SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED: APRIL 30, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commissions file number 000-27211
MEDINA INTERNATIONAL HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1469319
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(State of incorporation) (I.R.S. Employer Identification No.)
2051 Placentia Ave., Costa Mesa, CA 92627
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 522-4414
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Title of each class registered Name of each exchange
on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes | | No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
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Large accelerated filer [___] Accelerated filer [___]
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Non-accelerated filer [___] Smaller reporting company [_X_]
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of voting stock held by non-affiliates of the
registrant does not have an aggregate market value, since the common stock of
the registrant does not trade on any market, at the time of this filing.
There were 35,560,091 shares outstanding of the registrant's Common Stock as of
October 19, 2009.
State issuer's revenues for its most recent fiscal year: $0. There were
35,560,091 shares of the Registrant's common stock outstanding as of October 19,
2009. The aggregate market value of the 35,560,091 shares of common stock held
by non-affiliates of the Registrant is approximately $2,133,606 based on the
closing market price of $0.06 per share on October 19, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Yes [ ] No [X]
MEDINA INTERNATIONAL HOLDINGS, INC.
2009 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 18
ITEM 3. LEGAL PROCEEDINGS 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 19
ITEM 6. SELECTED FINANCIAL DATA 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS 30
ITEM 9 CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 30
ITEM 9a CONTROLS AND PROCEDURES 30
ITEM 9(A)T. INTERNAL CONTROLS AND PROCEDURES 31
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND COMPLIANCE WITH
SECTION 16(A) 32
ITEM 11. EXECUTIVE COMPENSATION 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 41
RELATED STOCKHOLDER MATTERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 41
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 42
PART IV.
ITEM 15. EXHIBITS 43
SIGNATURE 44
FORWARD-LOOKING STATEMENTS
In addition to historical information, some of the information presented in
this Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Although Medina International Holdings, Inc., ("Medina" or the "Company,"
which may also be referred to as "we," "us" or "our") believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from our expectations. Such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated, including but not limited
to, our ability to reach satisfactorily negotiated settlements with our
outstanding creditors and raise debt and/or equity to fund negotiated
settlements with our creditors and to meet our ongoing operating expenses.
Cautionary statements regarding the risks, uncertainties and other factors
associated with these forward-looking statements are discussed on page below.
You are urged to carefully consider these factors, as well as other information
contained in this Annual Report on Form 10-K and in our other periodic reports
and documents filed with the Securities and Exchange Commission ("SEC").
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Mission Statement
Medina International Holdings' mission is to be the most successful company in
the world at delivering the best products and services to aid organizations and
personnel who risk their lives to save others. We will meet customer
expectations with high quality products at competitive prices and provide
premium customer support. We will strive to produce and operate in an
environmentally friendly manner, continually improving our environmental
footprint. We seek to provide healthy financial rewards for investors, while
gaining long-term relationships with business partners and the community. Our
employees will be provided with ample opportunities for growth and enrichment.
We intend to conduct business with honesty, integrity, openness, and fairness.
Company History
Medina International Holdings, Inc. ("Medina," "we," "us," "Company") was
incorporated on June 23, 1998 in the state of Colorado as Colorado Community
Broadcasting, Inc. In 2004, the Company changed its name to Medina International
Holdings, Inc. Our corporate offices are located at 2051 Placentia Ave, Costa
Mesa, CA 92627 and our telephone number is (909) 522-4414.
Medina International Holdings, Inc., a publicly traded holding company,
manufactures high quality and innovative products and services to assist
emergency and defense organizations and personnel. The products are manufactured
under the Company's two wholly owned subsidiaries, Medina Marine, Inc. and
Harbor Guard Boats, Inc. The Company's securities are traded on Pink Sheets
(Over-the-Counter) under the symbol, "MIHI."
1
In 2004, after the change of our management, the board and shareholders approved
the name change to Medina International Holdings, Inc. At the time, Messrs.
Daniel F. Medina and Mr. Madhava Rao Mankal were appointed as the President and
Chief Financial Officer, respectively, and were also appointed as directors of
the Company. Since these organizational restructurings, we have pursued a
business plan that focuses on the manufacturing of watercraft for rescue
operations, as well as recreational use.
Prior to the organizational restructuring, we intended to purchase low power
television licenses or stations and planned to broadcast local programming mixed
with appropriate national programming. We were unsuccessful in our attempt to
enter the low power television business.
In 2006, Medina Marine, Inc. was formed in the State of California, in May of
2006, as a wholly owned subsidiary for the sole purpose of manufacturing the
watercrafts, while the Company would be designated as a publicly traded holding
company. Medina Marine ("MM") designs, manufactures, and markets innovative and
practical aluminum boats ranging from 12' to 37', which are utilized by fire,
search & rescue, emergency, patrol, military and defense organizations. In
addition, Medina Marine also manufactures and markets two models of patented
recreational watercrafts.
Medina Marine had sold two watercrafts (fiberglass material), one in the United
States and one abroad, when the Company signed an agreement to acquire Modena
Sports Design, LLC, as a wholly owned subsidiary of the company on June 18,
2008. Modena Sports Design, LLC was incorporated in the State of California in
2003 to produce Fire Rescue, Rescue and Recreational boats. Modena Sports
Design, LLC changed its name on January 7, 2009 to Harbor Guard Boats, Inc.
Harbor Guard Boats has sold 21 watercrafts domestically and internationally
since its inception. Harbor Guard Boats has eight (8) models of commercial
watercrafts, ranging from 12' to 37' in length. The revenue of Harbor Guard
Boats, Inc. from inception up to the acquisition date will not be reflected on
the consolidated financial statements of Medina International Holdings, Inc.
Harbor Guard Boats ("HGB") designs, manufactures, and markets high-performance,
hand-laid fiberglass, commercial boats ranging from 12' to 37', utilized by
fire, search & rescue, emergency, patrol, military and defense organizations.
These watercrafts combine innovative designs with power, safety, handling and
stability to create superior products designed to protect and save lives.
The Company's securities have been traded thinly on the
Over-the-Counter-Bulletin-Board Market since September 2007. From April of 2009,
the Company's securities have been traded thinly on the Pink Sheets Market.
The Company owns the rights to the following websites:
www.medinaih.com
www.medinainternationalholdings.com
www.medinamarine.com
www.harborguardboats.com
You can access the latest videos of our products using the following links:
http://www.youtube.com/medinamarine
http://www.youtube.com/hgboats
2
Our Company operates under the following exclusive licenses:
Patent No. Inventor Date
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U.S. 6,620,003 Albert Mardikian 9/16/2003
U.S. 7,004,101 Albert Mardikian 2/28/2006
U.S. 6,343,964 Albert Mardikian 2/5/2002
U.S. 6,168,481 Albert Mardikian 1/2/2001
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Agreements
On June 18, 2008 the following agreements were entered:
Fixed Asset Purchase Agreement On June 18, 2008, we entered into a Fixed
Asset Purchase Agreement with MGS Grand Sports, Inc. ("MGS Grand") and Mardikian
Design Associates ("Mardikian") to purchase the fixed assets of Modena Sports,
Design, LLC ("Modena Sports") in exchange for 5,500,000 shares of its restricted
common stock. MGS Grand owns a 95% equity interest in Modena Sports and Mr.
Albert Mardikian owns the remaining 5% equity interest. The fixed assets to be
acquired by us consist of office equipment, tools and machinery. In addition, we
will acquire web sites and domain names currently under Modena Sports. Upon the
completion of the transaction, Modena Sports will become our wholly-owned
subsidiary. The transaction will be completed upon the delivery of audited
financial statements.
Mold Purchase Agreement On June 18, 2008, Medina and MGS Grand and
Mardikian Design entered into a Mold Purchase Agreement, as a part of the Fixed
Asset Purchase Agreement, referred to above. The Mold Purchase Agreement allows
for the purchase of certain molds and tools from MGS Grand and Mardikian Design
in exchange for additional 5,500,000 shares of its restricted common stock. MGS
Grand owns a 95% equity interest in Modena Sports and Mr. Albert Mardikian owns
the remaining 5% equity interest.
License Agreement This agreement is entered into on 18th day of June,
2008. License agreement grants license to licensee the exclusive right to use
and enjoy the benefits of the Patent and design rights associated with the
patent for a period of 15 years. License agreement provides for the following as
compensation.
a) 2% for Patented Designs with or without Patented Fire Pump technology
used in the Company's production.
b) 1% for Patented Pump Technology used in designs other than Mr.
Mardikian's or his Associates.
c) 1% for using Patents in any of our distributor or associated companies
products.
d) Medina agrees to pay $1,000,000 to MGS as under:
$200k in 2 months minimum and 3 months maximum, and balance $800K will be
released at the rate of 10% of each boat sale until the complete debt of balance
$800K is paid off.
Prior to June 18, 2008, the Company had entered into the following license
agreements, all of which have been rescinded as a result of the June 18, 2008
License Agreement.
1. In February 2005, we signed a license agreement ("the Vortex
License") with Mr. Mardikian to manufacture and sell our Vortex boats.
The Vortex License has a term of 5 years and provides an option to
renew by the Company, as long as the Company is not in default on the
terms of the license agreement. The Vortex License grants the Company
an exclusive right to use the design in Vortex boats. The Vortex
License provides for royalty payments equal to 2% of the gross sales,
less sales returns for a period of 5 years. The Vortex License also
requires a minimum license payment of $200 per calendar quarter.
3
2. In January 2006, we signed a license agreement ("the Water Pump
License") with Mr. Mardikian to use his water pump patent (United
States Patent 6,343,964) in the fire and rescue boats designed by us.
The license has a term of 5 years and provides an option to renew by
the Company, as long as the Company is not in default on the terms of
the Water Pump License. The Water Pump License grants us to a
non-exclusive right to use the patent in the manufacturing of both the
15' Rescue and the 21' Rescue boats. The Water Pump License provides
for a royalty payment equal to 1% of the gross sales, less sales
returns, up to January 31, 2008, at which time the royalty payment will
increase to 1.5% of the gross sales, less sales returns, till January
31, 2011. The Water Pump License does require a minimum payment of $600
per every six-month period.
3. In June 2006, we signed a license agreement ("15' Rescue Design
License") with Mr. Mardikian to use his design for the manufacturing of
our 15' Rescue boats. The 15' Rescue Design License has a term of 5
years and provides an option to renew by the Company, as long as we are
not in default of any of the terms of the 15' Rescue Design License.
The 15' Rescue Design License grants us a non-exclusive right to use
the design of the 15' Rescue boat throughout the world. The 15' Rescue
Design License provides for a royalty payment equal to 2% of the gross
sales, less sales return for the period of 5 years. The 15' Rescue
Design License provides for a minimum $100.00 monthly payment.
All of the licenses referenced above are with Mr. Albert Mardikian, CEO of
Harbor Guard Boats, Inc. and shall be treated separately and not as one license
agreement.
Product Description
Medina International Holdings, Inc. manufactures commercial and recreational
watercrafts under its two wholly owned subsidiaries, Medina Marine and Harbor
Guard Boats. MIHI's commercial products are utilized by fire, search & rescue,
patrol, emergency, military and defense departments, while the recreational
products are targeted towards leisure and sports inclined individuals.
The Company's products combine power, safety, handling and stability in
rough water along with high-speed performance. Boats already in use are getting
international praise and recognition for the powerful rescue tool they have
become to America's municipalities. The innovative patents, and patents-pending
licensed by the company, give our boats eye-catching visual market retention and
a competitive advantage in the boating industry, homeland security and defense
in the United States and abroad.
Commercial Boats - The Company currently has eight (8) commercial
watercraft models, ranging from 12' to 37' in length.
12' Interceptor (Rescue Only) - With a patented V-hull, the 12' rescue boat is
designed to keep stability and quick-response in mind while serving to protect
the waterways. With a powerful jet engine, this watercraft can reach speed of up
to 50 mph. In addition, our 12' rescue boat can pick-up speed from a standstill
and can be stopped from high power movement within a matter of seconds. This
light-weight vessel can accommodate up to 4 people at a time, including multiple
containment area for patients.
15' Interceptor (Rescue and Fire Rescue) - With a patented V-hull, the 15'
rescue boat is designed to keep stability and quick-response in mind while
serving to protect the waterways. With a powerful jet engine, this watercraft
can reach speed of up to 50 mph. In addition, our 15' rescue boat can pick-up
speed from a standstill and can be stopped from high power movement within a
matter of seconds. This light-weight vessel can accommodate up to 6 people at a
time, including multiple containment area for patients.
The 15' Fire Rescue model offers a patented water pump, in addition to all the
features mentioned in the 15' Rescue model, draws water from underneath the boat
and sprays at 750 GPM.
21' Rescue and Fire Rescue- The Company is currently in the process of
completing a prototype model of the 21' Fire Rescue model for testing.
4
This particular boat is 21 feet in length and has a CAT bottom hull for
additional stability. Our 21' rescue model comes with five medical compartments,
storage space for spine boards, and dive area in the front and back of the
watercrafts. This watercraft is designed to hold a powerful engine and can
accommodate three crew members and four patients at one time.
The Company's 21' Fire Rescue model offers an additional feature compared to the
21' Rescue boat. It includes patented water pump draws water from underneath the
boat and sprays at 750 GPM.
The Firehawk Defender is a quick response solution, strictly designed and built
to save lives in marine emergencies and security situations. These watercrafts
have hulls with dual closed cell foam filled cavities and self bailing deck.
Firehawk Model comes in 18', 24'/26', 28', 30'and 37' in length.
Firehawk Defender 18 - Patented - Dual 7' collapsible dive platform doors. These
doors are manually controlled. The doors (foam filled) float on the waterline
when completely lowered providing multiple patient access in a rescue situation.
These doors also provide a flat waterline platform for dive exercises and rescue
basket area for easier helicopter attachment and removal. When both Port and
Starboard doors are lowered these also provide additional boat stability in
heavy seas.
The Outboard Firehawk (Fire model) also provides a 1200 GPM fire pump and bow
mounted monitor for fire suppression (water and foam) and "pump out"
capabilities. The below deck fire pump is directly plumbed through the keel
(Patented). The pump is always primed and can supply water with a turn of a key
for the fire pump engine.
The Twin Jet Drive Firehawk allows water to be diverted from one of the jet
drives to provide 1200 GPM. This system avoids the cost of the separate Hale
pump and engine. The deck is also self bailing with the open transom and side
dive door design allowing water to escape from the deck quickly.
This watercraft's hull design creates a minimal wake designed for high speed
pursuit in "no wake" areas as well as rescue situations in heavy seas.
Firehawk Defender 24'/26' - Patented - Dual 8' collapsible dive platform doors.
These doors are hydraulically controlled from the drivers' helm with a manual
override. The doors (foam filled) float on the waterline when completely lowered
providing multiple patient access in a rescue situation. These doors also
provide a flat waterline platform for dive exercises and rescue basket area for
easier helicopter attachment and removal.
When both Port and Starboard doors are lowered these also provide additional
boat stability in heavy seas.
The FIREHAWK (Fire model) also provides a 1200 GPM Hale fire pump and bow
mounted Elkhart monitor for fire suppression (water and foam) and "pump out"
capabilities. The below deck fire pump is directly plumbed through the keel
(Patented). The pump is always primed and can supply water with a turn of a key
for the fire pump engine.
The Twin Jet Drive Firehawk can utilize one of the jet drives to divert water
for fire suppression. This system also provides 1200 GPM. With either fire
suppression system there is always full maneuverability of the boat will
pumping. The deck is also self bailing with the open transom design and with the
side dive doors allowing water to escape from the deck.
Firehawk Defender 28 - Patented - Dual 8' collapsible dive platform doors. These
doors are hydraulically controlled from the drivers' helm with a manual
override. The doors (foam filled) float on the waterline when completely lowered
providing multiple patient access in a rescue situation. These doors also
provide a flat waterline platform for dive exercises and rescue basket area for
easier helicopter attachment and removal.
