UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended October 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 000-27211
MEDINA INTERNATIONAL HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-1469319 84-1469319
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(State of Incorporation) (IRS Employer ID Number)
No. 2051 Placentia Ave., Costa Mesa, CA 92627
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(Address of principal executive offices)
909-522-4414
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(Registrant's Telephone number)
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 past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 for Regulation S-T (ss.232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] (Do
not check if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 20, 2009, there were 46,676,341 shares of the registrant's common
stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Consolidated Balance Sheets - October 31, 2009 and April 30, 2009 F-1
Consolidated Statement of Operations -
Three months and six months ended October 31, 2009 and 2008 F-2
Statement of Changes in Stockholders' Equity (Deficit) F-3-F-4
Statement of Cash Flows -
Six months ended October 31, 2009 and 2008 F-5
Notes to Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures about Market Risk - Not Applicable 7
Item 4. Controls and Procedures 7
Item 4T. Controls and Procedures 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -Not Applicable 8
Item 1A. Risk Factors - Not Applicable 8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
-Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable 9
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 9
Item 5. Other Information - Not Applicable 9
Item 6. Exhibits 9
SIGNATURES 10
MEDINA INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, April 30,
2009 2009
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 414 $ 36,576
Receivables - 3,166
Inventory 525,522 410,481
---------------- ----------------
Total current assets 525,936 450,223
Fixed Assets: 1,072,873 1,074,798
Accumulated depreciation (287,746) (200,703)
---------------- ----------------
Total fixed assets 785,127 874,095
---------------- ----------------
TOTAL ASSETS $1,311,063 $ 1,324,318
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 560,147 $ 518,898
Accrued liabilities 595,869 377,555
Short term deposit 297,880 265,352
Customer Deposit 328,115 242,905
Stock subscription payable 240,000 902,738
Notes payable 89,000 64,000
Related party payable 880,448 909,854
Related Parties - short-term borrowings from shareholders 324,921 311,712
---------------- ----------------
Total current liabilities 3,316,380 3,593,014
Stockholders' equity (deficit):
Preferred stock, $.00001 par value, 10,000,000 shares
authorized, none issued and outstanding - -
Common stock, $0.0001 par value, 100,000,000 shares
authorized, 46,676,341 and 35,560,091 shares
issued and outstanding on October 31, 2009 and April 30, 2009, respectively 4,667 3,556
Additional paid-in capital 3,082,575 2,419,032
Common stock subscribed (100,000 shares) 10,000 10,000
Subscription to be received (3,000) (3,000)
Accumulated deficit (5,099,559) (4,698,284)
---------------- ----------------
Total stockholders' equity (deficit) (2,005,317) (2,268,696)
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $1,311,063 $ 1,324,318
================ ================
The accompanying notes are an integral part of these financial statements.
F-1
MEDINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
For the three months ended October 31, For the six months ended October 31,
2009 2008 2009 2008
---- ---- ---- ----
Sales, net $ 694 $ - $ 1,564 $ -
Cost of Goods Sold 49,369 - 97,130 -
-------------------------------------------- ------------------------------------
Gross Profit (Loss) (48,675) - (95,566) -
General and administrative expenses 118,539 35,995 256,680 63,501
Selling and marketing expenses 2,763 - 3,050 -
Research and development expenses - - 1,370 -
-------------------------------------------- ------------------------------------
Loss from operations (169,977) (35,995) (356,666) (63,501)
Other income 2,800 - 4,336 90
Interest expense (22,889) (8,386) (48,945) (17,641)
-------------------------------------------- ------------------------------------
Net other income (20,089) (8,386) (44,609) (17,551)
Loss before income tax (expense) benefit (190,066) (44,381) (401,275) (81,052)
Income tax (expense) benefit - - - -
-------------------------------------------- ------------------------------------
Net Loss from Operations $ (190,066) $ (44,381) $ (401,275) $ (81,052)
============================================ ====================================
Net loss per share:
Basic $ (0.004) $ (0.001) $ (0.009) $ (0.002)
Diluted $ (0.004) $ (0.001) $ (0.009) $ (0.002)
Weighted average number of shares outstanding:
Basic 44,713,219 35,560,091 44,713,219 35,560,091
Diluted 44,713,219 35,560,091 44,713,219 35,560,091
The accompanying notes are an integral part of these financial statements.
