See Notes to Financial Statements
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Melo Biotechnology Holdings Inc.
Notes to the Interim Financial Statements
December 31, 2010 (unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements of Melo Biotechnology Holdings Inc. (the "Company") are unaudited and have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial statements. Accordingly, they do not include certain disclosures normally included in annual financial statements prepared in accordance with such principles.
These interim financial statements do not materially differ from United States generally accepted accounting principles ("US GAAP") for interim financial statements.
In preparing these interim financial statements, management was required to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. In the opinion of management, these interim financial statements reflect all adjustments (which include only normal, recurring adjustments) necessary to state fairly the results for the periods presented. Actual results could differ from these estimates and the operating results for the interim period presented is not necessarily indicative of the results expected for the full year.
For quarter ended and as of December 31, 2010, the unaudited consolidated financial statements include the accounts of the Company and the following wholly-owned subsidiaries:
1.
Melo Biotechnology Limited
2.
Melo International Holdings Limited
All significant inter-company balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Plant and Equipment
Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method.
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.
(b)
Accounting for the Impairment of Long-Lived Assets
The long-lived assets held and used by the Company are reviewed for the impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assts to be held and used is done by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less
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costs to sell. There were no impairments of long-lived assets for the quarter ended December 31, 2010.
(c)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company does not maintain any bank accounts in the United States of America.
(d)Fair value of financial instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivables, accounts payable, accrued liabilities, taxes payable and due to stockholder. Management has estimated that the carrying amounts approximate their fair values due to their intended short-term nature.
(e)
Revenue Recognition
Revenues represent the invoiced value of goods sold, recognized upon the delivery of goods to customers, less any sales discounts and allowances.
(f) Use of Estimates
The presentation of financial statements in conformity with generally accepted accounting principles 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 financial statements and reported amounts of revenues and expenses using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.
(g) Income Taxes
The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.
In accordance with the relevant tax laws and regulations of Hong Kong Special Administrative Region of the Peoples’ Republic of China (“Hong Kong”), the corporation income tax rate is 16.5%. of net income (profits) before income taxes. At times generally accepted accounting principles in the United States of America requires the Company to recognize certain incomes and expenses that do not conform to the timing and conditions allowed by Hong Kong. The Company had no timing differences that would benefit a future period; therefore, no income tax benefits are recognized in the financial statements.
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(h)
Related Parties
Parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party, or exercise significant influence over the party in making financial and operating decisions, or vice versa; or where the company and the party are subject to common control or common significance. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities which are under the significant influence of related parties of the company where those parties are individuals, and post-employment benefit plans which are for the benefits of employees of the company or of any entity that is a related party of the company.
(i) New Accounting Pronouncements
The Company does not expect any recent accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.
3. GOING CONCERN
These interim financial statements have been prepared on a going concern basis, which assume that the Company will continue in operation for the foreseeable future and accordingly will be able to realize its assets and discharge its liabilities in the normal course of operations.
4. CONCENTRATION OF CREDIT RISK OF ACCOUNTS RECEIVABLES
The Company has no significant off-balance sheet concentration of credit risk such as foreign exchange contracts, options contracts or other foreign currency hedging arrangements. Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of accounts receivable. Concentration of credit risk with respect to accounts receivable is limited to a single customer to whom the Company makes substantial sales with a credit period of 60 days. At December 31, 2010, there were no accounts receivables (September 30, 2010 - one customer accounted for all of the Company's receivables). The Company regularly monitors the creditworthiness of these customers and believes that it has adequately provided for exposure to potential credit losses.
5. PLANT AND EQUIPMENT
| | | | | | | |
| | | | | December 31 | | September 30 |
| | | Accumulated | | 2010 | | 2010 |
| Cost | | Depreciation | | Net | | Net |
| | | | | | | |
Leasehold improvement | 60,220 | | 55,559 | | 4,661 | | 6,603 |
| | | | | | | |
Office equipment | 22,124 | | 20,411 | | 1,713 | | 2,426 |
| | | | | | | |
Computer equipment | 14,458 | | 9,712 | | 4,746 | | 5,086 |
| | | | | | | |
| 96,802 | | 85,682 | | 11,120 | | 14,115 |
As of December 31, 2010, leasehold improvement has a remaining useful life of 1 year whereas all other equipment has remaining useful live of 3 years.
