SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2
TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 2010
Diversified Global Holdings Group, Inc.
(Exact name of registrant as specified in charter)
Florida
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000-53524
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(State or other jurisdiction
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(Commission File Number)
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of incorporation)
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800 North Magnolia Ave., Suite 105, Orlando FL
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32803
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code: (407) 843-3344
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
ROYAL STYLE DESIGN, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
2
ROYAL STYLE DESIGN, INC.
Index
Page
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Report of Independent Registered Public Accounting Firm
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4
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Report of Independent Registered Public Accounting Firm
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5
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Consolidated Balance Sheets as of December 31, 2009
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and 2008 | 6 |
Consolidated Statements of Operations for the Years
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Ended December 31, 2009 and 2008
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7
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Consolidated Statement of Stockholders' Equity for Each
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of the Two Years in the Period Ended December 31, 2009
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8
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Consolidated Statements of Cash Flows for the Years
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Ended December 31, 2009 and 2008
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9-10
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Notes to Consolidated Financial Statements
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11-25
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3
684 East Vine Street
Murray, UT 84107
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Royal Style Design, Inc. and Subsidiaries
Orlando. Florida
We have audited the accompanying consolidated balance sheet of Royal Style Design, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2009, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year 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 audit. The financial statements of Royal Style Design, Inc. and Subsidiaries as of December 31, 2008, were audited by other auditors whose report, dated December 14, 2009, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2009 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Madsen & Associates, CPA's Inc.
April 2, 2010
4
Board of Directors
Royal Style Design, Inc.
Altamonte Springs, FL 32701
We have audited the accompanying consolidated balance sheet of Royal Style Design, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Wiener, Goodman & Company, P.C.
Eatontown, New Jersey
December 14, 2009
5
CONSOLIDATED BALANCE SHEETS
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||||||||
December 31,
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||||||||
2009
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2008
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|||||||
ASSETS
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||||||||
Current Assets:
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||||||||
Cash and cash equivalents
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$ | 320,345 | $ | 19,581 | ||||
Accounts receivable-net of allowance of $39,000 and $34,000, respectively
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1,172,253 | 188,704 | ||||||
Notes receivable - related parties
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53,573 | 30,500 | ||||||
Inventories
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645,410 | 342,326 | ||||||
Other current assets
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148,604 | 41,019 | ||||||
Total Current Assets
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2,340,185 | 622,130 | ||||||
Property and equipment-net
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1,273,922 | 115,685 | ||||||
Goodwill
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49,610 | - | ||||||
Other assets
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87,350 | - | ||||||
Total Assets
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$ | 3,751,067 | $ | 737,815 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Current Liabilities:
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||||||||
Current portion of long-term debt
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$ | 211,245 | $ | - | ||||
Accounts payable
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962,352 | 450,608 | ||||||
Accrued expenses
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220,782 | 18,179 | ||||||
Customer advances
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485,871 | 37,871 | ||||||
Due to related parties
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117,948 | 5,125 | ||||||
Deferred revenue
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52,667 | - | ||||||
Income taxes payable
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2,273 | 4,711 | ||||||
Total Current Liabilities
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2,053,138 | 516,494 | ||||||
Long-term Liabilities:
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||||||||
Long-term debt-less current portion above
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27,563 | - | ||||||
Total Liabilities
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2,080,701 | 516,494 | ||||||
Commitments & Contingencies
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- | - | ||||||
Stockholders' Equity:
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||||||||
Common Stock, $.001 par value; authorized 100,000,000 shares:
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||||||||
93,638,511and 86,235,800 shares issued and outstanding at
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||||||||
December 31, 2009 and 2008, respectively
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93,637 | 86,235 | ||||||
Additional paid-in capital
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1,716,579 | (72,886 | ) | |||||
Retained earnings (deficit)
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(97,668 | ) | 242,914 | |||||
Accumulated other comprehensive loss
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(42,182 | ) | (34,942 | ) | ||||
Total Stockholders' Equity
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1,670,366 | 221,321 | ||||||
Total Liabilities and Stockholders' Equity
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$ | 3,751,067 | $ | 737,815 |
See Notes to Consolidated Financial Statements
6
CONSOLIDATED STATEMENTS OF OPERATIONS
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||||||||
For the years ended
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||||||||
December 31,
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||||||||
2009
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2008
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|||||||
Net sales:
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||||||||
Revenue
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$ | 1,217,560 | $ | 1,668,830 | ||||
Cost and expenses:
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||||||||
Cost of sales
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787,199 | 1,017,952 | ||||||
General and administrative
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584,910 | 492,233 | ||||||
1,372,109 | 1,510,185 | |||||||
(Loss) income from operations
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(154,549 | ) | 158,645 | |||||
Other income (expense):
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||||||||
Interest expense
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(2,345 | ) | (4,080 | ) | ||||
(Loss) earnings before
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||||||||
provision for income taxes
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(156,894 | ) | 154,565 | |||||
Provision for income taxes
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18,346 | 29,425 | ||||||
Net (loss) earnings
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$ | (175,240 | ) | $ | 125,140 | |||
(Loss) earnings per common share
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||||||||
- basic and diluted
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$ | (0.00 | ) | $ | 0.00 | |||
Weighted average number of common
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||||||||
shares outstanding - basic and diluted
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86,897,177 | 86,235,800 |
See Notes to Consolidated Financial Statements
7
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
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||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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||||||||||||||||||||||||||||
Additional
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Retained
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Accumulated
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||||||||||||||||||||||||||
Common Stock
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Paid-in
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Earnings
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Other Comprehensive
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Comprehensive
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||||||||||||||||||||||||
Shares
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Amount
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Capital
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(Deficit)
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Income (Loss)
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Income (Loss)
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Total
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||||||||||||||||||||||
Balance, January 1, 2008
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86,235,800 | $ | 86,235 | $ | (85,356 | ) | $ | 117,774 | $ | 7,479 |
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$ | 126,132 | |||||||||||||||
Assets contributed by shareholders
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10,870 | 10,870 | ||||||||||||||||||||||||||
Foreign currency adjustment
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(42,421 | ) | (42,421 | ) | (42,421 | ) | ||||||||||||||||||||||
Contribution from shareholders
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1,600 | 1,600 | ||||||||||||||||||||||||||
Net earnings
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125,140 | 125,140 | 125,140 | |||||||||||||||||||||||||
Comprehensive income
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$ | 82,719 | ||||||||||||||||||||||||||
Balance, December 31, 2008
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86,235,800 | 86,235 | (72,886 | ) | 242,914 | (34,942 | ) | 221,321 | ||||||||||||||||||||
Assets contributed by shareholders
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728,815 | 728,815 | ||||||||||||||||||||||||||
Effect of reverse acquisition
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6,500,000 | 6,500 | 158,842 | (165,342 | ) | - | ||||||||||||||||||||||
Foreign currency adjustment
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(7,240 | ) | $ | (7,240 | ) | (7,240 | ) | |||||||||||||||||||||
Issuance of common stock for acquisitions
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902,711 | 903 | 901,808 | - | - | 902,711 | ||||||||||||||||||||||
Net (loss)
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(175,240 | ) | (175,240 | ) | (175,240 | ) | ||||||||||||||||||||||
Comprehensive loss
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$ | (182,480 | ) | |||||||||||||||||||||||||
Balance, December 31, 2009
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93,638,511 | $ | 93,638 | $ | 1,716,579 | $ | (97,668 | ) | $ | (42,182 | ) | $ | 1,670,367 |
See Notes to Consolidated Financial Statements
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
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||||||||
For the Years Ended,
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||||||||
December 31,
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||||||||
2009
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2008
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|||||||
Cash flows from operating activities:
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||||||||
Net (loss) earnings
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$ | (175,240 | ) | $ | 125,140 | |||
Adjustments to reconcile net cash
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||||||||
provided by operating activities:
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||||||||
Depreciation and amortization
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15,349 | 5,846 | ||||||
Allowances for bad debts
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(7,499 | ) | 31,543 | |||||
Changes in operating assets and
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||||||||
Liabilities
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295,971 | (118,722 | ) | |||||
Net cash provided by operating activities
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128,581 | 43,807 | ||||||
Cash flows from investing activities:
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||||||||
Cash from acquisitions
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128,109 | - | ||||||
Advances on note receivable
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- | (30,500 | ) | |||||
Repayments on note receivable
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30,500 | - | ||||||
Purchase of property and equipment
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(17,093 | ) | (97,735 | ) | ||||
Net cash provided by (used in) investing activities
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141,516 | (128,235 | ) | |||||
Cash flows from financing activities:
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||||||||
Contribution from shareholder
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- | 1,600 | ||||||
Payments on debt
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(6,792 | ) | - | |||||
Proceeds from loan
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12,859 | - | ||||||
Proceeds from advances from related party
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24,600 | 5,125 | ||||||
Net cash provided by financing activities
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30,667 | 6,725 | ||||||
Effect of exchange rate changes on cash
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- | 592 | ||||||
Net increase (decrease) in cash and cash equivalents
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300,764 | (77,111 | ) | |||||
Cash and cash equivalents-beginning of year
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19,581 | 96,692 | ||||||
Cash and cash equivalents-end of year
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$ | 320,345 | $ | 19,581 |
See Notes to Consolidated Financial Statements
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
(Continued)
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||||||||
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||||||||
For the Years Ended,
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||||||||
December 31,
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||||||||
Supplementary Information:
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2009 | 2008 | ||||||
Cash paid during the year for:
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||||||||
Interest
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$ | 2,345 | $ | 4,080 | ||||
Income taxes
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$ | - | $ | 21,101 | ||||
Noncash contribution of assets by shareholder
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$ | 728,815 | $ | 10,870 | ||||
Changes in operating assets and liabilities consist of:
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||||||||
(Increase) decrease in accounts receivable
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$ | 86,095 | $ | (252,580 | ) | |||
Decrease in inventory
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86,505 | 64,961 | ||||||
Increase in prepaid expenses
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(19,005 | ) | - | |||||
Decrease in accounts payable and accrued expenses
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29,918 | 115,727 | ||||||
Increase in customer advances
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62,229 | (44,448 | ) | |||||
Increase in deferred revenue
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52,667 | - | ||||||
Increase (decrease) in income tax payable
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(2,438 | ) | (2,382 | ) | ||||
Net cash provided by operating activities
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$ | 295,971 | $ | (118,722 | ) | |||
Details of Acquisitions:
|
||||||||
Fair market value of assets acquired
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$ | 1,949,807 | ||||||
Liabilities assumed
|
1,047,096 | |||||||
Common stock issued
|
$ | 902,711 |
See Notes to Consolidated Financial Statements
10
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Royal Style Design, Inc. (the “Company” or “Royal Style Design”) operates primarily in four industries in two geographical areas - the United States and Europe. The Company is engaged in custom construction activities in Germany and as a wholesale distributor of electronic components in Russia, and is engaged in similar custom construction activities for the design and installation of stonework and cabinet making and millwork in custom design homes and in the retail sale of high-end contemporary works of art and jewelry in the United States. The U.S. operations also separately provide business investment consulting services to small private companies. Sales are predominantly in the United States, Russia and Germany.
Basis of Presentation
On November 20, 2009, Royal Style Design entered into a Share Exchange Agreement ("Agreement") with the stockholders of Diversified Global Holdings, Inc. a Delaware corporation, ("DGH"), providing for the acquisition by Royal Style Design of 100% of all the outstanding shares of common stock of DGH. In connection with the agreement, as of November 20, 2009, Royal Style Design issued 86,235,800 shares of its common stock to the stockholders of DGH. The issuance of these 86,235,800 shares effectively gave control of Royal Style Design to the stockholders of DGH.
For accounting purposes only, the transaction was treated as a recapitalization of DGH, as of November 20, 2009, with DGH as the acquirer. The financial statements prior to November 20, 2009 are those of DGH and reflect the assets and liabilities of DGH at historical carrying amounts. The financial statements show a retroactive restatement of DGH's historical stockholders' equity to reflect the equivalent number of shares issued to DGH.
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including businesses acquired since their respective dates of acquisition. All intercompany transactions and balances have been eliminated.
Economic and Political Risks
Two of the Company's subsidiaries, Kontakt Limited Liability Company ("Kontakt") and Fregat Limited Liability Company ("Fregat"), face a number of risks and challenges since their operations are in the Russian Federation and its primary market is in the Russian Federation. 100% of Kontakt's and Fregat's revenue are earned in the Russian Federation and 100% of Kontakt's and Fregat's assets are located in the Russian Federation. Management cannot presently predict what future impact the political risk will have on the Company, if any, or how the political climate in the Russian Federation will affect the Company’s operations. Accordingly, events resulting from any change in the political climate could have a material effect on the Company.
11
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Use of Estimates
The preparation of the financial statements in conformity with accepted 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining such items as costs to complete performance contracts, income tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts and valuation allowances. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with the ASC 605, "Revenue Recognition".
Revenue is recognized for the retail sale of contemporary works of art when title to the merchandise passes to the purchaser.
Revenue is recognized in custom construction activities such as the design and installation of stonework and cabinet making and millwork in custom design homes as each stage is completed, based on a percentage of the projected costs. There are no customer acceptance provisions in its sales contracts. The majority of the revenue has been received from developers.
Revenue from the sale of electronic components and other custom construction activities is recognized when the product has been delivered and title and risk have passed to the customer, collection of the resulting receivable is deemed reasonable assured, and the sales price is fixed and determinable. Substantially all of the shipments are FCA (free carrier) which provide for title to pass upon delivery to the customer's freight carrier.
Revenue from consulting fees is recognized when earned. Consulting fees received in advance are amortized over the life of the contract. Unearned consulting fees are recorded as deferred revenues on the Company's consolidated balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents include cash deposited in checking accounts, overnight repurchase agreements and money market funds with maturities of 90 days or less when purchased. The cash balances are held at a few institutions and may, at times, exceed insurable amounts. The Company believes it mitigates this risk by depositing cash in major financial institutions.
Accounts Receivables
Accounts receivables are recorded after title passes to the purchaser and are presented in the balance sheet net of allowances for doubtful accounts. Accounts receivables are written off when they are determined to be uncollectible. The Company receives advances from customers prior to the delivery of the products. The Company records these advance payments as Customer Advances on the Company’s consolidated balance sheet. Customer advances as of December 31, 2009 and 2008 were $485,871 and $37,871, respectively. The allowance for doubtful accounts is estimated based on the Company's historical losses, the existing economic condition in the industry, and the financial ability of its customers. For the years ended December 31, 2009 and 2008 the Company established a reserve for doubtful accounts of $39,000 and $34,000, respectively.
12
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
During the years ended December 31, 2009 and 2008 the Company wrote off receivables in the amount of $21,270 and $151,453, respectively, which is included in the general and administrative expenses in the Consolidated Statement of Operations.
Inventories
Inventories are stated at the lower of cost or market. The Company also receives goods on consignment and payment is made to the consignor when title to the merchandise passes to the purchaser.
Depreciation
Property and equipment is carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Depreciable
|
||
Asset
|
Lives
|
|
Vehicles
|
3 years
|
|
Machinery and equipment
|
5 - 7 years
|
|
Signs
|
5 years
|
|
Building and improvements
|
30 years
|
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company accounts for income taxes in accordance with the Internal Revenue Code in the United States, the Internal Income Tax Law of the Russian Federation and the Income Tax Law of the Republic of Germany. The Russian Federation subsidiaries are taxed at a rate of 24% and the Republic of Germany subsidiaries are taxed at a rate of 15%.
Business Combinations
During 2009, the Company adopted the revised accounting guidance related to business combinations. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Company implemented this new guidance effective January 1, 2009 and as a result, a total of $10,000 in acquisition related costs were charged to selling, general and administrative expenses during 2009.
13
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Goodwill
Goodwill is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company tests goodwill for impairment, and has established December 31 as the annual impairment test date, using a fair value approach at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment for which discrete financial information is available and reviewed regularly by management. Assets and liabilities of the Company have been assigned to the reporting units to the extent they are employed in or are considered a liability related to the operations of the reporting unit and are considered in determining the fair value of the reporting unit. The Company has determined that its reportable operating segments are its reporting units.
The goodwill impairment test is a two-step process. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares implied fair value of the reporting unit’s goodwill (i.e., fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets) with the carrying amount of that goodwill. If the carrying value of goodwill exceeds its implied fair value, the excess is required to be recorded as an impairment.
Evaluation of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in ASC 360-15-35. If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and notes receivable.
The Company's cash and cash equivalents are concentrated primarily in one bank in the United States and various banks in Germany and Russia. At times, such deposits could be in excess of insured limits. Management believes that the financial institution that holds the Company financial instrument is financially sound and, accordingly, minimal credit risk is believed to exist with respect to these financial instruments.
The Company grants credit to customers based on an evaluation of the customer’s financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company controls its exposure to credit risk due to normally dealing with the same contractors and receiving payment for materials prior to completion of the services.
The Company is also subject to the risk of currency fluctuations that may affect the prices paid for goods and the amounts received for revenue.
14
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Earnings Per Share
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the years ended December 31, 2009 and 2008, there were no potential shares outstanding.
Fair Value of Financial Instruments
The Company adopted ASC 820, "Fair Value Measurements and Disclosures" on January 1, 2008, for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. While the Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, no such assets or liabilities existed at the balance sheet date. As permitted by ASC 820, the Company delayed implementation of this standard for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis and adopted these provisions effective January 1, 2009.
The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of December 31, 2009, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 2 or Level 3 during the year ended December 31, 2009.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2009 and 2008.
15
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Assets at Fair Value as of December 31, 2009 and 2008 Using
|
||||||||||||||||
December 31, 2009
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 320,345 | $ | 320,345 | $ | - | $ | - | ||||||||
December 31, 2008
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 19,581 | $ | 19,581 | $ | - | $ | - |
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial liabilities with the scope of the fair value disclosure requirements as of December 31, 2009.
Non-financial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. As of December 31, 2009, there was no impairment to goodwill. The Company's interim test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date.
Foreign Currency Translation
The functional currency for foreign operations is the local currency and the United States dollar is the reporting currency.
