amended8k061308.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 8-K/A
(Amendment No. 1)

CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)                                                                                                                                                        June 13, 2008

INTERNATIONAL CONSOLIDATED COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Florida                                                                                                         050742                                                                                   02-0555904
(State or other jurisdiction of incorporation)                         (Commission File Number)                                               (IRS Employer Identification No.)


                                      2100 19th Street, Sarasota, FL                                                                                                                           34234
        (Address of principal executive offices)                                                                                                                        (Zip Code)

Issuer’s telephone number including Area Code                                                                                                           (941) 330-0336

Not Applicable
(Former name of 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:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
1
 

Item 1.01 ENTRY INTO MATERIAL DEFNITIVE AGREEMENT

Grow Ease International Ltd., a wholly owned subsidiary of International Consolidated Companies, Inc. (the “Company”) has entered into a share exchange agreement with Aim Sky Ltd., a British Virgin Islands corporation, to acquire 100% of the Common Stock of Aim Sky in exchange for 42,500 shares of Grow Ease’s Series A Preferred Shares.  The Series A Preferred Shares are convertible into 42,500 common shares of Grow Ease upon the happening of certain corporate events including a spin off or public offering of Aim Sky.  Additionally, the agreement obligates the Company to provide up to $2,000,000 (Two Million US Dollars) in financing for the acquired business.

Aim Sky Ltd., is the owner of 100% of China Genetic Ltd, which in turn owns 57% of Shanghai Huaxin High Biotechnology Inc., a Chinese company located in Pudong Shanghai, China, and has the right to vote 100%, and an option to purchase, the shares of Sichuan Kelun Bio-Tech Pharmaceutical Co., Ltd., a Chinese company located in Chengdu, China.

Item 9.01 Financial Statements and Exhibits.

(a)  
Financial statements of businesses acquired and are attached accordingly.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


REGISTRANT:
Date:  June 13, 2008                                                                           INTERNATIONAL CONSOLIDATED COMPANIES, INC.

By: /S/ Antonio F. Uccello, III
Antonio F. Uccello, III, President
and Chief Executive Officer


 
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CHINA GENETIC LIMITED

FINANCIAL STATEMENTS

JUNE 30, 2007 AND 2006




















 
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CHINA GENETIC LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS






Report of Independent Registered Public Accounting Firm                                                                                                                    5

Consolidated Balance Sheets at June 30, 2007 AND 2006                                                                                                                       6

Consolidated Statements of Operations for the years ended June 30, 2007 and 2006                                                                         7

Consolidated Statements of Changes in Shareholders’ Equity for the years ended June 30, 2007 and 2006                                  8

Consolidated Statements of Cash Flows for the years ended June 30, 2007 and 2006                                                                        9

Notes to Consolidated Financial Statements                                                                                                                                      10-12

 
4
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders
China Genetic Limited


We have audited the accompanying consolidated balance sheets of China Genetic Limited as of June 30, 2007 and 2006 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years ended June 30, 2007 and 2006. These consolidated 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 standards established by the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 China Genetic Limited as of June 30, 2007 and 2006 and the results of its operations, changes in shareholders’ equity, and cash flows for the years ended June 30, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.




/S/Bagell Josephs, Levine & Company, LLC

Bagell Josephs, Levine & Company, LLC
Marlton, New Jersey
March 21, 2008
 
 
 
5
 
 
CHINA GENETIC LIMITED
CONSOLIDATED BALANCE SHEETS

ASSETS
                       
               
June 30,
               
2007
    
2006
Current assets:
                  
 
Cash and cash equivalents
        
 $             168,286
    
 $             180,017
 
Accounts receivable
        
                482,338
    
                113,751
 
Inventory
          
                512,510
    
                557,214
 
Advance to suppliers
        
                 48,226
    
                 58,303
 
Other receivables, net of allowance for bad debt
    
                 87,421
    
                 28,122
     
Total Current Assets
      
             1,298,781
    
                937,407
                       
Property and equipment, net of accumulated depreciation
    
             8,481,161
    
             8,488,473
                       
Other assets:
                  
 
Loan to an outside party
        
                 65,686
    
                 54,253
 
Deposits for intangible assets and construction in process
  
             1,528,342
    
                396,437
 
Intangible assets, net
        
             1,196,345
    
             1,292,351
     
Total Other Assets
      
             2,790,373
    
             1,743,041
                       
   
Total Assets
          
 $        12,570,314
    
 $        11,168,921
                       
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICITS)
                       
Current liabilities:
                  
 
Accounts payable
        
 $             475,966
    
 $             336,867
 
Advance from customers
        
                 13,417
    
                 12,343
 
Taxes payable
          
                138,413
    
                 33,312
 
Accrued expenses and other payables
      
             1,609,044
    
             1,422,416
 
Bank loans
          
             1,455,859
    
             1,386,238
     
Total Current Liabilities
      
             3,692,699
    
             3,191,175
                       
Long-term liabilities:
                
 
Loan from related parties and others
      
             2,157,107
    
             2,040,754
                       
   
Total Liabilities
        
             5,849,806
    
             5,231,930
                       
Minortiy interest
          
             2,850,223
    
             2,508,477
                       
Stockholders' Equity (Deficits)
                
 
Common Stock, 10,000 shared authorized, $0.13 par value
          
 
2 shared issued and outstanding
      
                        -
    
                        -
 
Additional paid-in-capital
        
             5,446,895
    
             5,446,895
 
Accumulated other comprehensive income
    
                306,168
    
                126,951
 
Accumulated deficits
        
            (1,882,779)
    
            (2,145,331)
     
Total Stockholders' Equity (Deficits)
    
             3,870,284
    
             3,428,514
                       
   
Total Liabilities and Stockholders' Equity (Deficits)
    
 $        12,570,314
    
 $        11,168,921
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
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CHINA GENETIC LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended June 30, 2007 and 2006
 

 
           
2007
  
2006
                 
Net Sales
        
 $              3,323,231
  
 $                 1,718,111
                 
Cost of Sales
      
                 1,764,769
  
                       667,784
                 
Gross Profit
    
 
                 1,558,462
  
                    1,050,327
                 
Operating Expenses
            
 
Research & development expenses
  
                       1,212
  
                        39,461
 
Selling, general and administrative
  
                 1,050,344
  
                    1,683,243
                 
   
Operating income (loss)
  