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6. ACCOUNTS PAYABLES AND ACCRUED LIABILITIES
The balances represent mainly trade payables and accrued professional fees which are all current.
7.
COMMON SHARES
During the quarter ended December 31, 2010, no common shares were issued.
8.
SIGNIFICANT SUBSEQUENT EVENTS
a)
On February 2, 2011, a special shareholders’ meeting was held and the resolution for changing the company name to “First Asia Holdings Limited” was passed.
b)
On February 17, 2011, the Company entered into an Agreement for Share Exchange with Vagas Lane Limited, a Marshall Islands corporation (“Vagas”), and First Asia Strategy Limited, a Marshall Islands corporation, (“FASL”) which is the sole shareholder of Vagas. Pursuant to the terms of the Exchange Agreement the Company agreed to issue a total of 18,000,000 shares of its restricted common stock to FASL in exchange for the transfer by FASL of all of the issued and outstanding common stock of Vagas to the Company, thereby making Vagas a wholly-owned subsidiary of the Company. Vagas is a holding company that owns interests in three separate Hong Kong corporations which focus on the ownership and operation of real estate in Hong Kong.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJ ECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.
Overview and Recent Developments
Melo Biotechnology Holdings Inc., (hereinafter referred to as “We,” “Us,” “Melo,” or the “Company”) is a publicly traded company whose shares trade on the OTC Bulletin Board (the “OTCBB”) under the trading symbol “MLOBF”. The Company was organized under the laws of Ontario, in March 1993. The Company is located at Room A, 1/F, Tontex Building, 2 Sheung Hei Street, Kowloon, Hong Kong.
The Company, through its wholly-owned subsidiaries, Melo Biotechnology Limited (“Melo Limited”), a British Virgin Islands corporation, and Melo International Holdings Limited, a British Virgin Islands corporation (“Melo International”), develops, trades and markets health products, which are mainly nutritional supplements, in Hong Kong. The business operations of Melo Limited and Melo International are the Company’s only business operations. Melo Limited and Melo International purchase nutritional supplements from manufacturers and distributors in China and then distribute the products in Hong Kong.
The Chart below depicts the corporate structure of the Company as of the date of this 10-Q. The Company owns 100% of the capital stock of Melo Limited and has no other direct subsidiaries. Melo Limited owns 100% of the capital stock of Melo International and has no other direct subsidiaries. Melo International has no subsidiaries.
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![[melo_10qdec3100final001.jpg]](https://capedge.com/proxy/10-Q/0001137050-11-000042/melo_10qdec3100final001.jpg)
Subsequent Events
Subsequent to the period ended December 31, 2010, the following events occurred:
As disclosed on Form 8-K filed with the Securities and Exchange Commission on February 7, 2011, on February 2, 2011, at a special meeting of the shareholders of the Company, a majority of the Company’s shareholders approved an amendment to the Company’s Articles of Incorporation to change the Company’s name to First Asia Holdings Limited. The Certificate of Amendment to amend the Company’s Articles of Incorporation to change the Company’s name to First Asia Holdings Limited is currently being processed by the Ontario Ministry of Government Services.
As disclosed on Form 8-K filed with the Securities and Exchange Commission on February 18, 2011, on February 17, 2011, the Company entered into an Agreement for Share Exchange with Vagas Lane Limited, a Marshall Islands corporation (“Vagas”), and First Asia Strategy Limited, a Marshall Islands corporation, (“FASL”) which is the sole shareholder of Vagas. Pursuant to the terms of the Exchange Agreement the Company agreed to issue a total of 18,000,000 shares of its restricted common stock to FASL in exchange for the transfer by FASL of all of the issued and outstanding common stock of Vagas to the Company, thereby making Vagas a wholly-owned subsidiary of the Company. Vagas is a holding company that owns interests in three separate Hong Kong corporations which focus on the ownership and operation of real estate in Hong Kong.