Assets and liabilities of foreign operations are translated at exchange rates as of the balance sheet date, and income, expense and cash flow items are translated at the average exchange rate for the applicable period. Translation adjustments are recorded in Other comprehensive income (loss).
New Financial Accounting Standards
During 2009, the Company adopted the revised accounting guidance related to business combinations. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Company implemented this new guidance effective January 1, 2009.
16
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
During 2009, the Company implemented an update to the accounting guidance related to earnings per share. In accordance with this accounting guidance, unvested share-based payment awards with rights to dividends are participating securities and shall be included in the computation of basic earnings per share. The Company adopted this guidance effective January 1, 2009. This implementation did not have a material impact on prior periods presented.
The FASB has published a update to the accounting guidance on fair value measurements and disclosures as it relates to investments in certain entities that calculate net asset value per share (or its equivalent). This accounting guidance permits a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial condition or cash flows.
2. ACQUISITIONS
Effective December 31, 2009, the Company entered into three Exchange and Acquisition Agreements (the “Agreements”) for the acquisition of three companies: Fregat Ltd., a limited company formed under the laws of Russia (“Fregat”), for the acquisition of which the Company issued 203,698 shares of its common stock to the owner of all of the outstanding ownership interests in Fregat; Bauelemente Kuhn GmbH, a limited liability company formed under the laws of Germany (“Kuhn”), for the acquisition of which the Company issued 63,233 shares of its common stock to the owner of all of the outstanding ownership interests in Kuhn; and Kuechen Schilling GmbH, a limited liability company formed under the laws of Germany (“Schilling”), for the acquisition of which the Company issued 635,780 shares of its common stock to the owner of all of the outstanding ownership interests in Schilling. In connection with the Agreements, as of December 31, 2009, the Company issued an aggregate of 902,711 shares of its common stock to the owners of the three companies the Company acquired.
Each of the agreements entered into with the three companies acquired on December 31, 2009, provides the former owners to require the Company to initiate the regulatory filing process for clearance by the Securities and Exchange Commission to register the shares received by the former owners, subject to the Company's Board approval, and for the right of each former owner to repurchase ownership of the subsidiary they sold to the Company at any time in the first year following the closing date, by such former owner paying the Company the value of that subsidiary, as such value is determined by the Company's Board of Directors.
The aggregate purchase price was $902,711, the fair value of the common stock issued. The results of operations of the three companies acquired will be included in the consolidated financial statements beginning January 1, 2010. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values.
17
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
At December 31, 2009
Purchase price:
|
||||||||
Common stock issued
|
$ | 902,711 | ||||||
Total consideration
|
$ | 902,711 | ||||||
Allocation of purchase price:
|
||||||||
Cash
|
121,592 | |||||||
Accounts receivable
|
1,043,268 | |||||||
Notes receivable - related parties
|
53,573 | |||||||
Inventories
|
389,589 | |||||||
Other current assets
|
84,733 | |||||||
Property, plant and equipment
|
120,517 | |||||||
Other assets
|
86,925 | |||||||
Goodwill
|
49,610 | |||||||
Total Assets Acquired
|
1,949,807 | |||||||
Current portion of long-term debt
|
25,234 | |||||||
Accounts payable
|
500,358 | |||||||
Accrued expenses
|
135,733 | |||||||
Customer advances
|
385,771 | |||||||
Total Liabilities Assumed
|
1,047,096 | |||||||
Net Assets Acquired
|
$ | 902,711 |
The acquisitions have been accounted for using the purchase method of accounting, and accordingly, the results of operations of Fregat, Kuhn and Schilling will be included in the Company's consolidated financial statements from January 1, 2010.
The following unaudited pro forma summary of results of operations assume Fregat, Kuhn and Schilling had been acquired as of January 1, 2008:
Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Net revenue
|
$ | 5,816,992 | $ | 6,778,469 | ||||
Net earnings (loss)
|
(146,566 | ) | 107,015 | |||||
Earnings (loss) per share - diluted
|
(0.00 | ) | 0.00 |
The information above is not necessarily indicative of the results of operations if the acquisition had been consummated as of January 1, 2008. Such information should not be construed as a representation of the future results of operations of the Company.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the value assigned to the net intangible and other intangible assets with finite lives acquired in a business acquisition. Effective January 1, 2009, acquisition related costs will be recognized separately from the acquisition in accordance with ASC 805, "Business Combinations".
18
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The changes in the carrying value of goodwill for the year ended December 31, 2009 is as follows:
Total
|
||||
Balance, December 31, 2008
|
$ | - | ||
Acquired during the year ended
|
||||
December 31, 2009
|
49,610 | |||
Balance, December 31, 2009
|
$ | 49,610 |
Nonfinancial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a non recurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis.
4. PROPERTY and EQUIPMENT
Property, plant and equipment consist of furniture and equipment used in the ordinary course of business and are recorded at cost less accumulated depreciation.
December 31,
|
||||||||
2009
|
2008
|
|||||||
Machinery & equipment
|
$ | 48,430 | $ | 16,980 | ||||
Vehicles
|
147,052 | 8,051 | ||||||
Buildings and building improvements
|
1,113,268 | 110,131 | ||||||
1,308,750 | 135,162 | |||||||
Less: accumulated depreciation
|
34,828 | 19,477 | ||||||
$ | 1,273,922 | $ | 115,685 |
In November 2009, a shareholder of the Company contributed a building to the Company with a fair value of approximately $1 million in accordance with an appraisal performed by an independent third party, and related debt of approximately $271,000.
Depreciation expense for the years ended December 31, 2009 and 2008 was $15,349 and $5,846, respectively.
5. NOTES RECEIVABLE - RELATED PARTIES
A)
|
In October 2008, the Company advanced Alfa Investment Fund, a company owned by a major shareholder of the Company, $30,500. The advance is interest free. The advance was repaid in full in 2009.
|
B)
|
In connection with the acquisition of Kuhn, the Company has a receivable from a shareholder as of December 31, 2009 in the amount of $53,573. The note bears interest at 5% per anum and is due upon demand.
|
19
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
6. INVENTORIES
As of December 31, 2009 and 2008, inventory consists of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Finished goods
|
$ | 394,272 | $ | 112,176 | ||||
Work in progress
|
148,815 | - | ||||||
Raw materials
|
3,070 | - | ||||||
Advance deposits
|
99,253 | 230,150 | ||||||
$ | 645,410 | $ | 342,326 |
The Company prepays various suppliers for inventory. The deposits paid in advance are included as a component of the Company's inventory.
7. DEBT
Long-term debt consists of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Mortgage payable, interest at 10%, monthly payment
|
$ | 162,217 | $ | - | ||||
of $2,200, due June 2011, collaterized
|
||||||||
by a building and the personal guarantee
|
||||||||
of a shareholder (1)
|
||||||||
Automobile loans, interest at 0 - 5.9%, monthly payments
|
51,356 | - | ||||||
of $2,028, due December 2010 through December 2013
|
||||||||
Automobile loan, interest at 14%, monthly payment
|
13,590 | - | ||||||
of $1,224 due November 2010
|
||||||||
Automobile loan, interest at 5%, monthly payment
|
4,689 | - | ||||||
of $469 due October 2010
|
||||||||
Loan payable, interest free, due upon demand
|
6,956 | - | ||||||
238,808 | - | |||||||
Less current portion
|
211,245 | - | ||||||
$ | 27,563 | $ | - |
20
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The following table shows the maturities by year of the total amount of long-term debt as of December 31, 2009:
Year Ending December 31,
|
||||
2010
|
211,245 | |||
2011
|
21,810 | |||
2012
|
3,285 | |||
2013
|
2,468 | |||
$ | 238,808 |
(1) The mortgage is currently in default. No payments of principal or interest have been made since May 2008. The terms of the mortgage state if the mortgage is not paid, the balance shall be immediately due and payable and the mortgage may be foreclosed. As of the date of this report, no demand by the lender for payment or any foreclosure action has been taken.
8. ACCRUED EXPENSES
December 31,
|
||||||||
2009
|
2008
|
|||||||
Professional fees
|
$ | 58,659 | $ | - | ||||
Salaries
|
36,166 | - | ||||||
Taxes payable
|
62,197 | - | ||||||
Warranty
|
18,434 | - | ||||||
Other
|
45,326 | 18,179 | ||||||
$ | 220,782 | $ | 18,179 |
9. COMMON STOCK
The Company is authorized to issue 100,000,000 shares of $.001 par value common stock of which 93,638,511 shares are outstanding as of December 31, 2009.
10. INCOME TAXES
The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2008. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liabilities or equity for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability for uncertain tax positions, the Company will setup a liability for interest and penalties. The Company policy is to recognize interest and penalties related to uncertain tax positions as a component at the current provision for income taxes.
21
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The provision for income taxes consists of the following:
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Current:
|
||||||||
Federal:
|
$ | - | $ | 4,711 | ||||
Foreign:
|
18,346 | 24,714 | ||||||
18,346 | 29,425 | |||||||
Deferred:
|
||||||||
Federal:
|
- | - | ||||||
Foreign:
|
- | - | ||||||
- | - | |||||||
$ | 18,346 | $ | 29,425 |
A reconciliation of taxes on income computed at the federal stated rate to amounts provided:
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Tax computed at the federal stated
|
||||||||
rate of 34%:
|
$ | (53,343 | ) | $ | 52,552 | |||
Increase (decease) in taxes resulting from:
|
||||||||
Different tax rates and permanent
|
||||||||
differences:
|
18,346 | (23,127 | ) | |||||
Unused net operating losses
|
53,343 | - | ||||||
$ | 18,346 | $ | 29,425 |
The Company files income tax returns in all jurisdictions in which it has reason to believe it is subject to tax. The Company is subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of business of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.
22
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Components of deferred income tax assets are as follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Tax Effect
|
||||||||
Deferred Tax Asset - Current
|
||||||||
Foreign net operating loss carryforward
|
$ | 31,000 | $ | - | ||||
U.S. net operating loss carryforward
|
82,000 | 58,000 | ||||||
Valuation allowance
|
(113,000 | ) | (58,000 | ) | ||||
$ | - | $ | - |
As of December 31, 2009, the Company recorded a deferred tax asset with a foreign net operating loss ("NOL") carryforward of approximately $205,000 and U.S. net operating loss carryforward of approximately $240,000 that was fully offset by a valuation allowance due to the determination that it was more than likely that the Company would be unable to utilize those benefits in the foreseeable future. The Company's foreign NOL expires in 2015 and the U.S. NOL expires in 2025.
Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the availability of NOL carryforwards to offset taxable income when an ownership change occurs. The Company's reverse recapitalization meets the definition of an ownership change and some of the NOL's will be limited.
11. RELATED PARTY TRANSACTIONS
a)
|
A stockholder of the Company advanced the Company $5,125 during the year ended December 31, 2008 and $24,600 during the year ended December 31, 2009. The advance is interest free and due on demand. No payments have been made against the advance and the amount due the related party is $29,725 and $5,125 at December 31, 2009 and 2008, respectively.
|
b)
|
In connection with the contribution of a building to the Company by a shareholder, the Company is obligated to reimburse the shareholder for payments made by the shareholder in connection with the building. The note to the shareholder bears interest of 5% per anum and is due upon demand. As of December 31, 2009, the amount due the shareholder was $88,223.
|
c)
|
On May 1, 2009, a subsidiary of the Company entered into an investment consulting agreement with Alpha Limited, a company owned by a major shareholder of the Company. The subsidiary paid Alpha Limited $50,000 in consulting fees during the year ended December 31, 2009.
|
12. BUSINESS SEGMENT INFORMATION
FASB ASC 280-10-10 "Segment Reporting" ("ASC 280-10-10"), established standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by management. The Company is organized by geographical area and industry segment.
23
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The following financial information relating to the Company's business segments:
2009
|
2008
|
|||||||
Net sales by geographic areas:
|
||||||||
United States
|
$ | 471,764 | $ | 542,750 | ||||
Europe
|
745,796 | 1,126,080 | ||||||
$ | 1,217,560 | $ | 1,668,830 | |||||
Net sales by industry segment:
|
||||||||
Electronic components
|
$ | 745,796 | $ | 1,126,080 | ||||
Art work and jewelry
|
150,892 | 191,119 | ||||||
Construction
|
273,539 | 271,631 | ||||||
Other
|
47,333 | 80,000 | ||||||
$ | 1,217,560 | $ | 1,668,830 |
2009
|
2008
|
|||||||
(Loss) income from operations:
|
||||||||
Electronic components
|
$ | (106,811 | ) | $ | 148,423 | |||
Artwork and jewelry
|
(6,262 | ) | 2,076 | |||||
Construction
|
(39,023 | ) | (12,366 | ) | ||||
Other
|
(2,453 | ) | 20,512 | |||||
$ | (154,549 | ) | $ | 158,645 | ||||
Capital Expenditures:
|
||||||||
Electronic components
|
$ | - | $ | 90,856 | ||||
Artwork and jewelry
|
17,093 | - | ||||||
Construction
|
- | 5,099 | ||||||
Other
|
- | 1,780 | ||||||
$ | 17,093 | $ | 97,735 | |||||
Depreciation and Amortization:
|
||||||||
Electronic components
|
$ | 37 | $ | 57 | ||||
Artwork and jewelry
|
6,485 | 1,248 | ||||||
Construction
|
8,471 | 4,470 | ||||||
Other
|
356 | 71 | ||||||
$ | 15,349 | $ | 5,846 | |||||
Total Assets:
|
||||||||
United States
|
$ | 1,222,606 | $ | 54,160 | ||||
Europe
|
2,528,461 | 683,655 | ||||||
$ | 3,751,067 | $ | 737,815 |
24
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
13. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various office and warehouse facilities. The leases contain no escalation or capital improvement funding provisions. Two of the leases are to related parties. The terms of the leases vary with various leases on a month to month basis or long-term basis. Some leases contain terms as to when notices are needed to terminate the leases by either lessor or lessee.
Future minimum lease payments for operating leases are approximately as follows:
Year Ending
|
||||
December 31,
|
||||
2010
|
$ | 51,975 | ||
2011
|
- | |||
Thereafter
|
- | |||
$ | 51,975 |
Rent expense was $34,576 and $62,352 for the years ended December 31, 2009 and 2008, respectively.
14. SUBSEQUENT EVENTS
In February 2010, the Company entered into three Letters of Intent to purchase the outstanding common stock of Technostroy, LTD ("Technostroy"), Tatnefteprovodstroy, OJSC ("Tatnefteprovodstroy"), and Xerxis Consulting, LLC ("Xerxis"). Under the terms of the Letters of Intent, the companies agree to negotiate the purchase of the outstanding shares and details the conditions for the mutual exchange of information. The Company expects the due diligence process will take approximately three months.
Technostroy is a construction and logistics company located in the Romanian Federation. Tatnefteprovodstroy is a company located in the Russian Federation that constructs oil, gas and product pipelines with completed projects in the Russian Federation, China, Kuwait, Iraq and France. Xerxis formerly known as Rademacher Consulting GmbH, is a skilled labor, temporary employment agency. Xerxis recently relocated its headquarters to Orlando, Florida, and has a database of over 1,000 skilled workers.
Subsequent events have been reviewed through April 2, 2010.
25
ROYAL STYLE DESIGN, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2010
26
ROYAL STYLE DESIGN, INC.
