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, 2010
[ ] 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.)
1802 Pomona Rd, Corona, CA 92880
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (951)493-6785
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Securities registered pursuant to Section 12(b) of this Act:
Title of each class Name of each exchange on which registered
Common stock OTC:PINK
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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Title of each 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.
Yes [ ] No [X]
Note- Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
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 whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (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. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Small reporting company [X ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year: $541,675.
There were 51,006,747 shares of the Registrant's common stock outstanding as of
July 15, 2010. The aggregate market value of the 13,331,044 shares of common
stock held by non-affiliates of the Registrant is approximately $666,552 based
on the closing market price of $0.05 per share on July 15, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Yes [ ] No [X]
MEDINA INTERNATIONAL HOLDINGS, INC.
2010 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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Part I
Item 1. Description of Business 1
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 13
Item 2. Description of Property 13
Item 3. Legal Proceedings 13
Item 4. (Removed and Reserved) 14
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters 15
and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and 15
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements With Accountants on Accounting and 22
Financial Disclosure.
Item 9A. Controls and Procedures 22
Item 9A(T) Controls and Procedures 23
Item 9B. Other Information 24
Part III
Item 10. Directors, Executive Officers, Corporate Governance 24
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters 30
Item 13. Certain Relationships and Related Transactions, and Director
Independence 30
Item 14. Principal Accounting Fees and Services 32
Part IV
Item 15. Index to Exhibits 33
Signature 34
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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
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 1802 Pomona Road, Corona,
California, 92880, USA and our telephone number is (909) 522-4414.
Medina manufactures products and services to assist emergency and defense
organizations and personnel. Our products are manufactured by 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."
In 2004 there was a change of management. At that 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. In
2005 the board and shareholders approved the name change to Medina International
Holdings, Inc. Since these organizational restructurings, we have pursued a
business plan that focuses on watercraft manufacturing for rescue, emergency,
and defense operations, as well as, recreational use.
In 2006, Medina Marine, Inc. was formed in the State of California, on May of
2006, as a wholly owned subsidiary for the sole purpose of manufacturing
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 eight (8) models of commercial watercrafts, ranging from
15' to 37' in length. The revenue of Harbor Guard Boats, Inc. from inception up
to the date of acquisition are not be reflected on the consolidated financial
statements of Medina International Holdings, Inc. as of April 30, 2009.
Harbor Guard Boats ("HGB") designs, manufactures, and markets high-performance,
hand-laid fiberglass, commercial boats ranging from 15' to 37', which are
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.
1
The Company's securities have been thinly traded on the
Over-the-Counter-Bulletin-Board Market since September 2007. Since April of
2009, the Company's securities have been thinly traded 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
Our Company operates under exclusive licenses for the following patents:
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Patent No. Date
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U.S. 6,620,003 9/16/2003
U.S. 7,004,101 2/28/2006
U.S. 6,343,964 2/5/2002
U.S. 6,168,481 1/2/2001
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Agreements
On June 18, 2008 the following agreements were entered into:
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 was 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.
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.
2
Product Description
The Company 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 15' to 37' in length.
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Watercraft Fire Rescue Rescue
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15' Interceptor Y Y
21' Interceptor Y Y
18' Firehawk Defender Y Y
24/26' Firehawk Defender Y Y
28' Firehawk Defender Y Y
30' Firehawk Defender Y Y
37' Firehawk Defender Y Y
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Recreational Boats - The Company currently has 2 recreational
watercraft models, the 22' Vortex and 30' Modena.
Our watercraft products are made out of fiberglass materials. In addition to
durability and improved speeds, the use of fiberglass means that any repairs or
damage to the interior or exterior of the craft can be easily repaired. Our
products incorporate an enclosed platform in their designs, which prevents the
boats from flooding and therefore provides a greater stability.
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 shallow
waters. 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 our products uses water retrieved from the bottom of the
boat and sprays water at 750-2000 gallons per minute, without compromising the
stability of the craft. MCD 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 and rescue departments, as well as, defense and
military departments.
Current Operations
Our operations focused, up to April of 2008, on building of 12' and 21'
watercraft molds. On June 18, 2008, we acquired Harbor Guard Boats, Inc.
(formerly Modena Sport Designs, LLC). We design, manufacture, test, deliver and
support from a leased facility in Corona, California.
3
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 efforts. 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, which 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.
There is greater competition for our 22' Vortex and Modena 30' boats, than there
are 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
with an advantage over our established and larger competitors.
Sales and Marketing
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Units Sold for the year ended April 30,
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2009 2010
Department Type No. Sold Percentage No. Sold Percentage
Fire Department 3 33% 1 50%
Volunteer Fire Departments 1 11% 1 50%
Emergency 1 11%
Police 3 33%
Homeland Security 1 11%
Total 9 100% 2 100%
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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 up to the time of
merger.
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 and rescue, defense, and emergency purposes.
Our watercrafts are sold to 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.
4
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.
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.
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.
5
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.
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 July
12, 2010, we had 51,006,747 shares of common stock outstanding, of which 12
million is or will be freely tradable, other than restrictions imposed upon our
affiliates. 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.
6
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.
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 amount of 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.
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 51,006,747 shares of common stock outstanding as of July 12,
2010, 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.
7
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 37,675,703 shares of
common stocks, or the prospect of these sales, could adversely affect the market
price of our common stock.
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.
8
We have a limited operating history and may never achieve or sustain profitable
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
$745,070 for the year ended April 30, 2010. At April 30, 2010, we had an
accumulated deficit of $5,443,354.
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.
9
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, 2010, had current liabilities of $2,731,046 and
$334,623 in current assets. As of April 30, 2010, we have a working capital
deficit of approximately $2,396,423. 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 these
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,
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.
10
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 our products.
If we fail to successfully create and implement our sales and marketing
strategy, it could result in increased costs and net losses, resulting in
potential failure of the company.
11
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, 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.
We may be unable to obtain 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.
Our principal officers and directors own 73.86% 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 73.86% of our
outstanding common stock as of July 12, 2010. 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.
12
Conflicts of interest ---- The board of directors of the Company 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 1B. UNRESOLVED STAFF COMMENTS
Our Company received comments from the Commission staff regarding its periodic
reports filed with the Commission. As of the date of filing this Form 10-K, we
have successfully resolved all Commission staff comments.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company does not own any properties as of the year ended April 30, 2010. We
moved our operations from Costa Mesa, California to Corona, California during on
February 3, 2010. Our management signed a three year lease for a 11,900 sq. ft.
building in the city of Corona.
ITEM 3. LEGAL PROCEEDINGS
As of April 30, 2010, neither the Company nor any member of management was a
party to any legal proceedings.
ITEM 4. REMOVED AND RESERVED.
13
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 our 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 market in April of 2009. The Company has to timely file its
reports for the next four consecutive quarters, in order to reinstate the
Company onto the Bulletin Board. With the filing of this report, we have filed
consecutively three reports on time.