F-2
MEDINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Additional Common Shares
Common Stock Paid-In stock Committed to Subscription
Shares Amount Capital subscribed Be issued Receivable
---------------- ----------------- ---------------- -------------- -------------------------
---------------- ----------------- ---------------- -------------- -------------------------
Balance - April 30, 2008 (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)
================ ================= ================ ============== =========================
Stock issued for royalties 10,000 - 404 - - -
Stock issued to directors 106,250 11 4,239 - - -
Stock issued for the purchase of HGB* 11,000,000 1,100 658,900 - - -
Net loss - - - - - -
---------------- ----------------- ---------------- -------------- -------------------------
Balance - October 31, 2009 46,676,341 $ 4,667 $ 3,082,575 $ 10,000 $ - $ (3,000)
================ ================= ================ ============== =========================
* - Harbor Guard Boats
The accompanying notes are an integral part of these financial statements.
F-3
(continued)
MEDINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Accumulated
Deficit Totals
-------------------------------
-------------------------------
Balance - April 30, 2008 (restated) (2,929,850) (500,262)
-------------------------------
Net loss (1,768,434) (1,768,434)
-------------------------------
Balance - April 30, 2009 (4,698,284) (2,268,696)
===============================
Stock issued for royalties - 404
Stock issued to directors - 4,250
Stock issued for the purchase of HGB* - 660,000
Net loss (401,275) (401,275)
-------------------------------
Balance - October 31, 2009 $ (5,099,559) $ (2,005,317)
===============================
* - Harbor Guard Boats
The accompanying notes are an integral part of these financial statements.
F-4
MEDINA INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
October 31,
2009 2008
---------------------------
Cash flows from operating activities:
Net loss $ (401,275) $ (81,052)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock expenses 2,071 550
Depreciation expenses 88,621 28,572
Impairment loss on investment - -
Gain on settlement of accounts payable (693) -
Write-off of fixed assets 885 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 3,166 -
(Increase) decrease in inventory (115,041) (2,889)
Increase (decrease) in accounts payable
and accrued liabilities 259,563 (16,515)
Increase (decrease) in customer deposits 85,210 37,200
---------------------------
Total adjustments 323,782 46,918
---------------------------
Net cash (used) received in operating activities (77,493) (34,134)
---------------------------
Cash flows from investing activities:
Purchase of fixed assets - (138)
---------------------------
Net cash used in investing activities - (138)
---------------------------
Cash flows from financing activities:
Bank overdraft - (20)
Proceeds from notes payables - related party 15,450 6,358
Payments to notes payables - related party (44,856) -
Proceeds from note payable 25,000 37,325
Proceeds from lines of credit & credit cards 53,432 -
Payments on lines of credit & credit cards (20,904) (9,376)
Proceeds from related party - short-term borrowings
from shareholders 26,094 -
Payment to related party - short-term borrowings
from shareholders (12,885) -
---------------------------
Net cash provided by financing activities 41,331 34,287
---------------------------
Net increase (decrease) in cash and cash equivalents (36,162) 15
Cash and cash equivalents - beginning of period 36,576 -
---------------------------
Cash and cash equivalents - end of period $ 414 $ 15
===========================
Supplemental disclosure of cash flow information:
Interest Paid $ - $ -
===========================
Taxes paid $ - $ -
===========================
Non-cash financing and investing activities:
Increase in office equipment and tools
and related party notes payable $ - $ -
===========================
Stock issued for compensation $ 1,938 $ -
===========================
The accompanying notes are an integral part of these financial statements.
F-5
PART I. - FINANCIAL INFORMATION
Medina International Holdings, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended October 31, 2009
(Unaudited)
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.
("HGB") 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.
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 October 31,
2009, the Company's current liabilities exceeded its current assets by
$2,790,424. Also, the Company's operations generated $694 in revenue during the
three months period ended October 31, 2009 and the Company's accumulated deficit
is $5,099,559.
We have taken various steps to revise its operating and financial requirements,
which we believe are sufficient to provide the Company with the ability to
continue in the subsequent year. Management devoted considerable effort during
the period ended October 31, 2009 towards management of liabilities and
improving our operations.