 
                    506,906
  
                      (672,377)
                 
Other Income (Expenses)
          
 
Interest Income
      
2,019
  
443
 
Interest Expenses
      
(105,225)
  
(100,455)
 
Other Income (Expenses)
    
                     68,991
  
                        75,036
   
Total other income (expenses)
  
(34,214)
  
(24,976)
                 
Income Before Income Taxes and Minority interest
 
                    472,692
  
                      (697,353)
                 
Provision for Income Taxes
    
                              -
  
                                 -
                 
Minortiy interest
      
210,139
  
(290,593)
                 
Net income (loss)
      
 $                 262,553
  
 $                   (406,760)
                 
Other Comprehensive Income
          
 
Foreign Currency Translation Adjustment
  
                    179,217
  
                        33,002
                 
Comprehensive Income (Loss)
    
 $                 441,770
  
 $                   (373,758)
                 
Basic and diluted income (loss) per common share
  
 $                 131,276
  
 $                   (203,380)
                 
Weighted average number of common shares outstanding
 
                             2
  
                                2
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
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CHINA GENETIC LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For The Years Ended June 30, 2007 and 2006
 
 

         
Additional
  
Accumulated Other
      
Total
     
Common
  
Paid-in
  
Comprehensive
  
Accumulated
  
Shareholders'
     
Stock
  
Capital
  
Income
  
Deficits
  
Equity
                       
Balance at June 30, 2005
  
 $                   -
  
 $      5,446,895
  
 $                     93,948
  
 $        (1,854,738)
  
 $       3,686,105
                       
 
Net loss
              
 $           (290,593)
  
-290,593
                       
 
Other Comprehensive income
          
33,002
      
33,002
 
    Foreign currency translation adjustment
                  
                       
Balance at June 30, 2006
  
 $                   -
  
5,446,895
  
126,951
  
 $        (2,145,331)
  
3,428,514
                       
 
Net income
              
262,553
  
262,553
                       
 
Other Comprehensive income
          
179,217
      
179,217
 
    Foreign currency translation adjustment
                  
                       
Balance at June 30, 2007
  
 $                   -
  
 $      5,446,895
  
 $                   306,168
  
 $        (1,882,779)
  
 $       3,870,284
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
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CHINA GENETIC LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 2007 and 2006
 

 
               
 2007
  
 2006
                     
Cash Flows From Operating Activities:
          
 
Net income (loss)
      
 $            262,553
  
 $         (406,760)
 
Adjustments to reconcile net income (loss) to net cash
        
   
provided by operating activities:
          
     
Depreciation and amortization
    
               588,268
  
            582,442
     
Minority interest
      
               210,139
  
           (290,593)
                     
   
Changes in operating assets and liabilities:
          
     
Accounts receivable
      
              (368,586)
  
            173,347
     
Other accounts receivable
    
               (59,299)
  
            266,893
     
Inventory
        
                44,705
  
           (227,050)
     
Advance to vendors
      
                10,077
  
              16,801
     
Accounts payable
      
               139,099
  
            112,335
     
Advance from customers
    
                  1,074
  
              12,343
     
Taxes payable
      
               105,101
  
             (15,579)
     
Accrued expenses and other payables
    
               186,627
  
            205,504
                     
       
Cash provided by operating activities
  
            1,119,757
  
            429,682
                     
Cash Flows From Investing Activities:
          
     
Deposits for intangible assets and construction in process
           (1,131,905)
  
           (392,621)
     
Purchase of property and equipment
    
                 (9,220)
  
             (57,238)
                     
       
Cash (used in) investing activities
  
           (1,141,125)
  
           (449,860)
                     
Cash Flows From Financing Activities
          
     
Contribution from onwers for the incorporation of subsidiary company
                         -
  
            120,824
     
(Payment) Proceeds from loans from officers and others
                  2,066
  
           (159,060)
                     
       
Cash provided by (used in) financing activities
                  2,066
  
             (38,236)
                     
Effect of exchange rate changes on cash and cash equivalents
  
                  7,571
  
             (11,186)
                     
Decrease in cash and cash equivalents
    
               (11,731)
  
             (69,599)
                     
Cash and Cash Equivalents - Beginning of year
    
               180,017
  
            249,616
                     
Cash and Cash Equivalents - Ending of year
    
 $            168,286
  
 $          180,017
                     
Supplemental disclosures of cash flow information:
          
                     
     
Interest paid
      
 $                      -
  
 $                    -
     
Income taxes paid
      
 $                      -
  
 $                    -
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
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CHINA GENETIC LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 FOR THE YEARS ENDED JUNE 30, 2007 and 2006
 

1.  
ORGANIZATION AND BASIS OF PRESENTATION

China Genetic Limited. (“Genetic” or the “Company”) was incorporated in Hong Kong, China on February 9, 2006. The Company owns 57% interest of Shanghai Huaxin High Biotechnology Inc. (“Huaxin”), a Chinese corporation established on January 19, 1993 and 100% interest of Sichuan Kelun Bio-Tech Pharmaceutical Co., Ltd (“Kelun”), also a Chinese corporation incorporated on July 19, 2005. Huaxin is engaged in the development, manufacturing and distribution of pharmaceutical products such as recombinant human interferon capsule and injection. Kelun is engaged in the marketing and distribution of various pharmaceutical products.
 
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

2.  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLE OF CONSOLIDATION - The consolidated financial statements include the financial statements of Genetic and its subsidiaries, Huaxin and Kelun. All significant inter-company transactions are eliminated upon consolidation.
 
USE OF ESTIMATES - The preparation of financial statements in accordance with generally accepted accounting principles require management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
 
CASH AND CASH EQUIVALENTS - The Company considers cash and cash equivalents to include cash on hand and deposits with banks with an original maturity of three months or less.
 
 
ACCOUNTS AND OTHER RECEIVABLES - Accounts and other receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible amounts, as needed.
 
