UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 30, 2008
RODOBO INTERNATIONAL, INC.
--------------------------
(Exact Name of Registrant as Specified in Charter)
NEVADA 000-50340 75-2980786
---------------------------- ------------ ------------------
(State or Other Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
380 Changjiang Road, Nangang District, Harbin, PRC 150001
---------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 86 0451 82260522
Navstar Media Holdings, Inc.
-----------------------------
(Former Name or Former Address if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Explanatory Note
We are filing this amendment to our current report on Form 8-K, filed with the
Securities and Exchange Commission (the "Commission") on October 6, 2008 (the
"Original Report"), based on comments received from the Commission on by letter
dated October 10, 2008. Other than the information contained herein, no
substantive changes have been made to the Original Report.
ITEM 4.01 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On September 30, 2008, Rodobo International, Inc., a Nevada corporation, (the
"Company") changed its principal independent accountants. On such date,
Bernstein & Pinchuk LLP was dismissed from serving as the Company's principal
independent accountants and the Company retained Bagell, Josephs, Levine &
Company, LLC as its principal independent accountants. The decision to change
accountants was approved by the Company's Board of Directors on September 28,
2008.
The dismissal of Bernstein & Pinchuk LLP.
- -----------------------------------------
Bernstein & Pinchuk LLP was the independent registered public accounting firm
for the Company from December 31, 2007 to September 30, 2008. None of Bernstein
& Pinchuk LLP reports on the Company's financial statements from December 31,
2007 to September 30, 2008, (a) contained an adverse opinion or disclaimer of
opinion, (b) was modified as to uncertainty, audit scope, or accounting
principles, or (c) contained any disagreements on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of
Bernstein & Pinchuk LLP, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports. None of the
reportable events set forth in Item 304(a)(1)(ii) of Regulation S-K occurred
during the period in which Bernstein & Pinchuk LLP served as the Company's
principal independent accountants. Bernstein & Pinchuk LLP did express a concern
about the Company's ability to continue as a going concern for the period
December 31, 2007 to September 30, 2008.
In accordance with Item 304(a)(3), the Company has provided Bernstein & Pinchuk
with a copy of this disclosure and has requested that Bernstein & Pinchuk
furnish it with a letter addressed to the U.S. Securities and Exchange
Commission stating whether it agrees with the above statements, and if not,
stating the respects in which it does not agree. A copy of the letter from
Bernstein & Pinchuk addressed to the Securities and Exchange Commission dated
September 30, 2008 is filed as Exhibit 16.1 to the Original Report.
The Engagement of Bagell, Josephs, Levine & Company, LLC
- --------------------------------------------------------
Prior to September 30, 2008, the date that Bagell, Josephs, Levine & Company,
LLC was retained as the principal independent accountants of the Company:
(1) The Company did not consult Bagell, Josephs, Levine & Company, LLC regarding
either the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on Company's financial statements;
(2) Neither a written report nor oral advice was provided to the Company by
Bagell, Josephs, Levine & Company, LLC that they concluded was an important
factor considered by the Company in reaching a decision as to the accounting,
auditing or financial reporting issue; and
(3) The Company did not consult Bagell, Josephs, Levine & Company, LLC regarding
any matter that was either the subject of a "disagreement" (as defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions) or any of the
reportable events set forth in Item 304(a)(1)(iv) of Regulation S-K.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of business acquired as of September 30, 2007.
(1) Report of Independent Registered Accounting Firm
(2) Balance Sheets dated as of September 30, 2007 and 2006
(3) Statements of Income for the fiscal years ended September 30, 2007 and
2006
(4) Statements of Shareholders' Equity for the fiscal years ended
September 30, 2007 and 2006
(5) Statements of Cash Flows for the fiscal years ended September 30, 2007
and 2006.
(6) Notes to the Financial Statements
(b) Financial statements of business acquired as of June 30, 2008.
(1) Balance Sheets dated as of June 30, 2008 (unaudited) and September 30,
2007 (audited)
(2) Unaudited Statements of Income for the Nine Months and Three Months
Ended June 30, 2008 and 2007
(3) Unaudited Statements of Cash Flows for the Nine Months ended June 30,
2008 and 2007.
(4) Notes to the Financial Statements
(c) Pro forma financial information.
(1) Pro Forma Balance Sheet
(2) Pro Form Statement of Operations
Exhibits
Exhibit 16.1 Letter, dated September 30, 2008, from Bernstein & Pinchuk
LLP to the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RODOBO INTERNATIONAL, INC.
November 4, 2008 By: /s/ Yanbin Wang
---------------
Name: Yanbin Wang
Title: Chief Executive Officer
(a) Financial statements of business acquired.
HARBIN RODOBO DAIRY CO., LTD.
FINANCIAL STATEMENTS
SEPTEMBER 30, 2007 & 2006
HARBIN RODOBO DAIRY CO., LTD.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm .......................1
Balance Sheets at September 30, 2007 and 2006..................................2
Statements of Income for the years ended September 30, 2007 and 2006...........3
Statements of Changes in Shareholders' Equity for the years ended
September 30, 2007 and 2006....................................................4
Statements of Cash Flows for the years ended September 30, 2007 and 2006.......5
Notes to Financial Statements.............................................6 - 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Harbin Rodobo Dairy Co., Ltd.
We have audited the accompanying balance sheets of Harbin Rodobo Dairy Co., Ltd.
(the "Company) as of September 30, 2007 and 2006 and the related statements of
income, cash flows, and shareholders' equity for each of the two years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with standards established by the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Harbin Rodobo Dairy Co., Ltd.