5
When both Port and Starboard doors are lowered these also provide additional
boat stability in heavy seas.
Patented Multi Function Combo Drive System (MCD) - This system is configured
with twin 4-stroke Outboards and a single V8 Mercruiser Inboard / Jet drive.
This system offers the best of worlds, performance of Twin 4 stroke outboards
and the shallow water capability and safety of using a jet drive during a rescue
situation (no moving props!) The Jet also serves a dual purpose by not only
helping with propulsion, but also acting as an approximately 2000 GPM fire pump.
Water is diverted from the jet drive to 1 or 2 monitors. From 1 monitor pressure
is approximately 145 psi, from 2 monitors -125 psi.
Boat can maneuver with just the Twin Outboards with top speeds around 64 mph,
with just the single jet for speeds around 45 mph, or with all 3 drives for
speeds around 70 mph. The deck is also self bailing with the open transom design
and with the side dive doors allowing water to escape from the deck.
Firehawk Defender 30 - Patented - Dual 8' collapsible dive platform doors. These
doors are hydraulically controlled from the drivers' helm with a manual
override. The doors (foam filled) float on the waterline when completely lowered
providing multiple patient access in a rescue situation. These doors also
provide a flat waterline platform for dive exercises and rescue basket area for
easier helicopter attachment and removal. When both Port and Starboard doors are
lowered these also provide additional boat stability in heavy seas.
The Firehawk (Fire model) also provides up to 3000 GPM fire pump and Twin bow
monitors for fire suppression (water and foam) and "pump out" capabilities. The
below deck fire pump is directly plumbed through the keel (Patented). The pump
is always primed and can supply water with a turn of a key for the fire pump
engine.
The deck is also self bailing with the open transom design and with the side
dive door opening acting as 8' deck drains allowing any water to escape from the
deck. The Enclosed Pilot House design also allows for added protection and heat
and AC in foul weather and extreme sea conditions.
Firehawk Defender 37- Patented - Dual 8' collapsible dive platform doors. These
doors are hydraulically controlled from the drivers' helm with a manual
override. The doors (foam filled) float on the waterline when completely lowered
providing multiple patient access in a rescue situation. These doors also
provide a flat waterline platform for dive exercises and rescue basket area for
easier helicopter attachment and removal. When both Port and Starboard doors are
lowered these also provide additional boat stability in heavy seas.
The Firehawk (Fire model) also provides up to 3000 GPM fire pump and Twin bow
monitors for fire suppression (water and foam) and "pump out" capabilities. The
below deck fire pump is directly plumbed through the keel (Patented). The pump
is always primed and can supply water with a turn of a key for the fire pump
engine.
The deck is also self bailing with the open transom design and with the side
dive door opening acting as 8' deck drains allowing any water to escape from the
deck. The Enclosed Pilot House design also allows for added protection and heat
and AC in foul weather and extreme sea conditions.
Recreational Boats The Company has acquired the license to manufacture
and sell 22' Vortex and metricconverterProductID30'30' Modena recreational
boats. Company has made arrangements to get the manufacture of hull and deck for
22' vortex in Dalian China. Also, we have the Mold for 30' Modena. There is a
great demand for the recreational sports models.
Vortex -This patented watercraft is 22' long and reaches speeds of up to 60 MPH.
The boat embraces a blend of the latest technology and can seat up to 7
passengers. The Vortex also includes a V-birth cabin that can seat up to two
people.
Modena 30' - This watercraft is 30' long and reaches speeds of up to 60 MPH. The
boat embraces a blend of the latest technology and can seat up to 12 passengers.
The Modena also includes a V-birth cabin that can seat up to 4 persons. Modena
comes with Open and Closed Bowl Technology combined as one unit.
6
Our watercraft products are made out of fiberglass materials. We are using
fiberglass to build our watercraft products in order to provide durability and
enhance the speeds that the watercraft need to be able to obtain while holding
their maximum capacity. In addition, the use of fiberglass means that any
repairs or damage to the interior or exterior of the craft can be easily
repaired. The boats incorporate an enclosed platform in their designs, which
prevents the boats from flooding and therefore provides a greater stability.
Medina Marine, Inc., in May of 2009, decided to pursue the manufacturing and
marketing of watercraft products utilizing aluminum materials.
All of our watercrafts either use jet propulsion, I/O and Out Boards for their
power. The use of jet engines allows the watercraft to operate in waters with
depths of less than 10 feet of water. In addition, the jet engines provide a
greater safety to the rescuers and those being rescued. Our jet propulsion
watercrafts allow the crew members to get extremely close to the victims without
worry of causing further injury to those being rescued. The use of I/O and
Outboard engines are installed mainly in 24' and up models. In addition, some of
our models are designed to accommodate multiple or mixture of the above
mentioned engine types, taking into consideration safety and agility.
The water pump used in these designs uses water retrieved from the bottom of the
boat and sprays water at 750-3000 gallons per minute, without compromising the
stability of the craft. MED System allows the water intake to be diverted to
water pump for spraying. Both of these systems are patented.
This innovation in fire rescue/rescue watercraft design will allow us to market
these boats to both fire departments and rescue departments.
CURRENT OPERATIONS
Our operations focused, up to April of 2008, on building of 15' and 21'
watercraft molds. In July, we acquired Harbor Guard Boats, Inc. (formerly Modena
Sport Designs, LLC). We have manufactured and sold 11 watercrafts since the
acquisition with total revenues of $1,252,179. We design, manufacture, test,
deliver, and support from a rented facility in Costa Mesa, California. We also
store molds for the 21' watercraft in San Bernardino International Airport, San
Bernardino, California.
7
COMPETITION
Our products compete with those companies that are already established in the
industry. Our competition may have established dealerships around the United
States and other parts of the world, which may give them an advantage over our
company. In addition, our competition may have good relations with the
government and its personnel and a proven track record, which may adversely
affect our sales effort. An established competition to our company may have
resources and man power to expand into other cities and countries and offer
their products at lower prices.
We believe that the use of the jet propulsion, I/O, and Outboard engines and the
innovations in our designs provide greater stability, will provide us with an
advantage over our current competition. Our competitors build similar rescue
watercraft, though they may use different materials in the construction of their
products, such as inflatable, metal, and aluminum materials.
There is greater competition for our 22' Vortex and Modena 30' boats, than for
our rescue and fire rescue watercrafts. The recreational industry is larger than
the fire and rescue industry and our competition in this industry have an
established clientele and may have far greater resources than we have at this
time. We believe that our design of the Vortex and Modena will provide us an
advantage over our established and larger competitors.
Sales and Marketing
Units Sold for the year ended April 30, 2009
- --------------------------------------------------
Department Type No. Sold Percentage
- --------------------------------------------------
Fire Department 3 33%
Organization* 1 11%
Emergency 1 11%
Police 3 33%
Homeland Security 1 11%
-------------------
Total 9 100%
- --------------------------------------------------
* - Volunteer Fire Department
Harbor Guard Boats, Inc. has sold 21 watercrafts since 2005 and Medina Marine,
Inc. has sold 3 watercrafts since 2004 for combined total of 24 watercrafts to
various domestic and international rescue and fire departments. However, the
revenue of Harbor Guard Boats, Inc. from inception up to the acquisition date
will not be reflected on the consolidated financial statements of Medina
International Holdings, Inc.
8
The Company has begun aggressively marketing its products throughout the United
States and around the world. By working with independent sales agents, the
Company has been able to expand its reach into agencies worldwide that are
looking for watercrafts for search & rescue, defense, and emergency purposes.
The types of water bodies in which MIHI's products are currently utilized are
lakes, seas/oceans, and rivers. MIHI's products are currently utilized in lakes,
at 56% of total units sold, while products sold to be utilized in seas/oceans
are 33% of total units sold. Products sold to be used in rivers are 11% of total
units sold.
Our watercrafts are sold to various departments, such as Fire, Police, Defense,
Emergency, and Volunteer Fire Departments. Most of our sales have come from Fire
Department in the United States and abroad; however, there is an increasing
potential for sales opportunities in other departments as well.
The table below presents the number of units sold, and their respective
percentages, in each region. Regions are divided into Eastern United States
(including Midwest), Western United States, and International. Eastern U.S.
provided more than 2/3 of total units sold for the Company. Our Company seeks to
constantly expand dealers in the U.S. and around the world. Currently we have
dealers in United States to represent the following states: Michigan, Wisconsin,
Illinois, South Carolina, North Carolina, Georgia, New York, New Jersey, Puerto
Rico and Connecticut.
Units Sold for the year ended April 30, 2009
- --------------------------------------------------
Regional Sales No. Sold Percentage
- --------------------------------------------------
Eastern U.S. 7 78%
Western U.S. 1 11%
International 1 11%
- --------------------------------------------------
Total 9 100%
In addition, we have established dealer relations in the following
countries/region: Caribbean, Canada, India, Middle East, Turkey, and South
America.
The Company's commercial boat marketing strategy includes displaying and
demonstrating at regional, national and international shows throughout the
United States, and advertising its products in industry magazines and on the
Internet.
ITEM 1A. RISK FACTORS
The ownership of the Company's securities involves certain risk factors,
including without limitation, lack of liquidity, various conflicts of interest,
and economic and market risks. An investment in the Company's common stock
involves a number of risks. The risks discussed in this document could
materially and/or adversely affect our business, financial condition and results
of operations and cause the trading price of our common stock to decline
significantly.
9
Prospective investors should carefully consider the following:
Risks in Equity
Investors should be aware of the risks in the market for Penny Stocks and the
possibilities of fraud and abuse.
Stockholders should be aware that, according to SEC, the market for Penny Stocks
has suffered, in recent years, from patterns of fraud and abuse. Such patterns
include, but not limited to:
a) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or
issuer;
b) manipulation of prices through prearranged matching of
purchasers and sales and false and misleading press
releases;
c) "boiler room" practices involving high-pressure sales
tactics and unrealistic price projections by inexperienced
sales persons;
d) excessive and undisclosed bid-ask differentials and markups
by selling broker-dealers; and
e) the wholesale dumping of the same securities by promoters
and broker-dealers after prices have been manipulated to a
desired level, along with the resulting inevitable collapse
of those prices and with consequent investor losses.
Our management is aware of the abuses that have occurred historically in the
Penny Stock market. The company will not be able to control any of such
patterns.
We expect our stock price to be volatile which could cause a complete loss of
investment to purchasers of our stock.
The trading price of our common stock is likely to be highly volatile. Our stock
price could fluctuate widely in response to many factors, including the
following:
a) our historical and anticipated quarterly and annual
operating results;
b) announcements of new products or services by us or our
competitors or new competing technologies;
c) investors' perceptions of us and investments relating to the
watercraft and/or defense industry;
d) developments in the watercrafts and/or defense industry;
e) technological innovations;
f) failure to diversify;
g) changes in pricing made by us, our competitors or providers
of alternative/substitute services;
h) the addition or loss of business customers;
i) variations between our actual results and analyst and
investor expectations;
j) condition or trends in the boat industry, including
regulatory developments;
k) announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
l) additions or departures of key personnel; and
m) general market and economic conditions.
In addition, in recent years the stock market in general, and the
Pink Sheets (over-the-counter) market, in particular, have experienced extreme
price and volume fluctuations. These fluctuations have often been unrelated or
disproportionate to the operating performance of these companies. These markets
and industry factors may materially adversely affect our stock price, regardless
of our operating performance.
10
The stock market, from time-to time, has experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stock of similar companies. These broad market fluctuations may
adversely affect the market price of the company's common stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has been instituted. There can be
no assurance that such litigation will not occur in the future with respect to
the company. Such litigation, regardless of its outcome, would result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the company's business, results of
operations, and financial condition.
In the past, the trading price of the company's common stock has
experienced substantial volatility. Sales of substantial amounts of common stock
in the public market could adversely affect prevailing market prices. As of may
31, 2009, we had 35,560,091 shares of common stock outstanding, of which 12
million is or will be freely tradable, other than restrictions imposed upon our
affiliates. An additional 12 million shares are subject to restrictions on
trading, but will become freely tradable upon removal of the restrictions
placed. The average daily trading volume of shares from January 2007 to present
was approximately 1,400 shares. The freely tradable shares, along with the
contractually restricted shares, are significantly greater in number than the
daily average trading volume of our shares. If the selling stockholders, or the
holders of the freely tradable shares, were to sell a significant amount of our
common stock in the public market, the market price of our common stock would
likely be significantly and adversely affected.
Penny Stock reform act. In October 1990, congress enacted the "Penny
Stock reform act of 1990" (the "90 act") to counter fraudulent practices common
in Penny Stock transactions. Rule 3a51-1 of the exchange act defines "Penny
Stock" as an equity security that is not among other things;
a) a reported security (i.e., listed on certain national
securities exchanges):
b) a security registered or approved for registration and
traded on a national securities exchange that meets certain
guidelines, where the trade is effected through the
facilities of that national exchange;
c) a security listed on Nasdaq;
d) a security of an issuer that meets certain minimum financial
requirements ("net tangible assets" in excess of $2,000,000
if the issuer has been continuously operating for less than
three (3) years), or "average return" of at least $6,000,000
for the last three years; or
e) a security with a price of at least $5.00 per share for the
transaction in question or that has a bid quotation (as
defined in the rule) of at least $5.00 per share.
Under rule 3a51-1, the company's common stock falls within the
definition of "Penny Stock." pursuant to the "90 act", broker-dealers, prior to
effecting a transaction in a Penny Stock, are required to provide investors with
written disclosure documents containing information concerning various aspects
of the market for Penny Stocks as well as specific information about the Penny
Stock and the transaction involving the purchase and sale of that stock (e.g.,
price quotes and broker-dealer and associated person compensation). Subsequent
to the transaction, the broker is required to deliver monthly or quarterly
statements containing specific information about the Penny Stock. These added
disclosure requirements will most likely negatively affect the ability of
purchasers herein to sell their shares in the secondary market.
We will need to raise additional funds which could dilute the shares
We need to raise additional funds through public or private debt or equity
financing to be able to fully execute our business plan. Any additional capital
raised through the sale of equity may dilute the investor's ownership interest.
We may not be able to raise additional funds on favorable terms, or at all. If
we are unable to obtain additional funds, we will be unable to execute our
business plan.
11
We may issue shares to raise capital or for services in the future at a price
lower than that paid by current investors and such actions would be dilutive,
even highly dilutive, of current outstanding shares, which would adversely
affect market values
We will need to raise substantial additional capital and may issue shares for
cash, services, or acquisitions at a price less than that paid by current
owners, as needs arise. This poses a risk for investors in that there is no
protection for them against such dilutive issuances, which could ultimately
adversely affect the market and price for our shares, if a market ever develops.
Our securities have been thinly traded on the Pink Sheets, which may not provide
liquidity for our investors
Our securities are quoted on the Pink Sheets market. The Pink Sheets is an
inter-dealer, over-the-counter market that provides significantly less liquidity
than the NASDAQ stock market or other national and regional exchanges.
Securities traded on the Pink Sheets are usually thinly traded, highly volatile,
have fewer market makers and are not followed by analysts. The Securities and
Exchange Commission's order handling rules, which apply to Nasdaq-listed
securities, do not apply to securities quoted on the Pink Sheets. Quotes for
stocks included on the Pink Sheets market are not listed in newspapers.
Therefore, prices for securities traded solely on the Pink Sheets may be
difficult to obtain and holders of our securities may be unable to resell their
securities at or near their original acquisition price, or at any price.