 
The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receiveable balances.  Under the aging method, bad debt percetages determined by management based on historical experience as well as current economic climate are applied to customers' balances categorized by the number of months the underlying invoices have remained outstanding.  The valuation allowance labance is adjusted to the amount computed as a result of the aging method.  When facts subsequently become available to indicated that the allowance provided requires an adjustment, then the adjustment will be classified as a change in estimate.  There is no allowance for uncollectible amounts for the years ended June 30, 2007 and 2006.
 
 
INVENTORY - Inventory comprises raw materials, work in progress, finished goods and packing materials and is stated at the lower of cost or market value. Cost is calculated using the Weighted Average method and includes all costs to acquire and any overhead costs incurred in bringing the inventory to their present location and condition. Overhead costs included in finished goods inventory include direct labor cost and other costs directly applicable to the manufacturing process, including utilities, supplies, repairs and maintenances, and depreciation expense.
 
Market value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete the sale.
 
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property, plant and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets on a straight-line basis. The estimated useful lives for significant property, plant and equipment categories are as follows:
 
Building & buildings improvement                        35 to 45 years
Machinery and equipment                                                10 years
Computer, office equipment and furniture                      5   years
Automobiles                                                                        5   years
 
Construction in progress represents the direct costs of construction or acquisition incurred. Upon completion and readiness for use of the assets, capitalization of these costs ceases and the cost of construction in progress is transferred to fixed assets. No depreciation is provided until the project is completed and the assets are ready for intended use. There is no financing activity occurred during the course of construction.
 
The Company periodically reviews the carrying value of long-lived assets in accordance with SFAS 144. When estimated future cash flows generated by those assets are less than the carrying amounts of the assets, the Company recognized an impairment loss equal to the an amount by which the carrying value exceeds the fair value of assets. Based on its review, the Company believes that there were no impairments of its long-lived assets as of June 30, 2007.
 
REVENUE RECOGNITION - The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Revenues consist of the invoice value of the sale of goods net of sales returns and allowances.


RESEARCH AND DEVELOPMENT COSTS
 
Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities, and have alternative future uses; either in research and development, marketing, or sales are classified as property and equipment or depreciated over their estimated useful lives.
 
FOREIGN CURRENCY TRANSLATION - The Company’s principal country of operations is in the PRC. The financial position and results of operations of the Company are determined using the local currency (“RMB”) as the functional currency. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date the equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated Other Comprehensive Income”. As of June 30, 2007 and 2006, the exchange rate was 7.61 and 7.99 RMB per US Dollar, respectively.
 
TAXES– The Company utilizes Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financials statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to realized. There are no deferred tax amounts at June 30, 2007 and 2006, respectively.
 
The Company’s operating subsidiaries, Huaxin and Kelun, are located in China and governed by the Income Tax Law of China, which were subject to income tax at a statutory rate of 33% (30% state income tax plus 3% local income tax) on its taxable income until January 2008. Starting January 1, 2008, the statutory rate is reduced to 25% for all corporation.
 
Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). Huaxin is entitled to easy Value Added Tax at 6% on the sales of microbial products, while Kelun is a regular VAT payer at 17% on the value added to goods and services. Kelun’s VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company recorded VAT Payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.

 
10
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 
FAIR VALUE OF FINANCIAL STATEMENTS - The carrying amounts of certain financial instruments, including cash, accounts receivable, other receivables, accounts payable, accrued expenses, advances from customers, and other payables approximate their fair values as of June 30, 2007 and 2006 due to the relatively short-term nature of these instruments.
 
CONCENTRATIONS OF BUSINESS AND CRDIT RISK - The Company maintains certain bank accounts in the People’s Republic of China which are not protected by FDIC insurance or other insurance.
 
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and the general state of the PRC’s economy.
 
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. The Company’s operating results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
 
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on its financial statements.
 
In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial statements.

3.  
INVENTORY

 
Inventory consists of the following as of June 30, 2007 and 2006:

   
2007
    
2006
  
             
Raw materials
   $ 12,611     $ 32,025  
Work-in-progress
     214,404       186,742  
Finished goods
     90,905       139,799  
Installment goods
     161,366       145,441  
Supplies&packing materials
     33,224       53,207  
Total inventories
   $ 512,510     $ 557,214  

4.  
DEPOSIT FOR INTANGIBLE ASSETS AND CONSTRUCTION IN PROCESS

 
The Company’s deposit for intangible assets and construction in process as of June 30, 2007 and 2006 are $1,528,342 and $396,437 respectively. Huaxin and Chengdu Shijia Pharmaceutical Technology Co., Ltd (“Shijia”) signed an agreement to purchase a new interferon technology. The advance to Shijia as of June 30, 2007 and 2006 are approximately $1,510,772 and $375,267 respectively.
 

5.  
FIXED ASSETS

Fixed assets consist of the following as of June 30, 2007 and 2006:

   
2007
    
2006
  
             
Building&buildings improvement
   $ 7,807,833     $ 7,434,450  
Machinery and equipment
     3,356,179       3,195,233  
Computer, office equipment and furniture
     488,342       456,423  
Automobiles
     198,771       189,266  
Total fixed assets
     11,851,125       11,275,372  
Less:accumulated depreciation
     (3,382,182 )     (2,798,532 )
Property and equipment, net
     8,468,943       8,476,840  
Construction in progress
     12,218       11,633  
Total fixed assets, net
   $ 8,481,161     $ 8,488,473  


6.  
INTANGIBLE ASSETS
 
Intangible assets include patent rights and trade mark. The Company amortizes its intangible assets over the life of the right, usually 10 years. The balances after amortization of the intangible mention above were 1,186,366 and 1,263,846 on June 30, 2007 and 2006 respectively.
 
7.  
BANK LOANS

Bank loans were obtained from several local banks in China through the Company’s newly acquired subsidiary, with interest rates ranging from 5.841% to 7.728% per annum. All loans are currently in default and are payable upon demand. The majority of the loans are secured by the plant and equipments owned by the subsidiary.
 
Bank loans are summarized as follows:

 
No.
 