as of September 30, 2007 and 2006 and the results of its operations and cash
flows for each of the two years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ Bagell Josephs, Levine & Company, LLC
- -----------------------------------------
Bagell Josephs, Levine & Company, LLC
Marlton, New Jersey
December 18, 2007
1
HARBIN RODOBO DAIRY CO., LTD
BALANCE SHEETS
SEPTEMBER 30, 2007 AND 2006
2007 2006
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 33,302 $ 156,448
Accounts receivable - net of allowance for bad debts of
$60,643 and $60,668, respectively 887,403 642,039
Other receivables 267,930 204,595
Inventories 1,432,856 1,479,195
Prepaid expenses 142,611 --
Advances to suppliers 138,034 82,860
---------- ----------
Total current assets 2,902,136 2,565,137
---------- ----------
Property, plant and equipment:
Fixed assets, net of accumulated depreciation 115,204 100,141
Construction in progress 403,378 202,132
---------- ----------
518,582 302,273
---------- ----------
Other assets:
Investment advances 3,429,959 227,733
---------- ----------
Total assets $6,850,677 $3,095,143
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,035,101 $ 559,769
Other payable 229,576 193,716
Accrued expenses 1,458,537 1,024,960
Deferred revenue 96,484 33,138
Due to related party 384,826 382,621
---------- ----------
Total current liabilities 3,204,524 2,194,204
---------- ----------
Shareholders' equity
Capital 416,828 416,828
Retained earnings 3,065,667 446,685
Accumulated other comprehensive income 163,658 37,426
---------- ----------
Total shareholders' equity 3,646,153 900,939
---------- ----------
Total liabilities and shareholders' equity $6,850,677 $3,095,143
========== ==========
The accompanying notes are an integral part of these financial statements
2
HARBIN RODOBO DAIRY CO., LTD
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006
2007 2006
----------- -----------
Net sales $12,764,906 $ 8,829,946
Cost of goods sold 6,599,179 5,117,997
----------- -----------
Gross profit 6,165,727 3,711,949
----------- -----------
Operating expenses:
Distribution expenses 3,265,044 3,151,353
General and administrative expenses 337,006 510,939
Depreciation expenses 28,901 22,929
----------- -----------
Total operating expenses 3,630,951 3,685,221
----------- -----------
Operating income 2,534,776 26,728
Other income (expenses) 84,206 26,890
Income before income taxes 2,618,982 53,618
----------- -----------
Provision for income taxes -- --
----------- -----------
Net income $ 2,618,982 $ 53,618
=========== ===========
Other comprehensive income:
Foreign currency translation adjustment 126,232 20,509
----------- -----------
Comprehensive income $ 2,745,214 $ 74,126
=========== ===========
Basic and diluted income per share $ 0.80 $ 0.02
=========== ===========
Basic and diluted weighted average shares outstanding 3,450,000 3,450,000
=========== ===========
The accompanying notes are an integral part of these financial statements
3
HARBIN RODOBO DAIRY CO., LTD
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006
Accumulated
Other
Retained Comprehensive
Capital Earnings Income Total
---------- ---------- ---------- ----------
Balance at September 30, 2005 $ 416,828 $ 393,067 $ 16,917 $ 826,812
Net income for the year -- 53,618 -- 53,618
Foreign currency translation adjustments -- -- 20,509 20,509
---------- ---------- ---------- ----------
Balance at September 30, 2006 416,828 446,685 37,426 900,939
Net income for the year -- 2,618,982 -- 2,618,982
Foreign currency translation adjustments -- -- 126,232 126,232
---------- ---------- ---------- ----------
Balance at September 30, 2007 $ 416,828 $3,065,667 $ 163,658 $3,646,153
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
4
HARBIN RODOBO DAIRY CO., LTD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006
2007 2006
----------- -----------
Cash flows from operating activities
Net income $ 2,618,982 $ 53,618
Adjustments to reconcile net income to operating activities
Depreciation 33,111 25,256
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable and other receivables (308,699) 117,319
Inventories 46,339 (305,573)
Prepaid expenses (142,611) --
Advances to suppliers (55,174) (26,013)
Increase (decrease) in -
Accounts payable and other payable 511,192 (266,256)
Accrued expenses 433,577 423,988
Deferred revenue 63,345 (15,608)
----------- -----------
Net cash provided by operating activities 3,200,062 6,730
----------- -----------
Cash flows from investing activities
Purchase of fixed assets (42,405) (2,086)
Cash used for construction in progress (201,245) (82,111)
Investment advances (3,202,227) (227,733)
----------- -----------
Net cash used in investing activities (3,445,877) (311,930)
----------- -----------
Cash flows from financing activities
Due to related party 2,205 161,607
----------- -----------
Net cash provided by financing activities 2,205 161,607
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 120,464 17,999
----------- -----------
Net decrease in cash and cash equivalents (123,146) (125,594)
Cash and cash equivalents, beginning of year 156,448 282,042
----------- -----------
Cash and cash equivalents, end of year $ 33,302 $ 156,448
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ -- $ --
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these financial statements
5
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
1. ORGANIZATION AND BASIS OF PRESENTATION
Harbin Rodobo Dairy Co., Ltd. ("Rodobo" or the "Company") was incorporated
in 2002 under the laws of the People's Republic of China ("PRC"). The
Company is engaged in the production, processing, distribution and
development of powdered milk products in the PRC for infants, children,
pregnant women and other adults under the brand name "Rodobo".
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles require management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - The Company considers cash and cash equivalents
to include cash on hand and deposits with banks with an original maturity
of three months or less.
ACCOUNTS RECEIVABLE - The Company's policy is to maintain reserves for
potential credit losses on accounts receivable. Provision is made against
accounts receivable to the extent which they are considered to be doubtful.
Accounts receivable in the balance sheet is stated net of such provision.
INVENTORIES - Inventories comprise raw materials, work in progress,
finished goods and packing materials and are stated at the lower of cost or
market value. Cost is calculated using the First In First Out method and
includes all costs to acquire and any overhead costs incurred in bringing
the inventories to their present location and condition. Overhead costs
included in finished goods inventory include direct labor cost and other
costs directly applicable to the manufacturing process, including
utilities, supplies, repairs and maintenances, and depreciation expense.
Market value represents the estimated selling price in the ordinary course
of business less the estimated costs necessary to complete the sale.
6
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Expenditures for major additions and improvements are capitalized,
and minor replacements, maintenance, and repairs are charged to expense as
incurred. When property, plant and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the results of
operations for the respective period. Depreciation is provided over the
estimated useful lives of the related assets on a straight-line basis. The
estimated useful lives for significant property, plant and equipment
categories are as follows:
Leasehold improvement 5.5 years
Machinery, equipment and automobiles 5 years
Construction in progress represents the direct costs of construction or
acquisition incurred. Upon completion and readiness for use of the assets,
capitalization of these costs ceases and the cost of construction in
progress is transferred to fixed assets. No depreciation is provided until
the project is completed and the assets are ready for intended use. There
is no financing activity occurred during the course of construction. The
Company periodically reviews the carrying value of long-lived assets in
accordance with SFAS 144. When estimated future cash flows generated by
those assets are less than the carrying amounts of the assets, the Company
recognized an impairment loss equal to the an amount by which the carrying
value exceeds the fair value of assets. Based on its review, the Company
believes that there were no impairments of its long-lived assets as of
September 30, 2007.
REVENUE RECOGNITION - The Company's revenue recognition policies are in
compliance with Staff Accounting Bulletin ("SAB") 104. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no
other significant obligations of the Company exist and collectability is
reasonably assured. Revenues consist of the invoice value of the sale of
goods net of sales returns and allowances.
DEFERRED REVENUE - Revenue from the sale of goods or services is recognized
when goods are delivered. Receipts in advance for goods to be delivered in
the subsequent year are carried forward as deferred revenue.
ADVERTISING COSTS - Advertising costs represent advertising expenses and
promotion incentives provided to distributors and are charged to operations
when incurred. Advertising expenses totaled $45,381 and $236,666 for the
years ended September 30, 2007 and 2006, respectively.
EMPLOYEES' BENEFIT COST - Mandatory contributions are made to the
Government's health, retirement benefit and unemployment schemes at the
statutory rates in force during the period, based on gross salary payments.
The cost of these payments is charged to the statement of income in the
same period as the related salary cost.