Investors must contact a broker-dealer to trade Pink Sheets securities and as a
result, investors may not be able to buy or sell our securities at the times
that you may wish
Even though our securities are quoted on the Pink Sheets market, the Pink Sheets
may not permit our investors to sell securities when and in the manner that they
wish. Because there are no automated systems for negotiating trades on the Pink
Sheets, they are conducted via telephone. In times of heavy market volume, the
limitations of this process may result in a significant increase in the time it
takes to execute investor orders. Therefore, when investors place market orders
to buy or sell a specific number of shares at the current market price it is
possible for the price of a stock to go up or down significantly during the
lapse of time between placing a market order and its execution.
Future sales of our common stock by restricted shareholders could have a
depressive effect on the market price for our stock
We currently have 45,560,091 shares of common stock outstanding as of August 12,
2009, subject to restrictions on transfer referred to below, all other shares of
common stock which we have not registered are considered "Restricted Securities"
as defined under the Securities Act (1934) and in the future may be sold in
compliance with rule 144 under the Securities Act or pursuant to a registration
statement filed under the Securities Act. Rule 144 generally provides that a
person holding restricted securities for a period of six months may sell every
three months in brokerage transactions or market-maker transactions an amount
equal to the greater of (i) one percent (1%) of our issued and outstanding
common stock or (ii) the average weekly trading volume of the common stock
during the four calendar weeks prior to the sale. Rule 144 also permits, under
certain circumstances, the sale of shares without any quantity limitation by a
person who is not an affiliate of the company and who has satisfied a one year
holding period. The sale of substantial numbers of these shares, whether
pursuant to rule 144 or pursuant to a registration statement, may have a
depressive effect on the market price of our common stock by causing the supply
exceeding demand.
In addition, sales of significant amounts of Restricted Shares held by Mr.
Madhava Rao Mankal, CFO and director of the company and Mr. Daniel Medina,
president and director of the company, who own a total of 22,344,000 shares of
common stocks, or the prospect of these sales, could adversely affect the market
price of our common stock.
12
Our operating results in future periods are likely to fluctuate significantly
and may fail to meet or exceed the expectations of securities analysts or
investors, and this could affect our market price
Our annual and quarterly operating results are likely to fluctuate significantly
in the future due to numerous factors, many of which are outside of the
company's control. These factors include many of which are discussed in other
risk factors; such as low revenues, competition, failure to approve products
proposed, lack of additional capital, management changes, and intellectual
property infringement claims to extremely high operating costs. If our operating
results are negatively affected by any of these factors, our operating results
in future periods could fail to meet or exceed the expectations of securities
analysts or investors. In that event, any trading price of our common stock
would decline.
Risks in General Operations
We rely upon licenses in the manufacturing of our boats
We manufacture our boats under various licenses; the loss of any could impair
our business. Mr. Albert Mardikian, Chief Executive Officer of Harbor Guard
Boats, Inc., holds the patents on the designs we use to build our products. If
we breach the license agreement, it may seriously impair our ability to
manufacture the boats and we may not be able to successfully implement our
business plan. Each license is for a certain period of time. If Mr. Mardikian is
unwilling to renew the licenses, it may seriously impair our ability to
manufacture the boats and we may not be able to successfully implement our
business plan.
We rely on proprietary designs and rights and if we have to litigate those
rights, our expenses could substantially increase
Our intellectual property is important to our business. We rely on a combination
of license rights, trade secret laws, confidentiality procedures, and
contractual provisions to protect our intellectual property. Our success and
ability to compete depends, in part, on the protection of our designs and
technology. In addition, our technology could infringe on patents or proprietary
rights of others. We have not undertaken or conducted any comprehensive patent
infringement searches or studies. If a third party holds any conflicting rights,
we may be required to stop making, using or selling our products or to obtain
licenses from and pay royalties to others. Further, in such event, we may not be
able to obtain or maintain any such licenses on acceptable terms, if at all. We
may need to engage in future litigation to enforce intellectual property rights
or the rights of customers, to protect trade secrets or to determine the
validity and scope of proprietary rights of others, including customers. This
litigation could result in substantial costs and diversion of resources and
could materially adversely affect our results of operations.
We depend on our suppliers and if we cannot obtain certain components for our
products, we might have to develop alternative designs that could increase our
costs.
We depend upon a number of suppliers for components in manufacturing our boats.
There is an inherent risk that certain components will be unavailable for prompt
delivery or, in some cases, discontinued. We have only limited control over any
third-party manufacturer as to quality controls, timeliness of production,
deliveries and various other factors. Should the availability of certain
components be compromised, it could force us to develop alternative designs
using other components, which could add to the cost of goods sold and compromise
delivery commitments. If we are unable to obtain components in a timely manner,
at an acceptable cost, or at all, we may need to select new suppliers, redesign
or reconstruct the process we use to build the hulls, which management believes
would take a minimum of one year. We may not be able to manufacture any boats
for a period of time, which could materially adversely affect our business,
through the results of our operations, and our financial condition.
In addition, if a change in the manufacturer of a key component is required,
qualification of a new supplier may result in delays and additional expenses in
meeting customer demand for products.
13
We have a limited operating history and may never achieve or sustain profitable
operations.
We have generated $1,252,179 in revenues from inception to date from our
operations. Our ability to successfully commercialize our products will depend
on, among other things, our ability to manufacture and sell our products and the
relative cost to the customer of our product as compared to alternative
competitive products. As a result, we may never achieve or sustain profitable
operations.
We anticipate that we will continue to incur operating losses for the
foreseeable future, due to a high level of planned operating and capital
expenditures for developing manufacturing capabilities, increased sales and
marketing costs, the hiring of additional personnel, greater levels of product
development and our general growth objectives related to the design and
manufacturing of our products.
The company has incurred losses since our inception and expects to continue to
incur losses in the future. We may never become profitable. We have historically
generated substantial losses, which, if continued, could make it difficult to
fund our operations or successfully execute our business plan, and could
materially adversely affect our stock price. We experienced net losses of
$1,768,434 for the year ended April 30, 2009. At April 30, 2009, we had an
accumulated deficit of $4,698,284.
The impact of market fluctuations in money markets, financial stability and
financing costs could adversely affect our profitability.
Most of our expenses and capital spending are transacted in the U.S. dollars.
The company's exposure to market risk for changes in interest rates relate
primarily to the company's cash and cash equivalent balances, marketable
securities, investment in sales-type leases, and loan agreements. The majority
of the company's investments may be in short-term instruments and therefore
subject to fluctuations in U.S. interest rates. Our financing arrangements will
be periodically renewed and an increase in interest rates may result in higher
interest charges to us. Due to the uncertain nature of such, we cannot provide
assurance that this will not have a material adverse impact on our financial
condition and results of operations.
Our independent accountants have issued a going concern opinion and if we do not
generate enough cash from operations to sustain our business we may have to
liquidate assets or curtail our operations.
The accompanying financial statements have been prepared assuming we will
continue as a going concern. Conditions exists which raise substantial doubt
about our ability to continue our business unless we are able to generate
sufficient cash flows to meet our obligations and sustain our operations. In
addition, we have limited working capital. We cannot provide assurance or
guarantee that additional capital and/or debt financing will be available and to
the extent required by us, or that if available, it will be on terms favorable
or acceptable by us. Our financial statements do not include any adjustment that
might result from the outcome of this uncertainty. This may be an indicator of
our inability to continue in business which could cause loss of part or all of
your investment.
We will need significant additional funds for operations and product marketing
and development, which we may not be able to obtain
The expansion and development of our business will require significant
additional capital. We intend to seek substantial additional financing in the
future to fund the growth of our operations, including funding the significant
capital expenditures necessary for us to provide products in our targeted
markets. We may be unable to obtain any future equity or debt financing on
acceptable terms or at all. A market downturn or general market uncertainty will
adversely affect our ability to secure additional financing. If we are unable to
obtain additional capital or are required to obtain it on terms less
satisfactory than what we desire, we will need to delay deployment of our new
products or take other actions that could adversely affect our business,
prospects, operating results and financial condition. To date, our cash flow
from operations has been insufficient to cover our expenses and capital needs.
Our current capital resources have been expended and we need additional capital
to continue expansion, which we may not be able to obtain, and it could impair
or curtail operations.
14
Our current liabilities exceed our current assets by a significant amount, which
could put stockholder/investors at serious risk of or loss of their investment.
The company, at April 30, 2009, had current liabilities of $3,593,014 and
$450,223 in current assets. As of April 30, 2009, we have a working capital
deficit of approximately $3,142,791. In the event that creditors or litigants,
if any, were to attempt to collect, it is unlikely that stockholders, as equity
holders, would receive some or any return of their investment, because creditors
would be paid first.
A segment of our business focuses on government agencies, limited number of
potential customers, and if we cannot obtain government contracts, we may not
earn revenues.
Obtaining government contracts may involve long purchase and payment cycles,
competitive bidding, qualification requirements, delays or changes in funding,
budgetary constraints, political agendas, extensive specification development,
price negotiations and milestone requirements. Each government agency also
maintains its own rules and regulations, varying significantly among agencies,
with which we must comply. Government agencies also often retain some portion of
fees payable upon completion of a project and collection of these fees may be
delayed for several months.
We must comply with environmental regulations or we may have to pay expensive
penalties or clean up costs
We are subject to federal, state, local and foreign laws, and regulations
regarding protection of the environment, including air, water, and soil. Our
manufacturing business involves the use, handling, storage, and contracting for
recycling or disposal of, hazardous or toxic substances or wastes, including
environmentally sensitive materials, such as batteries, solvents, lubricants,
degreasing agents, gasoline and resin. We must comply with certain requirements
for the use, management, handling, and disposal of these materials. We do not
maintain insurance for pollutant cleanup and removal. If we are found
responsible for any hazardous contamination, we may have to pay expensive fines
or penalties or perform costly clean-up. Even if we are charged, and later found
not responsible, for such contamination or clean up, the cost of defending the
charges could be high.
If we do not comply with government regulations, we may be unable to ship our
products or may have to pay expensive fines or penalties
We are subject to regulation by United States governments (county, state, and
federal governments, government agencies, etc.), and regulatory authorities from
foreign nations. If we fail to obtain regulatory approvals or suffer delays in
obtaining regulatory approvals, we may not be able to market our products and
services, and generate revenues. Further, we may not be able to obtain necessary
regulatory approvals. Although we do not anticipate problems satisfying any of
the regulations involved, we cannot foresee the possibility of new regulations,
which could adversely affect our business. Our products are subject to export
limitations and we may be prevented from shipping our products to certain
nations or buyers.
The economy can have an adverse affect on our company
We are susceptible to fluctuations in the economy. If fewer boats are purchased
in response to general slowdowns in the economy, our business could be adversely
affected. Sales of recreational boats generally fluctuate with the economy.
Fluctuations in the market for recreational boats could cause fluctuations in
our operating results and a decline in the growth of the recreational boats
market and could have a material adverse effect on our business, financial
condition, and results of operations.
15
Risks in sales/marketing
We are subject to substantial competition and we must continue to focus on
product development to remain competitive.
We are subject to significant competition that could harm our ability to gain
business and increase the pressure on prices on our products. We face
competition from a variety of firms. Moreover, we may not have sufficient
resources to undertake the continuing research and development necessary to
remain competitive. Competitors may attempt to independently develop similar
designs or duplicate our products or designs. We or our competitors may
intentionally or unintentionally infringe upon or misappropriate products or
proprietary information. In the future, litigation may be necessary to enforce
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation could be time consuming and
costly. Any patent or patents sub-licensed to us relating to current or future
products may be challenged, invalidated, or circumvented or the rights granted
there under may not be held valid if subsequently challenged.
Our boat designs are based on technological and design innovation. Consequently,
the life cycles of some of our products can be relatively short. Our success
depends significantly on our ability to establish and maintain a competitive
position in this field. Our products may not remain competitive in light of
technological developments by others. Our competitors may succeed in discovering
and developing technology before we do that might render our technology, and
hence making our products, obsolete and noncompetitive.
We are a small company in terms of employees, technical and research resources
and capital. We expect to have significant research and development, sales and
marketing, and general and administrative expenses for several years. These
amounts may be expended before any commensurate incremental revenue from these
efforts may be obtained. These factors could hinder our ability to meet changes
in the boat industry as rapidly or effectively as competitors with substantially
more resources.
The boat and/or defense industry is very competitive, which may have an adverse
affect on profits if sales fall short of our goals
The boat and/or defense industry is very competitive and competition is
increasing in both the United States and abroad. We may not be able to compete
successfully against either current or future competitors. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. As a
result, these companies may be able to develop and expand their market share
more rapidly, adapt to changes in customer requirements more quickly, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than we can. In
addition, competition could result in significant price erosion, reduced
revenue, lower margins or loss of market share, any of which would significantly
harm our business. If we are unable to successfully compete, we will be unable
to achieve our business plan.
Commercialization of our current and future products could fail if
implementation of our sales and marketing strategy is
unsuccessful
A significant sales and marketing effort will be necessary in order to achieve
the level of market awareness to realize profitability from sales of our current
and future products. We currently have only limited sales and marketing
experience, both in the United States and abroad, which may limit our ability to
successfully develop and implement our sales and marketing strategy. We need to:
a) hire and train sales and marketing personnel;
b) manage geographically dispersed operations;
c) encourage customers to purchase products.
If we fail to successfully create and implement a sales and marketing strategy
it could result in increased costs and net losses with resulting potential
failure of the company.
16
Success dependent on market acceptance. The company's success is
dependent on the market acceptance of its products. Despite the increasing
demand for commercial boats, the company's products represents an advanced
approach to the industry, and market acceptance of the company's products will
be dependent, among other things, upon its quality, ease of use, speed,
reliability, and cost effectiveness. Even if the advantages of the company's
products are established, the company is unable to predict how quickly, if at
all, the products will be accepted by the marketplace.
Risks in management
We rely upon key employees to proceed with our business plans
The loss of our key employees could impair our ability to proceed with our
business. Our success depends in significant part on the continued services of
our key employees, including Mr. Daniel Medina, President and Director, Mr.
Madhava Rao Mankal, Chief Financial Officer and Director, and Mr. Albert
Mardikian, Chief Executive Officer of Harbor Guard Boats, Inc.
The primary business location the company operates may have an adverse effect on
the company's performance
The company's corporate headquarters, final boat assembly, and quality control
in a 5,000 sq. ft. facility located in Costa Mesa, California, strategically
positioned near the Los Angeles and Long Beach Harbors, in addition to numerous
marine related suppliers. In addition, the commercial boat business unit does
prototyping and boat assembly at this location. This agreement is on a
month-to-month basis. Management anticipates that this arrangement will be
suitable for our needs for the foreseeable future. If we were to terminate or if
the Costa Mesa arrangement was terminated, we would have to move our operations
to another location which is feasible, cost effective, and has building codes
that would allow for the manufacturing of our products.
We may be unable to obtain the additional capital required to expand our
business. We may have to curtail our business if we cannot find adequate
funding, resulting ultimately in business failure
Our ability to grow depends significantly on our ability to expand our
operations through internal growth and by acquiring other companies or assets
that require significant capital resources. We may need to seek additional
capital from public or private equity or debt sources to fund our growth and
operating plans and respond to other contingencies such as:
a) shortfalls in anticipated revenues or increases in expenses;
b) the development of new services; or
c) the expansions of our operations, including the recruitment
of additional personnel.
We cannot be certain that we will be able to raise additional capital in the
future on terms acceptable to us or at all. If alternative sources of financing
are insufficient or unavailable, we may be required to modify our growth and
operating plans in accordance with the extent of available financing. Any
additional equity financing may involve substantial dilution to our existing
stockholders.
17
Our principal officers and directors own 71.68% of our stock which, if voted in
a block, will be a controlling interest and investors will have a limited voice
in our management
Messrs. Daniel Medina, Albert Mardikian and Madhava Rao Mankal, officers and
directors of the company, beneficially own approximately 71.68% of our
outstanding common stock as of August 12, 2009. As a result, Messrs. Medina,
Mardikian and Mankal have the ability to control substantially all matters
submitted to our stockholders for approval, including:
a) election of our board of directors;
b) removal of any of our directors;
c) amendment of our certificate of incorporation or bylaws; and
d) adoption of measures that could delay or prevent a change in control
or impede a merger, takeover or other business combination involving
the company.