F-6
The future success of the Company is likely dependent on its ability to obtain
additional capital to produce 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.
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.
F-7
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 October 31, 2009 and April 30, 2009, the Company had no
balance in its allowance for doubtful accounts.
Advertising costs
Advertising costs are expensed as incurred. The Company recorded advertising
costs during the six months period ended October 31, 2009 in the amount of
$2,614.
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 expensed 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
- ---------------------------------------------- ------------------
F-8
Long Lived Assets
The Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance. Impairment losses are required 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.
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, 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
The Company discloses 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.
F-9
Basic and Diluted Net Loss per Share
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,
domestically and internationally. The Company does not separate sales activities
into different operating segments. There was $694 revenue earned by the Company
during the period ended October 31, 2009. Revenue generated from repair and
logistics.
Recently issued accounting pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 105, "Generally Accepted Accounting
Principles" (formerly Statement of Financial Accounting Standards ("SFAS") No.
168, "The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles"). ASC 105 establishes the FASB ASC as the single
source of authoritative nongovernmental U.S. GAAP. The standard is effective for
interim and annual periods ending after September 15, 2009. We adopted the
provisions of the standard on September 30, 2009, which did not have a material
impact on our financial statements.
There were various other accounting standards and interpretations issued in
2009, none of which are expected to have a material impact on the Company's
financial position, operations or cash flows.
NOTE 3. Related Party Transactions
As of October 31, 2009 the Company owed to a related party shareholder in the
amount of $880,448, incurred as part of the purchase transaction of Modena
Sports Design, LLC (currently Harbor Guard Boats, Inc.).
The Company leases building space from the same party on a verbal, month to
month basis for approximately $6,000 per month plus various costs. Rent expenses
incurred by the Company during the six months period ended October 31, 2009 was
$36,000.
F-10
NOTE 4. Inventory
As of October 31, 2009 and April 30, 2009, inventory consisted of the following:
- -------------------------------------------------------------------- -----------
Item October 31 April 30,
- -------------------------------------------------------------------- -----------
2009 2009
---- ----
Raw materials and supplies $ 31,699 $ 39,410
Work in progress 493,823 344,594
Finished goods - 26,477
--------------- --------
Total Inventory $ 525,522 $ 410,481
- ------------------------------------------------------- -------------- ---------
NOTE 5. Fixed Assets
As of October 31, 2009 and April 30, 2009, fixed assets consisted of the
following:
- ---------------------------------------------------- --------------- -----------
Property and Equipment October 31 April 30,
- -------------------------------------------------------------------- -----------
2009 2009
---- ----
Machinery and equipment; including molds & tools $ 1,053,558 $ 1,053,558
Computers 13,535 14,420
Furniture and fixtures 2,080 3,120
Office equipments 3,200 3,200
Fire Extinguisher 500 500
--- ---
Total property and equipment 1,072,873 1,074,798
Less: Accumulated Depreciation (287,746) (200,703)
--------------- ---------------
Total property and equipment $ 785,127 $ 874,095
- ------------------------------------------------ -------------- ---------------
NOTE 6. Accrued Liabilities
Our accrued liabilities as of October 31, 2009 and April 30, 2009 are as
follows:
- ----------------------------------------------------------------- --------------
Accrued Liabilities October 31 April 30,
- ----------------------------------------------------------------- --------------
2009 2009
---- ----
Interest - shareholders' loan $ 79,281 $ 42,225
Interest - related party 6,000 4,000
Interest - notes payable 2,206 1,636
Payroll 472,761 296,694
Warranty liabilities 35,621 33,000
--------------- --------------
Total accrued liabilities $ 595,869 $ 377,555
- ---------------------------------------------------------------- --------------
F-11
NOTE 7. Short-Term Debt
Our short-term debt as of October 31, 2009 and April 30, 2009 are as follows:
- ----------------------------------------------------------------- --------------
Financial Institutions October 31 April 30,
- ----------------------------------------------------------------- --------------
2009 2009
---- ----
Line of Credit
Citi Bank $ 94,932 $ 75,347
Credit Card
Advanta 8,767 9,240
American Express - 1 33,077 33,842
American Express - 2 33,999 33,751
Bank of America 38,412 37,363
Citi Bank -1 33,290 30,276
Wells Fargo Bank 25,263 26,258
Wells Fargo Bank - 2 22,599 16,385
Citi Bank - 2 3,140 2,890
Citi Bank -3 4,401 -
-------------- -------------
Total short-term debt $ 297,880 $ 265,352
- ------------------------------------------------------------------ -------------
As of October 31, 2009 the Company had a line of credit totaling $100,000, under
which the Company may borrow on an unsecured basis, since year 2008, at an
interest rate of 8.75%. The outstanding balance for this credit card was
$94,932.