7
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FOREIGN CURRENCY TRANSLATION - The Company's principal country of
operations is in the PRC. The financial position and results of operations
of the Company are determined using the local currency ("RMB") as the
functional currency. The results of operations denominated in foreign
currency are translated at the average rate of exchange during the
reporting period. Assets and liabilities denominated in foreign currencies
at the balance sheet date are translated at the applicable rates of
exchange in effect at that date The equity denominated in the functional
currency is translated at the historical rate of exchange at the time of
capital contribution. Translation adjustments arising from the use of
different exchange rates from period to period are included as a component
of stockholders' equity as "Accumulated Other Comprehensive Income".
Historically the local currency's exchange rate had been tied to the US
Dollar at a rate of approximately 8.28 RMB per US Dollar. Effective July
21, 2005 the RMB was revalued to an effective exchange rate of
approximately 8.11 RMB per US Dollar. Subsequent to the revaluation the RMB
has been allowed to float within a specified range. As of September 30,
2007 and 2006, the exchange rate was 7.49 and 7.90 RMB per US Dollar,
respectively.
INCOME TAXES- The Company utilizes Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financials
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to
realized. There are no deferred tax amounts at September 30, 2007 and 2006,
respectively.
The Company is entitled to a tax holiday of five years for full Enterprise
Income Tax ("EIT") exemption. The preferential tax treatment commenced in
2005 and will expire in 2009. The estimated tax savings for the years ended
September 30, 2007 and 2006 amounted to $864,264 and $17,694, respectively.
The net effect on earnings per share had the income tax been applied would
decrease earnings per share from $0.80 to $0.51 in 2007 and $0.02 to $0.01
in 2006.
FAIR VALUE OF FINANCIAL STATEMENTS - The carrying amounts of certain
financial instruments, including cash, accounts receivable, other
receivables, accounts payable, accrued expenses, advances from customers,
and other payables approximate their fair values as of September 30, 2007
and 2006 due to the relatively short-term nature of these instruments.
8
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATIONS OF BUSINESS AND CRDIT RISK - The Company maintains certain
bank accounts in the People's Republic of China which are not protected by
FDIC insurance or other insurance. The Company's operations are carried out
in the PRC. Accordingly, the Company's business, financial condition and
results of operations may be influenced by the political, economic and
legal environments in the PRC and the general state of the PRC's economy.
The Company's operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in the North
America and Western Europe. The Company's operating results may be
adversely affected by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things.
NEW ACCOUNTING PRONOUNCEMENTS - In June 2006, the FASB issued
Interpretation 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"),
an interpretation of FASB Statement No. 109, "Accounting for Income Taxes."
FIN 48 clarifies the accounting and reporting for income taxes where
interpretation of the law is uncertain. FIN 48 prescribes a comprehensive
model for the financial statement recognition, measurement, presentation
and disclosure of income tax uncertainties with respect to positions taken
or expected to be taken in income tax returns. FIN 48 is effective for
fiscal years beginning after December 15, 2006, which is the Company's
fiscal year 2008. The Company is currently evaluating the impact of
adopting FIN 48 on its financial statements.
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS No. 157"). SFAS No. 157 addresses how companies should
measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007, which is the Company's
fiscal year 2009. The Company is currently evaluating the impact of
adopting SFAS No. 157 on its financial statements.
In February 2007, the FASB issued Statement No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" (SFAS 159). This statement
permits companies to choose to measure many financial assets and
liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. SFAS 159
is effective for fiscal years beginning after November 15, 2007, which is
the Company's fiscal year 2009. The Company is currently assessing the
impact of SFAS 159 on its financial statements.
9
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
3. ACCOUNTS RECEIVABLE
The Company's accounts receivable as of September 30, 2007 and 2006 are
summarized as follows:
2007 2006
-------- --------
Accounts receivable $948,046 $702,707
Less: Allowance for doubtful accounts 60,643 60,668
-------- --------
Total net accounts receivable $887,403 $642,039
======== ========
The activity in the allowance for doubtful accounts during the years ended
September 30, 2007 and 2006 is summarized as follows:
2007 2006
-------- --------
Balance at beginning of year $ 60,668 $ 25,429
Additions (deductions) during the year (25) 35,239
-------- --------
Balance at end of year $ 60,643 $ 60,668
======== ========
4. INVENTORIES
Inventories consist of the following as of September 30, 2007 and 2006:
2007 2006
---------- ----------
Raw materials $ 247,296 $ 247,770
Work-in-progress 741,850 846,832
Finished goods 276,246 241,860
Packing materials 167,464 142,733
---------- ----------
Total inventories $1,432,856 $1,479,195
========== ==========
10
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
5. FIXED ASSETS
Fixed assets consist of the following as of September 30, 2007 and 2006:
2007 2006
--------- ---------
Building improvement $ 130,459 $ 123,672
Plant and machinery 44,049 4,371
Motor vehicles 14,156 12,598
Computer equipment 4,244 854
--------- ---------
192,908 141,495
Less: accumulated depreciation (77,704) (41,354)
--------- ---------
Total fixed assets, net 115,204 100,141
Construction in progress 403,378 202,132
--------- ---------
$ 518,582 $ 302,273
========= =========
Depreciation expense totaled $33,111 and $25,256 for the years ended
September 30, 2007 and 2006, respectively.
6. INVESTMENT ADVANCES
Investment advances represent the payments the Company made to Wei Li Si
Dairy Co. ("WLS") in connection with its pending acquisition of the certain
assets owned by WLS. The total acquisition price of those assets by the
Company per Assets Acquisition Agreement ("Agreement) is estimated to be
around $4,000,000. As of September 30, 2007, the Company has made advances
to WLS in the total amount of $3,429,959 in an effort to secure the deal.
Pursuant to the agreement, the closing of this acquisition is subject to
the transfer of the ownership evidenced by the official recording of the
title change for those assets at the local authority. The management
anticipates the transfer of the ownership from WLS to the Company be
completed in the first quarter of 2008.
7. DUE TO RELATED PARTY
Due to related party represent temporary funding by its officer to finance
the working capital as needed. The amounts are unsecured, non-interest
bearing and due on demand. Due to related party also include rents payable
to its officer. The Company rents office space from its officer. The rent
amounted to RMB 98,700 (approximately $12,797) and RMB 95,600
(approximately $11,908) for the fiscal years ended September 30, 2007 and
2006, respectively. As of September 30, 2007 and 2006 the Company had the
following balances due to related party:
2007 2006
-------- --------
Due to Mr. Wang Yan-bin $384,826 $382,621
-------- --------
Total due to related party $384,826 $382,621
======== ========
11
HARBIN RODOBO DAIRY CO., LTD
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2007 and 2006
8. CAPITAL
The Company's total registered capital is 3,450,000 RMB, of which, total
2,000,000 RMB was contributed on January 4, 2002 and the remaining
1,450,000 RMB was contributed on March 18, 2004. The total amount equals to
US$ 416,828. The industry practice in China does not require the issuance
of stock certificates to the shareholders, nor a third party transfer agent
to maintain the records. The Company elected to designate one (1) common
share for each RMB contributed for the purpose of financial reporting.