As a result of their ownership and positions with little additional support,
Messrs. Medina, Mardikian and Mankal are able to influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions.
Conflicts of interest ---- the board of directors of Medina
International Holdings, Inc. is subject to various conflicts of interest arising
out of their relationship with the company. The officers and directors of the
company will devote such time, as they deem necessary to the business and
affairs of the company. Officers and directors of the company are required by
law to deal fairly and in good faith with the company and they intend to do so.
However, in any company, there are certain inherent conflicts between the
officers and directors and the investors, which cannot be fully mitigated.
Because the officers and directors will engage in activities independent of the
company, some of these activities may conflict with those of the company. Thus,
the officers and directors may be placed in the position where their decisions
could favor their own activities or other activities with which they are
associated over those of the company. Officers and directors of the company may
engage in business separately from activities on behalf of the company or client
entities for which the company also provides services to.
Limitations on directors' and officers' liability. The Company's
articles of incorporation provide, as permitted by governing Colorado law, that
a director or officer of the company shall not be personally liable to the
company, or its shareholders, for monetary damages for breach of his or her
fiduciary duty of care as a director or officer, with certain exceptions. In
addition, the company has agreed to indemnify its officers and directors to the
fullest extent permitted by Colorado law. Such provisions may discourage
stockholders from bringing a lawsuit against directors for breaches of fiduciary
duty and may also have the effect of reducing the likelihood of derivative
litigation against directors and officers even though such action, if
successful, might otherwise have benefited the company's stockholders. In
addition, a stockholder's investment in the company may be adversely affected to
the extent that the company, pursuant to such provisions, pays costs of
settlement and damage awards against the company's officers or directors.
Additional risks
The company is subject to many additional risks. The risks and uncertainties
described above are not a comprehensive list. Additional risks and uncertainties
not presently known or those that management does not currently deem material
may also affect business operations.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company does not own any properties as of the year ended April 30, 2009.
ITEM 3. LEGAL PROCEEDINGS
As of April 30, 2009, neither the Company nor any member of management was a
party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Medina International Holdings, Inc. is quoted on the Pink Sheets
(Over-the-Counter) market and the trading symbol is MIHI. The Company began
trading on the Over-the-Counter-Bulletin-Board (OTCBB) in May 2006. As a result
of non-timely filings of Annual and Quarterly reports, our stock began trading
on the Pink Sheets in April of 2009. The Company has to file its reports on time
for the next 4 consecutive quarters, in order to reinstate the Company onto the
Bulletin Board.
As of the date of this report, the Company's common stock has been thinly
traded. There may never be substantial activity in the market and if there is
substantial activity, such activity may not be maintained, and no prediction can
be made as to what prices may prevail in market. The range of high and low trade
quotations for each fiscal quarter since the last report, as reported by the
National Quotation Bureau Incorporated, was as follows:
High Low
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Year ended April 30, 2009
First Quarter $0.09 $0.03
Second Quarter $0.07 $0.02
Third Quarter $0.05 $0.02
Fourth Quarter $0.05 $0.01
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High Low
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Year ended April 30, 2008
First Quarter $1.30 $0.55
Second Quarter $0.55 $0.20
Third Quarter $0.20 $0.01
Fourth Quarter $0.04 $0.01
- ------------------------------------------------------------------------
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its common stock and
does not anticipate paying dividends for the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
The Company did not issue or sell any unregistered securities from May 1, 2008
to April 30, 2009
EXEMPTION FROM REGISTRATION CLAIMED. The sale, if any, by the Company of its
unregistered securities was made by Registrant in reliance upon Section 4(2) of
the Securities Act of 1933, as amended. The corporation, which purchased the
unregistered securities, was known to the Company and its management, through
pre-existing business relationships. The purchaser was provided access to all
material information, which it requested, and all information necessary to
verify such information and was afforded access to management of the Company in
connection with the purchase. The purchaser of the unregistered securities
acquired such securities for investment and not with a view toward distribution
acknowledging such intent to the Company. All certificates or agreements
representing such securities that were issued contained restrictive legends,
prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise
exempt from registration in any further resale or disposition.
19
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data derived from the
audited Consolidated Financial Statements for two years. This information should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the audited Consolidated Financial
Statements and the Notes thereto.
2009 2008
- --------------------------------------------------------------------------------
Operating Results
Net Sales $2,034,379 $ 192,800
Cost of Goods Sold 1,110,916 115,114
Gross Margin (82,537) 77,686
General and Administrative expenses 489,653 1,059,346
Selling & marketing expenses 169,889 47,946
Research and development expenditures 148,836 -
Other operating expenses 822,009 68,500
Other income (expenses) (61,510) (34,631)
Net Loss (1,768,434) (1,142,737)
- --------------------------------------------------------------------------------
Balance Sheet
Total assets $ (242,088) $ 386,776
Total debt 3,593,014 887,038
Total Stockholders' equity (2,268,696) (500,262)
- --------------------------------------------------------------------------------
Cash Flows
Net cash used by operating activities $ (242,088) $ (96,576)
Net cash provided by investing activities (3,586) (33,489)
Net cash provided b financing activitie 282,250 124,929
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY AND FORWARD LOOKING STATEMENTS
In addition to statements of historical fact, this Form 10-K contains
forward-looking statements. The presentation of future aspects of Medina
International Holdings, Inc. ("Medina International Holdings, Inc.,""Company" or
"issuer") found in these statements is subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
reflected in such statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. Without limiting the generality of the foregoing, words such
as "may," "will," "expect," "believe," "anticipate," "intend," or "could" or the
negative variations thereof or comparable terminology are intended to identify
forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause the Company's actual results to be materially
different from any future results expressed or implied by Medina International
Holdings, Inc. in those statements. Important facts that could prevent Medina
International Holdings, Inc. from achieving any stated goals include, but are
not limited to, the following:
20
Some of these risks might include, but are not limited to, the following:
(a) Volatility or decline of the Company's stock price; (b)
Potential fluctuation in quarterly results; (c) Failure of the
Company to earn revenues or profits;
(d) Inadequate capital to continue or expand its business inability
to raise additional capital or financing to implement its business
plans; (e) Failure to achieve a business; (f) Rapid and significant
changes in markets; (g) Litigation with or legal claims and
allegations by outside parties; and (h) Insufficient revenues to
cover operating costs.
There is no assurance that the Company will be profitable, the Company may not
be able to successfully develop, manage or market its products and services, the
Company may not be able to attract or retain qualified executives and personnel,
the Company's products and services may become obsolete, government regulation
may hinder the Company's business, additional dilution in outstanding stock
ownership may be incurred due to the issuance of more shares, warrants and stock
options, or the exercise of warrants and stock options, and other risks inherent
in the Company's businesses.
The Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q and Annual Report on this Form 10-K
filed by the Company and any Current Reports on Form 8-K filed by the Company.
Overview
We are in the business of delivering products and services to aid organizations
and personnel who risk their lives to save others. We design, manufacture, test,
deliver, and support fire rescue, rescue, and patrol watercrafts (commercial) to
increase the effectiveness and efficiency of the mission of our users. Our
products are sold to fire, search & rescue, emergency, police, defense, and
military departments in the United States and abroad. Our commercial watercrafts
are sold to organizations dedicated to protecting its country and its citizens.
Fire departments are our largest customers and we rely heavily on government
funded departments to achieve sales and continue our operations.
In addition, we also manufacture two recreational watercrafts.
The Company owns the rights to the following websites:
www.medinaih.com
www.medinainternationalholdings.com
www.medinamarine.com
www.harborguardboats.com
You can access the latest videos of our products using the following links:
http://www.youtube.com/medinamarine
http://www.youtube.com/hgboats
21
Our Company operates under the following exclusive licenses:
- --------------------------- -- ------------------ -------------
Patent No. Inventor Date
- --------------------------- -- ------------------ -------------
U.S. 6,620,003 Albert Mardikian 9/16/2003 Boat Having a Combination of Jets and Outboard Motors and/or
Extendable hydroplanes
U.S. 7,004,101 Albert Mardikian 2/28/2006 Boat with Stabilizer Adapted to Serve as Loading Platform
U.S. 6,343,964 Albert Mardikian 2/5/2002 Jet Boat with Improved Hull Design and Engine Placement
U.S. 6,168,481 Albert Mardikian 1/2/2001 Jet Boat with Improved Hull Design and Engine Placement
- --------------------------- -- ------------------ -------------
Key Challenges
We face numerous challenges to sustain operations. We have identified some of
the challenges we continue to face:
a) Continuing to expand our customer base both domestically and internationally;
b) Continuing to meet or exceed customer's price expectations;
c) Continuing to build brand name both domestically and internationally;
d) Continuing to provide quality customer support;
e) Competing with established competitors;
f) Continuing the development of new products to bring to market; and
g) Reducing internal control weaknesses over financial reporting and disclosure.
The main uncertainty about our operations is whether we will continue to receive
orders for our commercial products. Our potential customers rely on federal
grants or other government budgets to receive funds to purchase equipment.
Depending on the size of aid received, they purchase equipment(s) for their
departments. The size of the aid received by these departments creates a demand
for our product, in terms of price and features. The timing of the funds cannot
be predicted for our prospective international customers. The size of the aid
cannot be predicted; hence we will be unable to forecast our outlook for the
coming fiscal year.
In July of 2008, we acquired Harbor Guard Boats, Inc. as our wholly owned
subsidiary. Our management has recognized that our business was changing, and in
response, we are attempting to rebalance our workforce and manufacturing
capacity. We may incur costs as a result of our efforts to meet these
restructuring needs.
In addition, Our Company's accounting and financial systems need to be
substantially improved in order to accommodate our current and projected
production levels. We may incur costs as a result of our efforts to improve the
accounting and financial systems.
Strategy
Our business strategy is to deliver products and services to aid organizations
and personnel who risk their lives to save others. Our intent is to not only
manufacture high quality watercrafts, but to seek and/or develop innovative
products to assist emergency and defense personnel and departments to become
more efficient and effective in their mission. In addition, our strategy
includes the following:
a) Capitalize on the demand for commercial and recreational watercrafts;
b) Build long-term relationships with business partners and stakeholders while
providing profitability for our investors;
c) Develop and expand strategic partnerships;
d) Identify new products and markets to meet changing customer requirements;
e) Retain and provide opportunities for growth for our employees;
22
Operating Revenues
Our sole source of revenue from our inception is attributable to our commercial
watercrafts. Our company has sold 11 watercrafts, and earned revenues of
$1,034,379 for the year ended April 30, 2009 as compared to $192,800 for the
year ended April 30, 2008. Since most of our sales consist of commercial
watercrafts, we do not anticipate offering discounts or other sales incentives.
During the year ended April 30, 2008, we offered a discount of $16,700 as an
incentive for our potential customer to purchase the Company's first watercraft.
Harbor Guard Boats, Inc. has sold 21 boats from its inception.
- ------------------------------------------------------- -------------------------------- -------------- -----------------
For the Years Ended April 30, Dollar Change Percent Change
2009 2008 2009 vs. 2008 2009 vs. 2008
- ------------------------------------------------------- --------------- ---------------- -------------- -----------------
Boat Sales, net $1,003,426 $192,800 $810,626 420%
Spare parts and logistics 30,953 -- 30,953 17%
- ------------------------------------------------------- --------------- ---------------- -------------- -----------------
$1,034,379 $192,800 $841,579 437%
Operating Expenses
Operating Expenses consists of cost of goods sold, general and administrative
expenses, selling expenses, and research and development expenses.
Cost of Goods Sold
Costs of goods sold are costs to produce our product and generally consists of
direct materials, direct labor and production overhead.
For the year ended April 30,
2009 2008
--------------------------
Cost of goods sold $1,110,916 $115,114
Gross profit (76,537) 77,686
-------------- -----------
Gross profit as a percentage of net sales (7)% 67%
General and Administrative Expenses
General and administrative expenses include, but not limited to:
a) Professional fees for legal, accounting, consulting, and development
activities;
b) Rental Expense (administrative portion only);
c) Public company related expenditures;
d) Stock compensation for services rendered to the Company;
e) Compensation expenses; and
f) Income taxes.
23
Selling Expenses
Selling expenses include:
a) Commission paid for sales of our product;
b) Traveling expenses related to sales;
c) Freight expenses; and
d) Marketing expenditures.
Research and Development Expenses
For the year ended April 30,
2009 2008
--------------------------
Research and development $148,836 $0
As a percentage of net sales 14% 0%
Other Income (Expense)
Other Income (Expense) consists of:
a) Interest income
b) Interest expense on notes payable, credit cards, line of credits, and
shareholders' loans.
Results of Operations
The following tables present our results of operations for the two years ended
April 30, 2009 and 2008, as well as the percentage changes from year to year.
- --------------------------------------------- ------------- -- -------------- ---------------- ----------------------
For the
year ended
April
30, Dollar Change Percentage Change
2009 2008 2009 vs. 2008 2009 vs. 2008
- --------------------------------------------- ------------- -- -------------- ---------------- ----------------------
Sales, net $1,034,379 $192,800 $ 841,579 437%
Cost Of Goods Sold 1,110,916 115,114 995,802 865%
------------- -------------- ---------------- ----------------------
Gross Profit (76,537) 77,686 (154,223) -199%
------------- -------------- ---------------- ----------------------
General and administrative expenses 489,653 1,059,346 (569,563) -54%
Selling and marketing expenses 169,889 57,946 111,943 193%
Research and development expenses 148,836 - 148,836 -
Loss on Goodwill 822,009 - 822,009 -
Impairment loss on investment - 68,500 (68,500) -100%
Loss from operations (1,706,924) (1,108,106) (598,818) 54%
Other income - - - -
Interest expense 61,510 34,631 26,879 78%
Net other income (61,510) (34,631) (26,879) 78%
Loss before income tax (expense) benefit (1,768,434) (1,142,737) (625,697) 55%
Income tax (expense) benefit - - - -
Net Loss from Operations $(1,768,434) $(1,142,737) $(625,697) 55%
============= ============== ================ ======================
24
2009 Compared to 2008
Sales. The increase in sales for the year ended April 30, 2009 of $841,579, or
437%, was primarily due to sales of commercial watercrafts by Harbor Guard
Boats, Inc., wholly owned subsidiary of the Company since July 18, 2008. Harbor
Guard Boats sold 8 watercrafts during the year ended April 30, 2009. The
Firehawk models (24'/26' and 28') were the highest selling models with 67% of
the total dollar sales. Medina Marine, Inc., wholly owned subsidiary of the
company, sold one (1) Interceptor 12' model for the year ended April 30, 2009.
During the year ended April 30, 2008, we sold two (2) Interceptor 15'
watercrafts for net dollar sales of $192,800. Since most of our sales consist of
commercial watercrafts, we do not anticipate offering discounts or other sales
incentives. During the year ended April 30, 2008, we offered a discount of
$16,700 as an incentive for our customer to purchase the Company's first
watercraft. Since our inception, we have not sold any recreational watercrafts.
Cost of goods sold. The increase in cost of goods sold for the year ended April
30, 2009 of $1,110,916, or 870%, was primarily due to the acquisition of Harbor
Guard Boats, Inc., wholly owned subsidiary of the Company since July 18, 2008,
and the increase in sales activity due to the acquisition. Our cost of goods
sold comprise of direct material, direct labor, and production overhead. We
include royalty payments, for the use of the patents, as part of the production
overhead. Our royalty expense was $43,343 for year ended April 30, 2009 as
compared to $2,629 for the year ended April 30, 2008. We estimated and accrued
$33,000 of warranty reserve. Our warranty expense was $65,558 for year ended
April 30, 2009 as compared to none for the year ended April 30, 2008.
