and
shareholders'
equity 16,412 868 (360) 16,920
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 4
</TABLE>
<PAGE>
<TABLE>
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(Amounts expressed in thousand dollars)
<CAPTION>
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
- -------------------
Current assets
Cash and cash 155 461 (461) Note 3.2 155
equivalents 949 Note 3.1 949
Accounts 1,898 16 (16) 1,898
receivable
Inventories 3,092 18 (18) 3,092
(627) Note 3.1 (627)
Prepayments and 6 209 (209) 6
deferred
Other receivables 620 1 (1) 620
current assets
----------- ----------- ----------- -----------
Total current 5,771 705 (383) 6,093
assets
Prepayments
Property, plant and 7,464 8 (8) 7,464
equipment, net
Long-term
investment
Note receivable
Other assets 936 53 (53) 936
----------- ----------- ----------- -----------
Total assets 14,171 766 (444) 14,493
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 5
</TABLE>
<PAGE>
<TABLE>
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(Amounts expressed in thousand dollars)
<CAPTION>
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS
EQUITY
- -------------------
Current liabilities
Long-term loans- 3,724 3,724
current portion
Accounts payable 1,301 135 (135) Note 3.2 1,301
Accrued expenses
and other expenses 1,239 264 (264) 1,239
----------- ----------- ----------- -----------
Total current 6,264 399 (399) 6,264
liabilities
Long-term loans 1,132 1,132
Minority interests 219 (219) 0
Shareholders' equity
Common Stock 30 (30) 0
500 Note 3.3 500
Paid-in capital 5,714 115 (115) 5,714
Retained earnings 1,061 3 (3) 1,061
322 Note 3.1 322
(500) Note 3.3 (500)
----------- ----------- ----------- -----------
Total shareholders'
equity 6,775 148 174 7,097
----------- ----------- ----------- -----------
Total liabilities and
shareholders'
equity 14,171 766 (444) 14,493
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 6
</TABLE>
<PAGE>
<TABLE>
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1996
(Amounts expressed in thousand dollars)
<CAPTION>
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales 17,996 562 1,800 Note 3.1 20,358
Cost of goods sold 12,917 907 1,292 Note 3.1 15,116
Selling and
administrative 1,928 5 1,933
Interest expenses 417 (49) 368
Other expenses 109 (49) 60
----------- ----------- ----------- -----------
Total expenses 15,371 814 1,292 17,477
----------- ----------- ----------- -----------
Income from operations 2,625 (252) 508 2,881
before tax
Provision for tax 394 (40) 354
----------- ----------- ----------- -----------
Income from
continuing
operations 2,231 (212) 508 2,527
Income from dis-
continued operations
Reverse merger
expenses 500 Note 3.3 500
----------- ----------- ----------- -----------
Total assets 2,231 (212) 8 2,027
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 7
</TABLE>
<PAGE>
<TABLE>
Unaudited
CTC COSMETICS HOLDINGS COMPANY INC AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(Amounts expressed in thousand dollars)
<CAPTION>
Historical Historical Unaudited
----------- ---------- Pro forma
Notes to consolidated
unaudited balance sheet of
Cao Tian CTC pro forma CTC
Cosmetic Cosmetics consolidated Cosmetics
Holdings Holdings Pro forma financial Holdings
Limited Company,Inc adjustments statements Company Inc.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales 9,489 170 949 Note 3.1 10,608
Cost of goods sold 6,274 125 627 Note 3.1 7,026
Selling and 1,595 144 1,739
administrative
Interest expenses 327 (8) 319
Other expenses (130) (16) (146)
Total expenses 8,065 245 627 8,938
----------- ----------- ----------- -----------
Income from operations 1,423 (75) 322 1,670
before tax
Provision for tax 54 54
Income from
continuing
operations 1,369 (75) 322 1,616
----------- ----------- ----------- -----------
Income from dis-
continued operation ----------- ----------- ----------- -----------
Reverse merger
expenses 500 Note 3.3 500
Net income 1,369 (75) (178) 1,116
=========== =========== =========== ===========
The notes on pages 9 to 14 form an integral part of the pro forma statements.