Accordingly, there were total 3,450,000 shares outstanding for the years
ended September 30, 2007 and 2006.
9. MAJOR CUSTOMERS
Two major customers accounted for approximately 19% of the net revenue for
the year ended September 30, 2007, with each customer individually
accounting for 11 % and 8%, respectively. At September 30, 2007, the total
receivable balance due from these customers was $161,669. Two major
customers accounted for 54% of the net revenue for the year ended September
30, 2006. At September 30, 2006, the total receivable balance due from
these two customers was $312,118.
10. COMMITTEMENTS AND CONTIGENCIES
On July 1, 2004, the Company entered into a lease agreement with
Heilongjiang Jinniu Dairy Co., Ltd. ("Jinniu") to lease its manufacturing
facilities in Qinggang, Heilongjiang. Under the agreement, the Company is
obligated to pay the rent of RMB1,000,000 (approximately US$130,000) per
year, payable in two installments each year for six years from July 5, 2004
to July 5, 2010.
On April 1, 2005 and April 1, 2006, the Company and Jinniu amended the
lease agreement whereby the lease term is extended to July 6, 2030, and
effective July 5, 2010, the annual rent payment is reduced to RMB 600,000
(approximately US$ 78,000), payable in two installments each year. Under
the amended agreement, the Company is also required to make minimum RMB
400,000 (approximately US$55,555) of annual improvements or betterment to
the leased facility when the new lease term takes effective.
12
MEGA PROFIT LIMITED
FINANCIAL STATEMENTS
JUNE 30, 2008 AND 2007
(UNAUDITED)
MEGA PROFIT LIMITED
INDEX TO FINANCIAL STATEMENTS
JUNE 30, 2008 AND 2007
(UNAUDITED)
TABLE OF CONTENTS
Page(s)
Balance Sheet as of June 30, 2008 (Unaudited) and
September 30, 2007 (Audited) 1
Statements of Income for the Nine Months and Three Months Ended
June 30, 2008 and 2007 (Unaudited) 2
Statements of Cash Flows for the Nine Months Ended
June 30, 2008 and 2007 (Unaudited) 3
Notes to Financial Statements (Unaudited) 4-12
MEGA PROFIT LIMITED
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2008 2007
----------- -----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 82,094 $ 33,302
Accounts receivable - net of allowance for
bad debts of $88,349 and $60,643,
respectively 1,830,618 887,403
Other receivables 48,513 267,930
Due from related parties 50,000 50,000
Inventories 1,258,694 1,432,856
Prepaid expenses 4,374 142,611
Advances to suppliers 32,017 138,034
----------- -----------
Total current assets 3,306,310 2,952,136
----------- -----------
Property, plant and equipment:
Fixed assets, net of accumulated depreciation 381,116 115,204
Construction in progress 520,482 403,378
----------- -----------
901,598 518,582
----------- -----------
Other assets:
Investment advances 5,992,040 3,429,959
Deposits on intangible assets 291,583 --
----------- -----------
Total assets $10,491,531 $ 6,900,677
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,305,044 $ 1,035,101
Other payable 108,763 229,576
Accrued expenses 407,647 1,458,537
Deferred revenue 3,125 96,484
Due to related party 5,474 384,826
----------- -----------
Total current liabilities 1,830,052 3,204,524
----------- -----------
Shareholders' equity
Common stock, $10 par value, 50,000 shares
authorized 19,500 and 5,000 shares
issued and outstanding as of June 30, 2008
and September 30, 2007, respectively 195,000 50,000
Additional paid in capital 1,721,828 416,828
Retained earnings 5,965,693 3,065,667
Accumulated other comprehensive income 778,957 163,658
----------- -----------
Total shareholders' equity 8,661,479 3,696,153
----------- -----------
Total liabilities and shareholders' equity $10,491,531 $ 6,900,677
=========== ===========
The accompanying notes are an integral part of these financial statements
1
MEGA PROFIT LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
Three Months Ended June 30 Nine Months Ended June 30
-------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Net sales $ 6,788,262 $ 3,452,977 $16,107,220 $ 9,086,397
Cost of goods sold 3,824,131 1,700,267 9,544,205 4,769,751
----------- ----------- ----------- -----------
Gross profit 2,964,131 1,752,710 6,563,015 4,316,646
----------- ----------- ----------- -----------
Operating expenses:
Distribution expenses 1,443,809 900,083 3,054,130 2,360,443
General and administrative expenses 260,075 139,093 674,126 348,192
Depreciation expenses 12,524 8,740 31,743 24,046
----------- ----------- ----------- -----------
Total operating expenses 1,716,409 1,047,917 3,759,999 2,732,681
----------- ----------- ----------- -----------
Operating income 1,247,722 704,793 2,803,016 1,583,965
Other income (expenses) (8,473) 346 97,010 83,071
----------- ----------- ----------- -----------
Income before income taxes 1,239,250 705,139 2,900,026 1,667,036
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income $ 1,239,250 $ 705,139 $ 2,900,026 $ 1,667,036
Other comprehensive income:
Foreign currency translation adjustment 189,919 36,287 615,300 68,571
----------- ----------- ----------- -----------
Comprehensive income $ 1,429,169 $ 741,426 $ 3,515,325 $ 1,735,607
=========== =========== =========== ===========
Basic and diluted net income per share $ 63.55 $ 141.03 $ 206.42 $ 333.41
=========== =========== =========== ===========
Basic and diluted weighted average shares outstanding 19,500 5,000 14,049 5,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
2
MEGA PROFIT LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
Nine Months Ended June 30
2008 2007
----------- -----------
Cash flows from operating activities
Net income $ 2,900,026 $ 1,667,036
Adjustments to reconcile net income to operating activities
Depreciation 31,743 24,046
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable and other receivables (723,798) (1,377,426)
Inventories 174,162 175,517
Prepaid expenses 138,237 (6,963)
Advances to suppliers 106,017 (561,305)
Increase (decrease) in -
Accounts payable and other payable 149,130 1,141,913
Accrued expenses (1,050,891) 418,725
Deferred revenue (93,360) 9,985
----------- -----------
Net cash provided by operating activities 1,631,266 1,491,529
----------- -----------
Cash flows from investing activities
Purchase of fixed assets (275,421) (34,384)
Cash used for construction in progress (117,104) (149,809)
Investment advances (2,562,080) (1,812,467)
Deposits on intangible assets (291,583) --
----------- -----------
Net cash (used in) investing activities (3,246,188) (1,996,660)
----------- -----------
Cash flows from financing activities
Proceeds from common stock 1,450,000 --
(Repayment to) proceeds from related party loan (379,352) 333,765
----------- -----------
Net cash provided by financing activities 1,070,648 333,765
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 593,066 64,520
----------- -----------
Net increase (decrease) in cash and cash equivalents 48,792 (106,846)
Cash and cash equivalents, beginning of period 33,302 156,448
----------- -----------
Cash and cash equivalents, end of period $ 82,094 $ 49,602
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 12,834 $ --
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these financial statements
3
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Mega Profit Limited (the "Company" or "Mega Profit") was incorporated under
the laws of the Cayman Islands on April 23, 2007. On October 26, 2007, the
Company invested $1,380,000 to form a wholly-owned subsidiary, Harbin Mega
Profit Management Consulting Co., Ltd. ("Harbin Mega Profit"), a wholly
foreign-owned entity ("WFOE") incorporated under the laws of the People's
Republic of China ("PRC" or "China").