25
General and Administrative
For the Years Ended April 30, Dollar Change Percent Change
2009 2008 2009vs 2008 2009vs2008
--------------------------------------------------------------
General and Administrative 489,653 1,059,346 $(575,693) -54%
Selling and marketing expenses. The increase in selling expenses of $111,943, or
193%, during the year ended April 30, 2009 compared to the year ended April 30,
2008, was primarily due to the acquisition of Harbor Guard Boats, Inc. and its
operating activities. Due to the higher unit sales of our products during the
year ended April 30, 2009, we incurred $101,624 in commission expenses as
compared to $26,510 during the year ended April 30, 2008.
Selling and Marketing Expenses For the Years Ended April 30, Dollar Change Percent Change
2009 2008 2009vs 2008 2009vs2008
----------------------------------------------------------------
Selling and Marketing Expenses $169,889 $57,946 $111,943 193%
Depreciation and amortization expenses. The increase in depreciation and
amortization expenses of $83,665, or 143%, was primarily due to the increase in
molds and machinery and equipment acquired, totaling $698,178, from the
acquisition of Harbor Guard Boats, Inc.
Depreciation and Amortization For the Years Ended April 30, Dollar Change Percent Change
2009 2008 2009vs 2008 2009vs2008
----------------------------------------------------------------
Depreciation and Amortization $142,184 $58,519 $83,665 143%
Other Expenses. Our other expenses increased $26,879, or 78%, during the year
ended April 30, 2009, primarily due to the increase of short-term debt, such as
line of credit and credit cards, of Harbor Guard Boats, Inc. The interest
accrued on shareholders' loan during the year ended April 30, 2009 was $42,225
compared to $40,134 during the year ended April 30, 2008. We also incurred
interest on related party liabilities of $4,000 during the year ended April 30,
2009 compared to none during the year ended April 30, 2008.
Other Income (Expense) For the Years Ended April 30, Dollar Change Percent
Change
2009 2008 2009vs 2008 2009vs2008
-------------------------------------------------------------
Other Income - - - -
Other Expense $61,510 $34,631 $26,879 78%
26
Net Loss. Based on the explanations described above, our net loss of $1,768,434
for the year ended April 30, 2009 increased by $625,697, or 55%, from
$1,142,737, for the year ended April 30, 2008.
Net Loss For the Years Ended April 30, Dollar Change Percent Change
2009 2008 2009vs 2008 2009vs2008
-------------------------------------------------------------
Net Loss $(1,768,434) $(1,142,737) $(625,697) 55%
Liquidity and Capital Resources
- ------------------------------------------------------- -----------------------------------
Cash Flow - Snapshot For the Years Ended April 30,
2009 2008
- ------------------------------------------------------- ----------------- -----------------
Net cash provided by (used in) operating activities $(242,088) $(96,576)
Net cash provided by (used in) investing activities (3,586) (33,489)
Net cash provided by (used in) financing activities 282,250 124,929
- ------------------------------------------------------- ----------------- -----------------
As of April 30, 2009, the Company had $36,577 cash on hand, an inventory of
$410,481 and net fixed assets of $874,095. The Company's total current
liabilities were $3,593,014 as of April 30, 2009, which was represented mainly
accounts payable of $518,898, accrued liabilities of $377,555, deposits from
customers of $242,905, short-term debt of $265,352, notes payable of $64,000 and
short-term borrowings from shareholders totaling $311,712. In addition, stock
subscription payable of $902,738 and note payable for the acquisition of
$909,854 are included in the current liabilities. At April 30, 2009, the
Company's current liabilities exceeded current assets by $3,142,791.
As of April 30, 2008, the Company had no cash on hand, inventory of $68,813 and
net fixed assets of $317,963. The Company's total current liabilities were
$887,038 as of April 30, 2008, which was represented mainly accounts payable of
$190,359, accrued liabilities of $40,952, deposits from customers of $24,500,
short-term debt of $17,156, short-term loans from shareholders totaling
$361,688, and stock subscriptions payable of $241,563. At April 30, 2008, the
Company's current liabilities exceeded current assets by $818,225.
The Company used $242,088 in operating activities for the year ended April 30,
2009 compared to usage of $96,576 for year ended April 30, 2008.
The Company used cash of $3,586 in investing activities during the year ended
April 30, 2009. For the year ended April 30, 2008, the Company had used cash
$33,489 for manufacturing of the molds for the fire and rescue watercrafts.
During the year ended April 30, 2009, the Company obtained $282,250from
financing activities, which included the $172,850 increase in the lines of
credits and credit cards held by the Company. During the year ended April 30,
2008, the Company obtained $124,929 from financing activities, which included
the $11,649 decrease in the lines of credits held by the Company and $216,259
obtained through the issuance of notes payables. In addition, the Company sold
shares of its common stock for $16,000.
27
The Company has an accumulated deficit, as of April 30, 2009, of $4,698,284
compared to the year ended April 30, 2008 of $2,929,850.
Contractual Obligations and Other Commercial Commitments
The Company does not have capital sufficient to meet its cash needs, including
the costs of compliance with the continuing reporting requirements of the
Securities Exchange Act of 1934. Management will have to seek loans or equity
placements to cover such cash needs and cover outstanding payables. Lack of
existing capital may be a sufficient impediment to prevent the Company from
accomplishing its goal of expanding operations. There is no assurance, however,
that without funds we will ultimately be able to carry out its business. No
commitments to provide additional funds have been made by the Company's
management or other stockholders. Accordingly, there can be no assurance that
any additional funds will be available to the Company to cover its expenses as
they are incurred. Irrespective of whether the Company's cash assets prove to be
inadequate to meet its operational needs, the management might seek to
compensate providers of services by issuances of stock in lieu of cash.
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules, the following qualify as
off-balance sheet arrangements:
a) Any obligation under certain guarantees or contracts;
b) A retained or contingent interest in assets transferred to an
unconsolidated entity or similar entity or similar arrangement that
serves as credit, liquidity, or market risk support to that entity for
such assets;
c) Any obligation under certain derivative instruments; and
d) Any obligation under a material variable interest held by the
registrant in an unconsolidated entity that provides financing,
liquidity, market risk, or credit risk support to the registrant, or
engages in leasing, hedging, or research and development services with
the registrant.
The following will address each of the above items pertaining to the Company.
As of April 30, 2009, we do not have any obligation under certain guarantees or
contracts as defined above.
As of April 30, 2009, we do not have any retained or contingent interest in
assets as defined above.
As of April 30, 2009, we do not hold derivative financial instruments, as
defined by FASB statement No. 133,
Accounting for Derivative Instrument and Hedging Activities, as amended.
As of April 30, 2009, we do not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities
("SPEs"), which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. As of April 30, 2009 and 2008, we were not involved in any
unconsolidated SPE transactions.
Dividends
The Company has not declared or paid any cash dividends on its common stock and
does not anticipate paying dividends for the foreseeable future.
28
Critical Accounting Policies and Estimates
In June 2008, the Financial Accounting Standards Board ("FASB") ratified
Emerging Issues Task Force ("EITF") Issue No. 07-5, "Determining Whether an
Instrument (or an Embedded Feature) is indexed to an Entity's Own Stock" ("EITF
07-5"). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The adoption of EITF 07-5 will not have an
impact on our consolidated financial position and results of operations.
In May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162 ("SFAS No. 162"), "The Hierarchy of Generally Accepted Accounting
Principles." SFAS No. 162 identifies the sources of accounting principles and
the framework for selecting the principles used in the preparation of financial
statements that are presented in conformity with generally accepted accounting
principles. SFAS No. 162 becomes effective 60 days following the Securities and
Exchange Commission's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles." We do not expect that the adoption of
SFAS No. 162 will have a material impact on our consolidated financial
statements.
In April 2008, the FASB issued FSP No. 142-3 ("FSP 142-3"), "Determination
of the Useful Life of Intangible Assets." FSP 142-3 amends the factors an entity
should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, "Goodwill and Other Intangible Assets." This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. FSP 142-3
is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008. Early adoption is prohibited. Since
this guidance will be applied prospectively, on adoption, there will be no
impact to our current consolidated financial statements.
In March 2008, the FASB, affirmed the consensus of FASB Staff Position
(FSP) Accounting Principles Board Opinion No. 14-1 (APB 14-1), Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), which applies to all convertible debt
instruments that have a net settlement feature; which means that such
convertible debt instruments, by their terms, may be settled either wholly or
partially in cash upon conversion. FSP APB 14-1 requires issuers of convertible
debt instruments that may be settled wholly or partially in cash upon conversion
to separately account for the liability and equity components in a manner
reflective of the issuer's nonconvertible debt borrowing rate. Previous guidance
provided for accounting for this type of convertible debt instrument entirely as
debt. FSP APB 14-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years.
The adoption of FSP APB 14-1 will not have an impact on our financial
statements.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires additional disclosure
related to derivatives instruments and hedging activities. The provisions of
SFAS No. 161 are effective as of January 1, 2008 and the Company is currently
evaluating the impact of adoption.
In February 2008, the FASB issued FASB FSP 157-2, which delayed the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008, and interim periods within those fiscal
years. These nonfinancial items include assets and liabilities such as reporting
units measured at fair value in a goodwill impairment test and nonfinancial
assets acquired and liabilities assumed in a business combination. Effective
January 1, 2008, we adopted SFAS No. 157 for financial assets and liabilities
recognized at fair value on a recurring basis. The partial adoption of SFAS No.
157 for financial assets and liabilities did not have a material impact on our
consolidated financial position, results of operations or cash flows.
29
Going Concern
The Company's auditors have issued a "going concern" qualification as part of
their opinion in the Audit Report. There is substantial doubt about the ability
of the Company to continue as a "going concern." The Company has limited
capital, debt in excess of $3,142,791, no significant cash, minimal other
assets, and no capital commitments.
ITEM 8. FINANCIAL STATEMENTS
Please refer to pages F-1 through F-11.
ITEM 9 CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Jaspers + Hall, PC formerly the independent registered public accountant for
Medina International Holdings, Inc. (the Company), was dismissed as the
Company's independent registered public accountant on October 21, 2008 due to
the auditor's revocation from the Public Accounting Oversight Board (PCAOB).
In connection with audit of fiscal years ended April 30, 2008 and 2007 and the
cumulative period of May 1, 2008 through July 31, 2008 and through the date of
termination of the accountants, no disagreements exist with the former
independent registered public accountant on any matter of accounting principles
or practices, financial statement disclosure, internal control assessment, or
auditing scope of procedure, which disagreements if not resolved to the
satisfaction of the former accountant would have caused them to make reference
in connection with their report to the subject of the disagreement(s).
The audit reports by Jaspers + Hall, PC for the fiscal years ended April 30,
2008 and 2007, contained an opinion which included a paragraph discussing
uncertainties related to continuation of the Company as a going concern and did
not include an adverse opinion or a disclaimer of opinion or were not qualified
or modified as to uncertainty, audit scope or accounting principles
On October 21, 2008, the Board of the Company approved the engagement of new
auditors, Ronald R. Chadwick, PC, of Aurora, Colorado to be the Company's
independent registered public accountant to audit for the year ended April 30,
2009 and re-audit for the year ended April 30, 2008.
The action to engage new auditors was approved by the Board of Directors. No
audit committee exists, other than the members of the Board of Directors.
ITEM 9a CONTROLS AND PROCEDURES
EVALUATION OF INTERNAL AND DISCLOSURE CONTROLS
Management's Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that:
30
(I) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our
assets;
(II) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial; and
(III)provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or;
As required by SEC Rule 15d-15(b), Mr. Daniel Medina, our President and Mr.
Madhava Rao Mankal our Chief Financial Officer, carried out an evaluation under
the supervision and with the participation of our management, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report
The Company, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of April 30,
2009. Based on that evaluation, the Chief Executive Officer/Acting Chief
Financial Officer concluded that, because of the material weakness in internal
control over financial reporting described below, the Company's disclosure
controls and procedures were not effective as of April 30, 2009.
ITEM 9(A)T. INTERNAL CONTROLS AND PROCEDURES
Management's Annual Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation,
management has concluded, as of April 30, 2009, we did not maintain effective
controls over the financial reporting process.
Inherent Limitations over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations,
including the possibility of human error and circumvention by collusion or
overriding of controls. Accordingly, even an effective internal control system
may not prevent or detect material misstatements on a timely basis. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may deteriorate.
31
Attestation Report of the Registered Public Accounting Firm.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.
Changes in Internal Control over Financial Reporting.
We have made no change in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND COMPLIANCE WITH
SECTION 16(A)
All directors of the Company hold office until the next annual meeting of the
security holders or until their successors have been elected and qualified. The
officers of the Company are appointed by the board of directors and hold office
until their death, resignation or removal from office. The Company's directors
and executive officers, their ages, and positions held are as follows:
- ------------------------------ ------ --------------------------------------
Name Age Position
- ------------------------------ ------ --------------------------------------
- ------------------------------ ------ --------------------------------------
Daniel Medina 55 President & Director
- ------------------------------ ------ --------------------------------------
Madhava Rao Mankal 58 Chief Financial Officer & Director
- ------------------------------ ------ --------------------------------------
Mike Swanson 53 Director
- ------------------------------ ------ --------------------------------------
Mike Gallo 51 Director
- ------------------------------ ------ --------------------------------------
Albert Mardikian 63 CEO, Harbor Guard Boats, Inc.
- ------------------------------ ------ --------------------------------------
32
Our success mainly depends on the performance of Mr. Medina, Mr. Mankal and Mr.
Albert Mardikian. We do not have "key person" life insurance policies on any of
our employees nor do we have employment agreements for fixed terms with any of
our employees. Our employees, including any member of our management team, may
terminate his or her employment with us at any time. Given our early stage of
development, we depend on our ability to retain and motivate high quality
personnel, especially our officers. Our future success also depends on our
continuing ability to identify, hire, train and retain highly qualified
technical, sales, marketing and customer service personnel. Moreover, the boat
industry has a high level of employee mobility and aggressive recruiting of
skilled personnel. We may be unable to continue to employ our key personnel or
to attract and retain qualified personnel in the future.
BIOGRAPHIES OF OFFICERS AND DIRECTORS
Set forth below is a brief description of the background of our officers and
directors, based upon information provided by them to us.
DANIEL MEDINA, PRESIDENT AND DIRECTOR
Mr. Medina worked as a Sales Representative and Production Manager with
Rosemary's Draperies from 1973-1985. Daniel Medina owned Lavey Craft Boat Co.
from 1985-1992. Mr. Medina was also a partner in California Cool Custom Boats
from 1992- June 1997. He worked as the designer and manufacturer of all of their
boats. Mr. Medina served as Director of Sales and Marketing and Production
Manager for Sonic Jet Performance, Inc. from October 1999 to October 2001 and
successfully increased the company revenue by 50%. He has extensive experience
in every phase of sales, marketing and manufacturing. Mr. Medina also serves as
an officer and director of Genesis Companies Group, Inc.
MADHAVA RAO MANKAL, CHIEF FINANCIAL OFFICER AND DIRECTOR
Mr. Mankal has more than 30 years of experience as an executive. He served as
President and the Chief Financial Officer of Force Protection, Inc. (formerly
Sonic Jet Performance, Inc.) from May 1999 to December 2003. He served as a
director of Force Protection, Inc. until September 30, 2004. Mr. Mankal
currently serves as one of the independent directors of Cavico Corp and a member
of their audit committee. He has over 25 years of senior financial management
experience, including the positions of controller, chief financial officer and
financial advisor. Mr. Mankal has his Chartered Accountant and Cost Accountant
certifications from India. He has received a Certified Management Accountant in
the United States. He is a fellow of the Institute of Chartered Accountants of
India, associate member of the Institute of Cost and Works Accountants of India
and Institute of Management Accountants in the United States. He has Bachelor
Degree in Commerce from Bangalore University.