INDEX
Page
|
|
Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 (unaudited)
|
28 |
Consolidated Statement of Operations for the Six Months
|
|
Ended June 30, 2010 and 2009 (unaudited)
|
29 |
Consolidated Statement of Stockholders' Equity for the Six Months
|
|
Ended June 30, 2009 (unaudited)
|
30 |
Consolidated Statement of Cash Flows for the Six Months
|
|
Ended June 30, 2010 and 2009 (unaudited)
|
31-32 |
Notes to Unaudited Consolidated Financial Statements
|
33-42 |
27
CONSOLIDATED BALANCE SHEETS
|
||||||||
(Unaudited)
|
||||||||
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash and cash equivalents
|
$ | 274,562 | $ | 320,345 | ||||
Accounts receivable-net of allowance of $9,000 and $39,000, respectively
|
1,202,515 | 1,172,253 | ||||||
Notes receivable - related parties
|
64,520 | 53,573 | ||||||
Inventories
|
642,964 | 645,410 | ||||||
Other current assets
|
51,007 | 148,604 | ||||||
Total Current Assets
|
2,235,568 | 2,340,185 | ||||||
Property and equipment-net
|
1,250,125 | 1,273,922 | ||||||
Goodwill
|
49,610 | 49,610 | ||||||
Other assets
|
109,542 | 87,350 | ||||||
Total Assets
|
$ | 3,644,845 | $ | 3,751,067 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Current portion of long-term debt
|
$ | 202,223 | $ | 211,245 | ||||
Accounts payable
|
911,965 | 962,352 | ||||||
Accrued expenses
|
181,848 | 220,781 | ||||||
Customer advances
|
267,088 | 485,871 | ||||||
Due to related parties
|
164,706 | 117,948 | ||||||
Deferred revenue
|
50,000 | 52,667 | ||||||
Income taxes payable
|
26,650 | 2,273 | ||||||
Total Current Liabilities
|
1,804,480 | 2,053,137 | ||||||
Long-term Liabilities:
|
||||||||
Long-term debt-less current portion above
|
35,958 | 27,563 | ||||||
Total Liabilities
|
1,840,438 | 2,080,700 | ||||||
Commitments & Contingencies
|
- | - | ||||||
Stockholders' Equity:
|
||||||||
Common Stock, $.001 par value; authorized 100,000,000 shares:
|
||||||||
93,638,511 and 93,638,511 shares issued and outstanding at
|
||||||||
June 30, 2010 and December 31, 2009, respectively
|
93,638 | 93,638 | ||||||
Additional paid-in capital
|
1,716,579 | 1,716,579 | ||||||
Retained earnings (deficit)
|
98,699 | (97,668 | ) | |||||
Accumulated other comprehensive loss
|
(104,509 | ) | (42,182 | ) | ||||
Total Stockholders' Equity
|
1,804,407 | 1,670,367 | ||||||
Total Liabilities and
|
||||||||
Stockholders' Equity
|
$ | 3,644,845 | $ | 3,751,067 |
See notes to unaudited consolidated financial statements
28
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Six Months Ended June 30,
|
Three Months Ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net sales:
|
||||||||||||||||
Revenue
|
$ | 2,895,209 | $ | 602,020 | $ | 1,523,309 | $ | 390,465 | ||||||||
Cost and expenses:
|
||||||||||||||||
Cost of sales
|
1,912,254 | 369,902 | 969,802 | 250,454 | ||||||||||||
General and administrative
|
735,910 | 341,672 | 394,111 | 122,377 | ||||||||||||
2,648,164 | 711,574 | 1,363,913 | 372,831 | |||||||||||||
Income (loss) from operations
|
247,045 | (109,554 | ) | 159,396 | 17,634 | |||||||||||
Other income (expense):
|
||||||||||||||||
Other income
|
10,809 | - | 801 | - | ||||||||||||
Interest expense
|
(11,218 | ) | (2,000 | ) | (5,067 | ) | (937 | ) | ||||||||
(409 | ) | (2,000 | ) | (4,266 | ) | (937 | ) | |||||||||
Earnings (loss) earnings before provision for income taxes
|
246,636 | (111,554 | ) | 155,130 | 16,697 | |||||||||||
Provision for income taxes
|
50,269 | 13,232 | 23,078 | 15,760 | ||||||||||||
Net earnings (loss)
|
$ | 196,367 | $ | (124,786 | ) | $ | 132,052 | $ | 937 | |||||||
Earnings (loss) earnings per common share - basic and diluted
|
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||
Weighted average number of common shares
|
||||||||||||||||
outstanding - basic and diluted
|
93,638,511 | 86,235,800 | 93,638,511 | 86,235,800 |
See notes to unaudited consolidated financial statements
29
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||||||
Additional
|
Retained
|
Accumulated
|
||||||||||||||||||||||||||
Common Stock
|
Paid-in
|
Earnings
|
Other Comprehensive
|
Comprehensive
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
(Deficit)
|
Income (Loss)
|
Income (Loss)
|
Total
|
||||||||||||||||||||||
Balance, January 1, 2009
|
86,235,800 | $ | 86,235 | $ | (72,886 | ) | $ | 242,914 | $ | (34,942 | ) | $ | 221,321 | |||||||||||||||
Assets contributed by shareholders
|
728,815 | 728,815 | ||||||||||||||||||||||||||
Effect of reverse acquisition
|
6,500,000 | 6,500 | 158,842 | (165,342 | ) | - | ||||||||||||||||||||||
Foreign currency adjustment
|
(7,240 | ) | $ | (7,240 | ) | (7,240 | ) | |||||||||||||||||||||
Issuance of common stock for acquisitions
|
902,711 | 903 | 901,808 | - | - | 902,711 | ||||||||||||||||||||||
Net (loss)
|
(175,240 | ) | (175,240 | ) | (175,240 | ) | ||||||||||||||||||||||
Comprehensive loss
|
$ | (182,480 | ) | |||||||||||||||||||||||||
Balance, December 31, 2009
|
93,638,511 | 93,638 | 1,716,579 | (97,668 | ) | (42,182 | ) | 1,670,367 | ||||||||||||||||||||
Foreign currency adjustment
|
(62,327 | ) | $ | (62,327 | ) | (62,327 | ) | |||||||||||||||||||||
Net income
|
196,367 | 196,367 | 196,367 | |||||||||||||||||||||||||
Comprehensive income
|
$ | 134,040 | ||||||||||||||||||||||||||
Balance, June 30, 2010
|
93,638,511 | $ | 93,638 | $ | 1,716,579 | $ | 98,699 | $ | (104,509 | ) | $ | 1,804,407 |
See notes to unaudited consolidated financial statements
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(Unaudited)
|
||||||||
|
For the Six Months Ended
|
|||||||
June 30,
|
||||||||
2010
|
2009
|
|||||||
Cash flows from operating activities:
|
||||||||
Net (loss) earnings
|
$ | 196,367 | $ | (124,786 | ) | |||
Adjustments to reconcile net (loss) earnings to net cash
|
||||||||
provided by operating activities:
|
||||||||
Depreciation and amortization
|
47,290 | 5,700 | ||||||
Changes in operating assets and liabilities
|
(220,094 | ) | 167,446 | |||||
Net cash (used in) provided by operating activities
|
23,563 | 48,360 | ||||||
Cash flows from investing activities:
|
||||||||
Advances on note receivable
|
(10,947 | ) | - | |||||
Purchase of property and equipment
|
(85,990 | ) | (20,677 | ) | ||||
Net cash (used in) investing activities
|
(96,937 | ) | (20,677 | ) | ||||
Cash flows from financing activities:
|
||||||||
Payments on debt
|
(27,392 | ) | - | |||||
Proceeds from loans
|
26,765 | 12,092 | ||||||
Proceeds from advances from related party
|
69,062 | 26,200 | ||||||
Repayments to related party
|
(22,304 | ) | - | |||||
Net cash provided by financing activities
|
46,131 | 38,292 | ||||||
Effect of exchange rate changes on cash
|
(18,540 | ) | - | |||||
Net increase (decrease) in cash and cash equivalents
|
(45,783 | ) | 65,975 | |||||
Cash and cash equivalents-beginning of period
|
320,345 | 19,581 | ||||||
Cash and cash equivalents-end of period
|
$ | 274,562 | $ | 85,556 |
See notes to unaudited consolidated financial statements
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(Unaudited)
|
||||||||
Continued
|
||||||||
|
For the Six Months Ended
|
|||||||
June 30,
|
||||||||
2010
|
2009
|
|||||||
Supplementary Information:
|
||||||||
Cash paid during the year for:
|
||||||||
Interest
|
$ | 14,292 | $ | 2,000 | ||||
Income taxes
|
$ | 25,892 | $ | - | ||||
Changes in operating assets and liabilities consist of:
|
||||||||
(Increase) decrease in accounts receivable
|
$ | (106,152 | ) | $ | 117,957 | |||
Decrease in inventory
|
2,446 | 153,096 | ||||||
Decrease in other current assets
|
97,597 | 3,150 | ||||||
(Increase) in other assets
|
(22,192 | ) | (1,781 | ) | ||||
(Decrease) in accounts payable and accrued expenses
|
(12,320 | ) | (157,444 | ) | ||||
Increase (decrease) in customer advances
|
(201,183 | ) | 51,810 | |||||
(Decrease) in deferred revenue
|
(2,667 | ) | - | |||||
Increase in income tax payable
|
24,377 | 658 | ||||||
|
$ | (220,094 | ) | $ | 167,446 |
See notes to unaudited consolidated financial statements
32
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
1.
|
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
The consolidated balance sheet as of June 30, 2010 and the consolidated statements of operations, stockholders' equity and cash flows for the periods presented have been prepared by Royal Style Design, Inc. (the "Company" or "RSD") and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2009 were derived from audited financial statements.
Organization
Royal Style Design, Inc. (the “Company” or “Royal Style Design”) operates primarily in four industries in two geographical areas - the United States and Europe. The Company is engaged in custom construction activities in Germany and as a wholesale distributor of electronic components in Russia, and is engaged in similar custom construction activities for the design and installation of stonework and cabinet making and millwork in commercial construction projects and custom design homes and in the retail sale of high-end contemporary works of art and jewelry in the United States. The U.S. operations also separately provide business consulting services to small private companies. Sales are predominantly in the United States, Russia and Germany.
Basis of Presentation
On November 20, 2009, Royal Style Design entered into a Share Exchange Agreement ("Agreement") with the stockholders of Diversified Global Holdings, Inc. a Delaware corporation, ("DGH"), providing for the acquisition by Royal Style Design of 100% of all the outstanding shares of common stock of DGH. In connection with the agreement, as of November 20, 2009, Royal Style Design issued 86,235,800 shares of its common stock to the stockholders of DGH. The issuance of these 86,235,800 shares effectively gave control of Royal Style Design to the stockholders of DGH.
For accounting purposes only, the transaction was treated as a recapitalization of DGH, as of November 20, 2009, with DGH as the acquirer. The financial statements prior to November 20, 2009 are those of DGH and reflect the assets and liabilities of DGH at historical carrying amounts. The financial statements show a retroactive restatement of DGH's historical stockholders' equity to reflect the equivalent number of shares issued to DGH.
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Reporting and Functional Currency
The Company has determined that the United States dollar (“USD”) is the reporting currency for the purposes of financial reporting under United States Generally Accepted Accounting Principles.
The local currency and the functional currency of the foreign subsidiaries of the Company is the Russian Ruble (“RUR”) and European Euro ("Euro").
33
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
Any conversion of RUR and Euro amounts to USD should not be construed as a representation that such RUR and Euro amounts have been, could be, or will in the future be converted into USD at the current exchange rate or at any other exchange rate.
Recent Accounting Pronouncements
The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. There were no significant changes to these accounting policies during the six months ended June 30, 2010 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
2.
|
EARNINGS PER SHARE
|
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the period ended June 30, 2010 and 2009, there were no potential shares outstanding.
3.
|
ACQUISITIONS
|
Effective December 31, 2009, the Company entered into three Exchange and Acquisition Agreements (the “Agreements”) for the acquisition of three companies: Fregat Ltd., a limited company formed under the laws of Russia (“Fregat”), for the acquisition of which the Company issued 203,698 shares of its common stock to the owner of all of the outstanding ownership interests in Fregat; Bauelemente Kuhn GmbH, a limited liability company formed under the laws of Germany (“Kuhn”), for the acquisition of which the Company issued 63,233 shares of its common stock to the owner of all of the outstanding ownership interests in Kuhn; and Kuechen Schilling GmbH, a limited liability company formed under the laws of Germany (“Schilling”), for the acquisition of which the Company issued 635,780 shares of its common stock to the owner of all of the outstanding ownership interests in Schilling. In connection with the Agreements, as of December 31, 2009, the Company issued an aggregate of 902,711 shares of its common stock to the owners of the three companies the Company acquired.
Each of the agreements entered into with the three companies acquired on December 31, 2009, provides the former owners to require the Company to initiate the regulatory filing process for clearance by the Securities and Exchange Commission, to register the shares received by the former owners, subject to the Company's Board approval, and for the right of each former owner to repurchase ownership of the subsidiary they sold to the Company at any time in the first year following the closing date, by such former owner paying the Company the value of that subsidiary, as such value is determined by the Company's Board of Directors.
The aggregate purchase price was $902,711, the fair value of the common stock issued. The results of operations of the three companies acquired will be included in the consolidated financial statements beginning January 1, 2010. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values.
34
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
At December 31, 2009
Purchase price:
|
||||||||
Common stock issued
|
$ | 902,711 | ||||||
Total consideration
|
$ | 902,711 | ||||||
Allocation of purchase price:
|
||||||||
Cash
|
121,592 | |||||||
Accounts receivable
|
1,043,268 | |||||||
Notes receivable - related parties
|
53,573 | |||||||
Inventories
|
389,589 | |||||||
Other current assets
|
84,733 | |||||||
Property, plant and equipment
|
120,517 | |||||||
Other assets
|
86,925 | |||||||
Goodwill
|
49,610 | |||||||
Total Assets Acquired
|
1,949,807 | |||||||
Current portion of long-term debt
|
25,234 | |||||||
Accounts payable
|
500,358 | |||||||
Accrued expenses
|
135,733 | |||||||
Customer advances
|
385,771 | |||||||
Total Liabilities Assumed
|
1,047,096 | |||||||
Net Assets Acquired
|
$ | 902,711 |
The acquisitions have been accounted for using the purchase method of accounting, and accordingly, the results of operations of Fregat, Kuhn and Schilling will be included in the Company's consolidated financial statements from January 1, 2010.
The following unaudited pro forma summary of results of operations assume Fregat, Kuhn and Schilling had been acquired as of January 1, 2009:
Six Months Ended
|
||||
June 30,
|
||||
2009
|
||||
Net revenue
|
$ | 3,055,136 | ||
Net loss
|
(118,403 | ) | ||
Earnings (loss) per share - diluted
|
(0.00 | ) |
The information above is not necessarily indicative of the results of operations if the acquisition had been consummated as of January 1, 2009. Such information should not be construed as a representation of the future results of operations of the Company.
35
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
4.
|
FAIR VALUE MEASUREMENT
|
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 - Observable inputs such as quoted market prices in active markets
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
As of June 30, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2010 and 2009.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of June 30, 2010 and December 31, 2009.
Assets at Fair Value as of June 30, 2010 and
|
||||||||||||||||
December 31, 2009 Using
|
||||||||||||||||
June 30, 2010
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 274,562 | $ | 274,562 | $ | - | $ | - | ||||||||
December 31, 2009
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 320,345 | $ | 320,345 | $ | - | $ | - |
36
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of June 30, 2010.
Non-financial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. As of June 30, 2010, there was no impairment to goodwill. The Company's interim test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date. There were no triggering events that occurred during the six months ended June 30, 2010 that would warrant interim impairment testing.
5.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Goodwill represents the excess of the purchase price over the value assigned to the net intangible and other intangible assets with finite lives acquired in a business acquisition. Effective January 1, 2009, acquisition related costs will be recognized separately from the acquisition in accordance with ASC 805, "Business Combinations".
The changes in the carrying value of goodwill for the six months ended June 30, 2010 is as follows:
Total
|
||||
Balance, December 31, 2009
|
$ | 49,610 | ||
Adjustments
|
- | |||
Balance, June 30, 2010
|
$ | 49,610 |
Nonfinancial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a non recurring basis. These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill, on at least an annual basis.
6.
|
PROPERTY and EQUIPMENT
|
Property, plant and equipment consist of furniture and equipment used in the ordinary course of business and are recorded at cost less accumulated depreciation.
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Machinery & equipment
|
$ | 160,566 | $ | 48,430 | ||||
Vehicles
|
147,052 | 147,052 | ||||||
Buildings and building improvements
|
1,022,093 | 1,113,268 | ||||||
Land
|
2,532 | - | ||||||
1,332,243 | 1,308,750 | |||||||
Less: accumulated depreciation
|
82,118 | 34,828 | ||||||
$ | 1,250,125 | $ | 1,273,922 |
37
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
In November 2009, a shareholder of the Company contributed a building to the Company with a fair value of approximately $1 million in accordance with an appraisal performed by an independent third party, and related debt of approximately $271,000.
In June 2010, the Company sold a building in Kazan, Russia for approximately $95,000. For the six months ended June 30, 2010, the Company recorded a gain on the sale of approximately $9,200, which is included in other income on the Company's consolidated statement of operations. The proceeds from the sale are included in accounts receivable on the Company's consolidated balance sheet as of June 30, 2010.
Depreciation expense for the six months ended June 30, 2010 and 2009 was $47,290 and $5,700, respectively.
7.
|
NOTES RECEIVABLE - RELATED PARTIES
|
In connection with the acquisition of Kuhn, the Company has a receivable from a shareholder as of June 30, 2010 and December 31, 2009 in the amount of $64,520 and $53,573, respectively. The note bears interest at 5% per anum and is due upon demand. Interest income for the six months ended June 30, 2010 and 2009 was $1,620 and $-0-, respectively.
8.
|
INVENTORIES
|
As of June 30, 2010 and December 31, 2009, inventory consists of the following:
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Finished goods
|
$ | 356,437 | $ | 394,272 | ||||
Work in progress
|
73,910 | 148,815 | ||||||
Raw materials
|
- | 3,070 | ||||||
Advance deposits
|
212,617 | 99,253 | ||||||
$ | 642,964 | $ | 645,410 |
The Company prepays various suppliers for inventory. The deposits paid in advance are included as a component of the Company's inventory.
38
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
9.
|
DEBT
|
Long-term debt consists of the following:
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Mortgage payable, interest at 10% per anum, monthly payment
|
$ | 162,217 | $ | 162,217 | ||||
of $2,200, due June 2011, collaterized
|
||||||||
by a building and the personal guarantee
|
||||||||
of a shareholder (1)
|
||||||||
Automobile loans, interest at 0 - 5.9% per anum, monthly payments
|
42,317 | 51,356 | ||||||
of $2,028, due December 2010 through December 2013
|
||||||||
Automobile loan, interest at 14% per anum, monthly payment
|
5,279 | 13,590 | ||||||
of $1,224 due November 2010
|
||||||||
Automobile loan, interest at 5% per anum, monthly payment
|
1,603 | 4,689 | ||||||
of $469 due October 2010
|
||||||||
Loan payable, interest at 15% per anum, due November 2011
|
9,617 | - | ||||||
Loan payable, interest free, due upon demand
|
17,148 | 6,956 | ||||||
238,181 | 238,808 | |||||||
Less current portion
|
202,223 | 211,245 | ||||||
$ | 35,958 | $ | 27,563 |
(1)The mortgage is currently in default. No payments of principal have been made since May 2008 and current interest payments are past due. The terms of the mortgage state if the mortgage is not paid, the balance shall be immediately due and payable and the mortgage may be foreclosed. As of the date of this report, no demand by the lender for payment or any foreclosure action has been taken.
The following table shows the maturities by year of the total amount of long-term debt as of December 31, 2009:
Year Ending December 31,
|
||||
2010
|
$ | 201,001 | ||
2011
|
31,427 | |||
2012
|
3,285 | |||
2013
|
2,468 | |||
$ | 238,181 |
39
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
Interest expense for the six months ended June 30, 2010 and 2009 was $9,345 and $2,000, respectively.
10.
|
ACCRUED EXPENSES
|
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Professional fees
|
$ | 37,375 | $ | 58,659 | ||||
Salaries
|
37,702 | 36,166 | ||||||
Taxes payable
|
26,996 | 62,197 | ||||||
Warranty
|
15,852 | 18,434 | ||||||
Interest
|
22,690 | 25,764 | ||||||
Other
|
41,233 | 19,561 | ||||||
$ | 181,848 | $ | 220,781 |
11.
|
COMMON STOCK
|
The Company is authorized to issue 100,000,000 shares of $.001 par value common stock of which 93,638,511 shares are outstanding as of June 30, 2010.