The Company has not carried on any substantive operations of its own.
Instead, it had entered certain exclusive agreements with Harbin Rodobo
Dairy Co., Ltd. ("Rodobo"). Rodobo was incorporated on January 4, 2002
under the laws of the PRC.
The paid-in capital of Rodobo was funded by the stockholders of Harbin Mega
Profit. PRC law currently has limits on foreign ownership of companies. To
comply with these foreign ownership restrictions, on October 27, 2007,
Harbin Mega Profit entered into certain exclusive agreements with Rodobo
and its stockholders. Pursuant to these agreements, Harbin Mega Profit
provides exclusive consulting and other general business operation services
to Rodobo, in return for a consulting services fee which is equal to
Rodobo's revenue. In addition, Rodobo's shareholders have pledged their
equity interest in Rodobo to Harbin Mega Profit, irrevocably granted Harbin
Mega Profit an exclusive option to purchase, to the extent permitted under
PRC law, all or part of the equity interests in Rodobo and agreed to
entrust all the rights to exercise their voting power to the person(s)
appointed by Harbin Mega Profit. Through these contractual arrangements,
Harbin Mega Profit has the ability to substantially influence Rodobo's
daily operations and financial affairs, appoint its senior executives and
approve all matters requiring stockholders' approval.
As a result of these contractual arrangements, which obligates Harbin Mega
Profit to absorb a majority of the risk of loss from Rodobo's activities
and enable Harbin Mega Profit to receive a majority of its expected
residual returns, Harbin Mega Profit accounts for Rodobo as a variable
interest entity ("VIE") under FASB Interpretation No. 46R ("FIN 46R"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51". Accordingly, Harbin Mega Profit consolidates Rodobo's results, assets
and liabilities.
Harbin Mega Profit through its VIE, Rodobo, is engaged in the production,
processing, distribution and development of powdered milk products in the
PRC for infants, children, pregnant women and other adults under the brand
name "Rodobo".
Since Harbin Mega Profit and Rodobo are under common control, the
consolidation of Harbin Mega Profit and Rodobo has been accounted for at
historical cost and prepared on the basis as if the aforementioned
exclusive agreements between Harbin Mega Profit and Rodobo had become
effective as of the beginning of the first period presented in the
accompanying consolidated financial statements.
4
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION - The accompanying consolidated
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.
The consolidated financial statements include the financial statements of
the Company, its wholly-owned subsidiary, Harbin Mega Profit, and its VIE,
Rodobo. All significant inter-company transactions and balances between the
Company, its subsidiaries and VIE are eliminated upon consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the requirements for
reporting on Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine months ended June 30, 2008 and 2007 are not necessarily indicative
of the results that may be expected for the full years.
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles require management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - The Company considers cash and cash equivalents
to include cash on hand and deposits with banks with an original maturity
of three months or less.
ACCOUNTS RECEIVABLE - The Company's policy is to maintain reserves for
potential credit losses on accounts receivable. Provision is made against
accounts receivable to the extent which they are considered to be doubtful.
Accounts receivable in the balance sheet is stated net of such provision.
INVENTORIES - Inventories comprise raw materials, work in progress,
finished goods and packing materials and are stated at the lower of cost or
market value. Cost is calculated using the First In First Out method and
includes all costs to acquire and any overhead costs incurred in bringing
the inventories to their present location and condition. Overhead costs
included in finished goods inventory include direct labor cost and other
costs directly applicable to the manufacturing process, including
utilities, supplies, repairs and maintenances, and depreciation expense.
Market value represents the estimated selling price in the ordinary course
of business less the estimated costs necessary to complete the sale.
5
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Expenditures for major additions and improvements are capitalized
and minor replacements, maintenance, and repairs are charged to expense as
incurred. When property, plant and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the results of
operations for the respective period. Depreciation is provided over the
estimated useful lives of the related assets on a straight-line basis. The
estimated useful lives for significant property, plant and equipment
categories are as follows:
Leasehold improvement 5.5 years
Machinery, equipment and automobiles 5 years
Construction in progress represents the direct costs of construction or
acquisition incurred. Upon completion and readiness for use of the assets,
capitalization of these costs ceases and the cost of construction in
progress is transferred to fixed assets. No depreciation is provided until
the project is completed and the assets are ready for intended use. There
is no financing activity occurred during the course of construction.
The Company periodically reviews the carrying value of long-lived assets in
accordance with SFAS 144. When estimated future cash flows generated by
those assets are less than the carrying amounts of the assets, the Company
recognized an impairment loss equal to the an amount by which the carrying
value exceeds the fair value of assets. Based on its review, the Company
believes that there were no impairments of its long-lived assets as of June
30, 2008.
REVENUE RECOGNITION - The Company's revenue recognition policies are in
compliance with Staff Accounting Bulletin ("SAB") 104. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no
other significant obligations of the Company exist and collectability is
reasonably assured. Revenues consist of the invoice value of the sale of
goods net of sales returns and allowances.
DEFERRED REVENUE - Revenue from the sale of goods or services is recognized
when goods are delivered. Receipts in advance for goods to be delivered in
the subsequent year are carried forward as deferred revenue.
ADVERTISING COSTS - Advertising costs represent advertising expenses and
promotion incentives provided to distributors and are charged to operations
when incurred. Advertising expenses totaled $139,588 and $58,115 for the
three months ended June 30, 2008 and 2007, respectively, and totaled
$151,698 and $88,862 for the nine months ended June 30, 2008 and 2007,
respectively.
EMPLOYEES' BENEFIT COST - Mandatory contributions are made to the
Government's health, retirement benefit and unemployment schemes at the
statutory rates in force during the period, based on gross salary payments.
The cost of these payments is charged to the statement of income in the
same period as the related salary cost.
6
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FOREIGN CURRENCY TRANSLATION - The Company's principal country of
operations is in the PRC. The financial position and results of operations
of the Company are determined using the local currency ("RMB") as the
functional currency. The results of operations denominated in foreign
currency are translated at the average rate of exchange during the
reporting period. Assets and liabilities denominated in foreign currencies
at the balance sheet date are translated at the applicable rates of
exchange in effect at that date. The equity denominated in the functional
currency is translated at the historical rate of exchange at the time of
capital contribution. Translation adjustments arising from the use of
different exchange rates from period to period are included as a component
of stockholders' equity as "Accumulated Other Comprehensive Income".