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 for our Company's common stock. 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
- ------------------------- ------------- -------------
Year ended April 30, 2010
First Quarter $0.04 $0.01
Second Quarter $0.06 $0.01
Third Quarter $0.10 $0.04
Fourth Quarter $0.07 $0.04
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
- ------------------------- ------------- -------------
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 issued 15,346,656 unregistered securities during the fiscal year
ended April 30, 2010. The following presents the purpose for the issuance of
unregistered securities:
- ------------------------------------------ ------------------------- ----------------------------
Person/Entity No. of Common Stock Purpose
- ------------------------------------------ ------------------------- ----------------------------
Board of Directors 131,250 Fees
MGS Grand Sports/Mardikian 11,010,000 Acquisition & Royalty
Design Engineering
Officers 4,135,000 Accrued Salary conversion
Landlord of Costa Mesa building 70,406 Rent
- ------------------------------------------ ------------------------- ----------------------------
14
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.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data derived from the
audited Consolidated Financial Statements for three 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.
- -------- -------------------------------------------- --------------------------------------------------------------
During the year ended April 30,
- -------- -------------------------------------------- --------------------------------------------------------------
2010 2009 2008
---- ---- ----
Operating Results
Net Sales $ 541,675 $ 1,034,379 $ 192,800
Cost of Goods Sold 640,512 1,110,916 115,114
Gross Margin (98,837) (76,537) 77,686
General and administrative expenses 519,840 489,653 1,059,346
Selling & marketing expenses 50,459 169,889 57,946
Research and development expenditures - 148,836 -
Other operating expenses - 822,009 68,500
Other income (expenses) (75,934) (61,510) (34,631)
Net Loss $ (745,070) $ (1,768,434) $ (1,142,737)
Balance Sheet
Total assets $ 1,046,720 $ 1,324,318 $ 386,776
Total debt 2,731,046 3,593,014 887,038
Total Stockholders' equity (1,684,326) (2,268,696) (500,262)
Cash Flows
Net cash used by operating activities $ 177,211 $ (242,088) $ (96,576)
Net cash provided by investing activities - (3,586) (33,489)
Net cash provided by financing activities (106,564) 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:
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 and/or profits;
(d) Inadequate capital to continue or expand its business;
(e) Inability to raise additional capital or financing to implement its
business plans;
(f) Failure to achieve a business;
(g) Rapid and significant changes in markets;
(h) Litigation or legal claims and allegations by outside parties; and
(i) Insufficient revenues to cover operating costs.
15
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. 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 watercraft models.
The Company owns the rights to the following websites:
www.medinaih.com
www.medinainternationalholdings.com
www.medinamarine.com
www.harborguardboats.com
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; 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.
16
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 for our employees;
Results of Operations
The following discussion and analysis is based on our consolidated statements of
operations, which reflect our results of operations for the years ended April
30, 2010 and 2009, as prepared in accordance with generally accepted accounting
principles in the United States of America ("GAAP").
The following tables present our results of operations for the two years ended
April 30, 2010 and 2009, as well as the percentage changes from year to year.
For the year ended April 30, Dollar Change Percentage
Change
- --------------------------------------------- ------------------------------------ -- ---------------- -- -----------------
2010 2009 2010 vs. 2009 2010 vs. 2009
Sales, net $ 541,675 $ 1,034,379 $(492,704) (48)%
Cost Of Sales 640,512 1,110,916 (470,404) (42)%
Gross Profit (98,837) (76,537) (22,300) 29%
General and administrative expenses 519,840 489,653 30,187 6%
Selling and marketing expenses 50,459 169,889 (119,430) (70)%
Research and development expenses - 148,863 (148,836) -
Loss on Goodwill - 822,009 (822,009) -
Impairment loss on investment - - - -
Loss from operations (669,136) (1,706,924) (1,041,450) (61)%
Other income 2,800 - 2,800 -
Interest expense (78,734) (61,510) 17,228 28%
Net other loss (75,934) (61,510) 14,428 23%
Loss before income tax (expense) benefit $ (745,070) $ (1,768,434) $ (1,027,022) (58)%
Income tax (expense) benefit - - - -
Net Loss from Operations $ (745,070) $ (1,768,434) $ (1,027,022) (58)%
- --------------------------------------------- ---------------- -- ---------------- -- ---------------- -- -----------------
17
2010 Compared to 2009
Net Sales
Harbor Guard Boats has sold 23 units since its inception, however only 11 units
sold by Harbor Guard Boats were reflected in our consolidated statement of
operations.
- -------------------------------- -------------------------------- -- -------------- -- -----------------
Revenue For the Years Ended April 30, Dollar Change Percent Change
- -------------------------------- -------------------------------- -- -------------- -- -----------------
2010 2009 2010 vs. 2009 2010 vs. 2009
---- ---- ------------- -------------
Boat Sales, net $ 537,515 $ 1,003,426 $ (465,911) (46)%
Spare parts and logistics 4,160 30,953 (26,793) (87)%
$ 541,675 $ 1,034,379 $ (492,704) (48)%
---------- -------------- ------------ -----
Our sole source of revenue from our inception is attributable to commercial
watercrafts. Our company sold two watercrafts and earned revenues of $541,675
for the year ended April 30, 2010 as compared to nine water crafts and earned
$1,034,379 for the year ended April 30, 2009. Since most of our sales consist of
commercial watercrafts, we do not anticipate offering discounts or other sales
incentives.
The following table presents our watercraft sales for the years ended April 30,
2010 and 2009.
For the year ended April 30,
- ------------------- -----------------------------
2010 2009
Units Sold 2 9
Revenue $ 537,515 $ 1,003,426
- ------------------- ------------- ------------
The decrease in sales for the year ended April 30, 2010 of $465,911, or (46)%,
was primarily due to lack of sales. We sold two watercrafts during the year
ended April 30, 2010 compared to nine watercrafts during the year ended April
30, 2009.
Cost of sales
Costs of sales are costs to produce our product and generally consists of direct
materials, direct labor and production overhead.
- --------------------------------------------- ----------------------------------
For the year ended April 30,
- --------------------------------------------- ----------------------------------
2010 2009
Cost of sales $ 640,512 $ 1,110,916
Gross profit $ (98,837) $ (76,537)
Gross profit as a percentage of net sales (15.4)% (6.9)%
- --------------------------------------------- ------------------ ---------------
Cost of sales. The decrease in cost of goods sold for the year ended April 30,
2010 of $470,404, or 42%, was primarily due to lack of sales. Our cost of goods
sold comprise of direct material, direct labor, and production overhead which
includes depreciation. Gross loss is mainly due to the under recovery of
depreciation during the year. 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. We include royalty payments, for the use of the
patents, as part of the production overhead. Our warranty expense was $3890 for
year ended April 30, 2010 as compared to $65,558 for the year ended April 30,
2009.
18
General and administrative expenses.