  
  
Due Date
  
Interest Rate
Per Annum
  
June 30,
2007
  
June 30,
2006
 1
1
  
Shanghai Bank
November 27, 2004
  
5.841%
  
$
1,206,253
  
$
1,148,569
   2
  
Aijian Trust
November 12, 1999
  
7.728%
    
131,372
    
125,089
   3
  
Industrial commercial bank of China
June 30, 2000
  
7.185%
    
 
 
118,234
    
112,580
 
  
    
  
              
 
  
Total
  
  
    
$
1,455,859
  
$
1,386,238

11
 
 
 
8. 
NOTES PAYABLE – RELATED PARTY

The Company periodically borrows from its principle officers, prior affiliates and others to finance the operations whenever necessary. As of June 30, 2007 and 2006, the details of notes payable are as follows:
 

     
Interest
Balances
No.
Payees
Relationship
 Rate
June 30
June 30
     
Per Annum
2007
2006
1
Shenzhen Weiji Development Co.
Affiliate
0.00%
 $        530,741
 $        505,360
2
Dechang Investment Development Co.
Affiliate
6.00%
           459,800
           437,812
3
Golden Linker
Affiliate
5.84%
           350,097
           329,690
4
Mr. Zhong Gang
Affiliate
0.00%
             10,010
                     -
5
Ms. Zhuang Heling
Director
0.00%
           262,743
           250,178
6
Mr. Yan Xiaoxia
Director
0.00%
           208,718
           198,737
7
Mr. Zhang Xiong
Director
0.00%
             65,686
             62,545
8
Mr. Liu Xinyuan
Director
0.00%
           269,312
           256,432
 
Total
    
 $     2,157,107
 $     2,040,754

9.  
MAJOR CUSTOMERS

The only customer counting for more than 10% of sales is Panzhihua Steel Employee Hospital with a sales amount of USD 602,748, approximately 18% of the total sales generated in 2007. There was no customer counting for more than 10% of sales in 2006.     .

10.  
STOCKHOLDERS’ EQUITY

 
The Company was incorporated in Hong Kong, China on February 9, 2006 and authorized to issue 10,000 shares of HK$1.00 each (Approximately $0.13 per share). There were 2 shares issued and outstanding as of June 30, 2007 and 2006.

12

 













CHINA GENETIC LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)






















 
13
 



CHINA GENETIC LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Condensed Consolidated Balance Sheet as of March 31, 2008 (Unaudited) and June 30, 2007 (Audited)                                                15

Condensed Consolidated Statements of Operations for the Nine Months Ended March 31, 2008 and 2007 (Unaudited)                      16

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2008 and 2007 (Unaudited)                     17

Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                                                       18-20






 
14
 

CHINA GENETIC LIMITED
CONSOLIDATED BALANCE SHEETS
As of March 31, 2008 (Unaudited) and June 30, 2007 (Audited)

 
ASSETS
                       
               
MARCH 31
    
JUNE 30
               
2008
    
2007
               
(UNAUDITED)
    
(AUDITED)
Current assets:
                  
 
Cash and cash equivalents
        
 $             270,442
    
 $             168,286
 
Accounts receivable
        
                836,974
    
                482,338
 
Inventories
          
                624,946
    
                512,510
 
Advance to vendors
        
                 52,353
    
                 48,226
 
Other receivables net of allowance for bad debt
    
                175,310
    
                 87,421
     
Total Current Assets
      
             1,960,025
    
             1,298,781
                       
Property and equipment, net of accumulated depreciation
    
             8,928,463
    
             8,481,161
                       
Other assets:
                  
 
Loan to an outside party
        
                 71,306
    
                 65,686
 
Deposits for intangible assets and construction in process
  
             2,909,760
    
             1,528,342
 
Intangible assets, net
        
             1,167,702
    
             1,196,345
     
Total Other Assets
      
             4,148,769
    
             2,790,373
                       
   
Total Assets
          
 $        15,037,257
    
 $        12,570,314
                       
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
Current liabilities:
                  
 
Accounts payable
        
 $             568,658
    
 $             475,966
 
Advance from customers
        
                 15,170
    
                 13,417
 
Taxes payable
          
                152,969
    
                138,413
 
Accrued expenses and other payables
      
             1,863,714
    
             1,609,044
 
Loan from banks
        
             1,580,434
    
             1,455,859
     
Total Current Liabilities
      
             4,180,945
    
             3,692,699
                       
Long-term liabilities:
                
 
Loan from related parties and other
      
             2,329,559
    
             2,157,107
                       
   
Total Liabilities
        
             6,510,504
    
             5,849,806
                       
Minortiy interest
          
             3,490,021
    
             2,850,223
                       
Stockholders' Equity
                
 
Common Stock, 10,000 shared authorized, $0.13 par value
          
 
2 shared issued and outstanding
      
                        -
    
                        -
 
Additional paid-in-capital
        
             5,446,895
    
             5,446,895
 
Accumulated other comprehensive income
    
                882,918
    
                306,168
 
Accumulated deficits
        
            (1,293,081)
    
            (1,882,779)
     
Total Stockholders' Equity
    
             5,036,731
    
             3,870,284
                       
   
Total Liabilities and Stockholders' Equity
    
 $        15,037,257
    
 $        12,570,314
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 

 
15
 


CHINA GENETIC LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Nine Months Ended March 31, 2008 and 2007 (Unaudited)
 

 
           
Nine-Month Ended
  
Three-Month Ended
           
March 31
  
March 31
  
March 31
  
March 31
           
2008
  
2007
  
2008
  
2007
           
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
(Unaudited)
                         
Sales
        
 $          4,199,476
  
 $          2,128,090
  
 $          1,752,235
  
 $          1,046,053
                         
Cost of Sales
      
            2,081,131
  
            1,193,055
  
               873,040
  
               637,048
                         
Gross Profit
      
            2,118,345
  
               935,035
 -
               879,196
  
               409,005
                         
Operating Expenses
                  
 
Research & development expenses
  
                 48,700
  
                          -
  
16,236
  
                          -
 
Selling, general and administrative
  
               935,590
  
               442,936
  
               351,894
  
               260,268
                         
   
Operating income
    
            1,134,055
  
               492,099
 -
               511,065
  
               148,737
                         
Other Income (Expenses)
                  