Results of Operations
The following discussion and analysis provide information that we believe is relevant to an assessment and understanding of our results of operation and financial condition for the fiscal period ended December 31, 2010 as compared to the fiscal period ended December 31, 2009. The following discussion should be read in conjunction with the Financial Statements and related Notes appearing elsewhere in this Form 10-Q. All figures herein are stated in Canadian dollars
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THREE MONTHS ENDED DECEMBER 31, 2010 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2009
Revenues. During the fiscal period ended December 31, 2010, the Company had operating revenues of CAD $5,426, as compared to revenues of CAD $30,285 for the fiscal period ended December 31, 2009, a decrease of CAD$24,859, or approximately 82.1%. The decrease in revenue is attributable to the fact that the Company is re-structuring its business. During the quarter ended December 31, 2010, the Company only accepted cash orders from walk-in customers. In an effort to increase the Company’s revenues in the next twelve months, the Board of the Company is actively seeking for new business opportunities.. As noted above, on February 17, 2011, the Company entered into an agreement for share exchange for the acquisition of a holding company that owns interests in three separate Hong Kong corporations which focus on the ownership and operation of real estate in Hong Kong.
Costs of Revenue. The cost of revenue for the fiscal period ended December 31, 2010 was CAD $2,547, as compared to CAD $13,931 for the fiscal period ended December 31, 2009, a decrease of CAD $11,384, or approximately 81.7%. The gross profit margin of the Company remained relatively constant at 53-54%. Hence, the decrease is in line with the decline in revenue.
Operating Expenses. Operating expenses for the quarter ended December 31, 2010 were CAD $78,769. Of this, CAD $548 was allocated to Selling and Distribution, CAD $78,221 was allocated to General and Administrative Expenses. Operating expenses for the quarter ended December 31, 2009 were CAD $100,965. Of this, CAD $19,211 was allocated to Selling and Distribution, CAD $81,754 was allocated to General and Administrative Expenses. The decrease in Selling and Distribution expenses experienced by the Company from December 31, 2009 to December 31, 2010 is due to the fact that minimal selling expenses were required for walk-in cash sales. General and Administrative expenses only decreased slightly as most fixed costs cannot be reduced in the short term despite the drop in the Company’s sales.
Net (Loss)/Gain. The Company had a net loss for the quarter ended December 31, 2010 of CAD $75,878, as compared to a net loss of CAD $84,502 for the quarter ended December 31, 2009. The net loss experienced by the Company was attributable to the fact that the Company generated less revenue during the three months ended December 31, 2010, a compared to the three months ended December 31, 2009.
Liquidity and Capital Resources.
The Company anticipates that the existing cash and cash equivalents on hand, together with the net cash flows generated from its business activities will be sufficient to meet the working capital requirements for the on-going projects and to sustain the business operations for the next twelve months. As disclosed under results of operations, the Company experienced a significant reduction in revenue in the 3 months ended December 31, 2010 as compared to the same period in 2009. As noted above, in an effort to increase the Company’s revenues in the next twelve months, the Board of the Company is actively seeking for new business opportunities. On February 17, 2011, the Company entered into an agreement for share exchange for the acquisition of a holding company that owns interests in three separate Hong Kong corporations which focus on the ownership and operation of real estate in Hong Kong.
As of December 31, 2010, our balance sheet reflects that we have cash and cash equivalents of CAD $334,597, total current assets of CAD $, total assets of CAD $1,738,280, total liabilities of CAD $, and total stockholders’ equity of CAD $1,494,060. The net cash used by operating activities for the fiscal period ended December 31, 2010 was CAD $64,701. The net cash used in investing activities for the fiscal period ended December 31, 2010 was Nil.
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Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Comp any maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objec tives.
Changes in Internal Control over Financial Reporting
There was no change in the Company's internal control over financial reporting during the period ended December 31, 2010, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
We are currently not involved in any litigation that we believe could have a material adverse effect on our
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financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting the Company, our common stock, any of our subsidiaries or of our Company's or our Company's subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
ITEM 1A.
RISK FACTORS.
Not Applicable.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
(REMOVED AND RESERVED)
None.
ITEM 5.
OTHER INFORMATION.
None.
ITEM 6.
EXHIBITS.
(a)
The following exhibits are filed herewith:
31.1
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MELO BIOTECHNOLOGY HOLDINGS, INC.
By:
Fung Ming, Chief Executive Officer, Chief Financial Officer
Date: February 22, 2011
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