- -------------------------------------------- ------------------------------ ----------------- ----------------------
General and Administrative Expenses For the year ended April 30, Dollar Change Percentage Change
- -------------------------------------------- ------------------------------ ----------------- ----------------------
2010 2009 2010 vs. 2009 2010 vs. 2009
---- ---- ------------- -------------
General and Administrative Expenses $ 519,840 $ 489,653 $ 30,187 6%
- -------------------------------------------- ---------------- ------------- ----------------- ----------------------
General and administrative expenses include, but not limited to:
a) Professional fees for legal, accounting, consulting, and development activities;
b) Public company related expenditures;
c) Stock compensation for services rendered to the Company;
d) Management salaries
e) Compensation expenses; and
f) Payroll taxes etc.
The increase in general and administrative expenses for the year ended April 30,
2010 of $26,525, or 5%, was mainly due to the salary accrual of our officers.
Selling and marketing expenses
- -------------------------------------------- ------------------------------ ----------------- ----------------------
Selling and Marketing Expenses For the year ended April 30, Dollar Change Percentage Change
- -------------------------------------------- ------------------------------ ----------------- ----------------------
2010 2009 2010 vs. 2009 2010 vs. 2009
---- ---- ------------- -------------
Selling and Marketing Expenses $ 50,459 $ 169,889 $ (119,430) (70)%
- -------------------------------------------- ---------------- ------------- ----------------- ----------------------
Selling expenses include:
a) Commission paid for sales of our product;
b) Travelling expenses related to sales;
c) Freight expenses on selling boats; and
d) Marketing expenditures.
The decrease in selling and marketing expenses of $119,430, or 70%, during the
year ended April 30, 2010 compared to the year ended April 30, 2009, was
primarily due to commission on sales. Due to the lower unit sales of our
products during the year ended April 30, 2010, we incurred $25,713 in commission
expenses as compared to $102,624 during the year ended April 30, 2009.
Research and Development Expenses
- ---------------------------------------- -------------------------------
For the year ended April 30,
- ---------------------------------------- -------------------------------
2010 2009
---- ----
Research and development expenses $ - $ 148,836
As a percentage of net sales 0% 14%
- ---------------------------------------- ---------------- --------------
Other Income and Expenses
- -------------------------------------------- ------------------------------ ----------------- ----------------------
Other Income (Expenses) For the year ended April 30, Dollar Change Percentage Change
- -------------------------------------------- ------------------------------ ----------------- ----------------------
2010 2009 2010 vs. 2009 2010 vs. 2009
---- ---- ------------- -------------
Other Income $ 2,800 $ - $ 2,800 -
Other Expense $(78,734) $ (61,510) $17,228 28%
- -------------------------------------------- ---------------- ------------- ----------------- ----------------------
Other Income (Expense) consists of:
a) Interest income
b) Interest expense on notes payable, credit cards, line of credits and shareholders' loans.
19
Our other expenses increased $14,424 or 23.45%, during the year ended April 30,
2010, 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, 2010 was $35,143 compared to
$42,225 during the year ended April 30, 2009. We also incurred interest on
related party liabilities of $5,644 during the year ended April 30, 2009
compared to $4,000 during the year ended April 30, 2009.
Net Loss
- ------------------------------------------ -------------------------------- ----------------- ----------------------
Net Loss For the year ended April 30, Dollar Change Percentage Change
- ------------------------------------------ -------------------------------- ----------------- ----------------------
2010 2009 2010 vs. 2009 2010 vs. 2009
---- ---- ------------- -------------
Net Loss $ (745,070) $ (1,768,434) $ (1,023,364) (58)%
- ------------------------------------------ ----------------- -------------- ----------------- ----------------------
Based on the explanations described above, our net loss of $1,768,434 for the
year ended April 30, 2009 decreased by $1,023,364, or 58%, to $745,070 for the
year ended April 30, 2010.
Liquidity and Capital Resources
- ------------------------------------------------------------ -------------------------------------------------------
Cash Flow For the Years Ended April 30,
- ------------------------------------------------------------ -------------------------------------------------------
2010 2009
---- ----
Net cash provided by (used in) operating activities $ 177,211 $ (242,088)
Net cash provided by (used in) investing activities $ - $ (3,586)
Net cash provided by (used in) financing activities $(106,564) $ 282,250
- ------------------------------------------------------------ --------------- -------------------- ------------------
As of April 30, 2010, the Company had $107,223 cash on hand, an inventory of
$164,652 and net fixed assets of $703,848. The Company's total current
liabilities were $2,731,046 as of April 30, 2010, which were represented mainly
by accounts payable of $640,055, accrued liabilities of $186,075, deposits from
customers of $308,000, short-term debt of $214,757, notes payable of $104,000
and short-term borrowings from shareholders totaling $407,217. In addition, note
payable for the acquisition of Harbor Guard Boats, Inc. in the amount of
$870,941 is included in the current liabilities. At April 30, 2009, the
Company's current liabilities exceeded current assets by $2,396,423.
As of April 30, 2009, the Company had $36,576 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 were represented mainly
by 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 Harbor
Guard Boats, Inc. in the amount 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.
The Company provided $177,211 in operating activities for the year ended April
30, 2010 compared to usage of $242,088 for year ended April 30, 2009.
The Company did not provide any cash from investing activities during the year
ended April 30, 2010. For the year ended April 30, 2009, the Company had used
cash $3,586 for manufacturing of the molds for the fire and rescue watercrafts.
During the year ended April 30, 2010, the Company used $106,564 from financing
activities, which included payments of $191,199 made on notes payables and
payments towards credit cards and bank loan, while receiving $81,635 of proceeds
from new notes payables. During the year ended April 30, 2009, the Company
obtained $282,250 from financing activities, which included the $172,850
increase in the lines of credits and credit cards held by the Company.
The Company has an accumulated deficit, as of April 30, 2010, of $5,443,354
compared to the year ended April 30, 2009 of $4,698,284.
20
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 $2,395,422, minimal other assets, and no capital
commitments.
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, 2010, we do not have any obligation under certain guarantees or
contracts as defined above.
As of April 30, 2010, we do not have any retained or contingent interest in
assets as defined above.
As of April 30, 2010, 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, 2010, 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, 2010, 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.
21
Critical Accounting Policies and Estimates
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 and if the prices of fiberglass and/or aluminum increase
significantly, it will further decrease our ability to attain profitable
operations. We are not involved in any purchase commitments with any of our
vendors.
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.
ITEM 8. FINANCIAL STATEMENTS
See Financial Statements start on page F-1.
ITEM 9 CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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.
22
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:
(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,
2010. 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, 2010.
ITEM 9(A)T. INTERNAL 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:
(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.
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.
23
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the year ended April 30,
2010. We believe that internal control over financial reporting is not effective
because of the small size of the business. 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.
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 56 President & Director
Madhava Rao Mankal 59 Chief Financial Officer & Director
Mike Swanson 54 Director
Mike Gallo 52 Director
Albert Mardikian 64 CEO, Harbor Guard Boats, Inc.
- ------------------------------ ------ ------------------------------------
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.
24
Biographies of Officers and Directors
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, fellow of the Institute of Cost and Works Accountants of India and a
member of the Institute of Management Accountants in the United States. He holds
a Bachelors Degree in Commerce from Bangalore University.
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.