Page 8
</TABLE>
<PAGE>
CTC Cosmetics Holdings Company Inc. Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
- ---------------------------------------------------------------------------
Note 1 The reverse merger transaction
On March 21, 1997, CTC Cosmetics Holdings Company, Inc. formerly known as
The Westwind Group, Inc. (the "Company" or "Registrant"), a Delaware
corporation consummated a reverse merger transaction, whereby the Registrant
acquired all of the issued and outstanding shares of CTC Cosmetics Holding
(BVI) Co. Ltd. a British Virgin Islands corporation ("CTC Cosmetics") which
operating subsidiary is Cao Tian Cosmetic Holdings Limited, a Sino-foreign
joint venture, in exchange for the issuance by the Registrant of 9,000,000
post-split shares of restricted common stock to CTC Cosmetics shareholders
pursuant to the Agreement and Plan of Reorganization, as amended (the
"Agreement"), dated as of March 21, 1997, by and between the Registrant and
CTC Cosmetics (the "Closing").
The Registrant develops, manufactures and markets skin and hair care
products, cosmetics, and cosmetic related chemical ingredients primarily for
sale in the People's Republic of China and South East Asia.
Under the relevant terms of the Agreement, the Registrant undertook a
reverse split of its common stock, whereby 1 share of common stock was
issued in exchange for 12.93 shares of common stock. Immediately prior to
the share exchange, there were approximately 500,000 post-reverse split
shares of the Registrant's common stock issued and outstanding. Pursuant to
the terms of the Agreement for Divisive Reorganization, which was also
executed at the Closing, the Registrant's two existing subsidiaries were
spun off from the Registrant to its majority shareholders in exchange for
such majority shareholders' cancellation of a total of 960,912 pre-split
shares of common stock of the Registrant. As a result of the acquisition,
there were approximately 9,500,000 shares of Common Stock issued and
outstanding as of the Closing date.
The condensed consolidated balance sheet and accompanying condensed
consolidated financial statements illustrate the effect of the acquisition
("Pro Forma") on CTC Cosmetics and the Company, Inc. as of that date and
assumes the acquisition took place one year earlier. The condensed
consolidated statements of income for the year ended August 31, 1996 is
based on the historical statements of income of the Company and CTC
Cosmetics for that period. The pro forma condensed consolidated statements
of income assume the acquisition took place on October 1, 1995. The pro
forma condensed consolidated financial statements may not be
Refer to report on page 1
Page 9
<PAGE>
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
- ---------------------------------------------------------------------------
indicative of the actual results of the reverse merger. In particular, the
pro forma condensed consolidated financial statements are based on
management's estimate of possible sales impact of the reverse merger.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of the
Company and CTC Cosmetics
The pro forma statements should assist investors in analyzing the future
Prospects of the Registrant, because they illustrate the possible scope of
the change in the Registrant's historical financial position and results of
the operations caused by the merger transaction.
Note 2 Review of CTC Cosmetics Holdings Company Inc. financial statements.
The financial statements ended August 31, 1996 of CTC Cosmetics Holdings
Company Inc. have been reviewed by another CPA firm; Pritchett, Siler &
Hardy, PC.
Note 3 Description of pro forma adjustments.
Note 3.1 Management assumption on the impact of the reverse merger.
Management believes that had the reverse merger occurred at one year
earlier the total sales amount may be increased by a 10%, which is directly
due to the benefit of such a merger.
Note 3.2 Acceptance of no assets and liabilities.
Pursuant to the Plan of Reorganization Agreement dated on March 21, 1997,
by and between the Company and certain CTC Cosmetics' shareholders, and the
Agreement for Divisive Reorganization, the Company's assets and liabilities
were spun off from the Company to its majority shareholders.
Note 3.3 Cost of the reverse merger.
The management indicated that additional 1,155,600 shares of CTC
Cosmetics Holding Company, Inc. were issued in connection with the reverse
merger. In additional, The Company obtained a financing at the merger
pursuant to which convertible debentures were sold to two overseas financial
institutions to raise $ 500,000.
Refer to report on page 1
Page 10
<PAGE>
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
- ---------------------------------------------------------------------------
Note 3.4 Principal Accounting Policies for CTC Cosmetics Holding Company,
Inc.