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 8. 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 9. Customer Deposit
Deposit from customers consists of the following:
- ----------------------------------------------------------------- --------------
Customer Deposits October 31 April 30,
- ----------------------------------------------------------------- --------------
2009 2009
---- ----
Deposit for commercial boats $ 307,615 $ 222,405
Deposit for recreational boats 20,500 20,500
--------------- --------------
Total customer deposits $ 328,115 $ 242,905
- ---------------------------------------------------------------- --------------
NOTE 10. Notes Payable
- ----------------------------------------------------------------- --------------
Notes Payable October 31 April 30,
- ----------------------------------------------------------------- --------------
2009 2009
---- ----
Notes payable - related party $ 50,000 $ 50,000
Notes payable - others 39,000 14,000
--------------- --------------
Total notes payable $ 89,000 $ 64,000
- ---------------------------------------------------------------- ---------------
As of October 31, 2009, 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.
As of October 31, 2009, the Company had an unsecured note payable with an
unrelated party in the amount of $4,000, which bears no interest and is
currently due.
As of October 31, 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. Interest accrued to date $6,000.
As of October 31, 2009, the Company had an unsecured note payable with an
unrelated party in the amount of $25,000, which bears $2,500 interest and is
currently due.
F-13
NOTE 11. Shareholders' Loans
At October 31 2009, Shareholders' loans consisted of the following:
- ----------------------------------------------------------------- --------------
Shareholders' Loans October 31 April 30,
- ----------------------------------------------------------------- --------------
2009 2009
---- ----
Daniel Medina, President $ 129,400 $ 107,399
Madhava Rao Mankal, Chief Financial Officer 195,521 204,313
--------------- --------------
-------------- ---------------
Total Shareholders' Loans $ 324,921 $ 311,712
Shareholders' loan from shareholder of the Company,
unsecured, 10% 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.
NOTE 12. 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. As of October 31, 2009, the Company had 46,676,341
shares of its common stock issued and outstanding. As of April 30, 2009, the
Company had 35,560,091 shares of its common stock issued and outstanding. The
following table presents shares issued during the six months period ended
October 31, 2009.
- --------------------------------------------------------------------------------
Shares issued during the six months period ended October 31, 2009
- --------------------------------------------------------------------------------
Shares issued to directors 106,250
Shares issued for royalty 10,000
Shares issued for the purchase of Harbor Guard Boats 11,000,000
---------------------
---------------------
Total shares issued during the period 11,116,250
- ---------------------------------------------------------- ---------------------
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 October 31, 2009.
F-14
Stock Subscriptions Payable
At October 31, 2009, the Company had an obligation to issue 20 Series A
preferred shares for consideration already rendered in the amount of $240,000.
NOTE 13. Commitments
Operating Leases
The Company rents a 5,000 square-foot manufacturing facility for $6,000 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 incurred $36,000 in rental expenses for the six months period ended
October 31, 2009.
The Company has various license agreements with a related party allowing its
technology to be utilized in the manufacture of its boats. These license
agreements typically provide for small periodic renewal payments, along with
royalty payments based on a percentage (generally 1.5% - 2%) of related gross
sales.
Note 14 Subsequent Events
The Company has evaluated it activities subsequent to the quarter ended October
31, 2009 and found no reportable subsequent events.
F-15
ITEM 2. 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-Q 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:
1
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 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q
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).
Our products are sold to fire, search & rescue, emergency, police, defense, and
military departments in the United States and abroad. Fire departments have been
our largest customers and we rely heavily on government funded departments to
achieve sales and continue our operations.