25
ALBERT MARDIKIAN, Chief Executive Officer - Harbor Guard Boats
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 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.
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 $166,000, plus an
expense allowance;
- Mr. Madhava Rao Mankal, CFO and Director, MIHI $166,000, 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 Common Stock of
the Company, and/or have accrued their compensation to be paid when cash is
available.
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.
26
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, our officers and directors will be required to use their discretion
to resolve them in a manner which they consider appropriate.
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. Our board of directors is currently
seeking qualified financial expert and/or members to establish an independent
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, 2010,
2009, and 2008 the "Named Executive Officers"):
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY EXECUTIVES COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Name & Position Year Salary Bonus Stock Option None Equity Nonqualified All other Total
awards awards incentive plan deferred compensation
compensation compensation
earnings
- ---------------- -------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
($) ($) ($) ($) ($) ($) ($) ($)
- ---------------- ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
Daniel Medina, 2010 $156,000 $ - $ - $ - $ - $ - $ - $156,000
President & 2009 $100,000 $ - $ - $ - $ - $ - $ - $100,000
Director 2008 $ 0 $ - $ - $ - $ - $ - $ - $ -
- --------------- ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
- --------------- ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
Madhava Rao
Mankal, CFO 2010 $148,500 $ - $ - $ - $ - $ - $ - $148,500
CFO & 2009 $ 0 $ - $ - $ - $ - $ - $ - $100,000
Director 2008 $ 0 $ - $ - $ - $ - $ - $ - $ -
- --------------- ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
- --------------- ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
Albert
Mardikian, 2010 $ 60,000 $ - $ - $ - $ - $ - $ - $ 60,000
CEO, Harbor
Guard 2009 $100,000 $ - $ - $ - $ - $ - $ - $100,000
2008 $ 0 $ - $ - $ - $ - $ - $ - $ -
- -------------- ------- ---------- ---------- ---------- --------- ----------------- ---------------- ----------------- ----------
27
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, for the periods ended April 30, 2009 and
$292,500 for the period ended April 30, 2010.
- ------------------------------------------------------------------------------------------------------------------------------------
Option Awards & Stock Awards
- ------------------------------------------------------------------------------------------------------------------------------------
Name Number of Number of Equity Option Option Number Market Equity Equity
Securities securities incentive exercise expiration of value of incentive incentive
underlying underlying plan awards: price date shares shares plan plan
unexercised unexercised Number of or units of units awards: awards:
options (#) options (#) securities of stock of stock Number of Market or
exercisable unexercisable underlying that that unearned payout
unexercised have not have not shares, value of
unearned vested vested units or unearned
options (#) (#) ($) other shares,
rights units or
that have others
not vested rights
(#) that have
not
vested ($)
- --------------- -------------- ----------------- -------------- ----------- ------------ ---------- ---------- ------------ --------
Daniel $
Medina, $ - $ $ $ $ $ $ $
President & - - - - - - - -
Director
- --------------- -------------- ----------------- -------------- ----------- ------------ ---------- ---------- ------------ --------
- --------------- -------------- ----------------- -------------- ----------- ------------ ---------- ---------- ------------ --------
Madhava Rao $
Mankal, CFO & $ - $ $ $ $ $ $ $
Director - - - - - - - -
- --------------- -------------- ----------------- -------------- ----------- ------------ ---------- ---------- ------------ --------
- --------------- -------------- ----------------- -------------- ----------- ------------ ---------- ---------- ------------ --------
Albert $
Mardikian, $ - $ $ $ $ $ $ $
CEO, Harbor - - - - - - - -
Guard Boats,
Inc.
- --------------- -------------- ----------------- -------------- ----------- ------------ ---------- ---------- ------------ --------
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. The
Series A Preferred Convertible Stock certificates have been issued to Messrs.
Medina and Mankal on March 23, 2010.
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.
28
No options were issued or exercised during the fiscal years ended April 30, 2010
and 2009.
- ------------------------------------------------------------------------------------------------------------------------------------
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 ($)
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
Name Shares Value Exercisable/Unexercisable Exercisable/Unexercisable
Acquired Realized
on ($)
Exercise
(#)
- ------------------------------------------------- ------------ ---------- ------------------------------ ---------------------------
$ - $ - $ - $ -
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, 2010:
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
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 $ 625 $ - $ - $ - $ - $ - $ -
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
$ 625 $ - $ - $ - $ - $ - $ -
Mike Gallo, Director
- ------------------------------ ---------- ------------- ---------------- ------------- ------------------- ------------ ------------
No Fees were paid nor were any stock awards provided as Director's compensation
for the year ended April 30, 2010.
The Company has issue 50,000 shares to Mr. Mike Gallo and 50,000 shares to Mike
Swanson toward services as Directors of the Company for the year ended April 30,
2010 and 2009.
29
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 April 30, 2010 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 51,006,747 shares of common stock issued and
outstanding as of April 30, 2010.
Name, Address & Nature of Beneficial Owner Title of Class Shares Percent of
Class
- -------------------------------------------------------- ----------------- -------------- ----------------
Daniel Medina, President & Director, Common Stock 12,554,000 24.61%
1802 Pomoma Rd. Corona, 92880
- -------------------------------------------------------- ----------------- -------------- ----------------
- -------------------------------------------------------- ----------------- -------------- ----------------
Madhava Rao Mankal, Chief Financial Officer & Common Stock 12,625,000 24.75%
Director,
1802 Pomona Rd, Corona, CA 92880
- -------------------------------------------------------- ----------------- -------------- ----------------
- -------------------------------------------------------- ----------------- -------------- ----------------
Mike Swanson, Director, Common Stock 117,703 0.23%
1802 Pomona Rd, Corona, CA 92880
- -------------------------------------------------------- ----------------- -------------- ----------------
- -------------------------------------------------------- ----------------- -------------- ----------------
Mike Gallo, Director, Common Stock 50,000 0.10%
294 South Leland Norton Way, San Bernardino,
California 92408
- -------------------------------------------------------- ----------------- -------------- ----------------
- -------------------------------------------------------- ----------------- -------------- ----------------
Albert Mardikian, CEO, Harbor Guard Boats, Inc. and Common Stock 12,329,000 24.17%
Associated companies
2051 Placentia Ave, Costa Mesa, CA 92627
- -------------------------------------------------------- ----------------- -------------- ----------------
- -------------------------------------------------------- ----------------- ------------- ----------------
Total Officers & Directors, as a group (5 Individuals) 37,675,703 73.86%
- -------------------------------------------------------- ----------------- -------------- ----------------
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.
30
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. 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, 2010
As of April 30, 2010, the Company owed $870,941 to MGS Grand Sports, Inc.
controlled by Mr. Albert Mardikian incurred as part of the purchase transaction
of Modena Sports Design, LLC.
During the year ended April 30, 2010, the Company issued 11,000,000 shares of
its common stock to MGS Grand Sports, Inc. and Mardikian Designs controlled by
Mr. Albert Mardikian in accordance with the acquisition of Modena Sports Design,
LLC (now Harbor Guard Boats).