On August 5, 2010, three major shareholders of the Company each contributed 13,000,000 shares owned by them (for a total of 39,000,000 shares) to the capital of the Company. Following the acceptance of the 39,000,000 shares of common stock so reacquired by the Company as a contribution to capital by these three shareholders, under the Florida Business Corporation Act, such shares constituted authorized but unissued shares of common stock of the Company.
On August 5, 2010, the completed three acquisitions (see Note 16, "Subsequent Events") and issued 32,630,159 common shares of the Company in connection with these acquisitions.
As of August 5, 2010, there are currently 87,267,670 shares of common stock outstanding.
12.
|
INCOME TAXES
|
The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2008. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liabilities or equity for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability for uncertain tax positions, the Company will setup a liability for interest and penalties. The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
As of June 30, 2010, the Company recorded a deferred tax asset with a foreign net operating loss ("NOL") carryforward of approximately $68,000 and U.S. net operating loss carryforward of approximately $168,000 that was fully offset by a valuation allowance due to the determination that it was more than likely that the Company would be unable to utilize those benefits in the foreseeable future. The Company's foreign NOL expires in 2015 and the U.S. NOL expires in 2025.
40
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the availability of NOL carryforwards to offset taxable income when an ownership change occurs. The Company's reverse recapitalization meets the definition of an ownership change and some of the NOL's will be limited.
13.
|
RELATED PARTY TRANSACTIONS
|
a)
|
A stockholder of the Company advanced the Company $29,725 during the years ended December 31, 2008 and 2009 and $69,062 during the six months ended June 30, 2010. The advance is interest free and due on demand. No payments have been made against the advance and the amount due the related party is $98,787 and $29,725 at June 30, 2010 and December 31, 2009, respectively.
|
b)
|
In connection with the contribution of a building to the Company by a shareholder, the Company is obligated to reimburse the shareholder for payments made by the shareholder in connection with the building. The note to the shareholder bears interest of 5% per anum and is due upon demand. As of June 30, 2010 and December 31, 2009, the amount due the shareholder was $65,619 and $88,223, respectively. Interest expense for the six months ended June 30, 2010 and 2009 was $1,873 and $-0-, respectively.
|
14.
|
BUSINESS SEGMENT INFORMATION
|
FASB ASC 280-10-10 "Segment Reporting" ("ASC 280-10-10"), established standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by management. The Company is organized by geographical area and industry segment.
The following financial information relating to the Company's business segments:
41
ROYAL STYLE DESIGN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
Six Months Ended
|
Three Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net sales by geographic areas:
|
||||||||||||||||
United States
|
$ | 511,701 | $ | 269,763 | $ | 339,538 | $ | 145,428 | ||||||||
Europe
|
2,383,508 | 332,257 | 1,183,771 | 245,037 | ||||||||||||
$ | 2,895,209 | $ | 602,020 | $ | 1,523,309 | $ | 390,465 | |||||||||
Net sales by industry segment:
|
||||||||||||||||
Electronic components
|
$ | 477,804 | $ | 332,257 | $ | 214,574 | $ | 245,037 | ||||||||
Art work and jewelry
|
108,479 | 93,159 | 43,916 | 33,953 | ||||||||||||
Construction
|
2,206,259 | 176,604 | 1,214,819 | 111,475 | ||||||||||||
Other
|
102,667 | - | 50,000 | - | ||||||||||||
$ | 2,895,209 | $ | 602,020 | $ | 1,523,309 | $ | 390,465 | |||||||||
Income (loss) from operations:
|
||||||||||||||||
Electronic components
|
$ | 49,023 | $ | (115,221 | ) | $ | 10,387 | $ | 17,634 | |||||||
Artwork and jewelry
|
15,435 | 4,735 | 9,195 | 515 | ||||||||||||
Construction
|
188,063 | 15,025 | 155,708 | 9,122 | ||||||||||||
Other
|
(5,476 | ) | (14,093 | ) | (15,894 | ) | (9,637 | ) | ||||||||
$ | 247,045 | $ | (109,554 | ) | $ | 159,396 | $ | 17,634 | ||||||||
Total Assets: (as at)
|
June 30, 2010
|
December 31, 2009
|
||||||||||||||
United States
|
$ | 1,281,356 | $ | 1,222,606 | ||||||||||||
Europe
|
$ | 2,363,489 | 2,528,461 | |||||||||||||
$ | 3,644,845 | $ | 3,751,067 |
15.
|
COMMITMENTS AND CONTINGENCIES
|
In February 2010 and April 2010, the Company entered into two letters of intent to purchase the outstanding common stock of Tatnefteprovodstroy, OJSC and up to 48% of the outstanding equity of Yachtsman Properties, LLC. Under the terms of the Letters of Intent, the Company agreed to negotiate the purchase of the outstanding shares and detailed the conditions for the mutual exchange of information. The due diligence process has expired and the Letters of Intent have been terminated.
16.
|
SUBSEQUENT EVENTS
|
On August 5, 2010, the Company completed the acquisitions to purchase 100% of the outstanding ownership interests of Technostroy, Ltd, ("Technostroy"), Xerxis Consulting LLC ("Xerxis") and OOO PSO Kazannefthiminvest Ltd ("KNHI"). The Company issued 344,944 shares of its common stock to Technostroy, 25,215 shares of its common stock to Xerxis and 32,260,000 shares of its common stock to KNHI.
Technostroy, a limited liability company formed under the laws of the Russian Federation, is a construction and logistics company. Xerxis, formerly known as Rademacher Consulting GmbH, is a Florida limited liability company doing business as a skilled labor, temporary employment agency. Xerxis recently relocated its headquarters in Orlando, Florida, and has a database of over 1,000 skilled workers. KNHI, a limited liability company formed under the laws of the Russian Federation, is a construction company doing business within the Russian Federation.
Management has evaluated subsequent events through August 12, 2010 which is the date the financial statements were issued.
42
XERXIS CONSULTING LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2009
43
XERXIS CONSULTING LLC
INDEX
|
Page
|
Report from Independent Registered Public Accounting Firm
|
45 |
Balance Sheet as of December 31, 2009
|
46 |
Statement of Operations for the Year Ended
|
|
December 31, 2009
|
47 |
Statement of Member's Equity for the
|
|
Year Ended December 31, 2009
|
48 |
Statement of Cash Flows for the Year
|
|
Ended December 31, 2009
|
49 |
Notes to Financial Statements
|
50-55 |
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Xerxis Consulting, LLC
Orlando. Florida
We have audited the accompanying balance sheet of Xerxis Consulting, LLC (collectively, the “Company”) as of December 31, 2009, and the related statements of operations, member's equity and cash flows for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2009 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Madsen & Associates, CPA’s Inc.
Madsen & Associates, CPA's Inc.
June 2, 2010
45
XERXIS CONSULTING L.L.C.
|
||||
BALANCE SHEET
|
||||
DECEMBER 31, 2009
|
||||
December 31,
|
||||
2009
|
||||
ASSETS
|
||||
Current Assets:
|
||||
Cash
|
$ | 28,677 | ||
Accounts receivable - less allowance for
|
||||
doubtful accounts of -0-
|
10,078 | |||
Prepaid expenses
|
2,875 | |||
Other current assets
|
1,709 | |||
Total Current Assets
|
43,339 | |||
Property and equipment - net
|
7,750 | |||
Other assets
|
1,973 | |||
TOTAL ASSETS
|
$ | 53,062 | ||
LIABILITIES AND MEMBER'S EQUITY
|
||||
Current Liabilities:
|
||||
Accrued expenses
|
4,003 | |||
Income taxes payable
|
21,438 | |||
Total Current Liabilities
|
25,441 | |||
Commitments and Contingencies
|
- | |||
Member's Equity
|
27,621 | |||
TOTAL LIABILITIES AND MEMBER'S EQUITY
|
53,062 |
46
XERXIS CONSULTING L.L.C.
|
||||
STATEMENT OF OPERATIONS
|
||||
|
||||
Year Ended
|
||||
December 31,
|
||||
2009
|
||||
Revenues:
|
||||
Net sales
|
$ | 194,162 | ||
Costs and expenses:
|
||||
General and administrative expenses
|
146,442 | |||
Selling expenses
|
19,840 | |||
166,282 | ||||
Income from operations
|
27,880 | |||
Other income (expense):
|
||||
Other income
|
334 | |||
Earnings before provision for
|
||||
income taxes
|
28,214 | |||
Provision for income taxes
|
17,457 | |||
Net earnings
|
$ | 10,757 |
47
XERXIS CONSULTING L.L.C.
|
||||||||||||||||
STATEMENT OF MEMBER'S EQUITY
|
||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2009
|
||||||||||||||||
Accumulated
|
||||||||||||||||
Other
|
||||||||||||||||
Members'
|
Retained
|
Comprehensive
|
||||||||||||||
Capital
|
Earnings
|
Income
|
Total
|
|||||||||||||
Balance, January 1, 2008
|
$ | - | $ | 11,175 | $ | - | $ | 11,175 | ||||||||
Net earnings
|
10,757 | 10,757 | ||||||||||||||
Currency translation adjustment
|
5,689 | 5,689 | ||||||||||||||
Balance, December 31, 2009
|
$ | - | $ | 21,932 | $ | 5,689 | $ | 27,621 |
48
XERXIS CONSULTING L.L.C
|
||||
STATEMENT OF CASH FLOWS
|
||||
Year Ended
|
||||
December 31,
|
||||
2009
|
||||
Cash flows from operating activities:
|
||||
Net earnings
|
$ | 10,757 | ||
Adjustments to reconcile net
|
||||
earnings to net cash used in operating activities:
|
||||
Depreciation
|
1,789 | |||
Changes in operating assets and liabilities:
|
||||
Increase in accounts receivable
|
(1,351 | ) | ||
Increase in other current assets
|
(1,545 | ) | ||
Decrease in prepaid expenses
|
1,960 | |||
Increase in other assets
|
(142 | ) | ||
Increase in other current liabilities
|
2,528 | |||
Increase in income taxes payable
|
20,438 | |||
Net Cash Provided by Operating Activities
|
34,434 | |||
Cash flows from investing activities:
|
||||
Capital expenditures
|
(7,340 | ) | ||
Effect of exchange rate changes on cash
|
(150 | ) | ||
Net increase in cash
|
26,944 | |||
Cash - beginning of year
|
1,733 | |||
Cash - end of year
|
$ | 28,677 | ||
Supplementary information:
|
||||
Cash paid during the period for:
|
||||
Interest
|
$ | - | ||
Income Taxes
|
$ | - |
49
XERXIS CONSULTING LLC
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
1.
|
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Xerxis Consulting LLC (the “Company” or “Xerxis”), is a skilled labor, temporary employment agency with a database of over 1,000 skilled workers. For the year ended December 31, 2009, the Company conducted its operations in the Republic of Germany as Rademacher Consulting GmbH.
In December 2009, Marcus Rademacher, the sole member of Rademacher Consulting, GmbH, acquired Schultz & Ott, LLC, a United States entity. In January 2010, Schultz & Ott, LLC changed its name to Xerxis Consulting LLC and began operations in the United States. Rademacher Consulting GmbH transferred all its existing contracts to Xerxis and all world-wide operations in 2010 are operated under Xerxis Consulting LLC, a Florida limited liability company.
Basis of Presentation
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with accepted 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining such items as costs to complete performance contracts, income tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts and valuation allowances. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with the ASC 605, "Revenue Recognition".
Revenue from consulting services are recognized when earned. Consulting services received in advance are amortized over the life of the contract. Unearned consulting services are recorded as deferred revenues on the Company's balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents include cash deposited in checking accounts, overnight repurchase agreements and money market funds with maturities of 90 days or less when purchased. The cash balances are held at a few institutions and may, at times, exceed insurable amounts. The Company believes it mitigates this risk by depositing cash in major financial institutions.
Accounts Receivables
Accounts receivables are recorded after consulting services are performed and are presented in the balance sheet net of allowances for doubtful accounts. Accounts receivables are written off when they are determined to be uncollectible. The allowance for doubtful accounts is estimated based on the Company's historical losses, the existing economic condition in the industry, and the financial ability of its customers. For the year ended December 31, 2009, the Company established no reserves.
50
During the year ended December 31, 2009, the Company recorded no bad debt expense.
Depreciation
Property and equipment is carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Depreciable
|
||
Asset
|
Lives
|
|
Machinery and equipment
|
5 years
|
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company accounts for income taxes in accordance with the I Income Tax Law of the Republic of Germany at a rate of 15%.
Evaluation of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in ASC 360-15-35. If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company's cash and cash equivalents are concentrated primarily in one bank in Germany. At times, such deposits could be in excess of insured limits. Management believes that the financial institution that holds the Company financial instrument is financially sound and, accordingly, minimal credit risk is believed to exist with respect to these financial instruments.
The Company grants credit to customers based on an evaluation of the customer’s financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company controls its exposure to credit risk due to normally dealing with the same companies.
The Company is also subject to the risk of currency fluctuations that may affect the prices paid for goods and the amounts received for revenue.
51
Fair Value Measurements
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 - Observable inputs such as quoted market prices in active markets
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
As of December 31, 2009, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 2 or Level 3 during the year ended December 31, 2009.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2009.
Assets at Fair Value as of December 31, 2009 Using
|
||||||||||||||||
December 31, 2009
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 28,677 | $ | 28,677 | $ | - | $ | - |
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of December 31, 2009.
Foreign Currency Translation
The functional currency for foreign operations is the local currency and the United States dollar is the reporting currency.
Assets and liabilities of foreign operations are translated at exchange rates as of the balance sheet date, and income, expense and cash flow items are translated at the average exchange rate for the applicable period. Translation adjustments are recorded in other comprehensive income (loss).
52
New Financial Accounting Standards
During 2009, the Company adopted the revised accounting guidance related to business combinations. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Company implemented this new guidance effective January 1, 2009.
During 2009, the Company implemented an update to the accounting guidance related to earnings per share. In accordance with this accounting guidance, unvested share-based payment awards with rights to dividends are participating securities and shall be included in the computation of basic earnings per share. The Company adopted this guidance effective January 1, 2009. This implementation did not have a material impact on prior periods presented.
The FASB has published a update to the accounting guidance on fair value measurements and disclosures as it relates to investments in certain entities that calculate net asset value per share (or its equivalent). This accounting guidance permits a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial condition or cash flows.
|
2.
|
PROPERTY and EQUIPMENT
|
Property, plant and equipment consist of furniture and equipment used in the ordinary course of business and are recorded at cost less accumulated depreciation.
|
December 31,
|
|||
2009
|
||||
Machinery & equipment
|
$ | 10,155 | ||
Less: accumulated depreciation
|
2,405 | |||
$ | 7,750 |
Depreciation expense for the year ended December 31, 2009 was $1,789.
|
3.
|
ACCRUED EXPENSES
|
December 31,
|
||||
2009
|
||||
Professional fees
|
$ | 4,003 | ||
Other
|
- | |||
$ | 4,003 |
4. INCOME TAXES
The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2008. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liabilities or equity for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability for uncertain tax positions, the Company will record a liability for interest and penalties. The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
53
The provision for income taxes consists of the following:
For the Year Ended
|
||||
December 31,
|
||||
2009
|
||||
Current:
|
||||
Federal:
|
$ | - | ||
Foreign:
|
17,457 | |||
17,457 | ||||
Deferred:
|
||||
Federal:
|
- | |||
Foreign:
|
- | |||
- | ||||
$ | 17,457 |
A reconciliation of taxes on income computed at the federal stated rate to amounts
provided:
For the Year Ended
|
||||
December 31,
|
||||
2009
|
||||
Tax computed at the federal stated
|
||||
rate of 34%:
|
$ | 9,593 | ||
Increase (decease) in taxes resulting from:
|
||||
Different tax rates and permanent
|
||||
differences:
|
7,864 | |||
$ | 17,457 |
The Company files income tax returns in all jurisdictions in which it has reason to believe it is subject to tax. The Company is subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of business of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.
54
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office facilities. The lease contains no escalation or capital improvement funding provisions. The Company leases 540 square feet of office space with the lease expiring in August 2010. This lease requires the Company to pay certain executory costs (such as maintenance and insurance). The company does not plan on renewing the lease.
Future minimum lease payments for operating leases are approximately as follows:
Year Ending
|
||||
December 31,
|
||||
2010
|
$ | 4,485 | ||
2011
|
- | |||
Thereafter
|
- | |||
$ | 4,485 |
Rent expense was $5,670 for the year ended December 31, 2009.
6. SUBSEQUENT EVENTS
In February 2010, the Company entered into a Letter of Intent with Royal Style Design, Inc. Under the terms of the Letter of Intent, Xerxis agrees to negotiate the purchase of its outstanding shares by Royal Style Design, Inc. and details the conditions for the mutual exchange of information. Xerxis expects the due diligence process will take approximately four months.
Subsequent events have been reviewed through June 3, 2010, which is the date that these financial statements were filed.