33
MICHAEL SWANSON, DIRECTOR
Michael Swanson has worked for the City of Orange Fire Department since 1983 and
his present position is as Fire Captain. Prior to that, he worked for the
Federal Fire Department for the last four years. He is an active member of the
Orange Fire Department Medical Core Committee, the Safety Committee and Physical
Fitness Committee. He is also a member of the International Association of Fire
Fighters Local 2386, and is a member of the California Professional
Firefighters. In 1990, Mr. Swanson was a recipient of the Valor Award from the
Orange Rotary Club, for his actions in saving the life of a child. Mr. Swanson
is a Certified Instructor at the Saddleback College Paramedic School, where he
has served as a Spinal Immobilization Instructor, Advanced Airway Instructor,
Emergency Technician Instructor, State Paramedic, State Fire Officer (on going),
Haz Mat, Trench, Swift Water, Confined Space First Responder (on going).
MIKE GALLO, DIRECTOR
Mr. Gallo began his professional career as an Officer in the United States Air
Force, managing Military Airlift Command facility design and operations at
Norton Air Force Base in San Bernardino, California. In 1989, Mr. Gallo served
as the Director of Program Control for the TRW Launch Services Organization. In
1993 Mr. Gallo co-founded Kelly Space & Technology, Inc. (KST), a commercial
Reusable Launch Vehicle (RLV), aerospace, energy and homeland security
technology development company where he serves as President and Chief Executive
Officer. Mr. Gallo also serves as a Director for Global Energy Systems, LLC, KST
subsidiary, formed to implement its energy-related lines of business. Mr. Gallo
provides leadership to the commercial, civil and military space community as a
founding member, the past Chairman and current Chief Financial Officer (CFO) of
the California Space Authority (CSA), an organization that serves as the space
policy advisor to the State of California and represents California's diverse
space enterprise community. Mr. Gallo also serves as the Arrowhead Section
Chairman of the American Institute of Aeronautics and Astronautics (AIAA). Mr.
Gallo is the past Chairman and current Vice Chairman of the Community Action
Partnership of San Bernardino County (CAPSBC) providing key services and support
to our low income community. He is also the Past Chairman of the Board for the
San Bernardino Area Chamber of Commerce, founding member and School Board
Chairman of the Norton Space and Aeronautics Academy (NSAA), a newly formed K-12
San Bernardino County Charter School and is an Executive Board Member of the
California Workforce Association (CWA). As the past Chairman and current Vice
Chairman of the San Bernardino County Workforce Investment Board (WIB), Mr.
Gallo is focused on the implementation of key strategic workforce, economic
development and education objectives to enable our region to compete for
targeted high-growth industry clusters with an exceptionally qualified
workforce.
ALBERT MARDIKIAN, CEO, Harbor Guard Boats, Inc.
Mr. Albert Mardikian is currently CEO of Harbor Guard Boats, Inc. He is also in
charge of research and new product development. He holds 24 various design and
utility patents on watercraft, cars and boats. He has been responsible for
designs meeting stringent DOT, Coast Guard and EPA safety standards. He has been
primarily responsible for many popular designs, including: Convertible tops for
the Mercedes Benz 500 line; design and coach building of convertible tops for
BMW 3, 6, and M series; design and fabrication of a Ferrari 12 cylinder
limousine; design and coach building of Porsche convertible tops, and many
others. He also holds several patents on hull designs for recreational and
search and rescue watercraft. His Rescue Fire Jet watercraft was the only boat
dispatched in Hurricane Floyd in New Jersey. The mission included extinguishing
fires in over 85 buildings and rescuing people stranded by the flooding.
Mr. Mardikian is also the owner of Green Environmental Waste & Recycling, a
solid waste and recycling services company in Costa Mesa, California. Mr.
Mardikian is a member of SAE Engineering Group, a member of the International
Boating and Safety Group and a member of the National Marine Manufacturers
Association. He is Graduate from North Rope University on Aircraft Maintenance
and design Engineering.
34
EMPLOYMENT AGREEMENTS
The Company's executive officers are currently conducting negotiations with the
Company regarding terms of employment contracts. The Company has entered into
employment agreements with each of the key executive officers. The current
compensation for the Company's executive officers is as follows:
Mr. Daniel Medina, President and Director, MIHI $120,000, plus an expense allowance;
Mr. Madhava Rao Mankal, CFO and Director, MIHI $120,000, plus an expense allowance;
Mr. Albert Mardikian, CEO, Harbor Guard Boats, Inc. $120,000, plus an expense allowance,
However, due to the lack of revenues and availability of cash, executive
officers have received some of their compensation in the form of shares of
Common Stock of the Company, and/or have accrued their compensation to be paid
when cash is available.
The Company anticipates that each employment agreement into which the Company
will enter will provide for warrants and/or options to purchase shares of the
Company's Common Stock that vest upon the achievement of certain performance
objectives. In addition, the Board of Directors may, at its discretion, award
these officers cash bonuses, options to purchase shares of Common Stock under
the Company's Stock Option Plan, and such other compensation, including equity
based compensation, as the Board of Directors, or a committee thereof, shall
approve from time to time.
BOARD OF DIRECTORS
Our Board of Directors consists of four (4) individuals, two of whom are
officers of the Company. Directors are elected to the Board of Directors for a
one (1) year term and are elected on an annual basis. Executive officers are
appointed by the board of directors on an annual basis and serve until their
successors have been duly elected and qualified. There are no family
relationships among any of our directors, officers or key employees.
The Company's Board of Directors is currently working on establishing the
following committees for the following purposes:
1) Audit Committee - Oversees the work of the Company's accounting and
internal audit processes. The committee is directly responsible for the
appointment, compensation, retention, and oversight of the Company's
independent auditors.
2) Compensation Committee - The Compensation Committee stays informed as to
market levels of compensation and, based on evaluations, recommends
compensation levels and systems to the Board. The Compensation Committee
recommends to the Board the compensation of the Chief Executive Officer and
determines the compensation of the other executive officers.
3) Nominating and Corporate Governance Committee - The Governance and
Nominating Committee is responsible for recommending to the Board
individuals to be nominated as directors. The committee evaluates new
candidates and current directors.
RESOLUTION OF CONFLICTS OF INTEREST
Currently, the Company does not have a procedure, in place which would allow our
officers or directors to resolve potential conflicts in an arms-length fashion.
Accordingly, they will be required to use their discretion to resolve them in a
manner which they consider appropriate.
35
Further, we do not have a procedure in place with regard to any intellectual
property that an officer or director might develop in another business. The
policy and the exception is that, if it is related to the business of our
company, it belongs to the Company. Although our officers and directors have
indicated that they are not involved in any intellectual property development
(IP) outside of our company, our position would be that, if it is not related to
our company's business, we would not assert any ownership claim to such IP.
We are not aware of any apparent conflict with any other business or venture in
which any employee, officer or director may be involved. All of our officers and
directors have indicated that they do not have any business interests in any
business, suppliers, subcontractor, or sales entity that directly or indirectly
competes with our company.
AUDIT COMMITTEE FINANCIAL EXPERT
We currently do not have an audit committee. Board is currently seeking
qualified financial expert and/or members to set up an Audit Committee.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation paid
by the Company to the President, Chief Financial Officer, and the Company's most
highly compensated executive officers for the fiscal years ended April 30, 2009,
2008, and 2007 the "Named Executive Officers"):
SUMMARY EXECUTIVES COMPENSATION TABLE
Nonqualified
None Equity deferred
Stock Option incentive plan compensation All other
Name & Position Year Salary Bonus awards awards compensation earnings compensation Total
($) ($) ($) ($) ($) ($) ($) ($)
- ------------------------ ------- ---------- ---------- --------- ---------- ---------------- ----------------- ---------- ------
Daniel Medina, 2009 - - - - - - - -
President & 2008 - - - - - - - -
Director 2007 - - - - - - - -
- ------------------------ ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------- ------
Madhava Rao Mankal, 2009 - - - - - - - -
CFO & 2008 - - - - - - - -
Director 2007 - - - - - - - -
- ------------------------ ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------- ------
Albert Mardikian, 2009 7,000 - - - - - - 7,000
CEO, Harbor Guard Boats, Inc. 2008 - - - - - - - -
2007 - - - - - - - -
- ---------------------- -------- ---------- ---------- ---------- --------- ----------------- ---------------- ---------- ------
36
The salaries for Messrs. Mankal, Medina, and Mardikian have been accrued from
July of 2008. The accrued salaries for each executive are recorded at $10,000
per month, for a total of $300,000 up to April 30, 2009.
- --------------------------------------------------------------------------------
Option Awards & Stock Awards
Equity
incentive
plan
awards:
Equity Number Number of
incentive of Market unearned
plan awards: shares value of shares,
Number of Number of Number of or units shares of units or
Securities securities securities of stock units of other
underlying underlying underlying that stock rights
unexercised unexercised unexercised Option Option have not that have that have
options (#) options (#) unearned exercise expiration vested not not
Name exercisable unexercisable options (#) price date (#) vested ($) vested (#)
- -------------------------- --------------- ---------------- -------------- ----------- ------------ ---------- ----------- ---------
Daniel Medina, President $ $ $ $ $ $ $ $
& Director - - - - - - - -
- -------------------------- --------------- ---------------- -------------- ----------- ------------ ---------- ----------- ---------
- -------------------------- --------------- ---------------- -------------- ----------- ------------ ---------- ----------- ---------
Madhava Rao Mankal, CFO $ $ $ $ $ $ $ $
& Director - - - - - - - -
- -------------------------- --------------- ---------------- -------------- ----------- ------------ ---------- ----------- ---------
- -------------------------- --------------- ---------------- -------------- ----------- ------------ ---------- ----------- ---------
Albert Mardikian, CEO, $ $ $ $ $ $ $ $
Harbor Guard Boats, Inc. - - - - - - - -
- -------------------------- --------------- ---------------- -------------- ----------- ------------ ---------- ----------- ---------
37
(continued)
Equity
incentive
plan
awards:
Market or
payout
value of
unearned
shares,
units or
others
rights
that have
not vested
($)
------------
Daniel Medina, President $ -
& Director ------------
------------
Madhava Rao Mankal, CFO $ -
& Director ------------
------------
Albert Mardikian, CEO, $ -
Harbor Guard Boats, Inc. ------------
38
On May 20, 2005, the Board of Directors approved the issuance of 10 shares of a
Series A Preferred Convertible Stock to Messrs. Medina and Mankal, each. At this
time the shares of the Series A Preferred Convertible Stock certificates have
not been issued to Messrs. Medina and Mankal.
Stock Option and Award Plan
We have adopted the 2006 Medina International Holdings, Inc. Stock Option and
Compensation Award Plan (the "Plan"), which was approved by the board of
directors on August 28, 2006 to obtain and retain the services of the types of
employees, consultants and directors who will contribute to the Company's long
range success and to provide incentives which are linked directly to increases
in share value which will incur to the benefit of all stockholders of the
Company.
Under the Plan, 2,000,000 shares of common stock shall be reserved and available
for issuance. Stock reserved there under may consist, in whole or in part, of
authorized and unissued shares of treasury shares. The plan shall be
administered by either (i) the Board, or (ii) a committee appointed by the
Board. During the year ended April 30, 2009 no shares were issued, During the
year ended April 30, 2008 the Company issued a total 100,000 shares to two (2)
consultants under the Plan to consultants engaged by the Company.
39
No options were offered or exercised during the fiscal years ended April 30,
2009 and 2008.
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR values
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SAR
Options/SARS at FY-End at FY-End ($)
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Name Shares Value Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Daniel Medina, President & Director $- $- $- $-
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Madhava Rao Mankal, CFO & Director $- $- $- $-
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
DIRECTOR COMPENSATION
The following table sets forth certain information concerning compensation paid
to our directors for services as directors, but not including compensation for
services as officers reported in the "Summary Executives Compensation Table"
during the year ended April 30, 2009:
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
Fees Non
earned Options awards qualified,
or paid plan non-equity
in cash Stock compensation incentive Deferred All other
Name ($) awards ($) ($) earnings ($) compensation($) ($) Total
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
Daniel Medina, President & $ $ $ $ $ $ $
Director - - - - - - -
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
Madhava Rao Mankal, CFO & $ $ $ $ $ $ $
Director - - - - - - -
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
$ $ $ $ $ $ $
Mike Swanson, Director - - - - - - -
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
$ $ $ $ $ $ $
Mike Gallo, Director - - - - - - -
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
40
No Fees were paid nor any stock awards provided as Director's compensation in
the year ended April 30, 2009. The Company has committed to issue 25,000 shares
to Mr. Mike Gallo and 25,000 shares to Mike Swanson toward services as Directors
of the Company for the year ended April 30, 2009.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Section 16(a) of the Exchange Act, requires our officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership of our company
equity securities with the SEC and NASDAQ. Officers, directors and greater-than
10% shareholders are required by the SEC regulation to furnish the Company with
copies of all Section 16(a) that they file.
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of our common stock as of August 12, 2009 on a
fully diluted basis, by (a) each person known by us to own beneficially 5% or
more of our outstanding shares of common stock, (b) our directors, Chief
Executive Officer, Chief Financial Officer and executive officers named in
"MANAGEMENT--Director and Executive Compensation," and (c) all our directors and
executive officers as a group.
The percentages are based upon 46,560,091 shares of common stock issued and
outstanding as of July 1, 2009.
- ----------------------------------------------------- --------------- -------------- ------------
Percent of
Name, Address & Nature of Beneficial Owner Title of Class Shares Class
- ----------------------------------------------------- --------------- -------------- ------------
Daniel Medina President & Director, 11564 E.
Beverly Blvd. Common Stock 11,099,000 23.79%
- ----------------------------------------------------- --------------- -------------- ------------
Madhava Rao Mankal, Chief Financial Officer &
Director, 7476 Sungold Ave, Corona, CA 92880 Common Stock 11,245,000 24.16%
- ----------------------------------------------------- --------------- -------------- ------------
Mike Swanson, Director, 5059 Quail Run Rd, #7,
Riverside, CA 92507 Common Stock 55,203 0.12%
- ----------------------------------------------------- --------------- -------------- ------------
Mike Gallo, Director, 255 Leland Norton Way, San
Bernardino, CA 92408 Common Stock - 0.00%
- ----------------------------------------------------- --------------- -------------- ------------
Albert Mardikian, CEO, Harbor Guard Boats, Inc.
2051 Placentia Ave, CA 92627 Common Stock 11,000,000 23.63%
- ----------------------------------------------------- --------------- -------------- ------------
Total Officers & Directors, as a group (5
Individuals) 44,399,203 71.68%
- ----------------------------------------------------- --------------- -------------- ------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has adopted a policy under which any consulting or finder's fee that
may be paid to a third party or affiliate for consulting services to assist
management in evaluating a prospective business opportunity would be paid in
stock and/or in cash. Any such issuance of stock would be made on an ad hoc
basis. Accordingly, the Company is unable to predict whether or in what amount
such a stock issuance might be made.
Although there is no current plan in existence, it is possible that the Company
will adopt a plan to pay or accrue compensation to its officers and directors
for services related to seeking business opportunities and completing a merger
or acquisition transaction.
41
Although management has no current plans to cause the Company to do so, it is
possible that the Company may enter into an agreement with an acquisition
candidate requiring the sale of all or a portion of the Common Stock held by the
Company's current stockholders to the acquisition candidate or principals
thereof, or to other individuals or business entities, or requiring some other
form of payment to the Company's current stockholders, or requiring the future
employment of specified officers and payment of salaries to them. It is more
likely than not that any sale of securities by the Company's current
stockholders to an acquisition candidate would be at a price substantially
higher than that originally paid by such stockholders. Any payment to current
stockholders in the context of an acquisition involving the Company would be
determined entirely by the largely unforeseeable terms of a future agreement
with an unidentified business entity.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Year Ended April 30, 2009
No shares were issued during the year ended April 30, 2009. However we have
committed to issue 11,000,000 common shares to MGS Grand Sports, Inc. and
Mardikian Designs in lieu of the acquisition of the assets and molds of Harbor
Guard Boats, Inc. (Formerly Modena Sports Design, LLC).