The Company leased building space from MGS Grand Sports, on a verbal, month to
month basis for approximately $6,500 per month. MGS Grand Sports is an entity
controlled by Mr. Albert Mardikian, CEO of Harbor Guard Boats. Accrued rent to
the related party as of April 30, 2010 was $75,500. The Company stopped accruing
rental expenses under this agreement after the Company moved its operations to
its new location in Corona, California in February of 2010.
During the year ended April 30, 2010, the Company issued 1,455,000 shares of its
common stock to Mr. Daniel Medina, President of the Company, in exchange for
$145,500 of salary payable to Mr. Medina. The agreement contains a buyback
provision of $0.10/share or $145,500, redeemable at any time when the Company
has surplus cash.
During the year ended April 30, 2010, the Company issued 1,380,000 shares of its
common stock to Mr. Madhava Rao Mankal, Chief Financial Officer of the Company,
in exchange for $138,000 of salary payable to Mr. Madhava Rao. The agreement
contains a buyback provision of $0.10/share or $138,000, redeemable at any time
when the Company has surplus cash.
During the year ended April 30, 2010, the Company issued 1,300,000 shares of its
common stock to Mr. Albert Mardikian, Chief Executive Officer of Harbor Guard
Boats, wholly owned subsidiary of the Company, in exchange for $130,000 of
salary payable to Mr. Albert Mardikian. The agreement contains a buyback
provision of $0.10/share or $130,000, redeemable at any time when the Company
has surplus cash.
During the year ended April 30, 2010, the Company issued 10,000 shares of its
common stock in exchange for royalty payments, at the rate of $0.03/ share or
$300, to Mr. Albert Mardikian, Chief Executive Officer of Harbor Guard Boats,
wholly owned subsidiary of the Company.
At April 30, 2010, 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 $7,000.
We have issued 50,000 shares to Mr. Mike Gallo and 50,000 shares to Mike Swanson
toward services as Directors of the Company for the year ended April 30, 2009
and 2010.
31
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.
As of the year ended April 30, 2009, Mr. Medina, President and a Director of the
Company had advanced the Company a total of $107,399 in funds to support our
continuing operations. These advances are due on demand and accrue interest at
8.5%.
As of the year ended April 30, 2009, Mr. Mankal, the Chief Financial Officer and
a Director of the Company, had advanced the Company a total of $204,312 in funds
to support our continuing operations. These 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 $4,500 for review services and $10,657 audit fee
in the fiscal year ended April 30, 2010. Audit and Review fees for the year
ended April 30, 2009 was $26,890.
There were no other fees in 2010 or 2009 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 2010, 2009 and 2008.
32
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
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.
33
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.
Corona, California
I have audited the accompanying consolidated balance sheets of Medina
International Holdings, Inc. as of April 30, 2010 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, 2010 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.
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.
- -------------------------
July 15, 2010
RONALD R.CHADWICK, P.C.
F-1
Medina International Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(Audited)
-----------------------------
For the year ended April 30,
2010 2009
-----------------------------
Assets
Current assets:
Cash $ 107,223 $ 36,576
Receivables 62,283 3,166
Inventory 164,652 410,481
------------ ---------------
Other receivables 465 -
------------ ---------------
Total current assets 334,623 450,223
------------ ---------------
Fixed assets:
Fixed assets 1,065,055 1,074,798
Accumulated depreciation (361,207) (200,703)
------------ ---------------
Total net fixed assets 703,848 874,095
------------ ---------------
Other assets:
Deposits 8,249 -
------------ ---------------
Total other assets 8,249 -
------------ ---------------
Total assets $1,046,720 $ 1,324,318
============ ===============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 640,055 $ 518,898
Accrued liabilities 186,075 377,555
Bank overdraft 94,932 -
Short-term debt 119,825 265,352
Deposit from customers 308,000 242,905
Stock subsciptions payable 902,738
Note payable - current 104,000 64,000
Related party payable 870,941 909,854
Related parties - short-term borrowings from shareholders 407,217 311,712
------------ ---------------
Total Current Liabilities 2,731,046 3,593,014
Long-term liabilities - -
------------ ---------------
Total liabilities 2,731,046 3,593,014
------------ ---------------
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized
Series A preferred stock, $0.01 par value, 50 shares authorized, 20 shares
issued and outstanding
Common stock, $.0001 par value, 100,000,000 shares authorized, 51,006,747
and 35,560,091 shares issued and outstanding as of April 30, 2010 and 2009,
respectively
Additional paid-in capital
Common stock subscribed (100,000 shares) 10,000
Subscription to be received (3,000)
Accumulated deficit (5,443,354) (4,698,284)
------------ ---------------
Total Stockholders' Equity (Deficit) (1,684,326) (2,268,696)
------------ ---------------
Total liabilities and shareholders' equity (deficit) $1,046,720 $ 1,324,318
============ ===============
F-2
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,
2010 2009
---------------------------------
----------------- --------------
Sales, net $541,675 $1,034,379
Cost of Goods Sold 640,512 1,110,916
----------------- --------------
Gross Profit (98,837) (76,537)
----------------- --------------
General and administrative expenses 519,840 489,653
Selling and marketing expenses 50,459 169,889
Research and development expenses - 148,836
Loss on Goodwill - 822,009
Impairment loss on investment -
----------------- --------------
Loss from operations (669,136) (1,706,924)
----------------- --------------
Other income 2,800
Interest expense (78,734) 61,510
----------------- --------------
Net other income (75,934) (61,510)
----------------- --------------
Loss before income tax (expense) benefit (745,070) (1,768,434)
Income tax (expense) benefit - -
----------------- --------------
Net Loss from Operations $ (745,070) $ (1,768,434)
================= ==============
Net loss per share:
Basic $ (0.02) $ (0.05)
================= ==============
Diluted $ (0.02) $ (0.05)
================= ==============
Weighted average number of shares outstanding:
Basic 46,666,218 35,560,091
================= ==============
Diluted 46,666,218 35,560,091
================= ==============
F-3
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 Preferred Stock Paid-In Stock Subscription
Shares Amount Shares Amount Capital Subscribed Receivable
------------- ---------- --------- ------------- -------------- -------------------------
Balance - April 30, 2008 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 subscription payable 20 240,000
Stock issued to Directors 50,000 5 3,157
Stock issued for subscription payable 11,091,250 1,109 661,629
Stock issued for accrued liabilities 4,135,000 413 413,087
Shares issued for rent 70,406 7 7,033
Stock subscription receivable 100,000 10 9,990 (10,000) 3,000
Net loss
------------------------ ----------------------------------------------------------------
Balance - April 30, 2010 51,006,747 $ 5,100 20 $ 240,000 $ 3,513,928 $ - $ -
======================== ================================================================
F-4
The accompanying notes are an integral part of the financial statements
Medina International Holdings, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(continued)
Accumulated