55
XERXIS CONSULTING LLC
FINANCIAL STATEMENTS
JUNE 30, 2010
56
XERXIS CONSULTING LLC
INDEX
Page
|
|
Balance Sheet as of June 30, 2010
|
58
|
Statement of Operations for the Six Months Ended
|
|
June 30, 2010
|
59
|
Statement of Member's Equity for the
|
|
Period Ended June 30, 2010
|
60
|
Statement of Cash Flows for the Six Months Ended
|
|
June 30, 2010
|
61
|
Notes to Unaudited Financial Statements
|
62
|
57
XERXIS CONSULTING L.L.C.
|
||||
BALANCE SHEET
|
||||
(Unaudited)
|
||||
June 30
|
||||
2010
|
||||
ASSETS
|
||||
Current Assets:
|
||||
Cash
|
$ | 66,613 | ||
Accounts receivable - less allowance for
|
||||
doubtful accounts of -0-
|
23,741 | |||
Total Current Assets
|
90,354 | |||
TOTAL ASSETS
|
$ | 90,354 | ||
LIABILITIES AND MEMBER'S EQUITY
|
||||
Current Liabilities:
|
||||
Accrued expenses
|
1,800 | |||
Commitments and Contingencies
|
- | |||
Member's Equity
|
88,554 | |||
TOTAL LIABILITIES AND MEMBER'S EQUITY
|
$ | 90,354 |
58
XERXIS CONSULTING L.L.C.
|
||||
STATEMENT OF OPERATIONS
|
||||
(Unaudited)
|
||||
|
||||
Six Months Ended
|
||||
June 30,
|
||||
2010
|
||||
Revenues:
|
||||
Net sales
|
$ | 100,063 | ||
Costs and expenses:
|
||||
General and administrative expenses
|
11,509 | |||
Income from operations
|
88,554 | |||
Other income (expense):
|
||||
Other income
|
- | |||
Earnings before provision for
|
||||
income taxes
|
88,554 | |||
Provision for income taxes
|
- | |||
Net earnings
|
$ | 88,554 |
59
XERXIS CONSULTING L.L.C.
|
||||||||||||||||||||
STATEMENT OF MEMBER'S EQUITY
|
||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||
Accumulated
|
||||||||||||||||||||
Other
|
||||||||||||||||||||
Members'
|
Retained
|
Comprehensive
|
Comprehensive
|
|||||||||||||||||
Capital
|
Earnings
|
Income
|
Income
|
Total
|
||||||||||||||||
Balance, January 1, 2008
|
$ | - | $ | 11,175 | $ | - | $ | 11,175 | ||||||||||||
Net earnings
|
10,757 | $ | 10,757 | |||||||||||||||||
Currency translation adjustment
|
5,689 | 5,689 | ||||||||||||||||||
Comprehensive income
|
$ | 16,446 | 16,446 | |||||||||||||||||
Balance, December 31, 2009
|
- | 21,932 | 5,689 | - | 27,621 | |||||||||||||||
Member withdrawals
|
(21,932 | ) | (21,932 | ) | ||||||||||||||||
Net earnings
|
88,554 | $ | 88,554 | 88,554 | ||||||||||||||||
Currency translation adjustment
|
(5,689 | ) | (5,689 | ) | (5,689 | ) | ||||||||||||||
$ | 82,865 | |||||||||||||||||||
Comprehensive income
|
||||||||||||||||||||
Balance, June 30, 2010
|
- | $ | 88,554 | $ | - | $ | 88,554 |
60
XERXIS CONSULTING L.L.C
|
||||
STATEMENT OF CASH FLOWS
|
||||
(Unaudited)
|
||||
Six Months
|
||||
Ended
|
||||
June 30, 2010
|
||||
Cash flows from operating activities:
|
||||
Net earnings
|
$ | 88,554 | ||
Changes in operating assets and liabilities:
|
||||
Increase in accounts receivable
|
(9,485 | ) | ||
Increase in other current assets
|
1,709 | |||
Decrease in prepaid expenses
|
2,875 | |||
Increase in other assets
|
1,973 | |||
Decrease in other current liabilities
|
(2,203 | ) | ||
Decrease in income taxes payable
|
(21,438 | ) | ||
Net Cash Provided by Operating Activities
|
61,985 | |||
Cash flows from investing activities:
|
||||
Member withdrawals
|
(21,932 | ) | ||
Effect of exchange rate changes on cash
|
(2,117 | ) | ||
Net increase in cash
|
37,936 | |||
Cash - beginning of year
|
28,677 | |||
Cash - end of year
|
$ | 66,613 | ||
Supplementary information:
|
||||
Cash paid during the period for:
|
||||
Interest
|
$ | - | ||
Income Taxes
|
$ | - |
61
XERXIS CONSULTING LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2010
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Xerxis Consulting LLC(the “Company” or “Xerxis”), is a skilled labor, temporary employment agency with a database of over 1,000 skilled workers. For the year ended December 31, 2009, the Company conducted its operations in the Republic of Germany as Rademacher Consulting GmbH.
In December 2009, Marcus Rademacher, the sole member of Rademacher Consulting, GmbH, acquired Schultz & Ott, LLC, a United States entity. In January 2010, Schultz & Ott, LLC changed its name to Xerxis Consulting LLC and began operations in the United States. Rademacher Consulting GmbH transferred all its existing contracts to Xerxis and all world-wide operations in 2010 are operated under Xerxis Consulting LLC, a Florida limited liability company.
Basis of Presentation
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
2. SUBSEQUENT EVENTS
Effective July 1, 2010, the Company entered into an Equity Exchange and Acquisition Agreement, dated as of June 25, 2010 (the “Agreement”), by and between the Company, Royal Style Design, Inc. and the owner of the Company. The Agreement provides for the acquisition by Royal Style Design of 100% of the outstanding ownership interests in the Company, in exchange for 25,215 shares of Royal Style Design common stock.
Subsequent events have been evaluated through August 2, 2010, which is the date these financial statements were issued.
62
TECHNOSTROY, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
63
TECHNOSTROY, LTD.
INDEX
|
Page
|
Report from Independent Registered Public Accounting Firm
|
65 |
Balance Sheets as of December 31, 2009 and 2008
|
66 |
Statements of Operations for the Years Ended
|
|
December 31, 2009 and 2008
|
67 |
Statement of Stockholders' Equity for Each of the
|
|
Two Years in the Period Ended December 31, 2009
|
68 |
Statements of Cash Flows for the Years Ended
|
|
December 31, 2009 and 2008
|
69-70 |
Notes to Financial Statements
|
71-77 |
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Technostroy Ltd.
Kazan, Russia
We have audited the accompanying consolidated balance sheets of Technostroy Ltd. (collectively, the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, stockholders’ equity and cash flows for the two 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2009 and 2008 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Madsen & Associates, CPA’s Inc.
Madsen & Associates, CPA's Inc.
July 2, 2010
65
TECHNOSTROY LTD.
|
||||||||
BALANCE SHEETS
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash and cash equivalents
|
$ | 199,890 | $ | 312,361 | ||||
Accounts receivable-net of allowance of $-0- and $-0-,
respectively
|
66,282 | 65,044 | ||||||
Inventories
|
11,611 | 8,637 | ||||||
Other current assets
|
137,839 | 11,320 | ||||||
Total Current Assets
|
415,622 | 397,362 | ||||||
Property and equipment-net
|
571,658 | 331,545 | ||||||
Total Assets
|
$ | 987,280 | $ | 728,907 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable
|
$ | 41,991 | $ | 15,824 | ||||
Accrued expenses
|
19,478 | 17,911 | ||||||
Income taxes payable
|
5,913 | 9,120 | ||||||
Total Current Liabilities
|
67,382 | 42,855 | ||||||
Commitments & Contingencies
|
- | - | ||||||
Stockholders' Equity:
|
||||||||
Common Stock, $.0379 par value; authorized 10,000 shares:
|
||||||||
10,000 and 10,000 shares issued and outstanding at
|
||||||||
December 31, 2009 and 2008, respectively
|
379 | 379 | ||||||
Retained earnings
|
1,030,035 | 798,151 | ||||||
Accumulated other comprehensive loss
|
(110,516 | ) | (112,478 | ) | ||||
Total Stockholders' Equity
|
919,898 | 686,052 | ||||||
Total Liabilities and
|
||||||||
Stockholders' Equity
|
$ | 987,280 | $ | 728,907 |
66
TECHNOSTROY LTD.
|
||||||||
STATEMENTS OF OPERATIONS
|
||||||||
For the years ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Net sales:
|
||||||||
Revenue
|
$ | 2,696,306 | $ | 6,264,119 | ||||
Cost and expenses:
|
||||||||
Cost of sales
|
2,243,020 | 5,287,845 | ||||||
General and administrative
|
171,908 | 171,063 | ||||||
2,414,928 | 5,458,908 | |||||||
Income from operations
|
281,378 | 805,211 | ||||||
Provision for income taxes
|
49,494 | 189,002 | ||||||
Net earnings
|
$ | 231,884 | $ | 616,209 | ||||
Earnings per common share - basic and diluted
|
$ | 23.19 | $ | 61.62 | ||||
Weighted average number of common shares
|
||||||||
outstanding - basic and diluted
|
10,000 | 10,000 |
67
TECHNOSTROY LTD.
|
||||||||||||||||||||||||
STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Common Stock
|
Retained
|
Other Comprehensive
|
Comprehensive
|
|||||||||||||||||||||
Shares
|
Amount
|
Earnings
|
(Loss)
|
Income (Loss)
|
Total
|
|||||||||||||||||||
Balance, January 1, 2008
|
10,000 | $ | 379 | $ | 181,942 | $ | 14,883 |
|
$ | 197,204 | ||||||||||||||
Foreign currency adjustment
|
(127,361 | ) | $ | (127,361 | ) | (127,361 | ) | |||||||||||||||||
Net earnings
|
616,209 | 616,209 | 616,209 | |||||||||||||||||||||
Comprehensive income
|
$ | 488,848 | ||||||||||||||||||||||
Balance, December 31, 2008
|
10,000 | 379 | 798,151 | (112,478 | ) | 686,052 | ||||||||||||||||||
Foreign currency adjustment
|
1,962 | $ | 1,962 | 1,962 | ||||||||||||||||||||
Net earnings
|
231,884 | 231,884 | 231,884 | |||||||||||||||||||||
Comprehensive income
|
$ | 233,846 | ||||||||||||||||||||||
Balance, December 31, 2009
|
10,000 | $ | 379 | $ | 1,030,035 | $ | (110,516 | ) | $ | 919,898 | ||||||||||||||
68
STATEMENTS OF CASH FLOWS
|
||||||||
|
||||||||
For the Years Ended,
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash flows from operating activities:
|
||||||||
Net earnings
|
$ | 231,884 | $ | 616,209 | ||||
Adjustments to reconcile net earnings to net cash
|
||||||||
provided by operating activities:
|
||||||||
Depreciation and amortization
|
47,149 | 20,124 | ||||||
Changes in operating assets and
|
||||||||
liabilities
|
(110,119 | ) | (161,477 | ) | ||||
Net cash provided by operating activities
|
168,914 | 474,856 | ||||||
Cash flows from investing activities:
|
||||||||
Purchase of property, plant and equipment
|
(287,262 | ) | (254,657 | ) | ||||
Effect of exchange rate changes on cash
|
5,877 | (21,394 | ) | |||||
Net increase (decrease) in cash and cash equivalents
|
(112,471 | ) | 198,805 | |||||
Cash and cash equivalents-beginning of year
|
312,361 | 113,556 | ||||||
Cash and cash equivalents-end of year
|
$ | 199,890 | $ | 312,361 |
69
TECHNOSTROY LTD.
|
||||||||
STATEMENTS OF CASH FLOWS
|
||||||||
(Continued)
|
||||||||
|
||||||||
For the Years Ended,
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Supplementary Information:
|
||||||||
Cash paid during the year for:
|
||||||||
Interest
|
$ | - | $ | - | ||||
Income taxes
|
$ | 54,884 | $ | 157,859 | ||||
Changes in operating assets and liabilities consist of:
|
||||||||
(Increase) decrease in accounts receivable
|
$ | (5,153 | ) | $ | (102,790 | ) | ||
(Increase) in inventory
|
(2,974 | ) | (26,361 | ) | ||||
Increase in prepaid expenses
|
(126,519 | ) | (11,320 | ) | ||||
Increase in accounts payable
|
26,167 | (22,866 | ) | |||||
Increase in accrued expenses
|
1,567 | 2,589 | ||||||
(Decrease) in income tax payable
|
(3,207 | ) | (729 | ) | ||||
Net cash provided by operating activities
|
$ | (110,119 | ) | $ | (161,477 | ) |
70
TECHNOSTROY, LTD.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
1.
|
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Technostroy, Ltd. (the “Company” or “Technostroy”) is a construction and logistics company located in the Russian Federation. Revenue is predominantly within the Russian Federation. The Company was granted a license in 2007 to perform various excavation work and the laying of electronic cables. The license expires in 2012 and is subject to renewal.
Basis of Presentation
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Reporting and Functional Currency
The Company has determined that the United States dollar ($) is the reporting currency for the purposes of financial reporting under US GAAP.
The local currency and the functional currency of the Company is the Russian Ruble (“RUR”).
Any conversion of RUR amounts to US dollars should not be construed as a representation that such RUR amounts have been, could be, or will in the future be converted into US dollars at the current exchange rate or at any other exchange rate.
Significant Accounting Policies
Economic and Political Risks
The Company faces a number of risks and challenges since their operations are in the Russian Federation, its primary market is in the Russian Federation, 100% of the Company's revenue is earned in the Russian Federation and 100% of the Company's assets are located in the Russian Federation. Management cannot presently predict what future impact the political risk will have on the Company, if any, or how the political climate in the Russian Federation will affect the Company’s operations. Accordingly, events resulting from any change in the political climate could have a material effect on the Company.
Use of Estimates
The preparation of the financial statements in conformity with accepted 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining such items as costs to complete performance contracts, income tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts and valuation allowances. Actual results could differ from those estimates.
71
Revenue Recognition
The Company recognizes revenue in accordance with the ASC 605, "Revenue Recognition". Revenue is recognized under the completed-contract method for completed work under ASC 605. Under this method, revenue and costs from excavation work and the laying of electric cables will be recorded at the time of completion of active performance as outlined in each contract. The execution of active performance must be agreed by the Company, the customer for whom the work is being performed and an outside third party inspector. The third party inspector must concur the work has been performed in accordance with the specifications as provided in the contracts between the parties.
Cash and Cash Equivalents
Cash and cash equivalents include cash deposited in checking accounts, overnight repurchase agreements and money market funds with maturities of 90 days or less when purchased. The cash balances are held at a few institutions and may, at times, exceed insurable amounts. The Company believes it mitigates this risk by depositing cash in major financial institutions.
Accounts Receivables
Accounts receivables are recorded after active performance is confirmed between the Company and the customer and are presented in the balance sheet net of allowances for doubtful accounts. Accounts receivables are written off when they are determined to be uncollectible. The allowance for doubtful accounts is estimated based on the Company's historical losses, the existing economic condition in the industry, and the financial ability of its customers. For the years ended December 31, 2009 and 2008 the Company established a reserve for doubtful accounts of $-0- and $-0-, respectively.
During the years ended December 31, 2009 and 2008 the Company wrote off receivables in the amount of $-0- and $-0-, respectively.
Inventories
Inventories are stated at the lower of cost or market.
Depreciation
Property and equipment is carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Depreciable
|
||
Asset
|
Lives
|
|
Vehicles
|
3 years
|
|
Machinery and equipment
|
5 - 7 years
|
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
72
The Company accounts for income taxes in accordance with the Internal Income Tax Law of the Russian Federation. The Company was taxed at a rate of 24% in 2008 and 20% in 2009.
Evaluation of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in ASC 360-15-35. If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company's cash and cash equivalents are concentrated primarily in various banks in Russia. At times, such deposits could be in excess of insured limits. Management believes that the financial institution that holds the Company financial instrument is financially sound and, accordingly, minimal credit risk is believed to exist with respect to these financial instruments.
The Company grants credit to customers based on an evaluation of the customer’s financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company controls its exposure to credit risk due to normally dealing with the same contractors and receiving payment for materials prior to completion of the services.
The Company is also subject to the risk of currency fluctuations that may affect the prices paid for goods and the amounts received for revenue.
Earnings Per Share
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the years ended December 31, 2009 and 2008, there were no potential shares outstanding.
Fair Value of Financial Measurements
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 - Observable inputs such as quoted market prices in active markets
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
As of December 31, 2009, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the year ended December 31, 2009.
73
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2009 and 2008.
Assets at Fair Value as of December 31, 2009 and 2008 Using
|
||||||||||||||||
December 31, 2009
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 199,890 | $ | 199,890 | $ | - | $ | - | ||||||||
December 31, 2008
|
Total
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 312,361 | $ | 312,361 | $ | - | $ | - |
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of December 31, 2009 and 2008.
Non-financial assets and liabilities, such as long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. The Company's interim test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date.
Foreign Currency Translation
The functional currency for foreign operations is the local currency and the United States dollar is the reporting currency.
Assets and liabilities of foreign operations are translated at exchange rates as of the balance sheet date, and income, expense and cash flow items are translated at the average exchange rate for the applicable period. Translation adjustments are recorded in other comprehensive income (loss).
New Financial Accounting Standards
During 2009, the Company adopted the revised accounting guidance related to business combinations. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Company implemented this new guidance effective January 1, 2009.
74
During 2009, the Company implemented an update to the accounting guidance related to earnings per share. In accordance with this accounting guidance, unvested share-based payment awards with rights to dividends are participating securities and shall be included in the computation of basic earnings per share. The Company adopted this guidance effective January 1, 2009. This implementation did not have a material impact on prior periods presented.
The FASB has published a update to the accounting guidance on fair value measurements and disclosures as it relates to investments in certain entities that calculate net asset value per share (or its equivalent). This accounting guidance permits a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial condition or cash flows.
|
2.
|
PROPERTY and EQUIPMENT
|
Property, plant and equipment consist of furniture and equipment used in the ordinary course of business and are recorded at cost less accumulated depreciation.
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Machinery & equipment
|
$ | 489,493 | $ | 267,239 | ||||
Vehicles
|
153,047 | 88,039 | ||||||
642,540 | 355,278 | |||||||
Less: accumulated depreciation
|
70,882 | 23,733 | ||||||
$ | 571,658 | $ | 331,545 |
Depreciation expense for the years ended December 31, 2009 and 2008 was $47,149 and $20,124, respectively.
|
3.
|
INVENTORIES
|
As of December 31, 2009 and 2008, inventory consists of raw materials and petrol.
|
4.
|
ACCRUED EXPENSES
|
December 31,
|
||||||||
2009
|
2008
|
|||||||
Salaries
|
$ | 9,734 | $ | 8,202 | ||||
Payroll taxes
|
9,347 | 9,300 | ||||||
Other
|
397 | 409 | ||||||
$ | 19,478 | $ | 17,911 |
5. COMMON STOCK
The Company is authorized to issue 10,000 shares of $.0379 par value common stock of which 10,000 shares are outstanding as of December 31, 2009 and 2008.