 
Interest Income
            
                     105
    
 
Interest Expesne
    
(106,719)
  
(75,152)
  
(33,872)
  
(28,938)
 
Other Income (Expenses)
    
                 26,416
  
                 18,893
  
                 60,192
  
                 22,763
                         
Income Before Income Taxes and Minority interest
  
            1,053,753
  
               435,840
 -
               537,490
  
               142,563
                         
Provision for Income Taxes
    
                 88,028
  
                          -
  
                          -
  
                          -
                         
Minortiy interest
      
376,027
  
161,518
  
184,485
  
34,452
                         
Net Income
      
 $            589,698
  
 $            274,322
  
 $            353,005
  
 $            108,111
                         
Other Comprehensive Income
                  
 
Foreign Currency Translation Adjustment
  
               575,967
  
               143,645
  
               122,777
  
                 43,470
                         
Comprehensive Income
    
 $          1,165,665
  
 $            417,967
  
 $            475,782
  
 $            151,581
                         
Basic and diluted income (loss) per common share
  
 $            294,849
  
 $            137,161
  
 $            176,502
  
 $              54,056
                         
Weighted average number of common shares outstanding
                         2
  
                         2
 
                         2
  
                         2
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
16
 

CHINA GENETIC LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended March 31, 2008 and 2007 (Unaudited)

 
               
 For the Nine Months Ended
               
 March 31,
    
               
 2008
  
 2007
               
 (Unaudited)
  
 (Unaudited)
                     
Cash Flows From Operating Activities:
          
 
Net income
        
 $                    589,698
  
 $                 274,322
 
Adjustments to reconcile net income to net cash
        
   
provided by operating activities:
          
     
Depreciation and amortization
    
                      459,708
  
                    385,433
     
Minority interest
      
                      376,027
  
                    161,518
                     
   
Changes in operating assets and liabilities:
        
     
Accounts receivable
      
                     (354,637)
  
                   (576,990)
     
Other accounts receivable
    
                       (87,889)
  
                   (148,508)
     
Inventory
        
                     (576,720)
  
                    (27,066)
     
Advance to vendors
      
                                 -
  
                   (118,327)
     
Accounts payable
      
                        92,692
  
                    313,060
     
Advance from customers
    
                          1,753
  
                    345,917
     
Taxes payable
      
                        14,556
  
                      (2,542)
     
Accrued expenses and other payables
    
                      254,671
  
                    (64,571)
                     
       
Cash provided by operating activities
  
                      769,858
  
                    542,245
                     
Cash Flows From Investing Activities:
          
     
Deposits for intangible assets and construction in process
                   (1,187,828)
  
                   (567,865)
     
Purchase of property and equipment
    
                       (70,850)
  
                      (7,169)
                     
       
Cash used in investing activities
  
                   (1,258,678)
  
                   (575,034)
                     
Cash Flows From Financing Activities
          
     
Payment for loans from officers and others
  
                       (11,518)
  
                    335,696
                     
       
Cash provided by (used in) by financing activities
                       (11,518)
  
                    335,696
                     
Effect of exchange rate changes on cash and cash equivalents
                      602,493
  
                   (208,574)
                     
Increase in cash and cash equivalents
    
                      102,155
  
                     94,333
                     
Cash and Cash Equivalents - Beginning of period
  
                      168,286
  
                    180,017
                     
Cash and Cash Equivalents - Ending of period
    
 $                    270,442
  
 $                 274,350
                     
Supplemental disclosures of cash flow information:
        
                     
     
Interest paid
      
 $                              -
  
 $                           -
     
Income taxes paid
      
 $                              -
  
 $                           -
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
17
 

 
 
CHINA GENETIC LIMITED
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 FOR NINE MONTHS ENDED MARCH 31, 2008 and 2007

 

1.  
ORGANIZATION AND BASIS OF PRESENTATION

China Genetic Limited. (“Genetic” or the “Company”) was incorporated in Hong Kong, China on February 9, 2006. The Company owns 57% interest of Shanghai Huaxin High Biotechnology Inc. (“Huaxin”), a Chinese corporation established on January 19, 1993 and 100% interest of Sichuan Kelun Bio-Tech Pharmaceutical Co., Ltd (“Kelun”), also a Chinese corporation incorporated on July 19, 2005. Huaxin is engaged in the development, manufacturing and distribution of pharmaceutical products such as recombinant human interferon capsule and injection. Kelun is engaged in the marketing and distribution of various pharmaceutical products.
 
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

 
2.  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 
PRINCIPLE OF CONSOLIDATION - The consolidated financial statements include the financial statements of Genetic and its subsidiaries, Huaxin and Kelun. All significant inter-company transactions are eliminated upon consolidation.
 
 
USE OF ESTIMATES - The preparation of financial statements in accordance with generally accepted accounting principles require management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
 
CASH AND CASH EQUIVALENTS - The Company considers cash and cash equivalents to include cash on hand and deposits with banks with an original maturity of three months or less.
 
 
ACCOUNTS AND OTHER RECEIVABLES - Accounts and other receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible amounts, as needed.
 
The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, bad debt percentages determined by management based on historical experience as well as current economic climate are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The valuation allowance balance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that the allowance provided requires an adjustment, then the adjustment will be classified as a change in estimate. There is no allowance for uncollectible amounts for the nine months ended March 31, 2008 and 2007.
 
INVENTORY - Inventory comprises raw materials, work in progress, finished goods and packing materials and is stated at the lower of cost or market value. Cost is calculated using the Weighted Average method and includes all costs to acquire and any overhead costs incurred in bringing the inventory to their present location and condition. Overhead costs included in finished goods inventory include direct labor cost and other costs directly applicable to the manufacturing process, including utilities, supplies, repairs and maintenances, and depreciation expense.
 
 
Market value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete the sale.
 