Deficit Totals
--------------- -----------------
Balance - April 30, 2008 $ (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 subscription payable 240,000
Stock issued to Directors 3,162
Stock issued for subscription payable 662,738
Stock issued for accrued liabilities 413,500
Shares issued for rent 7,040
Stock subscription receivable (3,000) -
Net loss (742,070) (742,070)
----------------------------------
Balance - April 30, 2010 $ (5,443,354) $ (1,684,326)
==================================
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,
2010 2009
------------------------------------
Cash flows from operating activities:
Net loss $ (745,070) $ (1,768,434)
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensatory stock issuances 10,202 -
Depreciation 165,066 143,002
Goodwill write off - 882,009
Write offs - other - 28,431
Original issue note discount 4,000
Impairment Loss on Disposal 4,562 -
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable (59,582) (3,166)
Decrease (increase) in inventory 245,829 (341,668)
Increase (decrease) in accounts payable 121,772 280,532
Increase (decrease) in accrued liability 378,119 (342,374)
Increase in customer deposits 65,095 218,405
Stock subscriptions payable 661,175
Other assets (8,249) -
Increase (decrease) in other liabilities (4,533) -
--------- ----------
Total adjustments 922,281 1,526,346
--------- ----------
Net cash used (received) in operating activities 177,211 (242,088)
--------- ----------
Cash flows from investing activities:
Purchase of fixed assets (3,586)
--------- ----------
Net cash used in investing activities - (3,586)
--------- ----------
Cash flows from financing activities:
Bank overdraft (20)
Proceeds from notes payables 81,635 176,814
Payments on notes payables (23,281) (67,394)
Proceeds (payments) from lines of credit & credit cards (167,918) 172,850
Proceeds from stock subscription receivable 3,000 -
--------- ----------
Net cash (used in) provided by financing activities (106,564) 282,250
--------- ----------
Increase (decrease) in cash and cash equivalents 70,647 36,576
Cash and cash equivalents - beginning of period 36,576 -
--------- ----------
Cash and cash equivalents - end of period $ 107,223 $ 36,576
========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for Interest, net of amounts capitalized $ 5,808 $ 28,276
========= ==========
Income taxes $ - $ -
========= ==========
Supplemental schedule of noncash investing and financing activities:
Property and equipment additions in accounts payable $ - $ 694,730
Stock issued for wages payable $ 413,500 $ -
========= ==========
F-6
The accompanying notes are an integral part of the financial statements
FINANCIAL STATEMENTS
Medina International Holdings, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
April 30, 2010 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, 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 its inception up to the
acquisition date of June 18, 2009 will not be reflected on the consolidated
financial statements of Medina International Holdings, Inc.
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, 2010,
the Company's current liabilities exceeded its current assets by $2,396,423.
Also, the Company's operations generated $541,675 in revenue during the current
period ended and the Company's accumulated deficit was $5,443,354.
Management devoted considerable effort during the period ended April 30, 2010
towards management of liabilities and improving our operations. Management has
taken various steps to revise its operating and financial requirements, and it
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-7
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 its accounts receivables accounts periodically for
collectability and establishes an allowance for doubtful accounts and records
bad debt expense when deemed necessary. At April 30, 2010 and 2009 the Company
had no balance in its allowance for doubtful accounts.
F-8
Advertising costs
Advertising costs are expensed as incurred. The Company recorded advertising
costs in 2009 and 2010 of $32,676 and $3,339, respectively.
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 estimated at
the date of acquisition of Modena Sports Design, llc. 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"), now codified in ASC 350,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 ASC
350. ASC 350 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, 2009 and 2010 the Company had net operating loss carry forwards of
approximately $4,698,284 and $5,443,354 which begin to expire in 2029. The
deferred tax asset of approximately $939,383 and $1,088,308 in 2009 and 2010
respectively, created by the net operating losses have been offset by a 100%
valuation allowance. The change in the valuation allowance in 2009 and 2010 was
$353,582 and $148,926.
F-9
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 ASC 718,
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
FASB ASC 825 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 Currency 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. Management does
not currently hedge foreign currency exposure.
Basic and Diluted Net Loss per Share
Net loss per share is calculated in accordance with FASB ASC 105. 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.
The Company's products were sold domestically and internationally. The Company
does not separate sales activities into different operating segments.
Recently issued 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.
F-10
NOTE 3. Related Party Transactions
As of April 30, 2010 the Company owed $870,941 to a related party shareholder
incurred as part of the purchase transaction of Modena Sports Design, LLC.
During the year ended April 30, 2010, the Company issued 11,000,000 shares of
its common stock to a related party, in accordance with fulfillment of a stock
subscription payable incurred for the acquisition of Modena Sports Design, LLC
(now Harbor Guard Boats).
The Company leased building space from MGS Grand Sports, on a verbal, month to
month basis for approximately $6,500 per month. MGS Grand Sports is an entity
controlled by Mr. Albert Mardikian, CEO of Harbor Guard Boats. Accrued rent to
the related party as of April 30, 2010 was $75,500. The Company stopped accruing
rental expenses under this agreement after the Company moved its operations to
its new location in Corona, California in February of 2010.
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 $7,000.
During the year ended April 30, 2010, the Company issued 1,455,000 shares of its
common stock to Mr. Daniel Medina, President of the Company, in exchange for
$145,500 of salary payable to Mr. Medina. The agreement contains a buyback
provision of $0.10/share or $145,500, redeemable at any time when the Company
has surplus cash.
During the year ended April 30, 2010, the Company issued 1,380,000 shares of its
common stock to Mr. Madhava Rao Mankal, Chief Financial Officer of the Company,
in exchange for $138,000 of salary payable to Mr. Madhava Rao. The agreement
contains a buyback provision of $0.10/share or $138,000, redeemable at any time
when the Company has surplus cash.
During the year ended April 30, 2010, the Company issued 1,300,000 shares of its
common stock to Mr. Albert Mardikian, Chief Executive Officer of Harbor Guard
Boats, wholly owned subsidiary of the Company, in exchange for $130,000 of
salary payable to Mr. Albert Mardikian. The agreement contains a buyback
provision of $0.10/share or $130,000, redeemable at any time when the Company
has surplus cash.
During the year ended April 30, 2010, the Company issued 10,000 shares of its
common stock in exchange for royalty payments, at the rate of $0.03/ share or
$300, to Mr. Albert Mardikian, Chief Executive Officer of Harbor Guard Boats,
wholly owned subsidiary of the Company.