Historically the local currency's exchange rate had been tied to the US
Dollar at a rate of approximately 8.28 RMB per US Dollar. Effective July
21, 2005 the RMB was revalued to an effective exchange rate of
approximately 8.11 RMB per US Dollar. Subsequent to the revaluation the RMB
has been allowed to float within a specified range. As of June 30, 2008 and
September 30, 2007, the exchange rate was 6.86 and 7.49 RMB per US Dollar,
respectively.
INCOME TAXES - The Company utilizes Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financials
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to
realized. There are no deferred tax amounts at June 30, 2008 and September
30, 2007, respectively.
In June 2006, the FASB issued Interpretation 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"), an interpretation of FASB
Statement No. 109, "Accounting for Income Taxes." FIN 48 clarifies the
accounting and reporting for income taxes where interpretation of the law
is uncertain. FIN 48 prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of income
tax uncertainties with respect to positions taken or expected to be taken
in income tax returns. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company adopted FIN 48 at October 1, 2007. The
adoption of FIN 48 did not have a material effect on the Company's
financial position.
Rodobo is entitled to a tax holiday of five years for full Enterprise
Income Tax ("EIT") exemption. The preferential tax treatment commenced in
2005 and will expire in 2009. The estimated tax savings amounted to
$311,065 and $232,696 for the three months ended June 30, 2008 and 2007,
respectively, and amounted to $772,715 and $550,121 for the nine months
ended June 30, 2008 and 2007, respectively. The net effect on earnings per
share had the income tax been applied would decrease earnings per share
from $63.55 to $47.66 for the three months ended June 30, 2008, from
$141.03 to $94.49 for the three months ended June 30, 2007, from $206.42 to
$151.42 for the nine months ended June 30, 2008 and from $333.41 to $223.38
for the nine months ended June 30, 2007.
7
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL STATEMENTS - The carrying amounts of certain
financial instruments, including cash, accounts receivable, other
receivables, accounts payable, accrued expenses, advances from customers,
and other payables approximate their fair values as of June 30, 2008 and
September 30, 2007 due to the relatively short-term nature of these
instruments.
CONCENTRATIONS OF BUSINESS AND CRDIT RISK - The Company maintains certain
bank accounts in the People's Republic of China which are not protected by
FDIC insurance or other insurance.
The Company's operations are carried out in the PRC. Accordingly, the
Company's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC and
the general state of the PRC's economy.
The Company's operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in the North
America and Western Europe. The Company's operating results may be
adversely affected by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things.
NEW ACCOUNTING PRONOUNCEMENTS - In September 2006, the FASB issued SFAS No.
157, "Fair Value Measurements" ("FAS 157"). FAS 157 addresses how companies
should measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under GAAP. FAS 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. FAS 157 is effective for fiscal
years beginning on or after November 15, 2007, which is the Company's
fiscal year 2009. The Company is currently evaluating the impact of
adopting FAS 157 on its financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("FAS 159"). This statement
permits companies to choose to measure many financial assets and
liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. FAS 159 is
effective for fiscal years beginning on or after November 15, 2007, which
is the Company's fiscal year 2009. The Company is currently assessing the
impact of FAS 159 on its financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("FAS 141(R)"). FAS 141(R) requires the acquiring entity in a business
combination to recognize all assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose all information needed by investors to understand the
nature and financial effect of the business combination. FAS 141 (R) is
effective for fiscal years beginning on or after December 15, 2008, which
is the Company's fiscal year 2010. The Company is currently assessing the
impact of FAS 141 (R) on its financial statements.
8
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In December 2007, the FASB also issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements - an amendment of Accounting
Research Bulletin No. 51" ("FAS 160"). This statement requires an entity to
classify noncontrolling interests in subsidiaries as a separate component
of equity. Additionally, transactions between an entity and noncontrolling
interests are required to be treated as equity transactions. FAS 160 is
effective for fiscal years beginning on or after December 15, 2008, which
is the Company's fiscal year 2010. The Company is currently assessing the
impact of FAS 160 on its financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("FAS 161"). This statement requires
enhanced disclosures about (i) how and why companies use derivative
instruments, (ii) how companies account for derivative instruments and
related hedged items under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and (iii) how derivative instruments
and related hedged items affect their financial results. FAS 161 is
effective for fiscal years beginning on or after November 15, 2008, which
is the Company's fiscal year 2010. The Company is currently assessing the
impact of FAS 161 on its financial statements.
3. ACCOUNTS RECEIVABLE
The Company's accounts receivable as of June 30, 2008 and September 30,
2007 are summarized as follows:
June 30, September 30,
2008 2007
---------- ------------
Accounts receivable $1,918,968 $ 948,046
Less: Allowance for doubtful accounts 88,349 60,643
---------- ------------
Total net accounts receivable $1,830,618 $ 887,403
========== ============
The activity in the allowance for doubtful accounts as of June 30, 2008 and
September 30, 2007 is summarized as follows:
June 30, September 30,
2008 2007
---------- ----------
Nine months Yearly
Beginning balance $ 60,643 $ 60,668
Additions (deductions) during the period 27,706 (25)
---------- ----------
Ending balance $ 88,349 $ 60,643
========== ==========
9
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
4. INVENTORIES
Inventories consist of the following as of June 30, 2008 and September 30,
2007:
June 30, September 30,
2008 2007
---------- ----------
Raw materials $ 240,206 $ 247,296
Work-in-progress 876,143 741,850
Finished goods 19,812 276,246
Packing materials 122,533 167,464
---------- ----------
Total inventories $1,258,694 $1,432,856
========== ==========
5. FIXED ASSETS
Fixed assets consist of the following as of June 30, 2008 and September 30,
2007:
June 30, September 30,
2008 2007
----------- ----------
Building improvement $ 216,120 $ 130,459
Plant and machinery 254,027 44,049
Motor vehicles 21,003 14,156
Computers and equipment 8,102 4,244
----------- -----------
429,271 192,908
Less: accumulated depreciation (118,136) (77,704)
----------- -----------
Total fixed assets, net 381,116 115,204
Construction in progress 520,482 403,378
----------- -----------
$ 901,598 $ 518,582
=========== ===========
Depreciation expense totaled $12,524 and $8,740 for the three months ended
June 30, 2008 and 2007, respectively, and totaled $31,743 and $24,046 for
the nine months ended June 30, 2008 and 2007, respectively.
6. INVESTMENT ADVANCES
Investment advances primarily represent the payments the Company made to
Wei Li Si Dairy Co. ("WLS") in connection with its pending acquisition of
the certain assets owned by WLS. The total acquisition price of those
assets by the Company per Assets Acquisition Agreement ("Agreement) dated
June 18, 2006 was estimated to be RMB 30,000,000 (approximately
US$4,373,752). The Company has decided to cease the effort to acquire the
certain assets owned by WLS aforementioned. As of June 30, 2008, WLS has
returned to the Company the majority of the investment advances made to
date with a remaining balance of $14,579 to be returned.