75
6. INCOME TAXES
The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2008. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liabilities or equity for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability for uncertain tax positions, the Company will setup a liability for interest and penalties. The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
The provision for income taxes consists of the following:
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Current:
|
||||||||
Federal:
|
$ | - | $ | - | ||||
Foreign:
|
49,494 | 189,002 | ||||||
49,494 | 189,002 | |||||||
Deferred:
|
||||||||
Federal:
|
$ | - | $ | - | ||||
Foreign:
|
- | - | ||||||
$ | 49,494 | $ | 189,002 |
A reconciliation of taxes on income computed at the federal stated rate to amounts provided:
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Tax computed at the federal stated
|
||||||||
rate of 34%:
|
$ | 95,669 | $ | 273,772 | ||||
Increase (decease) in taxes resulting from:
|
||||||||
Different tax rates and permanent
|
||||||||
differences
|
(46,175 | ) | (84,770 | ) | ||||
$ | 49,494 | $ | 189,002 |
The Company files income tax returns in all jurisdictions in which it has reason to believe it is subject to tax. The Company is subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of business of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.
|
7.
|
RELATED PARTY TRANSACTIONS
|
During the years ended December 31, 2009 and 2008, the Company had activities with related companies in connection with purchases and subcontracting services. The Company's reported results of operations, financial condition and cash flows would be different had such transactions been carried out amongst unrelated parties. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be affected on the same terms, conditions and amounts as transactions between unrelated parties.
76
The nature of the relationships with such related companies is that the sole shareholder of the Company, also serves as a General Director of such related companies.
The details of the relationships for these related parties with whom the Company entered into significant transactions or had significant balances outstanding as of December 31, 2009 and 2008 are presented below:
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Purchases and subcontracting
|
||||||||
services
|
$ | 110,067 | $ | 46,632 | ||||
December 31,
|
||||||||
2009 | 2008 | |||||||
Accounts Payable
|
$ | - | $ | 170 |
8. MAJOR CUSTOMERS
The Company had revenue from two customers in excess of ten percent of revenue in 2009. The combined revenue of these two customers was $2,696,006 during the year ended December 31, 2009, representing 100% of total revenue. In 2008, there were four customers in excess of ten percent of net revenue. The combined revenue of these four customers was approximately $3,083,000 during the year ended December 31, 2008, representing 49.2% of total revenue.
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various office and warehouse facilities. The lease contains no escalation or capital improvement funding provisions. The lease terms are for one year and are renewable on an annual basis.
Future minimum lease payments for operating leases are approximately as follows:
Year Ending
|
||||
December 31,
|
||||
2010
|
$ | 15,720 | ||
2011
|
- | |||
Thereafter
|
- | |||
$ | 15,720 |
Rent expense was $14,980 and $19,447 for the years ended December 31, 2009 and 2008, respectively.
10.
|
SUBSEQUENT EVENTS
|
Effective July 1, 2010, the Company entered into an Equity Exchange and Acquisition Agreement, dated as of June 25, 2010 (the “Agreement”), by and between the Company, Royal Style Design, Inc., and the owner of the Company. The Agreement provides for the acquisition by Royal Style Design of 100% of the outstanding ownership interests in the Company, in exchange for 344,944 shares of Royal Style Design common stock.
Subsequent events have been evaluated through July 2, 2010, which is the date these financial statements were issued.
77
TECHNOSTROY, LTD.
FINANCIAL STATEMENTS
JUNE 30, 2010
78
TECHNOSTROY, LTD.
INDEX
Page
|
|
Balance Sheets as June 30, 2010
|
80
|
Statements of Operations for the Six Months Ended
|
|
June 30, 2010
|
81
|
Statement of Stockholders' Equity for the Period Ended
|
|
June 30, 2010
|
82
|
Statements of Cash Flows for the Six Months Ended
|
|
June 30, 2010
|
83-84
|
Notes to Unaudited Financial Statements
|
85
|
79
TECHNOSTROY LTD.
|
||||
BALANCE SHEETS
|
||||
(Unaudited)
|
||||
June 30,
|
||||
2010
|
||||
ASSETS
|
||||
Current Assets:
|
||||
Cash and cash equivalents
|
$ | 449,753 | ||
Accounts receivable-net of allowance of $-0-
|
24,636 | |||
Inventories
|
55,404 | |||
Total Current Assets
|
529,793 | |||
Property and equipment-net
|
502,373 | |||
Total Assets
|
$ | 1,032,166 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||
Current Liabilities:
|
||||
Accounts payable
|
$ | 27,539 | ||
Income taxes payable
|
28,997 | |||
Total Current Liabilities
|
56,536 | |||
Commitments & Contingencies
|
- | |||
Stockholders' Equity:
|
||||
Common Stock, $.0379 par value; authorized 10,000 shares:
|
||||
10,000 shares issued and outstanding at June 30, 2010
|
379 | |||
Retained earnings
|
1,146,025 | |||
Accumulated other comprehensive loss
|
(170,774 | ) | ||
Total Stockholders' Equity
|
975,630 | |||
Total Liabilities and
|
||||
Stockholders' Equity
|
$ | 1,032,166 |
80
TECHNOSTROY LTD.
|
||||
STATEMENTS OF OPERATIONS
|
||||
(Unaudited)
|
||||
For the Six Months
|
||||
Ended
|
||||
June 30, 2010
|
||||
Net sales:
|
||||
Revenue
|
$ | 1,117,898 | ||
Cost and expenses:
|
||||
Cost of sales
|
904,538 | |||
General and administrative
|
68,373 | |||
972,911 | ||||
Income from operations
|
144,987 | |||
Provision for income taxes
|
28,997 | |||
Net earnings
|
$ | 115,990 | ||
Earnings per common share - basic and diluted
|
$ | 11.60 | ||
Weighted average number of common shares
|
||||
outstanding - basic and diluted
|
10,000 |
81
STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Common Stock
|
Retained
|
Other Comprehensive
|
Comprehensive
|
|||||||||||||||||||||
Shares
|
Amount
|
Earnings
|
(Loss)
|
Income (Loss)
|
Total
|
|||||||||||||||||||
Balance, January 1, 2008
|
10,000 | $ | 379 | $ | 181,942 | $ | 14,883 |
|
$ | 197,204 | ||||||||||||||
Foreign currency adjustment
|
(127,361 | ) | $ | (127,361 | ) | (127,361 | ) | |||||||||||||||||
Net earnings
|
616,209 | 616,209 | 616,209 | |||||||||||||||||||||
Comprehensive income
|
$ | 488,848 | ||||||||||||||||||||||
Balance, December 31, 2008
|
10,000 | 379 | 798,151 | (112,478 | ) | 686,052 | ||||||||||||||||||
Foreign currency adjustment
|
1,962 | $ | 1,962 | 1,962 | ||||||||||||||||||||
Net earnings
|
231,884 | 231,884 | 231,884 | |||||||||||||||||||||
Comprehensive income
|
$ | 233,846 | ||||||||||||||||||||||
Balance, December 31, 2009
|
10,000 | 379 | 1,030,035 | (110,516 | ) | 919,898 | ||||||||||||||||||
Foreign currency adjustment
|
(60,258 | ) | (60,258 | ) | (60,258 | ) | ||||||||||||||||||
Net earnings
|
115,990 | 115,990 | 115,990 | |||||||||||||||||||||
$ | 55,732 | |||||||||||||||||||||||
Comprehensive income
|
- | - | - | - | - | |||||||||||||||||||
Balance, June 30, 2010
|
10,000 | $ | 379 | $ | 1,146,025 | $ | (170,774 | ) | $ | 975,630 |
82
TECHNOSTROY LTD.
|
||||
STATEMENTS OF CASH FLOWS
|
||||
(Unaudited)
|
||||
|
||||
For the Six Months
|
||||
Ended
|
||||
June 30, 2010
|
||||
Cash flows from operating activities:
|
||||
Net earnings
|
$ | 115,990 | ||
Adjustments to reconcile net earnings to net cash
|
||||
provided by operating activities:
|
||||
Depreciation and amortization
|
26,663 | |||
Changes in operating assets and
|
||||
liabilities
|
110,344 | |||
Net cash provided by operating activities
|
252,997 | |||
Effect of exchange rate changes on cash
|
(3,134 | ) | ||
Net increase in cash and cash equivalents
|
249,863 | |||
Cash and cash equivalents-beginning of year
|
199,890 | |||
Cash and cash equivalents-end of year
|
$ | 449,753 |
83
TECHNOSTROY LTD.
|
||||
STATEMENTS OF CASH FLOWS
|
||||
(Unaudited)
|
||||
(Continued)
|
||||
|
||||
For the Six Months
|
||||
Ended
|
||||
June 30, 2010
|
||||
Supplementary Information:
|
||||
Cash paid during the year for:
|
||||
Interest
|
$ | - | ||
Income taxes
|
$ | 5,900 | ||
Changes in operating assets and liabilities consist of:
|
||||
(Increase) decrease in accounts receivable
|
$ | (2,334 | ) | |
(Increase) in inventory
|
(33,793 | ) | ||
Decrease in prepaid expenses
|
137,839 | |||
(Decrease) in accounts payable
|
(14,452 | ) | ||
Increase in income tax payable
|
23,084 | |||
Net cash provided by operating activities
|
$ | 110,344 |
84
TECHNOSTROY, LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2010
1.
|
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Technostroy, Ltd. (the “Company” or “Technostroy”) is a construction and logistics company located in the Russian Federation. Revenue is predominantly within the Russian Federation. The Company was granted a license in 2007 to perform various excavation work and the laying of electronic cables. The license expires in 2012 and is subject to renewal.
Basis of Presentation
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Reporting and Functional Currency
The Company has determined that the United States dollar ($) is the reporting currency for the purposes of financial reporting under US GAAP.
The local currency and the functional currency of the Company is the Russian Ruble (“RUR”).
Any conversion of RUR amounts to US dollars should not be construed as a representation that such RUR amounts have been, could be, or will in the future be converted into US dollars at the current exchange rate or at any other exchange rate.
2.
|
SUBSEQUENT EVENTS
|
Effective July 1, 2010, the Company entered into an Equity Exchange and Acquisition Agreement, dated as of June 25, 2010 (the “Agreement”), by and between the Company, Royal Style Design, Inc. and the owner of the Company. The Agreement provides for the acquisition by Royal Style Design of 100% of the outstanding ownership interests in the Company, in exchange for 344,944 shares of Royal Style Design common stock.
Subsequent events have been evaluated through August 2, 2010, which is the date these financial statements were issued.
85
PSO "KAZANNEFTEHIMINVEST"
FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
86
PSO "KAZANNEFTEHIMINVEST"
INDEX
|
Page
|
Report from Independent Registered Public Accounting Firm
|
88 |
Balance Sheets as of December 31, 2009 and 2008
|
89 |
Statements of Operations for the Year Ended
|
|
December 31, 2009 and the period October 20, 2008 Date of
|
|
Formation) through December 31, 2008
|
90 |
Statement of Stockholders' Equity for Each of the
|
|
Two Years in the Period Ended December 31, 2009
|
|
Statements of Cash Flows for the Years Ended
|
|
December 31, 2009 and the period October 20, 2008 Date of
|
|
Formation) through December 31, 2008
|
91-92 |
Notes to Financial Statements
|
93-100 |
87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
OOO PSO "Kazanneftehiminvest"
Kazan, Russia
We have audited the accompanying consolidated balance sheets of PSO "Kazanneftehiminvest"
(collectively, the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2009 and the period October 20, 2008 (Date of Formation) through December 31, 2008. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2009 and 2008 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the year ended December 31, 2009 and the period October 20, 2008 (Date of Formation) through December 31, 2008., in conformity with accounting principles generally accepted in the United States of America.
/s/ Madsen & Associates, CPA’s Inc.
Madsen & Associates, CPA's Inc.
July 2, 2010
88
PSO "KAZANNEFTEHIMINVEST"
|
||||||||
BALANCE SHEETS
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash and cash equivalents
|
$ | 379,487 | $ | 58 | ||||
Accounts receivable-net of allowance of $-0- and $-0-,
respectively
|
2,531,299 | - | ||||||
Due from related party
|
354,375 | - | ||||||
Inventories
|
12,149,691 | - | ||||||
Other current assets
|
31,689 | 3,283 | ||||||
Total Current Assets
|
15,446,541 | 3,341 | ||||||
Property and equipment-net
|
1,531,663 | - | ||||||
Total Assets
|
$ | 16,978,204 | $ | 3,341 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable
|
$ | 5,406,789 | $ | - | ||||
Accrued expenses
|
39,365 | 1,538 | ||||||
Customer advances
|
8,342,737 | - | ||||||
Deferred income taxes payable
|
286,493 | - | ||||||
Total Current Liabilities
|
14,075,384 | 1,538 | ||||||
Long-term Liabilities:
|
||||||||
Long-term debt-less current portion above
|
1,751,477 | - | ||||||
Total Liabilities
|
15,826,861 | 1,538 | ||||||
Commitments & Contingencies
|
- | - | ||||||
Stockholders' Equity:
|
||||||||
Common Stock, $.034 par value; authorized 10,000 shares:
|
||||||||
10,000 and 10,000 shares issued and outstanding at
|
||||||||
December 31, 2009 and 2008, respectively
|
340 | 340 | ||||||
Retained earnings (deficit)
|
1,096,836 | (42 | ) | |||||
Accumulated other comprehensive income
|
54,167 | 7 | ||||||
Total Stockholders' Equity
|
1,151,343 | 305 | ||||||
Total Liabilities and
|
||||||||
Stockholders' Equity
|
$ | 16,978,204 | $ | 1,843 |
89
PSO "KAZANNEFTEHIMINVEST"
|
||||||||
STATEMENTS OF OPERATIONS
|
||||||||
For the period October 20, 2008
|
||||||||
For the year ended
|
(Date of Formation)
|
|||||||
December 31,
|
through December 31,
|
|||||||
2009
|
2008
|
|||||||
Net sales:
|
||||||||
Revenue
|
$ | 4,263,454 | $ | - | ||||
Cost and expenses:
|
||||||||
Cost of sales
|
2,818,422 | - | ||||||
General and administrative
|
73,934 | 42 | ||||||
2,892,356 | 42 | |||||||
Income (loss) income from operations
|
1,371,098 | (42 | ) | |||||
Provision for income taxes
|
274,220 | - | ||||||
Net earnings (loss)
|
$ | 1,096,878 | $ | (42 | ) | |||
Earnings (loss) per common share - basic and diluted
|
$ | 109.69 | $ | (0.00 | ) | |||
Weighted average number of common shares
|
||||||||
outstanding - basic and diluted
|
10,000 | 10,000 |
90
PSO "KAZANNEFTEHIMINVEST"
|
||||||||
STATEMENTS OF CASH FLOWS
|
||||||||
|
For the period October 20, 2008
|
|||||||
For the Year Ended
|
(Date of Formation)
|
|||||||
December 31,
|
through December 31,
|
|||||||
2009
|
2008
|
|||||||
Cash flows from operating activities:
|
||||||||
Net earnings (loss)
|
$ | 1,096,878 | $ | (42 | ) | |||
Adjustments to reconcile net earnings (loss) to net cash
|
||||||||
provided by operating activities:
|
||||||||
Depreciation and amortization
|
4,103 | - | ||||||
Changes in operating assets and
Liabilities
|
(581,390 | ) | (1,738 | ) | ||||
Net cash provided by (used in) operating activities
|
519,591 | (1,780 | ) | |||||
Cash flows from investing activities:
|
||||||||
Purchase of property and equipment
|
(1,535,766 | ) | - | |||||
Cash flows from financing activities:
|
||||||||
Proceeds from sale of common stock
|
- | 340 | ||||||
Advances to related party
|
412,020 | - | ||||||
Proceeds from loan
|
1,749,979 | 1,498 | ||||||
Repayments from related party
|
(766,395 | ) | - | |||||
Net cash provided by financing activities
|
1,395,604 | 1,838 | ||||||
Effect of exchange rate changes on cash
|
- | - | ||||||
Net increase (decrease) in cash and cash equivalents
|
379,429 | 58 | ||||||
Cash and cash equivalents-beginning of year
|
58 | - | ||||||
Cash and cash equivalents-end of year
|
$ | 379,487 | $ | 58 |
91
PSO "KAZANNEFTEHIMINVEST"
|
||||||||
STATEMENTS OF CASH FLOWS
|
||||||||
(Continued)
|
||||||||
For the period October 20, 2008
|
||||||||
For the Year Ended
|
(Date of Formation)
|
|||||||
|
December 31,
|
through December 31,
|
||||||
2009
|
2008
|
|||||||
Supplementary Information:
|
||||||||
Cash paid during the year for:
|
||||||||
Interest
|
$ | - | $ | - | ||||
Income taxes
|
$ | 1,211 | $ | - | ||||
Changes in operating assets and liabilities consist of:
|
||||||||
(Increase) decrease in accounts receivable
|
$ | (2,531,299 | ) | $ | - | |||
(Increase) in inventory
|
(12,095,531 | ) | - | |||||
(Increase) in prepaid expenses
|
(28,406 | ) | (3,276 | ) | ||||
(Increase) in accounts payable and accrued expenses
|
5,444,616 | 1,538 | ||||||
Increase (decrease) in customer advances
|
8,342,737 | - | ||||||
Increase (decrease) in deferred taxes payable
|
286,493 | - | ||||||
Net cash provided by operating activities
|
$ | (581,390 | ) | $ | (1,738 | ) |
92
PSO "KAZANNEFTEHIMINVEST"
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
PSO "Kazanneftehiminvest" (the “Company” or “PSO "Kazanneftehiminvest"”) is a construction company located in the Russian Federation. Revenue is predominantly within the Russian Federation. The Company's current project is the construction of a 495,000 square foot hotel and spa.
Basis of Presentation
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Reporting and Functional Currency
The Company has determined that the United States dollar (“USD”) is the reporting currency for the purposes of financial reporting under United States Generally Accepted Accounting Principles.
The local currency and the functional currency of the subsidiaries of the Company is the Russian Rouble (“RUR”).
Any conversion of RUR amounts to USD should not be construed as a representation that such RUR amounts have been, could be, or will in the future be converted into USD at the current exchange rate or at any other exchange rate.