NOTE 4. Receivables
As of April 30, 2010 and 2009, receivables consisted of the following:
- --------------------------- --------------------------------
Receivables For the years ended April 30,
- --------------------------- --------------------------------
2010 2009
---- ----
Commercial Boats $ 62,283 $ -
Other - 3,166
Total Receivables $62,283 $3,166
- ------- ------------------- -------------- -- --------------
F-11
NOTE 5. Inventory
As of April 30, 2010 and 2009, inventory consisted of the following:
- ---------------------- ---------------------------------
Inventory For the years ended April 30,
- ---------------------- ---------------------------------
2010 2009
---- ----
Raw materials $ 31,699 $ 39,410
Work in progress 106,477 344,594
Finished goods 26,476 26,477
-------------- ---------------
Total inventory $164,652 $410,481
- ---- ----------------- -------------- -- ---------------
NOTE 6. Fixed Assets
At April 30, 2010 and 2009, fixed assets consisted of the following:
- ------------------------------------- --------------------------------
Fixed Assets For the years ended April 30,
- ------------------------------------- --------------------------------
2010 2009
---- ----
Machinery and equipment;
including molds & tools $1,045,740 $ 1,053,558
Computers 13,535 14,420
Furniture 2,080 3,120
Office equipments 3,200 3,200
Fire Extinguisher 500 500
Total property and equipment 1,065,055 1,074,798
Less accumulated depreciation (361,207) (200,703)
-------------- -------------
Fixed Assets, net $ 703,848 $ 874,095
- ----- ------------------------------- -------------- --- -------------
NOTE 7. Deposit
At April 30, 2010 and 2009 Deposits were as follows:
- ------------------------------- ---------------------------------
Prepaid Expenses For the years ended April 30,
- ------------------------------- ---------------------------------
2010 2009
---- ----
Electricity $ 1,680 $ -
Rent 6,069 -
Trade show 500 -
-------------- -------------
Total prepaid expenses $ 8,249 $ -
- ------ ------------------------ -------------- ---- -------------
NOTE 8. Accrued Liabilities
Our accrued liabilities for the years ended April 30, 2010 and 2009 were as
follows:
- ------------------------------- -------------------------------
Accrued Liabilities For the years ended April 30,
- ------------------------------- -------------------------------
2010 2009
---- ----
Interest - shareholders' loan $ 4,047 $ 42,225
Interest - related party 8,500 4,000
Interest - note payable 5,272 1,636
Accrued expenses 1,295 -
Accrued payroll 138,488 296,694
Warranty liabilities 28,473 33,000
------------- --------------
Total accrued $ 186,075 $ 377,555
liabilities
F-12
During the year ended April 30, 2010, the Company transferred interest accrued
for shareholder loans into the shareholders' loan account in the amount of
$75,155.
For the year ended April 30, 2010, the Company has accrued $28,473 in warranty
liabilities.
NOTE 9. Short-Term Debt
- ------------------------------- -------------------------------
Short-term debt For the years ended April 30,
- ------------------------------- -------------------------------
2010 2009
---- ----
Loan - Financial Institution $ 94,932 $ 75,347
Credit card 119,826 190,005
------------- --------------
Total short-term debt $214,758 $265,352
- ------ ------------------------ ------------- -- --------------
The Company has a loan from a financial institution, under which the Company may
borrow up to $100,000 on an unsecured basis at an interest rate of 8.75% with
monthly payments due. As of April 30, 2010, the outstanding balance for this
loan 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 10. 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 and if the prices of fiberglass and/or aluminum increase
significantly, it will further decrease our ability to attain profitable
operations. We are not involved in any purchase commitments with any of our
vendors.
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 11. Customer Deposit
Deposits from customers consists of the following:
- ------------------------------- -------------------------------
Customer Deposit For the years ended April 30,
- ------------------------------- -------------------------------
2010 2009
---- ----
Deposit for commercial boats $ 287,500 $ 222,405
Deposit for recreational boats 20,500 20,500
------------- --------------
Total customer deposit $ 308,000 $ 242,905
F-13
NOTE 12. Notes Payable
- ------------------------------- -------------------------------
Notes Payable For the years ended April 30,
- ------------------------------- -------------------------------
2010 2009
---- ----
Note payable - related party $ 65,000 $ 50,000
Note payable - others 39,000 14,000
------------- --------------
Total notes payable $ 104,000 $ 64,000
At April 30, 2010, 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, 2010, 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.
At April 30, 2010, the Company had an unsecured note payable with an unrelated
party in the amount of $25,000, which bears an interest payable in the amount of
$2,500 and is currently due. Interest accrued to date is $2,500.
At April 30, 2010, 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 is $7,000.
At April 30, 2010, the Company had an unsecured note payable to a relative of an
officer of the Company, in the amount of $15,000, which bears an interest
repayable in the amount of $1,500. Interest accrued to date $1,500.
NOTE 13. Shareholder Loans
At April 30, 2010, Shareholder loans consisted of the following:
- ------------------------------------ --------------------------------
Shareholders' Loans For the years ended April 30,
- ------------------------------------ --------------------------------
2010 2009
Daniel Medina, President $156,743 $ 107,399
Madhava Rao Mankal, CFO 250,474 204,314
------------- ---------------
Total shareholders' loan $407,217 $ 311,713
During the year ended April 30, 2010, the Company transferred interest accrued
for shareholder loans into the shareholder loan account in the amount of
$77,155, which was the interest expense incurred on the loans in 2010.
Shareholder loans are unsecured, bear interest at 0 - 10% per annum, and are 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 14. Acquisition
Medina International Holdings, Inc. ("Company") acquired Modena Sport Designs,
LLC a California corporation, on June 18, 2008, as its wholly owned subsidiary.
The results of operations of Modena Sport Designs, LLC included in the
consolidated financial statements of the Company in the form 10-K for the year
ended April 30, 2009, are from June 18, 2008 to April 30, 2009.
The Company accounted for the acquisition of 100% equity of Modena Sport
Designs, LLC using the purchase method. The purchase price to acquire Modena
Sport Designs, LLC (fixed assets, molds, and license agreements) was 11,000,000
shares of the Company's common stock and $1,000,000 in cash payments, of which
$800,000 is contingent on boat sales and $200,000 in cash.
F-14
The 11,000,000 shares of Company's common stock was valued at $0.06, which was
the fair value of the Company's common stock traded on the
Over-the-counter-bulletin-board (OTCBB) market as of the date of the agreement.
Share certificates for 11,000,000 shares were issued on June 1, 2009 and
accounted in Medina international Holdings, Inc.'s books for the year ended
April 30, 2009. In addition, the amount of $276,845 was considered as
intercompany receivables in Modena Sport Designs, Inc., which were recorded in
Medina International Holdings, Inc. books as Goodwill write off for the year
ended April 30, 2009 and consequently adjusted Modena Sport Designs, LLC's
equity of 114,835 as at the end of June 18, 2008 to Goodwill write off for the
year ended April 30, 2009.
- -------------------------------------------
Modena Sport Designs, LLC
- -------------------------------------------
As of April 30, 2009
Shares $660,000
Intercompany receivables 276,845
Modena Sport Designs, LLC (114,835)
---------
Total Goodwill $822,010
Contingent payment - The contingent payment of $800,000, out of $1,000,000 in
liability, is in addition to the pre-existing license agreement with Mr. Albert
Mardikian, current CEO of Modena Sport Designs, LLC. The Company also retained
Mr. Albert Mardikian, the then owner of Modena Sport Designs, LLC, as the CEO of
the Modena Sport Designs, LLC, after the acquisition transaction was completed.
The Company had a pre-existing relationship (license agreement) with Mr. Albert
Mardikian, at the acquisition date of Modena Sport Designs, LLC., as a licensee
to manufacture and sell certain patented watercrafts designs and pump
technology, in exchange for royalty. This business combination incorporates the
pre-existing relationship and terms regarding the right to use the patents to
manufacture and sell watercrafts and pump technology, in exchange for royalty
payments.