 
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property, plant and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets on a straight-line basis. The estimated useful lives for significant property, plant and equipment categories are as follows:
 
Building & buildings improvement                      35 to 45 years
Machinery and equipment                                              10 years
Computer, office equipment and furniture                    5   years
Automobiles                                                                      5   years
 
Construction in progress represents the direct costs of construction or acquisition incurred. Upon completion and readiness for use of the assets, capitalization of these costs ceases and the cost of construction in progress is transferred to fixed assets. No depreciation is provided until the project is completed and the assets are ready for intended use. There is no financing activity occurred during the course of construction.
 
 
The Company periodically reviews the carrying value of long-lived assets in accordance with SFAS 144. When estimated future cash flows generated by those assets are less than the carrying amounts of the assets, the Company recognized an impairment loss equal to the an amount by which the carrying value exceeds the fair value of assets. Based on its review, the Company believes that there were no impairments of its long-lived assets as of March 31, 2008 and June 31, 2007.
 
REVENUE RECOGNITION - The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Revenues consist of the invoice value of the sale of goods net of sales returns and allowances.
 
RESEARCH AND DEVELOPMENT COSTS
 
 
Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities, and have alternative future uses; either in research and development, marketing, or sales are classified as property and equipment or depreciated over their estimated useful lives.
 
 
FOREIGN CURRENCY TRANSLATION - The Company’s principal country of operations is in the PRC. The financial position and results of operations of the Company are determined using the local currency (“RMB”) as the functional currency. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date the equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated Other Comprehensive Income”. As of March 31, 2008 and June 30, 2007, the exchange rate was 7.01 and 7.61 RMB per US Dollar, respectively.
 
 
 
 
18
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

TAXES - The Company utilizes Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financials statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to realized. There are no deferred tax amounts at March 31, 2008 and June 30, 2007, respectively.
 
The Company’s operating subsidiaries, Huaxin and Kelun, are located in China and governed by the Income Tax Law of China, which were subject to income tax at a statutory rate of 33% (30% state income tax plus 3% local income tax) on its taxable income until January 2008. Starting January 1, 2008, the statutory rate is reduced to 25% for all corporations.
 
Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). Huaxin is entitled to easy Value Added Tax at 6% on the sales of microbial products, while Kelun is a regular VAT payer at 17% on the value added to goods and services. Kelun’s VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company recorded VAT Payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.
 
FAIR VALUE OF FINANCIAL STATEMENTS - The carrying amounts of certain financial instruments, including cash, accounts receivable, other receivables, accounts payable, accrued expenses, advances from customers, and other payables approximate their fair values as of March 31, 2008 and June 30, 2007 due to the relatively short-term nature of these instruments.
 
CONCENTRATIONS OF BUSINESS AND CRDIT RISK - The Company maintains certain bank accounts in the People’s Republic of China which are not protected by FDIC insurance or other insurance.
 
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and the general state of the PRC’s economy.
 
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. The Company’s operating results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, which is the Company’s fiscal year 2008. The Company is currently evaluating the impact of adopting SFAS No. 157 on its financial statements.
 
In February 2007, the FASB issued Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial statements.
 
3.  
INVENTORY

 
Inventory consists of the following as of March 31, 2008 and June 30, 2007:

   
March 31, 2008
    
June 30, 2007
  
             
Raw materials
   $ 15,622     $ 12,611  
Work-in-progress
     199,325       214,404  
Finished goods
     73,085       90,905  
Installment goods
     286,656       161,366  
Supplies & packing materials
     50,258       33,224  
Total inventories
   $ 624,946     $ 512,510  

4.  
DEPOSIT FOR INTANGIBLE ASSETS AND CONSTRUCTION IN PROCESS

 
The Company’s deposit for intangible assets and construction in process as of March 31, 2008 and June 30, 2007 are $2,909,760 and $1,528,342 respectively. Huaxin and Chengdu Shijia Pharmaceutical Technology Co., Ltd (“Shijia”) signed an agreement to purchase a new interferon technology. The advance to Shijia on March 31 and June 30, 2007 are approximate are $2,046,492 and $1,510,772 respectively. Huaxin also entered an agreement with Beijing Zichen Pharmaceutical Technology Institute (“Zichen”) to purchase another new pharmaceutical technology. The advance to Zichen is $846,406 as of March 31, 2008.
 

5.  
FIXED ASSETS

Fixed assets consist of the following as of March 31, 2008 and June 30, 2007:
   
March 31, 2008
    
June 30, 2007
  
             
Building&buildings improvement
   $ 8,475,931     $ 7,807,833  
Machinery and equipment
     3,643,359       3,356,179  
Computer, office equipment and furniture
     548,091       488,342  
Automobiles
     272,413       198,771  
Total fixed assets
     12,939,794       11,851,125  
Less:accumulated depreciation
     (4,024,594 )     (3,382,182 )
Property and equipment, net
     8,915,200       8,468,943  
Construction in progress
     13,263       12,218  
Total fixed assets, net
   $ 8,928,463     $ 8,481,161  



19
 
 
6. 
INTANGIBLE ASSETS
 
Intangible assets include patent rights and trade mark. The Company amortizes its intangible assets over the life of the right, usually 10 years.   The balances after amortization of the intangible mention above were 1,167,702 and 1,186,366 on March 31, 2008 and June 30, 2007 respectively.
 
7.  
BANK LOANS

Bank loans were obtained from several local banks in China through the Company’s newly acquired subsidiary, with interest rates ranging from 5.841% to 7.728% per annum. All loans are currently in default and are payable upon demand. The majority of the loans are secured by the plant and equipments owned by the subsidiary.

Bank loans are summarized as follows:

 
No.
 