We have committed to issue 25,000 shares to Mr. Mike Gallo and 25,000 shares to
Mike Swanson toward services as Directors of the Company for the year ended
April 30, 2009.
During the year ended April 30, 2009, Mr. Medina, the President and a Director
of the Company advanced the Company a total of $107,399 in funds to support our
continuing operations. The advances are due on demand and accrue interest at
8.5%.
During the year ended April 30, 2009, Mr. Mankal, the Chief Financial Officer
and a Director of the Company, advanced the Company a total of $204,312 in funds
to support our continuing operations. The advances are due on demand and accrue
interest at 8.5%.
During the year ended April 30, 2009, Mr. Albert Mardikian, CEO of Harbor Guard
Boats, Inc., provided personal guarantee on all of credit cards and line of
credits of Harbor Guard Boats, Inc.
During the year ended April 30, 2009, Mr. Madhava Rao Mankal, CFO of Medina
International Holdings, Inc., and Mr. Daniel Medina, President of Medina
International Holdings, Inc., provided personal guarantee on all of credit cards
and line of credits of Medina International Holdings, Inc., Medina Marine, Inc.,
and Harbor Guard Boats, Inc.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
General.
Ronald R. Chadwick, P.C.is the Company's principal auditing/ accountant firm.
The Company's Board of directors has considered whether the provisions of audit
services are compatible with maintaining Ronald R. Chadwick, P.C.'s
independence.
Audit Fees.
Ronald R. Chadwick, P.C. billed $3,000 for review services and $8,000 audit fee
in the fiscal year ended April 30, 2009 and April 2008.
There were no other fees in 2009 or 2008 paid to Auditors or Auditors
affiliates.
The Company's Board acts as the audit committee and had no "pre-approval
policies and procedures" in effect for the auditors engagement for the audit
years 2009 and 2008.
42
PART IV
ITEM 15. EXHIBITS
The following is a complete list of exhibits filed as part of this Form 10KSB.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
Exhibit Description of Document
21.1 List of Subsidiaries of Medina International Holdings, Inc.
31.1 Certification by Chief Executive Officer. *
31.2 Certification by Chief Financial Officer. *
32.1 Section 906 Certification by Chief Executive Officer*
32.2 Section 906 Certification by Chief Financial Officer*
- ---------------
* Filed herewith.
(1) Filed herewith.
43
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
-------
INDEPENDENT AUDITOR'S REPORT............................ F-1
BALANCE SHEETS................................................ F-2
STATEMENTS OF OPERATIONS ..................................... F-3
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT).................. F-4
STATEMENTS OF CASH FLOWS...................................... F-5
NOTES TO FINANCIAL STATEMENTS................................ F-6
RONALD R. CHADWICK, P.C.
Certified Public Accountant
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
Telephone (303)306-1967
Fax (303)306-1944
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Medina International Holdings, Inc.
Costa Mesa, California
I have audited the accompanying consolidated balance sheets of Medina
International Holdings, Inc. as of April 30, 2008 and 2009, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Medina
International Holdings, Inc. as of April 30, 2008 and 2009, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 16 to the financial statements, management determined in
the current year that certain inventory and investment balances in 2008 should
have been written off. Accordingly, the 2008 financial statements have been
restated.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements the Company has suffered recurring losses from operations
and has a working capital deficit that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Aurora, Colorado /s/Ronald R. Chadwick, P.C.
--------------------------
August 19, 2009 RONALD R.CHADWICK, P.C.
Medina International Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(Audited)
--------------------------------
For the year ended April 30,
2009 2008
--------------------------------
Assets (As Restated)
Current assets:
Cash $ 36,576 $ -
Receivables 3,166 -
Inventory 410,481 68,813
---------------- -------------
Total current assets 450,223 68,813
---------------- -------------
Fixed assets:
Fixed assets 1,074,798 376,482
Accumulated depreciation (200,703) (58,519)
---------------- -------------
Total net fixed assets 874,095 317,963
---------------- -------------
Other assets:
- -
---------------- -------------
Total other assets - -
---------------- -------------
Total assets $ 1,324,318 $ 386,776
================ =============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 518,898 $ 190,359
Accrued liabilities 377,555 40,952
Bank overdraft - 20
Franchise Tax - 800
Short-term debt 265,352 17,156
Deposit from customers 242,905 24,500
Stock subscriptions payable 902,738 241,563
Note payable - current 64,000 10,000
Related party payable 909,854
Related parties - short-term borrowings from shareholders 311,712 361,688
---------------- -------------
Total Current Liabilities 3,593,014 887,038
Long-term liabilities - -
---------------- -------------
Total liabilities 3,593,014 887,038
---------------- -------------
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
or outstanding - -
Common stock, $.0001 par value, 100,000,000 shares authorized, 35,560,091
shares issued and outstanding 3,556 3,556
Additional paid-in capital 2,419,032 2,419,032
Common stock subscribed (100,000 shares) 10,000 10,000
Subscription to be received (3,000) (3,000)
Accumulated deficit (4,698,284) (2,929,850)
---------------- -------------
Total Stockholders' Equity (Deficit) (2,268,696) (500,262)
---------------- -------------
Total liabilities and shareholders' equity (deficit) $ 1,324,318 $ 386,776
================ =============
F-1
The accompanying notes are an integral part of the financial statements
Medina International Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(Audited)
-----------------------------------
For the year ended April 30,
2009 2008
-----------------------------------
(As Restated)
Sales, net $1,034,379 $192,800
Cost of Goods Sold 1,110,916 115,114
----------------- ----------------
Gross Profit (76,537) 77,686
----------------- ----------------
General and administrative expenses 489,653 1,059,346
Selling and marketing expenses 169,889 57,946
Research and development expenses 148,836 -
Loss on Goodwill 822,009 -
Impairment loss on investment 68,500
----------------- ----------------
Loss from operations (1,706,924) (1,108,106)
----------------- ----------------
Other income -
Interest expense 61,510 34,631
----------------- ----------------
----------------- ----------------
Net other income (61,510) (34,631)
----------------- ----------------
Loss before income tax (expense) benefit (1,768,434) (1,142,737)
Income tax (expense) benefit - -
----------------- ----------------
Net Loss from Operations $ (1,768,434) $ (1,142,737)
================= ================
Net loss per share:
Basic $ (0.05) $ (0.04)
================= ================
================= ================
Diluted $ (0.05) $ (0.04)
================= ================
Weighted average number of shares outstanding:
Basic 35,560,091 32,241,762
================= ================
Diluted 35,560,091 32,241,762
================= ================
F-2
The accompanying notes are an integral part of the financial statements
Medina International Holdings, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Audited)
Additional Common
Common Stock Paid-In Stock Subscription
Shares Amount Capital Subscribed Receivable
--------------- --------- ---------------- ---------------- --------------
Balance - April 30, 2007 30,224,541 $ 3,022 $ 1,687,111 $ 10,000 $ (4,000)
Stock issued for consulting 4,923,000 492 647,158
Stock issued for royalties 12,200 2 1,627
Stock issued to Directors 75,000 8 13,492
Stock issued for cash 124,000 12 14,989
Stock issued to Vendor 150,000 15 29,985
Shares issued for rent 51,350 5 24,670
Stock subscription receivable 1,000
Net loss
--------------- --------- ---------------- ---------------- --------------
Balance - April 30, 2008 (As restated) 35,560,091 $ 3,556 $ 2,419,032 $ 10,000 $ (3,000)
Net loss
--------------- --------- ---------------- ---------------- --------------
Balance - April 30, 2009 35,560,091 $ 3,556 $ 2,419,032 $ 10,000 $ (3,000)
=============== ========= ================ ================ ==============
F-4
The accompanying notes are an integral part of the financial statements
Medina International Holdings, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Audited)
(continued)
Accumulated
Deficit Totals
------------------ ------------------
Balance - April 30, 2007 $ (1,787,113) (90,980)
Stock issued for consulting 647,650
Stock issued for royalties 1,629
Stock issued to Directors 13,500
Stock issued for cash 15,001
Stock issued to Vendor 30,000
Shares issued for rent 24,675
Stock subscription receivable 1,000
Net loss (1,142,737) (1,142,737)
------------------ ------------------
Balance - April 30, 2008 (As restated) $ (2,929,850) $ (500,262)
Net loss (1,768,434) (1,768,434)
------------------ ------------------
Balance - April 30, 2009 $ (4,698,284) $ (2,268,696)
================== ==================
F-5
The accompanying notes are an integral part of the financial statements
Medina International Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Audited)
------------------------------------
For the year ended April 30,
2009 2008
------------------------------------
(As Restated)
Cash flows from operating activities:
Net loss $ (1,768,434) $ (1,142,737)
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensatory stock issuances - 717,455
Depreciation 143,002 58,519
Goodwill write off 882,009 -
Write offs - other 28,431 -
Impairment Loss on Investment - 68,500
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable (3,166) -
Decrease (increase) in inventory (341,668) (14,256)
Increase (decrease) in accounts payable 280,532 61,548
Increase (decrease) in accrued liability (342,374) (116,286)
Increase in customer deposits 218,405 4,000
Stock subscriptions payable 661,175 241,563
Other assets - 25,000
Increase in other receivables - 118
------------------ ----------------
Total adjustments 1,526,346 1,046,161
------------------ ----------------
Net cash used (received) in operating activities (242,088) (96,576)
------------------ ----------------
Cash flows from investing activities:
Purchase of fixed assets (3,586) (33,489)
------------------ ----------------
Net cash used in investing activities (3,586) (33,489)
------------------ ----------------
Cash flows from financing activities:
Bank overdraft (20) 20
Proceeds from notes payables 176,814 216,259
Payments on notes payables (67,394) (95,701)
Proceeds (payments) from lines of credit & credit cards 172,850 (11,649)
Proceeds from the issuance of common stock - 16,000
------------------ ----------------
Net cash (used in) provided by financing activities 282,250 124,929
------------------ ----------------
Increase (decrease) in cash and cash equivalents 36,576 (5,136)
Cash and cash equivalents - beginning of period - 5,136
------------------ ----------------
Cash and cash equivalents - end of period $ 36,576 $ -
================== ================
Supplemental disclosure of cash flow information:
Cash paid during the year for Interest, net of amounts capitalized $ 28,276 $ -
================== ================
Income taxes $ - $ -
================== ================
Supplemental schedule of noncash investing and financing activities:
Property and equipment additions in accounts payable $ 694,730 $ -
================== ================
F-5
The accompanying notes are an integral part of the financial statements
MEDINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2008 and 2009
NOTE 1. GENERAL
Medina International Holdings, Inc. ("Company," "Medina," "we," "us," "our") was
incorporated in 1998 as Colorado Community Broadcasting, Inc. and the Company
changed the name of the business in 2005 to Medina International Holdings, Inc.
The Company intended to purchase low power television licenses or stations and
planned to broadcast local programming mixed with appropriate national
programming.
The Company, under its two wholly owned subsidiaries, Harbor Guard Boats, Inc.
and Medina Marine, Inc., plans to manufacture and sell recreational and
commercial boats. The Company formed Medina Marine, Inc., as a wholly owned
subsidiary of the Company. Medina Marine was incorporated in the State of
California on May 22, 2006 to manufacture and sell fire rescue, rescue and
recreational boats.
The Company signed an agreement to acquire Modena Sports Design, LLC, as a
wholly owned subsidiary of the Company on June 18, 2008. Modena Sports Design,
LLC was formed in the State of California in 2003 to produce fire rescue, rescue
and recreational boats. Modena Sports Design, LLC reorganized as a California
corporation on January 7, 2009 and changed its name to Harbor Guard Boats, Inc.
The activity of Harbor Guard Boats, Inc. from inception up to the acquisition
date of June 18, 2009 will not be reflected on the consolidated financial
statements of Medina International Holdings, Inc. In fiscal year 2008 the
Company ceased reporting as a development stage company.
Going Concern
Recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to raise
additional capital, obtain financing and to succeed in its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States, which
contemplates continuation of the Company as a going concern. On April 30, 2009,
the Company's current liabilities exceeded its current assets by $3,142,791.
Also, the Company's operations generated $1,034,379 in revenue during the
current period ended and the Company's accumulated deficit is $4,698,284.
Management has taken various steps to revise its operating and financial
requirements, which we believe are sufficient to provide the Company with the
ability to continue on in the subsequent year. Management devoted considerable
effort during the period ended April 30, 2009 towards management of liabilities
and improving our operations. Management believes that the above actions will
allow the Company to continue its operations through the next fiscal year.
The future success of the Company is likely dependent on its ability to attain
additional capital to develop its proposed products and ultimately, upon its
ability to attain future profitable operations. There can be no assurance that
the Company will be successful in obtaining such financing, or that it will
obtain positive cash flow.
F-6
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Consolidation
The accompanying consolidated financial statements of Medina International
Holdings, Inc. and its subsidiaries were prepared in accordance with generally
accepted accounting principles in the United States of America ("GAAP") and
include the assets, liabilities, revenues, and expenses of our two wholly owned
subsidiaries, Medina Marine, Inc. and Harbor Guard Boats, Inc. All intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting periods. Significant estimates and
assumptions are used for, but are not limited to;
1) Revenue recognition;
2) Allowance for doubtful accounts;
3) Inventory costs;
4) Asset impairments;
5) Depreciable lives of assets;
6) Income tax reserves and valuation allowances;
7) Fair value of stock options;
8) Allocation of direct and indirect cost of sales;
9) Contingent liabilities; and
10) Warranty liabilities.
Future events and their effects cannot be predicted with certainty; accordingly,
our accounting estimates require exercise of judgment. We base our estimates on
historical experience, available market information, appropriate valuation
methodologies, and on various other assumptions that we believe to be
reasonable. We evaluate and update our assumptions and estimates on an ongoing
basis and may employ outside experts to assist in our evaluation, when
necessary. Actual results could differ materially from these estimates.
Revenue Recognition
Revenue Recognition is recognized when earned. 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. Payments received before all of the
relevant criteria for revenue recognition are satisfied, are recorded as
unearned revenue.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents. The Company maintains its cash in bank deposit accounts that may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
Accounts receivable
The Company reviews accounts receivable periodically for collectability and
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. At April 30, 2009 and 2008 the Company had no balance in its
allowance for doubtful accounts.
F-7
Advertising costs
Advertising costs are expensed as incurred. The Company recorded advertising
costs in 2008 and 2009 of $8,426 and $32,676.
Inventory
We carry our inventories at the lower of their cost or market value. Cost is
determined using first-in, first-out ("FIFO") method. Market is determined based
on net realizable value. We also provide due consideration to obsolescence,
excess quantities, and other factors in evaluating net realizable value.
Fixed Assets
Capital assets are stated at cost. Equipment consisting of molds is stated at
cost. Depreciation of fixed assets is provided using the straight-line method
over the estimated useful lives (3-7 years) of the assets. Expenditures for
maintenance and repairs are charged to expense as incurred.
Property and Equipment No. of Years
- --------------------------------------------------------------------------------
Molds 7
Manufacturing Tools 5
Computers 3
Furniture 3
Manufacturing tool HGB - Used 3
Office Equipments 3
Office Phone 3
- --------------------------------------------------------------------------------
Long Lived Assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted laws
and rates applicable to the periods in which the differences are expected to
affect taxable income (loss). Valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be realized.
At April 30, 2008 and 2009 the Company had net operating loss carryforwards of
approximately $2,900,000 and $4,700,000 which begin to expire in 2019. The
deferred tax asset of approximately $585,000 and $939,000 in 2008 and 2009
created by the net operating losses have been offset by a 100% valuation
allowance. The change in the valuation allowance in 2008 and 2009 was $228,000
and $354,000.