The following is the condensed balance sheet of Modena Sport Designs, LLC., with
both book and fair values indicated, as of the acquisition date (June 18, 2008):
- ----------------------------------- ----------- ------------ ---------------------------------- ---------- -----------
Assets Book Value Fair Value Liabilities and Stockholders' Book Fair Value
- ------ ---------- ---------- --------------------------------- ----- ----------
Equity Value
------ -----
- ----------------------------------- ----------- ------------ ---------------------------------- ---------- -----------
Cash $ 100,726 $100,726 Accounts payable $50,848 $50,848
Accounts Receivables, net 338,100 338,100 Short-term borrowings from 138,444 138,444
financial institutions
Other receivables 276,845
Inventory 262,685 262,686 Deposits from customers 368,959 368,959
Property, plant, and equipment - 694,730 Long-term liabilities - 1,000,000
Stockholders' equity (deficit) 143,260 114,836
----------- ------------ ---------- -----------
Total assets $701,511 $1,673,087 Total liabilities and $701,511 $1,673,087
stockholders' equity
- ----------------------------------- ----------- ------------ ---------------------------------- ---------- -----------
The determination of fair values of each of the acquired company's identifiable
tangible assets and of its liabilities, at the date of acquisition, is provided
below:
Accounts Receivables - The amount of accounts receivables is generally collected
within one year or the Company's operating cycle, whichever is longer, and
therefore, fair value is equal to book value. All of the Company's products are
sold to government agencies or government funded organizations, and Modena Sport
Designs, LLC. Customers place orders only if customers have the funds ready to
be disbursed.
Inventory - Inventory consisted of parts and work-in progress. Parts fair value
is recorded at current replacement cost, which equals book value. Work-in
progress inventory's fair value is recorded as estimated selling prices less the
sum of the costs of disposal and a normal profit, which equals book value.
Property, plant, and equipment (PPE) - PPE consists of machinery, equipment, and
molds, which are expected to be used in operations. The Company has accounted
for PPE items using current replacement costs for similar capacity.
F-15
Accounts Payable - The amount of accounts payables is generally paid within one
year or the Company's operating cycle, whichever is longer and therefore, fair
value is equal to book value.
Short-term borrowings from financial institutions - The short-term debt is
intended to be paid within one year or the Company's operating cycle, whichever
is longer, and therefore, fair value is equal to book value.
Deposits from customers - All deposits from customers are expected to be
converted into revenue within one year or the Company's operating cycle,
whichever is longer, and therefore, fair value is equal to book value.
Long-term liabilities- The long-term debt is not expected to be paid within one
year or the Company's operating cycle, whichever is longer.
The following presents the computation of goodwill:
- ----------------------------------------- ---------- ------------
Purchase price $1,660,000
- ----------------------------------------- ---------- ------------
Net Working Capital $143,260
Property, plant, and equipment 694,730 837,990
------------
Goodwill (excess of cost over fair $822,010
value)
- ----------------------------------------- ---------- ------------
The purchase price for the acquisition of Modena Sport Designs, LLC was computed
as follows:
- ---------------------------------------------------------------- -------------
Common Stock Issuance: (11,000,000 shares @ $0.06/share) $ 660,000
- ---------------------------------------------------------------- -------------
Long-term liability 1,000,000
-------------
Total $1,660,000
- ---------------------------------------------------------------- -------------
The factors that contributed to a purchase price that resulted in the
recognition of goodwill were (i) expansion in watercraft models, (ii) sales
track record, and (iii) exclusive licenses.
No part of this goodwill will be expected to be deductible for tax purposes.
NOTE 15. Goodwill
The Company had not generated any material level of revenues since its
inception. Management used FASB ASC 350 to test for goodwill impairment. Due to
adverse changes in business climate before and after the acquisition date (June
18, 2008) of Modena Sport Designs, LLC, management of the Company was not able
to develop reasonably supportable estimates of expected future cash flows for
assets acquired by the Company, without undue cost and effort. Management of the
Company decided to write-off all goodwill ($822,010) associated with the
purchase of Modena Sport, LLC in the year acquired.
NOTE 16. 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. The Company had 51,006,747 and 35,560,091 shares of
its common stock issued and outstanding on April 30, 2010 and 2009,
respectively.
F-16
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.
In 2010, in satisfaction of a stock subscription payable incurred in 2009, the
Company issued 20 shares of its Series A preferred stock to two of its executive
officers, Messrs. Madhava Rao Mankal, CFO of the Company and Daniel Medina,
President of the Company. Mr. Mankal and Mr. Medina each received 10 shares of
Series A preferred stock, which was valued at $240,000 in total.
Stock Subscriptions Payable
The Company at April 30, 2008 had an incurred obligation to issue 41,250 common
shares for consideration already rendered of $1,563, 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. In 2010 all subscription payables were fulfilled
by the issuance of the common and preferred shares owed.
NOTE 16. Commitments
Operating Leases
The Company signed a 3 year lease for 11,900 square feet building in the city of
Corona, in the state of California, effective April, 2010. The address for this
location is 1802 Pomona Rd, Corona, CA 92880. This building is owned by
unrelated parties. The lease expires on March 31, 2013, and calls for monthly
payments initially of $2,600 per month plus costs, escalating over the term of
the lease to $6,000 per month plus costs.
Our consolidated contractual obligations as of April 30, 2010, are as follows:
- --------------------------------------- --------------------
Operating Lease Obligation Amount
- --------------------------------------- --------------------
April 30, 2011 $ 52,836
April 30, 2012 68,544
April 30, 2013 72,828
--------------------
Total operating lease obligation $ 194,208
- ------- ------------------------------- --------------------
Prior to February 3, 2010, the Company rented a 5,000 square-foot manufacturing
facility at 2051 Placentia Ave., Costa Mesa, CA 92627, for $6,500 per month, on
a verbal month-to-month basis. This facility was owned by a related party, the
CEO of Harbor Guard Boats, Inc. We have accrued $75,500 in rental expenses as of
April 30, 2010, with $57,000 incurred in fiscal year 2010. The Company moved its
operations to Corona in February of 2010.
The Company has various license agreements with a related party allowing its
technology to be utilized in the manufacture of its boats, along with royalty
payments based on a percentage (generally 1.5% - 2%) of related gross sales.
F-17
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: July 29, 2010 By: /s/Daniel F. Medina
--------------------
Daniel F. Medina,
President & Director
Date: July 29, 2010 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: July 29, 2010 By: /s/Daniel F. Medina
-------------------
Daniel F. Medina,
President & Director
Date: July 29, 2010 By: /s/Madhava Rao Mankal
---------------------
Madhava Rao Mankal,
Chief Financial Officer & Director
Date: July 29, 2010 By: /s/Mike Swanson
---------------
Mike Swanson,
Director
Date: July 29, 2010 By: Mike Gallo
----------
Mike Gallo,
Director
34