10
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
6. INVESTMENT ADVANCES (continued)
On October 15, 2007, the Company entered into an "Agreement for Increase of
the Share Capital" with Inner Mongolia Hulunbeier Beixue Dairy Co., Ltd.
("Beixue") to obtain 51% interest of Beixue with a total investment of RMB
51,000,000 (approximately US$7,435,378). Under the Agreement, the Company
agrees to pay a first installment payment of RMB 1,000,000 (approximately
US$145,792) by February 20, 2008 and the remaining amount within 90 days of
the first installment payment. As of June 30, 2008, the Company has made
advances to Beixue in the total amount of $145,792. The Company has decided
to cease the effort to acquire the 51% interest of Beixue aforementioned.
Beixue will return the investment advances made to date to the Company.
On April 1, 2008, the Company entered into an "Investment Agreement" with
Harbin Mega Profit to incorporate a subsidiary company, Mega Profit
Agriculture Company. During the nine months ended June 30, 2008, the
Company made investment advances in the amount of RMB 40,000,000
(approximately US$5,831,669) to acquire land, buildings and equipments. The
Company is in process of obtaining the license and approval from Chinese
government. Once these documents are ready, the Company will reclassify the
full amount to appropriate accounts.
7. DEPOSITS ON INTANGIBLE ASSETS
The Company entered into a "Technology Transfer Agreement" with China
Nutrition Society ("CNS") to obtain a powdered milk product formula
specifically developed for the middle aged and seniors with a total fee of
RMB 5,000,000 (approximately $728,959). The Company will exclusively have
the right to use the formula for 10 years starting July 1, 2008. Under the
Agreement, the Company agrees to pay a first installment payment of RMB
2,000,000 (approximately $291,583) upon the execution of the Agreement, a
second installment payment of RMB 1,000,000 (approximately $145,792) upon
the technology transfer and the remaining amount by December 25, 2008. As
of June 30, 2008, the Company has made the first installment payment of RMB
2,000,000.
8. DUE TO RELATED PARTY
Due to related party represent temporary funding by its officer to finance
the working capital as needed. The amounts are unsecured, non-interest
bearing and due on demand. Due to related party also includes rents payable
to its officer. The Company rents office space from its officer. The rent
amounted to RMB 98,700 (approximately $12,797) and RMB 36,000
(approximately $5,010), respectively, for the fiscal year ended September
30, 2007 and for the nine months ended June 30, 2008. As of June 30, 2008
and September 30, 2007, the Company had the following balances due to
related party:
June 30, September 30,
2008 2007
----------- -----------
Due to Mr. Wang Yan-bin $ 5,473 $ 384,826
----------- -----------
Total due to related party $ 5,473 $ 384,826
=========== ===========
11
MEGA PROFIT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
FOR THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007
9. STOCKHOLDER'S EQUITY
Upon its inception, the Company issued common stock of 50,000 shares with
$1 par value. On January 10, 2008, the Company effected a reverse split at
a rate of 10:1. On January 11, 008, the Company issued another 14,500
shares of common stock to an investor. As of June 30, 2008, there were
19,500 shares of common stock issued and outstanding.
10. MAJOR CUSTOMERS
The following table presents sales from major customers with individual
sales over 10% of total net revenue for the three months ended June 30,
2008 and for the nine months ended June 30, 2008:
Three Months Ended June 30, Nine Months Ended June 30,
-------------------------------------------------- --------------------------------------------------
2008 2007 2008 2007
----------------------- ----------------------- ----------------------- -----------------------
% of % of % of % of
Sales Sales Sales Sales Sales sales Sales sales
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Luoling $1,740,230 26% $ 832,576 24% $4,426,459 27% $2,664,881 29%
Huijiabei 1,531,643 23% n/a n/a 1,639,285 10% n/a n/a
Meilu 1,117,071 16% 861,584 25% 2,866,566 18% 2,487,869 27%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $4,388,944 65% $1,694,160 49% $8,932,309 55% $5,152,750 57%
========== ========== ========== ========== ========== ========== ========== ==========
At June 30, 2008, the total receivable balance due from the three major
customers was $1,245,918. At June 30, 2007, the total receivable balance
due from the two major customers was $645,677.
11. COMMITTEMENTS AND CONTINGENCIES
On July 1, 2004, the Company entered into a lease agreement with
Heilongjiang Jinniu Dairy Co., Ltd. ("Jinniu") to lease its manufacturing
facilities in Qinggang, Heilongjiang. Under the agreement, the Company is
obligated to pay RMB1,000,000 (approximately US$145,792) per year, payable
in two installments each year for six years from July 5, 2004 to July 5,
2010.
On April 1, 2005 and April 1, 2006, the Company and Jinniu amended the
lease agreement whereby the lease term is extended to July 6, 2030 and
effective July 5, 2010, the annual rent payment is reduced to RMB 600,000
(approximately US$87,475), payable in two installments each year. Under the
amended agreement, the Company is also required to make minimum RMB 400,000
(approximately US$58,317) of annual improvements or betterment to the
leased facility when the new lease term takes effective.
12
(b) Pro forma financial information.
NAVSTAR MEDIA HOLDINGS, INC.
INDEX TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
PAGE (S)
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial statements 1
Pro Forma Balance Sheet- June 30, 2008 (Unaudited) 2
Pro Forma Statement of Operations for the year ended December 31,
2007 (Unaudited) 3
Pro Forma Statement of Operations for the six months ended June 30,
2008 (Unaudited) 4
Notes to Pro Forma Financial Statements (Unaudited) 5
NAVSTAR MEDIA HOLDINGS, INC.
INTRODUCTION TO UNAUDITIED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On September 30, 2008, Navstar Media Holdings, Inc., a Nevada corporation
("The Company"), Rodobo International, Inc., also a Nevada corporation
wholly-owned by the Company ("Merger Sub"), and Mega Profit Limited ("Mega
Profit"), a corporation formed under the laws of the Cayman Islands, and
shareholder of Mega Profit ("Sellers"), entered an Agreement and Plan of Merger
("Agreement").
Pursuant to the Agreement, Merger Sub acquired Mega Profit and then merged
with and into the Company (the "Merger"). In consideration of the acquisition of
Mega Profit by the Merger Sub and the Merger, Merger Sub issued to the Sellers
and their designees: 1) 10 shares of the common stock of the Merger Sub, which
are converted into approximately 37,000,000 shares of common stock of the
Company prior to and approximately 973,685 shares post a 38:1 reverse split,
which is done in conjunction of the Merger; 2) 12,976,316 shares of convertible
preferred stock which are converted into 12,976,316 shares of the common stock
of the Company. Upon completion of the Merger, the Sellers and their designees
own 93% of common stock of the Company outstanding.