(a) Property, plant and equipment
Fixed assets are recorded at cost. Depreciation is calculated to write
off their cost (after deducting the scrap value) on the straight line basis
over their expected useful lives. The useful lives used for these purposes
are:
Buildings 30 years
Machinery, equipment and others 8 years
(b) Inventories
Inventories are stated at the lower of cost or market value. Cost
includes direct materials, direct labor and an appropriate proportion of
manufacturing overhead.
(c) Accounts Receivable
A provision has been made against accounts receivable to the extent
which they are considered to be doubtful. Accounts receivable on the
balance sheet are stated net of such provisions.
(d) Foreign Currency Translation
The company maintains its books and records in PRC currency (RMB) and
translates the RMB currency into United States dollars. Foreign currency
transactions are translated into United States dollars at the applicable
rates of exchange prevailing at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into
United States dollars at the applicable rates prevailing at the balance
sheet date. Exchange differences resulting from the above translation
policy are included in the statement of income.
c) Income Taxes
Current income tax is provided at the applicable tax rates on the
Refer to report on page 1
Page 11
<PAGE>
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
- ---------------------------------------------------------------------------
estimated taxable income of the Company determined in accordance with the
relevant income tax laws.
Deferred income taxes are proded using the liability method under
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes". Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement basis of assets and liabilities. The tax consequences of these
differences are classified as current or non-current based on the
classification of the related asset or liability for financial reporting.
(f) Cash and Cash Equivalents
Cash and short-term highly liquid investments which are readily
convertible into cash and have an original maturity of three months or less
at the date of acquisition, are classified as cash and cash equivalents.
(g) Banking Practice
It is a general banking practice in PRC that banks grant loans to
customers on a revolving basis. Normally, each loan term is for a period of
less than one year.
(h) Due to market demand, the company has been in an expansion mode by
building offices. Construction, when completed is re-classified as a
building under Fixed assets.
(i) Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of CTC Cosmetics Holdings Company, Inc. and its subsidiary CTC Cosmetics
Holding (BVI) Company Ltd.
(j) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and
Refer to report on page 1
Page 12
<PAGE>
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
- ---------------------------------------------------------------------------
accompanying notes. Actual results could differ from those estimates.
(k) Revenue Recognition
Product sales revenue is recognized upon transfer of title to goods.
(l) Fiscal Year
The Company adopts the fiscal year which ends on August 31 for its
financial reporting purposes.
Note 3.5 Income Tax
In accordance with the relevant income tax laws applicable to foreign
joint venture companies established in the PRC, the Company is entitled to
full exemption from income tax for two years from the first profit-making
year of operations, followed by a 50% reduction in tax rate for the next
three years.
Note 3.6 Short Term Bank Loans
For interest rate control purposes, it is the PRC banking practice to
give customer loans for a period normally less than one year. However, the.
loan upon maturity can be automatically rolled-over on a revolving basis in
the following year, upon re-application of the same loan.
Note 3.7 Stock
There are 50,000,000 shares of common stock with par value
US$0.04/share authorized, and 9,500,000 shares are outstanding.
Note 3.8 Commitments and Contingencies.
(a) The Company owns its buildings and therefor has no office rental
commitments.
(b) All material contingencies are properly reflected in the financial
statement.
Note 3.9 Information by Industry Segment and Geographic Region.
Refer to report on page 1
Page 13
<PAGE>
CTC Cosmetics Holdings Company Inc. and Subsidiaries Unaudited
Notes to the unaudited pro forma financial statements-August 31, 1996 and
February 28, 1997
- ---------------------------------------------------------------------------
Currently, all of the Company's sales are made in Asia with a majority
of these sales in the PRC.
Refer to report on page 1
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 1104
<SECURITIES> 0
<RECEIVABLES> 1898
<ALLOWANCES> 0
<INVENTORY> 3092
<CURRENT-ASSETS> 6093
<PP&E> 7464
<DEPRECIATION> 0
<TOTAL-ASSETS> 14493
<CURRENT-LIABILITIES> 6264
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 6597
<TOTAL-LIABILITY-AND-EQUITY> 14493
<SALES> 10608
<TOTAL-REVENUES> 10608
<CGS> 7026
<TOTAL-COSTS> 8938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1670
<INCOME-TAX> 54
<INCOME-CONTINUING> 1616
<DISCONTINUED> 0
<EXTRAORDINARY> 500
<CHANGES> 0
<NET-INCOME> 1116
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.00
</TABLE>