  
  
Due Date
  
Interest Rate
Per Annum
  
March 31,
2008
  
June 30,
2007
1
  
Shanghai Bank
November 27, 2004
  
5.841%
  
$
1,309,469
  
$
1,206,253
2
  
Aijian Trust
November 12, 1999
  
7.728%
    
142,613
    
131,372
3
  
Industrial commercial bank of China
June 30, 2000
  
7.185%
    
 
 
128,351
    
118,234
 
  
    
  
              
 
  
Total
  
  
    
$
1,580,434
  
$
1,455,859


8. 
NOTES PAYABLE – RELATED PARTY

The Company periodically borrows from its principle officers, prior affiliates and others to finance the operations whenever necessary. As of March 31, 2008 and June 30, 2007, the details of notes payable are as follows:


     
Interest
Balances
No.
Payees
Relationship
 Rate
March 31
June 30
     
Per Annum
2008
2007
1
Shenzhen Weiji Development Co.
Affiliate
0.00%
 $        576,155
 $        530,741
2
Dechang Investment Development Co.
Affiliate
6.00%
           499,144
           459,800
3
Golden Linker
Affiliate
5.84%
           367,929
           350,097
4
Mr. Zhong Gang
Affiliate
0.00%
                     -
             10,010
5
Ms. Zhuang Heling
Director
0.00%
           285,225
           262,743
6
Mr. Yan Xiaoxia
Director
0.00%
           226,577
           208,718
7
Mr. Zhang Xiong
Director
0.00%
             71,306
             65,686
8
Mr. Liu Xinyuan
Director
0.00%
           303,223
           269,312
 
Total
    
 $     2,329,559
 $     2,157,107


9.  
CAPITAL

 
The Company was incorporated in Hong Kong, China on February 9, 2006 and authorized to issue 10,000 shares of HK$1.00 each (Approximately $0.13 per share). There were 2 shares issued and outstanding as of March 31, 2008 and June 30 2007.

 
20
 

 










INTERNATIONAL CONSOLIDATED COMPANIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLODATED
FINANCIAL STATEMENTS
MARCH 31, 2008

























 
21
 




INTERNATIONAL CONSOLIDATED COMPANIES, INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLODATED
FINANCIAL STATEMENTS




        

Introduction to Unaudited Pro Forma Condensed Consolidated Financial statements                                      23
 
Pro Forma Balance Sheet- March 31, 2008 (Unaudited)                                                                                           24
 
Pro Forma Statement of Operations for the three months ended March 31,  2008 (Unaudited)                         25
 
Pro Forma Statement of Operations for the year ended December 31,  2007 (Unaudited)                                  26
 
Notes to Pro Forma Financial Statements (Unaudited)                                                                                            27











 
22
 



INTERNATIONAL CONSOLIDATED COMPANIES, INC.

INTRODUCTION TO UNAUDITIED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

    On March 31, 2008, Grow Ease International Ltd., a wholly owned subsidiary of the Company entered into a share exchange agreement with Aim Sky Ltd., a British Virgin Islands corporation, to acquire 100% of the Common Stock of Aim Sky in exchange for 42,500 shares of Grow Ease’s series A Preferred Shares. The Series A Preferred Shares are convertible into 42,500 common shares of Grow Ease upon the happening of certain corporate events including a spin off or public offering of Aim Sky. Additionally, the agreement obligates the Company to provide up to $2,000,000 in financing for the acquired business.
   
    Aim Sky Ltd., is the owner of 100% of China Genetic Ltd, which in turn owns 57% of Shanghai Huaxin High Biotechnology Inc., a Chinese company located in Shanghai, China, and has the right to vote 100%, and an option to purchase, the shares of Sichuan Kelun Bio-Tech Pharmaceutical Co., Ltd., a Chinese company located in Chengdu, China.
 
    This share exchange was accounted as an acquisition under purchase method of accounting. The Company acquired net assets of $5,036,732 in the exchange. The fair value was reduced by the same amount as a result of negative goodwill obtained in the purchase.
 
    The accompanying unaudited pro forma condensed consolidated balance sheet has been presented with consolidated subsidiaries at March 31, 2008. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2008 and for the year ended December 31, 2007 have been presented as if the acquisition had occurred January 1, 2007.
    
    The unaudited pro forma condensed consolidated statements do not necessarily represent the actual results that would have been achieved had the companies been combined at the beginning of the year, nor may they be indicative of future operations. These unaudited pro forma condensed financial statements should be read in conjunction with the companies’ respective historical financial statements and notes included thereto.
 
  
23
 
INTERNATIONAL CONSOLIDATED COMPANIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2008
 
 
 
ASSETS
 
 
                
(1)
             
International Consolidated
Aim Sky
          
Pro
             
Companies, Inc
  
Ltd.
  
Adjustments
Notes
Forma
                               
Current Assets
                          
 
 Cash and cash equivalents
    
 $                               (1,018)
  
 $            270,442
          
 $        269,424
 
 Accounts Receivable
      
                                       875
  
               836,974
          
           837,849
 
 Inventory
        
                                           -
  
               624,946
          
           624,946
 
Advances to vendors
      
                                           -
  
                 52,353
          
             52,353
 
Other receivables
      
                                           -
  
               175,310
          
           175,310
                               
 
Total current assets
      
                                     (143)
  
            1,960,025
          
        1,959,882
                               
Property and Equipment, Net
    
29,963
  
            8,928,463
  
           (3,457,676)
  
 a
  
        5,500,750
                               
Other Assets
                          
 
Due from related parties
    
                                623,727
  
                 71,306
          
           695,033
 
Deposits for intangible assets and construction in process
                                           -
  
            2,909,760
  
           (1,126,846)
  
 a
  
        1,782,914
 
Intangible assets, net
      
                                           -
  
            1,167,702
  
              (452,209)
  
 a
  
           715,493
                               
 
Total other assets
      
                                623,727
  
            4,148,769
          
        3,193,441
                               
TOTAL ASSETS
        
 $                             653,547
  
 $       15,037,257
          
 $   10,654,073
                               
                               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                               
Current Liabilites
                          
 
Accounts payable
      
 $                             127,321
  
 $            568,658
          
 $        695,979
 
Unearned revenue
      
                                           -
  
                 15,170
          
             15,170
 
Taxes payable
        
                                           -
  
               152,969
          
           152,969
 
Accrued liabilities & other payables
  
                                    1,955
  
            1,863,714
          
        1,865,669
 
Shareholders loans
      
                                  12,350
  
                           -
          
             12,350
 
Liability for stock to be issued
    
                                  50,000
  
                           -
          
             50,000
 
Bank loans
        
                                           -
  
            1,580,434
          
        1,580,434
                               
 
Total current liabilities
      
                                191,626
  
            4,180,945
          
        4,372,571
                               
LONG-TERM LIABILITIES
                      
 
Loan from related parties and others
  
                                           -
  
            2,329,559
  
                         -
      
        2,329,559
                               
TOTAL LIABILITIES
      
                                191,626
  
            6,510,504
        
 
        6,702,130
                               
MINORITY INTEREST
      
                                           -
  
            3,490,021
          
        3,490,021
                               
STOCKHOLDERS' EQUITY (DEFICIT)
                    