In addition, we also manufacture two models of recreational watercrafts.
Key Challenges
We face numerous challenges to sustain our 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.
2
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 also 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 to our employees;
Results of Operations
For the Three Months Ended October 31, 2009 Compared to the Three Months Ended
October 31, 2008
Our Company has earned revenues of $694 for the three months period ended
October 31, 2009 as compared to none for the three months period ended October
31, 2008. Revenues during the three months ended October 31, 2009, were a result
of our work in spare parts and logistics. We did not generate any revenue from
sales of our products during the three months period ended October 31, 2009 and
October 31, 2008.
During the three months ended October 31, 2009, we incurred a cost of goods sold
of $46,369 compared to none during the three months ended October 31, 2008. The
increase of $46,369 was a result of the increase in operational activities,
which includes depreciation expenses.
3
During the three months ended October 31, 2009, we incurred general and
administrative expenses of $118,539 compared to $35,995 during the three months
ended October 31, 2008. The $82,544 increase in general and administrative
expenses for the three months period ended October 31, 2009 was mainly due to
the accrual of management salary of $90,000. The Company also decreased rental
expense in the amount of $9,000 during the three months period ended October 31,
2009, as compared with that of the same period ended October 31, 2008. The
Company moved its operations from San Bernardino International Airport to Costa
Mesa, California.
During the three months ended October 31, 2009, the Company incurred selling and
marketing expenses of $2,763 compared to none during the three months ended
October 31, 2008. The increase of $2,763 in selling expenses during the three
months period ended October 31, 2009 compared to the three months period ended
October 31, 2008, was primarily due to the advertising costs of $2,614.
During the three months ended October 31, 2009, the Company recognized a net
loss of $190,066 compared to $44,381 during the three months ended October 31,
2008. Increase of $145,685 was a result of the $82,544 increase in general and
administrative expenses combined with the $46,369 increase in cost of goods
sold.
For the Six Months Ended October 31, 2009 Compared to the Six Months Ended
October 31, 2008
Our Company has earned revenues of $1,564 for the six months period ended
October 31, 2009 as compared to none for the six months period ended October 31,
2008. Revenues during the six months ended October 31, 2009, were a result of
our work in spare parts and logistics. We did not generate any revenue from
sales of our products during the six months period ended October 31, 2009 and
October 31, 2008.
During the six months ended October 31, 2009, we incurred a cost of goods sold
of $97,130 compared to none during the six months ended October 31, 2008. The
increase of $97,130 was a result of the increase in operational activities,
which includes depreciation expenses.
During the six months ended October 31, 2009, we incurred general and
administrative expenses of $256,680 compared to $63,501 during the six months
ended October 31, 2008. The $193,179 increase in general and administrative
expenses for the six months period ended October 31, 2009 was mainly due to the
accrual of management salary of $188,000 and professional fees of $16,018,
compared to professional fees of $11,228 for the same period ended October 31,
2008. The Company also decreased rental expense in the amount of $18,000 during
the six months period ended October 31, 2009, as compared with that of the same
period ended October 31, 2008. The Company moved its operations from San
Bernardino International Airport to Costa Mesa, California.
During the six months ended October 31, 2009, we incurred research and
development expenses of $1,370 compared to none during the six months ended
October 31, 2008.
During the six months ended October 31, 2009, the Company incurred selling and
marketing expenses of $3,050 compared to none during the six months ended
October 31, 2008. The increase of $3,050 in selling expenses during the six
months period ended October 31, 2009 compared to the six months period ended
October 31, 2008 was primarily due to the advertising costs of $2,614.
4
During the six months ended October 31, 2009, the Company recognized a net loss
of $401,275 compared to $81,052 during the six months ended October 31, 2008.
Increase of $320,223 was a result of the $193,179 increase in general and
administrative expenses combined with the $97,130 increase in cost of goods
sold.
Liquidity and Capital Resources
As of October 31, 2009, the Company had $414 cash on hand, an inventory of
$525,522 and net fixed assets of $785,127. The Company's total current
liabilities were $3,316,380 as of October 31, 2009, which was represented mainly
accounts payable of $560,147, accrued liabilities of $595,869, deposits from
customers of $328,115, short-term debt of $297,880, notes payable of $89,000 and
short-term borrowings from shareholders totaling $324,921. In addition, stock
subscription payable of $240,000 and note payable for the acquisition of
$880,448 are included in the current liabilities. At October 30, 2009, the
Company's current liabilities exceeded current assets by $2,790,444.