Significant Accounting Policies
Economic and Political Risks
The Company faces a number of risks and challenges since their operations are in the Russian Federation, its primary market is in the Russian Federation, 100% of the Company's revenue is earned in the Russian Federation and 100% of the Company's assets are located in the Russian Federation. Management cannot presently predict what future impact the political risk will have on the Company, if any, or how the political climate in the Russian Federation will affect the Company’s operations. Accordingly, events resulting from any change in the political climate could have a material effect on the Company.
Use of Estimates
The preparation of the financial statements in conformity with accepted 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining such items as costs to complete performance contracts, income tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts and valuation allowances. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with the ASC 605, "Revenue Recognition". Revenue is recognized under the completed contract method for completed work under ASC 605. Under this method, revenue and costs from construction services will be recorded at the time of completion of active performance as outlined in each contract. The execution of active performance must be agreed by the Company and the customer for whom the work is being performed. The third parties must concur the work has been performed in accordance with the specifications as provided in the contracts between the parties.
93
Cash and Cash Equivalents
Cash and cash equivalents include cash deposited in checking accounts, overnight repurchase agreements and money market funds with maturities of 90 days or less when purchased. The cash balances are held at a few institutions and may, at times, exceed insurable amounts. The Company believes it mitigates this risk by depositing cash in major financial institutions.
Accounts Receivables
Accounts receivables are recorded after active performance is confirmed between the Company and the customer and are presented in the balance sheet net of allowances for doubtful accounts. Accounts receivables are written off when they are determined to be uncollectible. The Company receives advances from customers prior to the completion of active performance. The Company records these advance payments as Customer Advances on the Company's balance sheet. Customer advances as of December 31, 2009 and 2008 were $8,342,737 and $-0-, respectively. The allowance for doubtful accounts is estimated based on the Company's historical losses, the existing economic condition in the industry, and the financial ability of its customers. For the years ended December 31, 2009 and 2008 the Company established a reserve for doubtful accounts of $-0- and $-0-, respectively.
During the years ended December 31, 2009 and 2008 the Company wrote off receivables in the amount of $-0- and $-0-, respectively.
Inventories
Inventories held for sale are recorded at the lower cost or fair value less direct costs to sell. Fair value is defined as the amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. For inventories of projects under development, a loss is recorded when events and circumstances indicate impairment and the undiscounted future cash flows generated are less than the related carrying amounts and estimated cost to complete. The impairment loss is the difference between the recorded value of the individual project, and the discounted future cash flows generated from expected revenue of the individual project, less the associated cost to complete and direct costs to sell, which approximates fair value. The estimates used in the determination of the estimated cash flows and fair value of a project are based on factors known to the Company at the time such estimates are made and the Company's expectations of future operations. These estimates of cash flows are significantly impacted by estimates of the amounts and timing of revenues and costs and other factors which, in turn, are impacted by local market economic conditions, and the actions of competitors. Should the estimates or expectations used in determining estimated cash flows or fair value decrease or differ from current estimates in the future, the Company may be required to recognize additional impairments related to current and future projects.
Depreciation
Property and equipment is carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Depreciable
|
||
Asset
|
Lives
|
|
Vehicles
|
3 years
|
|
Machinery and equipment
|
5 - 7 years
|
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
94
The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company accounts for income taxes in accordance with the Internal Income Tax Law of the Russian Federation. The Company was taxed at a rate of 24% in 2008 and 20% in 2009.
Evaluation of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in ASC 360-15-35. If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The Company's cash and cash equivalents are concentrated primarily in various banks in Russia. At times, such deposits could be in excess of insured limits. Management believes that the financial institution that holds the Company financial instrument is financially sound and, accordingly, minimal credit risk is believed to exist with respect to these financial instruments.
The Company grants credit to customers based on an evaluation of the customer’s financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company controls its exposure to credit risk due to normally dealing with the same contractors and receiving payment for materials prior to completion of the services.
The Company is also subject to the risk of currency fluctuations that may affect the prices paid for goods and the amounts received for revenue.
Earnings Per Share
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the years ended December 31, 2009 and 2008, there were no potential shares outstanding.
Advance Payments to Contractors
Advance payments to contractors principally include prepayments to subcontractors for goods and services and which relate to specific projects which are expensed to cost of sales as the applicable inventory are sold. The projects typically are more than one year in length and the subcontractor costs are expensed on a specific project to project basis. The payments to subcontractors include prepayments prior to the work commencing, advance payments for raw materials, and architectural and engineering services prior to the work being submitted to the authorities. All projects are reviewed quarterly for impairment issues. If any impairment exists, costs will be written down at that time. Advance payments to contractors are included in inventory on the Company's consolidated balance sheets as of December 31, 2009 and 2008.
Fair Value of Financial Measurements
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
95
Level 1 - Observable inputs such as quoted market prices in active markets
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
As of December 31, 2009, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the year ended December 31, 2009.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2009 and 2008.
Assets at Fair Value as of December 31, 2009 and 2008 Using
|
||||||||||||||||
December 31, 2009
|
Total
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 379,487 | $ | 379,487 | $ | - | $ | - | ||||||||
December 31, 2008
|
Total
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other
Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
||||||||||||
Cash and cash equivalents
|
$ | 58 | $ | 58 | $ | - | $ | - |
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of December 31, 2009 and 2008.
Non-financial assets and liabilities, such as long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. The Company's interim test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date.
Foreign Currency Translation
The functional currency for foreign operations is the local currency and the United States dollar is the reporting currency.
Assets and liabilities of foreign operations are translated at exchange rates as of the balance sheet date, and income, expense and cash flow items are translated at the average exchange rate for the applicable period. Translation adjustments are recorded in Other comprehensive income (loss).
96
New Financial Accounting Standards
During 2009, the Company adopted the revised accounting guidance related to business combinations. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Company implemented this new guidance effective January 1, 2009.
During 2009, the Company implemented an update to the accounting guidance related to earnings per share. In accordance with this accounting guidance, unvested share-based payment awards with rights to dividends are participating securities and shall be included in the computation of basic earnings per share. The Company adopted this guidance effective January 1, 2009. This implementation did not have a material impact on prior periods presented.
The FASB has published a update to the accounting guidance on fair value measurements and disclosures as it relates to investments in certain entities that calculate net asset value per share (or its equivalent). This accounting guidance permits a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial condition or cash flows.
|
5.
|
PROPERTY and EQUIPMENT
|
Property, plant and equipment consist of furniture and equipment used in the ordinary course of business and are recorded at cost less accumulated depreciation.
December 31,
|
||||||||
2009
|
2008
|
|||||||
Machinery & equipment
|
$ | 1,526,012 | $ | - | ||||
Vehicles
|
9,754 | - | ||||||
1,535,766 | - | |||||||
Less: accumulated depreciation
|
4,103 | - | ||||||
$ | 1,531,663 | $ | - |
Depreciation expense for the years ended December 31, 2009 and 2008 was $4,103 and $-0-, respectively.
|
6.
|
INVENTORIES
|
As of December 31, 2009 and 2008, inventory consists of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Construction materials
|
$ | 3,148,621 | $ | - | ||||
Advances to subcontractors
|
9,001,070 | - | ||||||
$ | 12,149,691 | $ | - |
The Company prepays various suppliers for inventory and services. The deposits paid in advance are included as a component of the Company's inventory.
97
|
7.
|
DEBT
|
Long-term debt consists of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Note payable to Investment and Consulting
|
$ | 727,412 | $ | 1,498 | ||||
Ltd., interest free, due May 2020
|
||||||||
Note payable to Trade House Akbars,
|
1,024,065 | - | ||||||
interest free, due May 2019
|
||||||||
1,751,477 | 1,498 | |||||||
Less: Current portion
|
- | 1,498 | ||||||
$ | 1,751,477 | $ | - |
The following table shows the maturities by year of the total amount of long-term debt as of December 31, 2009:
2010
|
$ | - | ||
2011
|
- | |||
2012
|
- | |||
2013
|
- | |||
Thereafter
|
1,751,477 | |||
$ | 1,751,477 |
8.
|
ACCRUED EXPENSES
|
December 31,
|
||||||||
2009
|
2008
|
|||||||
Salaries
|
$ | 20,394 | $ | - | ||||
Payroll taxes
|
12,770 | - | ||||||
Other
|
6,201 | 1,538 | ||||||
$ | 39,365 | $ | 1,538 |
6. COMMON STOCK
The Company is authorized to issue 10,000 shares of $.034 par value common stock of which 10,000 shares are outstanding as of December 31, 2009 and 2008.
7. INCOME TAXES
The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2008. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liabilities or equity for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability for uncertain tax positions, the Company will setup a liability for interest and penalties. The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
98
The provision for income taxes consists of the following:
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Current:
|
||||||||
Federal:
|
$ | - | $ | - | ||||
Foreign:
|
1,211 | - | ||||||
1,211 | - | |||||||
Deferred:
|
||||||||
Federal:
|
- | - | ||||||
Foreign:
|
273,009 | - | ||||||
273,009 | - | |||||||
$ | 274,220 | $ | - |
A reconciliation of taxes on income computed at the federal stated rate to amounts provided:
For the Years Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Tax computed at the federal stated
|
||||||||
rate of 34%:
|
$ | 466,173 | $ | - | ||||
Increase (decease) in taxes resulting from:
|
||||||||
Different tax rates and permanent
|
||||||||
differences:
|
(191,953 | ) | - | |||||
$ | 274,220 | $ | - |
The Company files income tax returns in all jurisdictions in which it has reason to believe it is subject to tax. The Company is subject to examination by various taxing jurisdictions. To date, none of these examinations has resulted in any material additional tax. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdictions laws or regulations. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of business of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.
Components of deferred income tax liabilities are as follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Tax Effect
|
||||||||
Deferred Tax Liabilities - Current
|
||||||||
Inventory
|
$ | 150,650 | $ | - | ||||
Depreciation
|
135,843 | - | ||||||
$ | 286,493 | $ | - |
99
8. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2009 and 2008, the Company had activities with related companies in connection with purchases of materials, subcontracting services, equipment and sales of materials and services. The Company's reported results of operations, financial condition and cash flows would be different had such transactions been carried out amongst unrelated parties. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be affected on the same terms,, conditions and amounts as transactions between unrelated parties.
The nature of the relationships with such related companies is that the sole shareholder of the Company, also serves as a General Director of such related companies.
The details of the relationships for these related parties with whom the Company entered into significant transactions or had significant balances outstanding as of December 31, 2009 and 2008 are presented below:
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Purchases of materials and
|
||||||||
subcontracting services
|
$ | 10,142,000 | $ | - | ||||
Sales of materials and services
|
4,221,288 | |||||||
Purchase of equipment
|
277,484 | |||||||
December 31,
|
||||||||
2009 | 2008 | |||||||
Accounts Receivable
|
$ | 2,478,358 | ||||||
Accounts Payable
|
4,791,872 | $ | - |
9. MAJOR CUSTOMERS
The Company had revenue from one customer, a related party, in excess of ten percent of revenue in 2009. The revenue of this customer was approximately $4,221,000 during the year ended December 31, 2009, representing 99% of total revenue.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various office and warehouse facilities. The lease contains no escalation or capital improvement funding provisions. The lease is for one year and is renewed annually.
Future minimum lease payments for operating leases are approximately as follows:
Year Ending
|
||||
December 31,
|
||||
2010
|
$ | 19,839 | ||
2011
|
- | |||
Thereafter
|
- | |||
$ | 19,839 |
Rent expense was $4,005 and $-0- for the years ended December 31, 2009 and 2008, respectively.
11.
|
SUBSEQUENT EVENTS
|
|
a.
|
As of July 1, 2010, the Company entered into an Equity Exchange and Acquisition Agreement, dated as of July 1, 2010 (the “Agreement”), by and between the Company, Royal Style Design Inc., and the owner of the Company. The Agreement provides for the acquisition by Royal Style Design of 100% of the outstanding ownership interests in the Company, in exchange for 32,260,000 shares of Royal Style Design common stock.
|
|
b.
|
In June 2010, the sole shareholder of the Company contributed land to the Company with a fair value of approximately $184 million.
|
Subsequent events have been evaluated through July 2, 2010, which is the date these financial statements were issued.
100
PSO "KAZANNEFTEHIMINVEST"
FINANCIAL STATEMENTS
JUNE 30, 2010
101
PSO "KAZANNEFTEHIMINVEST"
INDEX
Page
|
|
Balance Sheets as of December 31, 2009 and 2008
|
103
|
Statements of Operations for the Six Months Ended
|
|
June 30, 2010
|
104
|
Statement of Stockholders' Equity for the Period
|
|
Ended June 30, 2010
|
105
|
Statements of Cash Flows for the Six Months Ended
|
|
June 30, 2010
|
106-107
|
Notes to Unaudited Financial Statements
|
108-109
|
102
PSO "KAZANNEFTEHIMINVEST"
|
||||
BALANCE SHEETS
|
||||
(Unaudited)
|
||||
June 30,
|
||||
2010
|
||||
ASSETS
|
||||
Current Assets:
|
||||
Cash and cash equivalents
|
$ | 2,100,843 | ||
Accounts receivable-net of allowance of $-0-
|
2,642,814 | |||
Inventories
|
13,231,216 | |||
Total Current Assets
|
17,974,873 | |||
Property and equipment-net
|
185,255,693 | |||
Total Assets
|
$ | 203,230,566 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||
Current Liabilities:
|
||||
Accounts payable
|
$ | 2,666,666 | ||
Accrued expenses
|
142,097 | |||
Customer advances
|
190,163 | |||
Income taxes payable
|
90,448 | |||
Total Current Liabilities
|
3,089,374 | |||
Long-term Liabilities:
|
||||
Long-term debt-less current portion above
|
14,078,025 | |||
Total Liabilities
|
17,167,399 | |||
Commitments & Contingencies
|
- | |||
Stockholders' Equity:
|
||||
Common Stock, $.034 par value; authorized 10,000 shares:
|
||||
10,000 shares issued and outstanding at June 30, 2010
|
340 | |||
Paid-in capital
|
184,010,400 | |||
Retained earnings (deficit)
|
2,066,218 | |||
Accumulated other comprehensive loss
|
(13,791 | ) | ||
Total Stockholders' Equity
|
186,063,167 | |||
Total Liabilities and Stockholders' Equity
|
$ | 203,230,566 |
103
PSO "KAZANNEFTEHIMINVEST"
|
||||
STATEMENTS OF OPERATIONS
|
||||
(Unaudited)
|
||||
For the six months
|
||||
ended
|
||||
June 30, 2010
|
||||
Net sales:
|
||||
Revenue
|
$ | 8,865,571 | ||
Cost and expenses:
|
||||
Cost of sales
|
7,496,457 | |||
General and administrative
|
157,387 | |||
7,653,844 | ||||
Income income from operations
|
1,211,727 | |||
Provision for income taxes
|
242,345 | |||
Net earnings
|
$ | 969,382 | ||
Earnings per common share - basic and diluted
|
$ | 96.94 | ||
Weighted average number of common shares
|
||||
outstanding - basic and diluted
|
10,000 |
104
STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||||||
Retained
|
Accumulated
|
|||||||||||||||||||||||||||
Common Stock
|
Earnings
|
Other Comprehensive
|
Comprehensive
|
|||||||||||||||||||||||||
Shares
|
Amount
|
(Deficit)
|
Paid-in-Capital
|
Income (Loss)
|
Income (Loss)
|
Total
|
||||||||||||||||||||||
Balance, October 20, 2008
|
- | $ | - | $ | - | $ | - | $ | - |
|
$ | - | ||||||||||||||||
Proceeds from sale of common stock
|
10,000 | 340 | 340 | |||||||||||||||||||||||||
Foreign currency adjustment
|
7 | $ | 7 | 7 | ||||||||||||||||||||||||
Net loss
|
(42 | ) | (42 | ) | (42 | ) | ||||||||||||||||||||||
Comprehensive loss
|
$ | (35 | ) | |||||||||||||||||||||||||
Balance, December 31, 2008
|
10,000 | 340 | (42 | ) | - | 7 | 305 | |||||||||||||||||||||
Foreign currency adjustment
|
54,160 | $ | 54,160 | 54,160 | ||||||||||||||||||||||||
Net earnings
|
1,096,878 | 1,096,878 | 1,096,878 | |||||||||||||||||||||||||
Comprehensive income
|
$ | 1,151,038 | ||||||||||||||||||||||||||
Balance, December 31, 2009
|
10,000 | 340 | 1,096,836 | - | 54,167 | 1,151,343 | ||||||||||||||||||||||
Contribution of land by shareholder
|
184,010,400 | 184,010,400 | ||||||||||||||||||||||||||
Foreign currency adjustment
|
(67,958 | ) | $ | (67,958 | ) | (67,958 | ) | |||||||||||||||||||||
Net earnings
|
969,382 | 969,382 | 969,382 | |||||||||||||||||||||||||
$ | 901,424 | |||||||||||||||||||||||||||
Comprehensive income
|
||||||||||||||||||||||||||||
Balance June 30, 2010
|
10,000 | $ | 340 | $ | 2,066,218 | $ | 184,010,400 | $ | (13,791 | ) | $ | 186,063,167 |
105
PSO "KAZANNEFTEHIMINVEST"
|
||||
STATEMENTS OF CASH FLOWS
|
||||
(Unaudited)
|
||||
|
||||
For the Six Months
|
||||
Ended
|
||||
June 30, 2010
|
||||
Cash flows from operating activities:
|
||||
Net earnings (loss)
|
$ | 969,382 | ||
Adjustments to reconcile net earnings (loss) to net cash
|
||||
provided by operating activities:
|
||||
Depreciation and amortization
|
229,933 | |||
Changes in operating assets and
|
||||
liabilities
|
(11,656,180 | ) | ||
Net cash provided by (used in) operating activities
|
(10,456,865 | ) | ||
Cash flows from investing activities:
|
||||
Purchase of property and equipment
|
(144,873 | ) | ||
Cash flows from financing activities:
|
||||
Proceeds from loan
|
12,326,548 | |||
Effect of exchange rate changes on cash
|
(3,454 | ) | ||
Net increase (decrease) in cash and cash equivalents
|
1,721,356 | |||
Cash and cash equivalents-beginning of year
|
379,487 | |||
Cash and cash equivalents-end of year
|
$ | 2,100,843 |
106
PSO "KAZANNEFTEHIMINVEST"
|
||||
STATEMENTS OF CASH FLOWS
|
||||
(Unaudited)
|
||||
Continued
|
||||
For the Six Months
|
||||
|
Ended
|
|||
June 30, 2010
|
||||
Supplementary Information:
|
||||
Cash paid during the year for:
|
||||
Interest
|
$ | - | ||
Income taxes
|
$ | 417,000 | ||
Changes in operating assets and liabilities consist of:
|
||||
(Increase) decrease in accounts receivable
|
$ | (111,515 | ) | |
(Increase) in inventory
|
(590,344 | ) | ||
Decrease in prepaid expenses
|
31,689 | |||
(Decrease) in accounts payable and accrued expenses
|
(2,637,391 | ) | ||
(Decrease) in customer advances
|
(8,152,574 | ) | ||
(Decrease) in taxes payable
|
(196,045 | ) | ||
|
$ | (11,656,180 | ) |
107
PSO "KAZANNEFTEHIMINVEST"
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2010
1.
|
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Organization
PSO "Kazanneftehiminvest" (the “Company” or “PSO "Kazanneftehiminvest"”) is a construction company located in the Russian Federation. Revenue is predominantly within the Russian Federation. The Company's current project is the construction of a 495,000 square foot hotel and spa.