 
Common stock, no par value, 100,000,000 shares authorized,
                
 
17,432,660 shares issued and outstanding as of March 31, 2008
                             5,545,901
  
                           -
  
              (921,701)
  
 b
  
        4,624,200
                               
 
Additional paid-in capital
    
                                           -
  
            5,446,895
  
           (4,525,195)
  
 b
  
           921,700
                               
 
Accumulated other comprehensive income
  
                                           -
  
               882,918
  
              (882,918)
  
 b
  
                      -
                               
 
Prepaid expenses
      
                                (60,000)
  
                           -
          
           (60,000)
                               
 
Retained earnings
      
                           (5,023,980)
  
          (1,293,081)
  
             1,293,083
  
 a,b
  
      (5,023,978)
                               
 
Total stockholders' equity (deficit)
  
                                461,921
  
            5,036,732
          
           461,922
                               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 $                             653,547
  
 $       15,037,257
        
 
 $   10,654,073
                               
                               
(1)
Represents combined assets abd liabilities of International Consolidated Companies and Aim Sky Ltd.
    
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 

 
24
 

 
INTERNATIONAL CONSOLIDATED COMPANIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2008
 

           
International Consolidated
Aim Sky
          
Pro
           
Companies, Inc
  
Ltd.
  
Adjustments
Notes
Forma
                             
REVENUES
        
 $                                        -
  
 $                         1,752,235
          
 $     1,752,235
                             
COST OF GOODS SOLD
    
                                           -
  
                               873,040
          
           873,040
                             
GROSS PROFIT
        
                                           -
  
                               879,196
          
           879,196
                             
OPERATING EXPENSES
                      
 
Selling, general and adminstrative expenses
                             2,999,160
  
                               368,130
          
        3,367,290
                             
NET INCOME (LOSS) FROM OPERATIONS
  
                           (2,999,160)
  
                               511,066
          
      (2,488,094)
                             
OTHER INCOME (EXPENSE)
                      
 
Interest Income
      
                                    8,000
  
                                      105
          
               8,105
 
Interest (Expenses)
    
                                           -
  
                               (33,872)
          
           (33,872)
 
Other Income (Expenses)
    
                                           -
  
                                 60,192
          
             60,192
 
Total other income (expenses)
  
                                    8,000
  
                                 26,425
          
             34,425
                             
NET INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST
                           (2,991,160)
  
                               537,490
          
      (2,453,670)
                             
PROVISION FOR INCOME TAX
    
                                           -
  
                                          -
          
                       -
                             
MINORITY INTEREST
      
                                           -
  
                               184,485
          
           184,485
                             
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES
 $                        (2,991,160)
  
 $                            353,005
          
 $   (2,638,155)
                             
BASIC AND DILUTED INCOME (LOSS) PER SHARE
 $                                 (0.20)
  
 $                                     -
          
 $            (0.18)
                             
WEIGHTED AVERAGE NUMBER
                      
   OF COMMON SHARES
    
                           14,886,042
              
      14,886,042
                             
                             
(1)
Represents combined operations of International Consolidated Companies and Aim Sky Ltd.
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 

 
25
 

INTERNATIONAL CONSOLIDATED COMPANIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
 
 

           
International Consolidated
Aim Sky
          
Pro
           
Companies, Inc
  
Ltd.
  
Adjustments
Notes
Forma
                             
REVENUES
        
 $                               24,784
  
 $                         4,675,183
          
 $     4,699,967
                             
COST OF GOODS SOLD
    
                                    3,446
  
                            2,397,527
          
        2,400,973
                             
GROSS PROFIT
        
                                  21,338
  
                            2,277,656
          
        2,298,994
                             
OPERATING EXPENSES
                      
 
Selling, general and adminstrative expenses
                             2,171,732
  
                            1,332,981
          
        3,504,713
                             
NET INCOME (LOSS) FROM OPERATIONS
  
                           (2,150,394)
  
                               944,676
          
      (1,205,718)
                             
OTHER INCOME (EXPENSE)
                      
 
Interest Income
      
                                  28,818
  
                                          -
          
             28,818
 
Interest (Expenses)
    
                                  (5,103)
  
                             (143,219)
          
         (148,322)
 
Other Income (Expenses)
    
                                           -
  
                               188,017
          
           188,017
 
Total other income (expenses)
  
                                  23,715
  
                                 44,797
          
             68,512
                             
NET INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST
                           (2,126,679)
  
                               989,473
          
      (1,137,206)
                             
PROVISION FOR INCOME TAX
    
                                           -
  
                                 85,465
          
             85,465
                             
MINORITY INTEREST
      
                                           -
  
                               333,264
          
           333,264
                             
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES
 $                        (2,126,679)
  
 $                            570,743
          
 $   (1,555,936)
                             
BASIC AND DILUTED INCOME (LOSS) PER SHARE
 $                               (0.183)
              
 $          (0.134)
                             
WEIGHTED AVERAGE NUMBER
                      
   OF COMMON SHARES
    
                           11,628,563
              
      11,628,563
                             
                             
(1)
Represents combined operations of International Consolidated Companies and Aim Sky Ltd.
  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
26

 
INTERNATIONAL CONSOLIDATED COMPANIES, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 
The following unaudited pro forma adjustments are included in the accompanying unaudited pro forma condensed consolidated balance sheet as of March 31, 2008 and the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2008 and for the year ended December 31, 2007 to reflect the acquisition of Aim Sky Ltd. by International Consolidated Companies, Inc.:


a.  
These adjustments reflect the reduction of the Company’s net assets as a result of negative goodwill obtained in the purchase.

b.  
The adjustments reflect the recapitalization of the Company as a result of the acquisition

 
27