The Company used $77,493 in operating activities for the six months period ended
October 31, 2009 compared to usage of $34,134 for six months period ended
October 31, 2008.
The Company did not provide or use any cash in investing activities for the six
months period ended October 31, 2009 compared to usage of $138 for six months
period ended October 31, 2008.
During the six months period ended October 31, 2009, the Company obtained
$41,331 from financing activities, which included the $53,432 increase in the
lines of credits and credit cards held by the Company. The Company also obtained
$25,000 through the issuance of notes payable and $26,094 in short-term
borrowings from related party. The Company also made payments to short-term
borrowings from related party, lines of credit and credit cards, and notes
payables in the amount of $12,885, $20,904, and $44,856, respectively. During
the six months period ended October 31, 2008, the Company obtained $34,287 from
financing activities, which included the $9,376 decrease in the lines of credits
held by the Company and obtained $37,325 through the issuance of notes payables.
The Company has an accumulated deficit, as of October 31, 2009, of $5,099,559
compared to October 31, 2008 of $4,698,284.
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.
5
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 October 31, 2009, we do not have any obligation under certain guarantees
or contracts as defined above.
As of October 31, 2009, we do not have any retained or contingent interest in
assets as defined above.
As of October 31, 2009, we do not hold derivative financial instruments.
Accounting for Derivative Instrument and Hedging Activities, as amended.
As of October 31, 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.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 105, "Generally Accepted Accounting
Principals" (formerly Statement of Financial Accounting Standards ("SFAS") No.
168, "The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles"). ASC 105 establishes the FASB ASC as the single
source of authoritative nongovernmental U.S. GAAP. The standard is effective for
interim and annual periods ending after September 15, 2009. We adopted the
provisions of the standard on September 30, 2009, which did not have a material
impact on our financial statements.
There were various other accounting standards and interpretations issued in
2009, none of which are expected to have a material impact on the Company's
financial position, operations or cash flows.
6
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 $3,316,380, no significant cash, minimal other
assets, and no capital commitments.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive 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. Based on the foregoing evaluation, our Chief Executive
Officer has concluded that our disclosure controls and procedures are effective
in timely alerting them to material information required to be included in our
periodic SEC filings and to ensure that information required to be disclosed in
our periodic SEC filings is accumulated and communicated to our management,
including our Chief Executive Officer, to allow timely decisions regarding
required disclosure as a result of the deficiency in our internal control over
financial reporting discussed below.
ITEM 4T. CONTROLS AND PROCEDURES
Management's Quarterly 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 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. 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:
7
(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 statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on our financial
statements.
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the quarter ended October 31,
2009. We believe that internal control over financial reporting is effective. We
have not identified any, current material weaknesses considering the nature and
extent of our current operations and any risks or errors in financial reporting
under current operations.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. 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.
This quarterly report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended October 31, 2009, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -
NONE
ITEM 1A. RISK FACTORS -
NONE
8
ITEM 2. CHANGES IN SECURITIES -
The following additional common shares were issued during period of May 1, 2009
through October 31, 2009:
a) 10,000 common shares were issued for the royalty payable valued at
$404 at the market rate of $0.04.
b) 106,250 common shares were issued to Directors for services valued at
$4,250 at the market rate of $0.04.
c) 11,000,000 common shares were issued in lieu of the HGB acquisition
agreement valued at market value of $660,000 at the rate of $0.06.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE
ITEM 5. OTHER INFORMATION -
NONE
ITEM 6. EXHIBITS -
Exhibits. The following is a complete list of exhibits filed as part of this
Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act
Exhibit 32.2 Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act
9
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MEDINA INTERNATIONAL HOLDINGS, INC.
(Registrant)
Dated: December 15, 2009 By: /s/ Daniel Medina
-----------------------------------
Daniel Medina,
President
Dated: December 15, 2009 By: /s/ Madhava Rao Mankal
-----------------------------------
Madhava Rao Mankal,
Chief Financial Officer