F-8
Comprehensive Loss
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Certain statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the balance sheet. Such items, along with net
income, are components of comprehensive income.
Issuance of Shares for Service
The Company accounts for employee and non-employee stock awards under SFAS
123(r), whereby equity instruments issued to employees for services are recorded
based on the fair value of the instrument issued and those issued to
non-employees are recorded based on the fair value of the consideration received
or the fair value of the equity instrument, whichever is more reliably
measurable.
Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107, Disclosures about Fair Value
of Financial Instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying, as
financial instruments are a reasonable estimate of fair value.
Foreign Currently Translations and Hedging
The Company is exposed to foreign currency fluctuations due to international
trade. The management does not intend to enter into forward exchange contracts
or any derivative financial investments for trading purposes. The management
does not currently hedge foreign currency exposure.
Basic and Diluted Net Loss per Share
Net loss per share is calculated in accordance with the Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No. 15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Products and services, geographic areas and major customers
The Company earns revenue from the sale of recreational and commercial boats.
Sales each year were sold domestically and internationally and only to external
customers. The Company does not separate sales activities into different
operating segments. In 2008 two major customers accounted for 100% of sales or
$192,800. In 2009 six major customers accounted for approximate sales as
follows: 12% or $124,481, 13% or $127,386, 15% or $151,012, 16% or 158,385, 11%
or 109,348 and 12% or $117,405.
F-9
Recently issued accounting pronouncements
In June 2008, the Financial Accounting Standards Board ("FASB") ratified
Emerging Issues Task Force ("EITF") Issue No. 07-5, "Determining Whether an
Instrument (or an Embedded Feature) is indexed to an Entity's Own Stock" ("EITF
07-5"). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The adoption of EITF 07-5 will not have an
impact on our consolidated financial position and results of operations.
In May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162 ("SFAS No. 162"), "The Hierarchy of Generally Accepted Accounting
Principles." SFAS No. 162 identifies the sources of accounting principles and
the framework for selecting the principles used in the preparation of financial
statements that are presented in conformity with generally accepted accounting
principles. SFAS No. 162 becomes effective 60 days following the Securities and
Exchange Commission's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles." We do not expect that the adoption of
SFAS No. 162 will have a material impact on our consolidated financial
statements.
In April 2008, the FASB issued FSP No. 142-3 ("FSP 142-3"), "Determination
of the Useful Life of Intangible Assets." FSP 142-3 amends the factors an entity
should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, "Goodwill and Other Intangible Assets." This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. FSP 142-3
is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008. Early adoption is prohibited. Since
this guidance will be applied prospectively, on adoption, there will be no
impact to our current consolidated financial statements.
In March 2008, the FASB, affirmed the consensus of FASB Staff Position
(FSP) Accounting Principles Board Opinion No. 14-1 (APB 14-1), Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement), which applies to all convertible debt
instruments that have a net settlement feature; which means that such
convertible debt instruments, by their terms, may be settled either wholly or
partially in cash upon conversion. FSP APB 14-1 requires issuers of convertible
debt instruments that may be settled wholly or partially in cash upon conversion
to separately account for the liability and equity components in a manner
reflective of the issuer's nonconvertible debt borrowing rate. Previous guidance
provided for accounting for this type of convertible debt instrument entirely as
debt. FSP APB 14-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years.
The adoption of FSP APB 14-1 will not have an impact on our financial
statements.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires additional disclosure
related to derivatives instruments and hedging activities. The provisions of
SFAS No. 161 are effective as of January 1, 2008 and the Company is currently
evaluating the impact of adoption.
In February 2008, the FASB issued FASB FSP 157-2, which delayed the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008, and interim periods within those fiscal
years. These nonfinancial items include assets and liabilities such as reporting
units measured at fair value in a goodwill impairment test and nonfinancial
assets acquired and liabilities assumed in a business combination. Effective
January 1, 2008, we adopted SFAS No. 157 for financial assets and liabilities
recognized at fair value on a recurring basis. The partial adoption of SFAS No.
157 for financial assets and liabilities did not have a material impact on our
consolidated financial position, results of operations or cash flows.
F-10
NOTE 3. Related Party Transactions
As of April 30, 2009 the Company owed $909,854 to a related party shareholder
incurred as part of the purchase transaction of Modena Sports Design, LLC.
The Company leases building space from the same party on a verbal, month to
month basis for approximately $6,500 per month plus various costs. Rent paid to
the related party in 2009 was $67,000.
NOTE 4. Inventory
As of April 30, 2009 and 2008, inventory consisted of the following:
- --------------------------------------------------------------------------------
Item For the years ended April
2009 2008
- --------------------------------------------------------------------------------
Raw materials and supplies $ 39,410 $ 30,620
Work in progress 344,594 38,193
Finished goods 26,477 -
-------- --------
Total Inventory $410,481 $ 68,813
- --------------------------------------------------------------------------------
NOTE 5. Investments
Medina International Holdings, Inc. and its subsidiary invested $25,000 for
500,000 shares of the restricted common stock of Genesis Companies Group, Inc.
Messrs. Medina and Mankal, directors and officers of the Company also serve as
officers and directors of Genesis Companies Group, Inc.
These securities were considered of no value, hence written-off, due to the fact
that there is no trading market for the Genesis Companies Group, Inc. shares.
During the fiscal year ended April 30, 2008, the Company received $5,000 of the
principal amount and management believed that the investment in Genesis
Companies Group, Inc. was impaired, therefore expensed $19,500 as a loss of
investment.
The Company invested $25,000 in Nexgen, Inc. for innovative fire protective
equipment during the fiscal year ended April 30, 2008. Our management estimated
that it is more than likely the investment in Nexgen has been impaired. The
Company expensed the total investment as a loss of investment.
NOTE 6. Fixed Assets
At April 30, 2009 and 2008, fixed assets consisted of the following:
- --------------------------------------------------------------------------------
Property and Equipment For the years ended April 30,
2009 2008
- --------------------------------------------------------------------------------
Machinery and equipment; including molds & tools $1,053,558 $355,242
Computers 14,420 14,420
Furniture and fixtures 3,120 3,120
Office equipments 3,200 3,200
Fire Extinguisher ---------- --------
Total property and equipment 1,074,798 376,482
Less Accumulated Depreciation (200,703) (58,519)
---------- ---------
Fixed Assets, net $ 874,095 $317,963
- --------------------------------------------------------------------------------
F-11
NOTE 7. Accrued Liabilities
Our accrued liabilities for the years ended April 30, 2009 and 2008 are as
follows:
- --------------------------------------------------------------------------------
For the years ended April 30,
Accounts 2009 2008
- --------------------------------------------------------------------------------
Interest - SHareholders' Loan $ 42,225 $40,134
Interest - Related party 4,000 -
Interest - note payable 1,636 818
Payroll 296,694 -
Warranty Liabilities 33,000 -
-------- --------
Total accrued liabilities $377,555 $40,952
- --------------------------------------------------------------------------------
NOTE 8. Short-Term Debt
- --------------------------------------------------------------------------------
Financial Institutions For the years ended April
2009 2008
- --------------------------------------------------------------------------------
Line of Credit
- --------------
Citi Bank $ 75,347 $ -
Credit Card
- -----------
Advanta $ 9,240 $ 9,735
American Express-1 33,842 -
American Express-2 33,751 -
Bank of America 37,363 -
Citi Bank 30,276 -
Wells Fargo Bank 26,258 7,421
Well Fargo Bank-2 16,385 -
Citi Bank 2,890 -
-------- -------
Total short-term debt $265,352 $17,156
- --------------------------------------------------------------------------------
At April 30, 2009 the Company has a credit card totaling $100,000, under which
the Company may borrow on an unsecured basis since the year 2008 at an interest
rate of 8.75.% with monthly payments due. The outstanding balance for this
credit card was $75,347.
The Company's remaining credit cards carry various interest rates and require
monthly payments, and are substantially held in the name of or guaranteed by
related parties.
NOTE 9. Risk Management Activities
Foreign Currency
The majority of our business is denominated in U.S. dollars and fluctuations in
the foreign currency markets will have a minimal effect on our business.
Commodity Prices
We are exposed to market risk from changes in commodity prices. The cost of our
products could increase, if the prices of fiberglass and/or aluminum increases
significantly, further decreasing our ability to attain profitable operations.
We are not involved in any purchase commitments with any of our vendors.
F-12
Insurance
We are exposed to several risks, including fire, earthquakes, theft, and key
person liabilities. We do not carry any insurance for these risks, other than
general liability insurance, which will adversely affect our operations if any
of these risks materialize.
NOTE 10. Customer Deposit
Deposit from customers consists of the following:
- --------------------------------------------------------------------------------
Items For the years ended April 30,
2009 2008
- --------------------------------------------------------------------------------
Deposit for commercial boats $222,405 $ 4,000
Deposit for recreational boats 20,500 20,500
-------- -------
Total $242,905 $24,500
- --------------------------------------------------------------------------------
NOTE 11. Note Payable
- --------------------------------------------------------------------------------
Items For the years ended April 30,
2009 2008
- --------------------------------------------------------------------------------
Notes payable - related party $50,000 $ -
Notes payable - others 14,000 10,000
------- -------
Total $64,000 $10,000
- --------------------------------------------------------------------------------
At April 30, 2009 and 2008, the Company had an unsecured note payable with an
unrelated party in the amount of $10,000, which bears at 8% interest, and is
currently due.
At April 30, 2009, the Company had an unsecured note payable with an unrelated
party in the amount of $4,000, which bears no interest and is repayable by July
30, 2009.
At April 30, 2009, the Company had an unsecured note payable to Mr. Srikrishna
Mankal, son of Madhava Rao Mankal, CFO of the Company, in the amount of $50,000,
which bears an 8% interest repayable. Interest accrued to date $4,000.
NOTE 12. Shareholders' Loans
At April 30, 2009, Shareholders' loans consisted of the following:
- --------------------------------------------------------------------------------
Shareholders' Loan For the years ended April 30,
2009 2008
- --------------------------------------------------------------------------------
Daniel Medina, President $107,399 $119,520
Madhava Rao Mankal, Chief
Financial Officer 204,314 242,168
--------- ---------
Total Shareholders' Loan $311,713 $361,688
--------- ---------
Shareholders' loan from shareholder of the Company, unsecured, 8.5% interest per
annum, due on demand.
- --------------------------------------------------------------------------------
From time to time, shareholders' are involved in funding operations. These funds
are provided and collected on an as needed basis.
F-13
NOTE 13. Acquisition
On June 18, 2008 the Company acquired 100% of the outstanding membership
interests of Modena Sport Design, LLC ("Modena") in a transaction accounted for
as a purchase. Modena's business is similar to that of the Company's, namely
boat manufacturing and sales. The Modena membership interests were acquired in
exchange for 11,000,000 of the Company's common shares valued at market price of
$.06 per share or $660,000 total, and payable commitments to Modena of $276,845.
The purchase value of Modena was recorded at the net equity of Modena on the
date of purchase of $114,836, with allocations based on fair value, of $100,726
to cash, $338,100 accounts receivable, $276,845 other receivables, $262,686
inventory, $694,730 fixed assets, $50,848 to accounts payable, $138,444 to other
accrued payables, $368,959 customer deposits, and $1,000,000 to related party
payables. Results of operations from the acquisition have been consolidated from
June 18, 2008 forward.
Pro forma revenues, net income (loss) and earnings per share of the Company,
assuming that Modena was acquired at the beginning of fiscal year 2007 and 2008,
are shown below.
2007 2008
-------------- --------------
Pro forma revenue $ 693,055 $ 767,910
============== ==============
Pro forma net income (loss) $ (684,711) $ (1,231,512)
============== ==============
Pro forma net income (loss) per share $ (.02) $ (.03)
============== ==============
Pro forma weighted average common
shares outstanding 40,589,285 43,241,762
============== ==============
NOTE 14. Stockholders' Equity
Common Stock
The Company has been authorized to issue, 100,000,000 shares of common stock
with a par value of $0.0001. At April 30, 2009 and 2008 the Company had
35,560,091 shares of its common stock issued and outstanding.
Preferred Stock
The Company has been authorized to issue 10,000,000 shares of preferred stock
with a par value of $.01, out of which 50 shares have been designated as
convertible Series A preferred stock ("Series A"). The Series A has a stated
value $12,000 per share, each one share of Series A is convertible into 1% of
the outstanding common shares at the time of conversion, may be converted at
anytime, is redeemable by the Company in whole or in part at anytime at a price
equal to the greater of (a) $12,000 per share or (b) the market value of the
common stock into which the Series A is convertible, has preferential
liquidation rights to common stock subject to a 150% of invested capital cap,
and has voting rights equal to common stock in an amount equal to the number of
shares that Series A could be converted into. No preferred shares were issued or
outstanding at April 30, 2009 or 2008.
F-14
Stock Subscriptions Payable
The Company at April 30, 2008 had an incurred obligation to issue 41,240 common
shares for consideration already rendered of $1,562, and an obligation to issue
20 Series A preferred shares for consideration already rendered of $240,000, for
a total stock subscription payable liability of $241,563. When added to
additional activity in 2009, at April 30, 2009 The Company had an incurred
obligation to issue 11,091,250 common shares for consideration already rendered
of $662,738, and an obligation to issue 20 Series A preferred shares for
consideration already rendered of $240,000, for a total stock subscription
payable liability of $902,738. As a subsequent event, the Company issued
11,000,000 of the shares due under stock subscriptions payable in July 2009.
NOTE 15. Commitments
Operating Leases
The Company rents a 5,000 square-foot manufacturing facility for $6,500 per
month, on a verbal month-to-month basis, at 2051 Placentia Ave., Costa Mesa, CA
92627. This facility is owned by a related party, the CEO of Harbor Guard Boats,
Inc. We have accrued $67,000 in rental expenses for the year ended April 30,
2009.
The Company also rents warehouse space on a verbal, as needed basis in San
Bernardino, California. Costs are currently approximately $1,000 per month, with
rent expense in 2009 of $13,000 and 2008 of $36,300.
The Company has various license agreements with a related party allowing its
technology to be utilized in the manufacture of its boats. The license
agreements typical provide for small periodic renewal payments, along with
royalty payments based on a percentage (generally 1.5% - 2%) of related gross
sales.
NOTE 16. RESTATEMENT
The Company in 2009 restated its 2008 financial statements, as management
determined that certain inventory and investments assets should have been
written off. The effect of these changes on certain material financial statement
categories are as follows:
Prior to Adjustment After
Year 2008 Adjustment Amount Adjustment
Inventory $ 24,000 $ (24,000) $ 0
Investments $ 25,500 $ (25,500) $ 0
Accumulated deficit $ (2,880,343) $ (49,507) $(2,929,850)
Net income (loss) $ (1,093,230) $ (49,507) $(1,142,737)
Impairment loss - cash flow $ 19,500 $ 49,000 $ 68,500
F-15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDINA INTERNATIONAL HOLDINGS, INC.
(a Colorado corporation)
Date: October 19, 2009 By:/s/Daniel F. Medina
-------------------
Daniel F. Medina,
President & Director
Date: October 19, 2009 By:/s/Madhava Rao Mankal
---------------------
Madhava Rao Mankal,
Chief Financial Officer & Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: October 19, 2009 By:/s/Daniel F. Medina
-------------------
Daniel F. Medina,
President & Director
Date: October 19, 2009 By:/s/Madhava Rao Mankal
---------------------
Madhava Rao Mankal,
Chief Financial Officer & Director
Date: October 19, 2009 By:/s/Mike Swanson
---------------
Mike Swanson,
Director
Date: October 19, 2009 By:/s/Mike Gallo
-------------
Mike Gallo,
Director
44