Basis of Presentation
On July 1, 2009, the Financial Accounting Standards Board ("FASB") established Accounting Standards Codification ("ASC") as the primary source of authoritative generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
Reporting and Functional Currency
The Company has determined that the United States dollar (“USD”) is the reporting currency for the purposes of financial reporting under United States Generally Accepted Accounting Principles.
The local currency and the functional currency of the subsidiaries of the Company is the Russian Rouble (“RUR”).
Any conversion of RUR amounts to USD should not be construed as a representation that such RUR amounts have been, could be, or will in the future be converted into USD at the current exchange rate or at any other exchange rate.
2.
|
PROPERTY AND EQUIPMENT
|
In June 2010, the Company’s shareholder contributed land in the amount of approximately $184 million, the fair value at the date of contribution. The land contributed was approximately 8.56 sq miles located in Kazan, Russia. The land is planned for future development projects for commercial and residential use.
108
3.
|
SUBSEQUENT EVENTS
|
Effective July 1, 2010, the Company entered into an Equity Exchange and Acquisition Agreement, dated as of June 25, 2010 (the “Agreement”), by and between the Company, Royal Style Design, Inc. and the owner of the Company. The Agreement provides for the acquisition by Royal Style Design of 100% of the outstanding ownership interests in the Company, in exchange for 32,260,000 shares of Royal Style Design common stock.
Subsequent events have been evaluated through August 2, 2010, which is the date these financial statements were issued.
109
(b) Pro Forma Financial Information.
ROYAL STYLE DESIGN, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET AS OF JUNE 30, 2010
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009 AND THE SIX MONTHS ENDED JUNE 30, 2010
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2010
|
111 |
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2010
|
112 |
Unaudited Pro Forma Consolidated Statement of Operations
|
|
for the year ended December 31, 2008
|
113 |
Notes to Unaudited Pro Forma Consolidated Statements of Operations
|
|
for the year ended December 31, 2008
|
114 |
Unaudited Pro Forma Consolidated Statement of Operations
|
|
for the six months ended June 30, 2010
|
115 |
Notes to Unaudited Pro Forma Consolidated Statement of Operations
|
|
for the six months ended June 30, 2010
|
116 |
110
ROYAL STYLE DESIGN INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 2010
(Unaudited)
BASIS OF PRESENTATION
The summarized pro forma balance sheet as of June 30, 2010 has been prepared to reflect the KNHI, Technostroy and Xerxis acquisitions on June 30, 2010. These pro forma financial statements should be read in conjunction with the June 30, 2010 consolidated financial statements of the Company.
Royal Style Design, Inc.
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Royal Style Design, Inc.
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and Subsidiaries
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KNHI
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Technostroy
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Xerxis
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and Subsidiaries
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Pro Forma
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ASSETS
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Proforma
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Current Assets:
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June 30, 2010
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(1) |
June 30, 2010
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(1) |
June 30, 2010
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(1) |
June 30, 2010
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(1) |
Adjustment
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June 30, 2010
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Cash and cash equivalents
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$ | 274,562 | $ | 2,100,843 | $ | 449,753 | $ | 66,613 | $ | 2,891,771 | |||||||||||||||||||
Accounts receivable
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1,202,515 | 2,642,814 | 24,636 | 23,741 | 3,893,706 | ||||||||||||||||||||||||
Notes receivable - related parties
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64,520 | - | - | - | 64,520 | ||||||||||||||||||||||||
Inventories
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642,964 | 13,231,216 | 55,404 | - | 13,929,584 | ||||||||||||||||||||||||
Other current assets
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51,007 | - | - | - | 51,007 | ||||||||||||||||||||||||
Total Current Assets
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2,235,568 | 17,974,873 | 529,793 | 90,354 | 20,830,588 | ||||||||||||||||||||||||
Property and equipment-net
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1,250,125 | 185,255,693 | 502,373 | (4) | 200,000 | 187,208,191 | |||||||||||||||||||||||
Goodwill
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49,610 | - | - | - | (5) | 8,453,604 | 8,503,214 | ||||||||||||||||||||||
Other assets
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109,542 | - | - | - | 109,542 | ||||||||||||||||||||||||
Total Assets
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$ | 3,644,845 | $ | 203,230,566 | $ | 1,032,166 | $ | 90,354 | $ | 216,651,535 | |||||||||||||||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
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Current portion of long-term debt
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$ | 202,223 | $ | - | $ | - | $ | - | $ | 202,223 | |||||||||||||||||||
Accounts payable
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911,965 | 2,666,666 | - | 1,800 | 3,580,431 | ||||||||||||||||||||||||
Accrued expenses
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181,848 | 142,097 | 27,539 | - | 351,484 | ||||||||||||||||||||||||
Customer advances
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267,088 | 190,163 | - | - | 457,251 | ||||||||||||||||||||||||
Due to related parties
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164,706 | - | - | - | 164,706 | ||||||||||||||||||||||||
Deferred revenue
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50,000 | - | - | - | 50,000 | ||||||||||||||||||||||||
Income taxes payable
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26,650 | 90,448 | 28,997 | - | 146,095 | ||||||||||||||||||||||||
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Total Current Liabilities
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1,804,480 | 3,089,374 | 56,536 | 1,800 | 4,952,190 | ||||||||||||||||||||||||
Long-term Liabilities:
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Long-term debt-less current portion above
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35,958 | 14,078,025 | - | - | 14,113,983 | ||||||||||||||||||||||||
Total Liabilities
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1,840,438 | 17,167,399 | 56,536 | 1,800 | 19,066,173 | ||||||||||||||||||||||||
Commitments & Contingencies
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Stockholders' Equity:
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Common stock
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93,638 | 340 | 379 | - | (2)(3)(5) | (7,089 | ) | 87,268 | |||||||||||||||||||||
Additional paid-in capital
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1,716,579 | 184,010,400 | - | - | (2)(3)(4)(5) | 11,776,925 | 197,503,904 | ||||||||||||||||||||||
Retained earnings
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98,699 | 2,066,218 | 1,146,025 | 88,554 | (5) | (3,300,797 | ) | 98,699 | |||||||||||||||||||||
Accumulated comprehensive income (loss)
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(104,509 | ) | (13,791 | ) | (170,774 | ) | - | (5) | 184,565 | (104,509 | ) | ||||||||||||||||||
Total Stockholders' Equity
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1,804,407 | 186,063,167 | 975,630 | 88,554 | 197,585,362 | ||||||||||||||||||||||||
Total Liabilities and Stockholders' Equity
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$ | 3,644,845 | $ | 203,230,566 | $ | 1,032,166 | $ | 90,354 | $ | 216,651,535 |
(1) To reflect the historical balance sheet of June 30, 2010.
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(2) To reflect the return to treasury of 39,000,000 shares by certain directors.
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(3) To reflect the issuance of 32,630,159 common shares in connection with the acquisition.
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(4) To reflect the estimated fair value adjustments of $200,000 to Property and Equipment.
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(5) To eliminate the investment in KNHI, Technostroy and Xerxis and record goodwill in connection with these acquisitions.
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111
ROYAL STYLE DESIGN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of the financial statements for the KNHI, Technostroy and Xersis acquisitions 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 revenues and expenses during the reporting periods. Although these estimates are based on management's best available knowledge of current and future events, actual results could be different from those estimates.
Fair Value Adjustments: The Company may have adjustments to its Balance Sheet as a result of recording any assets acquired and liabilities assumed at the acquisition–date fair values. However, the appraisals of these assets and liabilities have not been completed. Management have prepared the pro forma balance sheet estimating the fair value adjustments of the machinery and equipment acquired. Management does not expect any intangible assets to be acquired in connection with the acquisitions.
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ROYAL STYLE DESIGN INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
(Unaudited)
BASIS OF PRESENTATION
The summarized proforma statement of operations for the year ended December 31, 2009 has been prepared to reflect the KNHI, Technostroy and Xerxis acquisitions on January 1, 2009. The KNHI, Technostroy and Xerxis acquisition occurred on July 1, 2010, and therefore, the proforma adjustments include revenue and expenses related to the KNHI, Technostroy and Xerxis acquisition for the twelve months ended December 31, 2009. These unaudited proforma consolidated financial results have been prepared for comparative purposes only and may not be indicative of the results that would have occurred if the Company had completed the acquisition at an earlier date or the results that will be attained in the future. These proforma financial statements should be read in conjunction with the December 31, 2009 consolidated financial statements of the Company.
Royal Style Design, Inc.
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Royal Style Design, Inc.
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and Subsidiaries
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KNHI
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Technostroy
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Xerxis
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and Subsidiaries
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Pro Forma
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Historical
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Historical
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Historical
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Historical
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For the Year Ended
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Year Ended
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Year Ended
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Year Ended
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Year Ended
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Proforma
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December 31,
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December 31, 2009
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(1) |
December 31, 2009
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(1) |
December 31, 2009
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(1) |
December 31, 2009
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(1) |
Adjustment
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2009 | |||||||||||||||||
Sales
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$ | 1,217,560 | $ | 4,263,454 | $ | 2,696,306 | $ | 194,162 | $ | - | $ | 8,371,482 | ||||||||||||||
Costs and expenses:
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Cost of sales
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787,199 | 2,818,422 | 2,243,020 | 146,442 | (2) | 20,000 | 6,015,083 | |||||||||||||||||||
General and administrative expenses
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584,910 | 73,934 | 171,908 | 19,840 | 850,592 | |||||||||||||||||||||
1,372,109 | 2,892,356 | 2,414,928 | 166,282 | 6,865,675 | ||||||||||||||||||||||
Income (loss) from operations
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(154,549 | ) | 1,371,098 | 281,378 | 27,880 | 1,505,807 | ||||||||||||||||||||
Other income (expense):
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Interest expense
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(2,345 | ) | - | - | - | (2,345 | ) | |||||||||||||||||||
Interest income
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- | - | - | 334 | 334 | |||||||||||||||||||||
(Loss) gain on sale of fixed assets
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- | - | - | - | - | |||||||||||||||||||||
(2,345 | ) | - | - | 334 | (2,011 | ) | ||||||||||||||||||||
Earnings (loss) before provision for income taxes
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(156,894 | ) | 1,371,098 | 281,378 | 28,214 | 1,503,796 | ||||||||||||||||||||
Provision for income taxes
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18,346 | 274,220 | 49,494 | 17,457 | (3) | (4,000 | ) | 355,517 | ||||||||||||||||||
Net earnings (loss)
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$ | (175,240 | ) | $ | 1,096,878 | $ | 231,884 | $ | 10,757 | $ | 1,148,279 | |||||||||||||||
Earnings (loss) per common share
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- basic and diluted
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$ | 0.00 | $ | 0.01 | ||||||||||||||||||||||
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Weighted average common shares
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- basic and diluted
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86,897,177 | 87,268,670 |
Pro Forma Adjustments Related to the Acquisition
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(1) To reflect the historical revenue and operating expenses for the period January 1, 2009 to December 31, 2009.
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(2) To reflect depreciation expense on the increase in the estimated fair value of the machinery and equipment acquired.
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(3) To reflect tax benefits realized.
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(4) The basic and diluted weighted average shares of common stock for the year ended December 31, 2009 were 87,268,670 for the proforma calculation assuming the issuance
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of 32,630,159 common shares in connection with the acquisitions and the return to treasury of 39,000,000 shares by certain directors.
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113
ROYAL STYLE DESIGN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of the financial statements for the KNHI, Technostroy and Xersis acquisitions 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 revenues and expenses during the reporting periods. Although these estimates are based on management's best available knowledge of current and future events, actual results could be different from those estimates.
Acquisition-Related Costs: The majority of the acquisition-related costs have been reflected by the Company as of June 30, 2010 in the historical financial statements. Any acquisition-related costs subsequent to June 30, 2010, were not material. The majority of the acquisition-related costs related to professional fees and were expensed as incurred.
Adjustments to the Statement of Operations: The Company may have corresponding adjustments to its statement of operations as a result of recording any assets acquired and liabilities assumed at the acquisition–date fair values. However, the appraisals of these assets and liabilities have not been completed. Management have prepared the pro forma statement of operations estimating the fair value of the machinery and equipment acquired and the related depreciation expense and tax effect realized.
114
ROYAL STYLE DESIGN INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2010
(Unaudited)
BASIS OF PRESENTATION
The summarized proforma statement of operations for the six months ended June 30, 2010 has been prepared to reflect the KNHI, Technostroy and Xerxis acquisitions on January 1, 2010. The KNHI, Technostroy and Xerxis acquisition occurred on July 1, 2010, and therefore, the proforma adjustments include revenue and expenses related to the KNHI, Technostroy and Xerxis acquisition for the six months ended June 30, 2010. These unaudited proforma consolidated financial results have been prepared for comparative purposes only and may not be indicative of the results that would have occurred if the Company had completed the acquisition at an earlier date or the results that will be attained in the future. These proforma financial statements should be read in conjunction with the December 31, 2009 consolidated financial statements of the Company.
Royal Style Design, Inc.
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Royal Style Design, Inc.
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and Subsidiaries
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KNHI
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Technostroy
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Xerxis
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and Subsidiaries
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Pro Forma
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Historical
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Historical
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Historical
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Historical
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For the
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Six Months Ended
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Six Months Ended
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Six Months Ended
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Six Months Ended
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Proforma |
Six Months Ended
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June 30, 2010
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June 30, 2010
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June 30, 2010
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June 30, 2010
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Adjustment |
June 30, 2010
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Sales
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$ | 2,895,209 | (1) | $ | 8,865,571 | (1) | $ | 1,117,898 | (1) | $ | 100,063 | (1) | $ | - | $ | 12,978,741 | |||||||||
Costs and expenses:
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Cost of sales
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1,912,254 | 7,496,457 | 904,538 | 0 | (2) | 10,000 | 10,323,249 | ||||||||||||||||||
General and administrative expenses
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735,910 | 157,387 | 68,373 | 11,509 | 973,179 | ||||||||||||||||||||
2,648,164 | 7,653,844 | 972,911 | 11,509 | 11,296,428 | |||||||||||||||||||||
Income (loss) from operations
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247,045 | 1,211,727 | 144,987 | 88,554 | 1,682,313 | ||||||||||||||||||||
Other income (expense):
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Interest expense
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(11,218 | ) | - | - | - | (11,218 | ) | ||||||||||||||||||
Other income
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10,809 | - | - | - | 10,809 | ||||||||||||||||||||
(Loss) gain on sale of fixed assets
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- | - | - | - | - | ||||||||||||||||||||
(409 | ) | - | - | - | (409 | ) | |||||||||||||||||||
Earnings (loss) before provision for income taxes
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246,636 | 1,211,727 | 144,987 | 88,554 | 1,681,904 | ||||||||||||||||||||
Provision for income taxes
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50,269 | 242,345 | 28,997 | - | (3) | (2,000 | ) | 319,611 | |||||||||||||||||
Net earnings (loss)
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$ | 196,367 | $ | 969,382 | $ | 115,990 | $ | 88,554 | $ | 1,362,293 | |||||||||||||||
Earnings (loss) per common share
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- basic and diluted
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$ | 0.00 | $ | 0.02 | |||||||||||||||||||||
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Weighted average common shares
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- | ||||||||||||||||||||||||
- basic and diluted
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93,638,511 | 80,527,336 |
Pro Forma Adjustments Related to the Acquisition
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(1) To reflect the historical revenue and operating expenses for the period January 1, 2010 to June 30, 2010.
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(2) To reflect depreciation expense on the increase in the estimated fair value of the machinery and equipment acquired.
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(3) To reflect tax benefits realized.
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(4) The basic and diluted weighted average shares of common stock for the six months ended June 30, 2010 were 87,268,670 for the proforma calculation assuming the issuance
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of 32,630,159 common shares in connection with the acquisitions and the return to treasury of 39,000,000 shares by certain directors.
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115
ROYAL STYLE DESIGN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of the financial statements for the KNHI, Technostroy and Xersis acquisitions 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 revenues and expenses during the reporting periods. Although these estimates are based on management's best available knowledge of current and future events, actual results could be different from those estimates.
Acquisition-Related Costs: The majority of the acquisition-related costs have been reflected by the Company as of June 30, 2010 in the historical financial statements. Any acquisition-related costs subsequent to June 30, 2010, were not material. The majority of the acquisition-related costs related to professional fees and were expensed as incurred.
Adjustments to the Statement of Operations: The Company may have corresponding adjustments to its statement of operations as a result of recording any assets acquired and liabilities assumed at the acquisition–date fair values. However, the appraisals of these assets and liabilities have not been completed. Management have prepared the pro forma statement of operations estimating the fair value of the machinery and equipment acquired and the related depreciation expense and tax effect realized.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DIVERSIFIED GLOBAL HOLDINGS GROUP, INC.. | ||||
Date: February 4, 2011
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By:
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/s/ Richard Lloyd | ||
Richard Lloyd | ||||
Chief Executive Officer | ||||
117