In connection with the acquisition of Mega Profit on September 30, 2008,
officers and directors of the Company resigned and executive officers of Mega
Profit were appointed as the Company's officers and directors.
The acquisition will be accounted for as a reverse merger under the
purchase method of accounting since there was a change of control. Accordingly,
Mega Profit will be treated as the continuing entity for accounting purposes.
The accompanying unaudited pro forma condensed consolidated balance sheet
has been presented with consolidated subsidiaries at June 30, 2008. The
unaudited pro forma condensed consolidated statement of operations for the year
ended December 31, 2007 and for the six months ended June 30, 2008 has been
presented as if the acquisition had occurred January 1, 2007.
The unaudited pro forma condensed consolidated statements do not
necessarily represent the actual results that would have been achieved had the
companies been combined at the beginning of the year, nor may they be indicative
of future operations. These unaudited pro forma condensed financial statements
should be read in conjunction with the companies' respective historical
financial statements and notes included thereto.
1
NAVSTAR MEDIA HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2008
Navstar
Media Mega (1)
Holdings, Profit Pro
Inc. Limited Adjustments Notes Forma
----------- ----------- ----------- ----- -----------
ASSETS
Current Assets
Cash and cash equivalents $ -- $ 82,094 $ 82,094
Accounts receivable -- 1,830,618 1,830,618
Other receivables -- 48,513 48,513
Due from related parties -- 50,000 50,000
Inventories -- 1,258,694 1,258,694
Prepaid expenses -- 4,374 4,374
Advances to suppliers -- 32,017 32,017
----------- ----------- -----------
Total current assets -- 3,306,310 3,306,310
----------- ----------- -----------
Property and Equipment, Net
Fixed assets, net of accumulated depreciation -- 381,116 381,116
Construction in progress -- 520,482 520,482
----------- ----------- -----------
-- 901,598 901,598
----------- ----------- -----------
Other assets
Investment advances -- 5,992,040 5,992,040
Deposits on intangible assets -- 291,583 291,583
----------- ----------- -----------
TOTAL ASSETS $ -- $10,491,531 $10,491,531
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 844,757 $ 1,712,691 $ (844,757) a $ 1,712,691
Other payable -- 108,763 108,763
Deferred revenue -- 3,125 3,125
Due to related party -- 5,474 5,474
Convertible debentures payable 718,921 -- (718,921) a --
----------- ----------- -----------
Total current liabilities 1,563,678 1,830,052 1,830,052
----------- ----------- -----------
SHAREHOLDERS' (DEFICIT) EQUITY
Common stock, $0.001 Par value, 60,000,000
shares authorized, 26,980,609 shares issued
and outstanding as of June 30, 2008 26,980 -- 26,980
Common stock, $10 par value, 50,000 shares
authorized 19,500 shares issued and
outstanding as of June 30, 2008 -- 195,000 (195,000) b --
Additional paid-in-capital 3,958,947 1,721,828 (3,790,926) a,b 1,889,849
Accumulated other comprehensive income (20,001) 778,957 20,001 a,b 778,957
(Accumulated deficit) retained earnings (4,224,404) 5,965,693 4,224,404 a,b 5,965,693
Treasury stock, at cost (1,305,200) -- 1,305,200 --
----------- ----------- -----------
Total shareholders' (deficit) equity (1,563,678) 8,661,479 8,661,479
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ -- $10,491,531 $10,491,531
=========== =========== ===========
(1) Represents reverse acquisition showing assets and liabilities of Mega
Profit Limited only.
See notes to unaudited condensed consolidate Pro Forma financial statements
2
NAVSTAR MEDIA HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
Navstar
Media Mega (1)
Holdings, Profit Pro
Inc. Limited Adjustments Notes Forma
------------ ------------ ----------- ----- ------------
REVENUES $ -- $ 14,241,980 $ 14,241,980
COST OF GOODS SOLD -- 7,944,054 7,944,054
------------ ------------ ------------
GROSS PROFIT -- 6,297,927 6,297,927
OPERATING EXPENSES
Selling, general and administrative expenses 402,244 3,623,274 (402,244) a 3,623,274
------------ ------------ ------------
NET (LOSS) INCOME (LOSS) (402,244) 2,674,653 2,674,653
------------ ------------ ------------
OTHER INCOME (EXPENSE) (210,000) 179,698 210,000 a 179,698
NET (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (612,244) 2,854,351 2,854,351
------------ ------------ ------------
PROVISION FOR INCOME TAX -- -- --
------------ ------------ ------------
NET (LOSS) INCOME FROM CONTINUING OPERATIONS (612,244) 2,854,351 2,854,351
NET (LOSS) INCOME FROM CONTINUING OPERATIONS (831,479) -- 831,479 a --
------------ ------------ ------------
NET (LOSS) INCOME FROM CONTINUING OPERATIONS $ (1,443,723) $ 2,854,351 $ 2,854,351
============ ============ ============
BASIC AND DILUTED (LOSS) INCOME PER SHARE $ (0.07) $ 570.87 $ (570.67) b $ 0.13
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 21,780,609 5,000 21,780,609
============ ============ ============
See notes to unaudited condensed consolidate Pro Forma financial statements
3
NAVSTAR MEDIA HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008
Navstar
Media Mega (1)
Holdings, Profit Pro
Inc. Limited Adjustments Notes Forma
------------ ------------ ----------- ----- ------------
REVENUES $ -- $ 12,073,967 $ 12,073,967
COST OF GOODS SOLD -- 6,730,002 6,730,002
------------ ------------ ------------
GROSS PROFIT -- 5,343,965 5,343,965
OPERATING EXPENSES
Selling, general and administrative expenses 19,000 3,039,226 (19,000) a 3,039,226
------------ ------------ ------------
NET (LOSS) INCOME (LOSS) (19,000) 2,304,738 2,304,738
------------ ------------ ------------
OTHER INCOME (EXPENSE) (49,269) (1,068) 49,269 a (1,068)
NET (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (68,269) 2,303,670 2,303,670
------------ ------------ ------------
PROVISION FOR INCOME TAX -- -- --
------------ ------------ ------------
NET (LOSS) INCOME $ (68,269) $ 2,303,670 $ 2,303,670
============ ============ ============
BASIC AND DILUTED (LOSS) INCOME PER SHARE $ (0.00) $ 123.20 $ (123.11) b $ 0.09
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 26,980,609 18,699 26,980,609
============ ============ ============
See notes to unaudited condensed consolidate Pro Forma financial statements
4
NAVSTAR MEDIA HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
The following unaudited pro forma adjustments are included in the accompanying
unaudited pro forma condensed consolidated balance sheet as of June 30, 2008 and
the unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 2007 and for the six months ended June 30, 2008 to
reflect the acquisition of Mega Profit by the Company:
a. To record the spin-off of the Company's assets and liabilities prior
to the reverse merger.
b. These adjustments reflect the recapitalization of the Company as a
result of the transactions related to the Merger.
5