UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2008
-----------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _____________
Commission file number 000-50340
RODOBO INTERNATIONAL, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 75-2980786
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
380 Chanjiang Road, Nangang District, Harbin, PRC 150001
--------------------------------------------------------
(Address of principal executive offices)
+86-0451-82260522
-----------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,435,568 common shares outstanding
as of February 9, 2009.
Item 1. Financial Statements.
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2008 2008
(Unaudited) (Audited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,956,567 $ 659,030
Accounts receivable - net of allowance
for bad debts of $66,602 and $66,921,
respectively 1,476,426 1,143,328
Advances to employees 13,708 185,500
Other receivables 64,764 162,006
Inventories 707,766 991,536
Prepaid expenses 23,838 26,510
------------ ------------
Total current assets 4,243,069 3,167,910
------------ ------------
Property, plant and equipment, net:
Fixed assets, net of accumulated depreciation 950,361 812,079
Construction in progress -- 148,240
------------ ------------
950,361 960,319
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Other assets:
Deposits on land and equipment 12,729,703 10,873,562
Intangible assets, net 696,226 717,978
------------ ------------
Total other assets 13,425,929 11,591,540
------------ ------------
Total assets $ 18,619,359 $ 15,719,769
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,278,813 $ 2,165,061
Other payable 140,114 171,286
Accrued expenses 1,089,028 924,580
Advance from customers -- 1,162,184
Due to related party -- 18,079
------------ ------------
Total current liabilities 2,507,955 4,441,189
------------ ------------
Shareholders' equity
Convertible preferred stock, $0.001 par value,
15,000,000 shares authorized 12,976,316 shares
issued and outstanding as of December 31, 2008
and September 30, 2008 12,976 12,976
Common stock, $0.001 par value, 1,604,278 shares
authorized, 1,435,568 shares issued and
outstanding as of December 31, 2008 and
September 30, 2008 1,436 1,436
Additional paid in capital 3,930,628 3,930,628
Additional paid in capital - warrants 971,788 971,788
Subscription receivable (50,000) (3,050,000)
Retained earnings 10,396,872 8,524,267
Accumulated other comprehensive income 847,704 887,484
------------ ------------
Total shareholders' equity 16,111,404 11,278,579
------------ ------------
Total liabilities and shareholders' equity $ 18,619,359 $ 15,719,769
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements
2
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
OTHER COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
Three Months Ended
December 31
2008 2007
----------- -----------
Net sales $ 8,860,825 $ 4,033,253
Cost of goods sold 4,357,117 2,814,203
----------- -----------
Gross profit 4,503,708 1,219,050
----------- -----------
Operating expenses:
Distribution expenses 2,119,352 550,402
General and administrative expenses 388,682 162,604
Depreciation and amortization expenses 42,450 7,766
----------- -----------
Total operating expenses 2,550,484 720,772
----------- -----------
Operating income 1,953,224 498,278
Subsidies -- 94,187
Other (expenses) income (80,618) 3,891
----------- -----------
Income before income taxes 1,872,605 596,356
Provision for income taxes -- --
----------- -----------
Net income $ 1,872,605 $ 596,356
Other comprehensive income:
Foreign currency translation adjustment (39,780) 110,305
----------- -----------
Comprehensive income $ 1,832,825 $ 706,661
=========== ===========
Basic and diluted net income per share $ 1.30 $ 0.61
=========== ===========
Basic and diluted weighted average
shares outstanding 1,435,568 973,685
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements
3
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
Three Months Ended December 31
2008 2007
------------- -------------
Cash flows from operating activities
Net income $ 1,872,605 $ 596,356
Adjustments to reconcile net income to
operating activities
Depreciation and amortization 42,450 7,766
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable, advance to employees
and other receivables (57,337) (195,821)
Inventories 278,340 (331,726)
Prepaid expenses 2,539 54,677
Advances to suppliers -- (10,096)
Increase (decrease) in -
Accounts payable and other payable (904,008) 337,131
Accrued expenses 167,967 59,827
Advance from customers (1,153,760) (80,632)
------------- -------------
Net cash provided by operating activities 248,796 437,482
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Cash flows from investing activities
Purchase of fixed assets (18,817) (71,042)
Cash used for construction in progress -- (22,623)
Repayment to (Investment advances) -- (312,535)
Deposits on land and equipment (1,903,363) --
------------- -------------
Net cash used in investing activities (1,922,180) (406,200)
------------- -------------
Cash flows from financing activities
Proceeds from issuance of convertible
preferred stock 3,000,000 --
(Repayment to) related party loan (28,967) (117,776)
------------- -------------
Net cash provided by (used in) financing activities 2,971,033 (117,776)
------------- -------------
Effect of exchange rate changes on cash and
cash equivalents (111) 105,983
------------- -------------
Net increase in cash and cash equivalents 1,297,538 19,489
Cash and cash equivalents, beginning of period 659,029 33,302
------------- -------------
Cash and cash equivalents, end of period $ 1,956,567 $ 52,791
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 4,878 $ --
============= =============
Income taxes paid $ -- $ --
============= =============
The accompanying notes are an integral part of these
condensed consolidated financial statements
4
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
On September 30, 2008, Rodobo International, Inc. (the "Company") under its
former name of Navstar Media Holdings, Inc., entered into an Agreement and Plan
of Merger (the "Merger Agreement") by and among the Company, its wholly owned
acquisition subsidiary Rodobo International, Inc. ("Merger Sub"), Mega Profit
Limited ("Mega Profit"), a corporation formed under the laws of the Cayman
Islands, and shareholders of Mega Profit ("Sellers").
Pursuant to the Merger Agreement, the 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, the Merger Sub
issued to the Sellers and their designees: 1) 10 shares of the common stock of
the Merger Sub, which were converted into approximately 37,000,000 shares of
common stock of the Company prior to, and approximately 973,685 shares post a,
37.4:1 reverse split, which was done in conjunction with the Merger; 2)
12,976,316 shares of preferred stock which are convertible into 12,976,316
shares of common stock of the Company. Upon completion of the Merger and
conversion of the preferred stock, the Sellers and their designees shall own 93%
of issued and outstanding common stock of the Company.
In connection with the acquisition of Mega Profit, all of the officers and
directors of the Company ultimately resigned and executive officers of Mega
Profit were appointed as the Company's offices and directors.
The acquisition has been accounted for as a reverse merger under the purchase
method of accounting since there has been a change of control. Accordingly, Mega
Profit and its subsidiaries are treated as the continuing entity for accounting
purposes.
On September 30, 2008, prior to and in conjunction with the Merger, Mega Profit
entered into a Securities Purchase Agreement with an institutional investor for
$3,000,000. As a result, upon the completion of the Merger, the investor
received preferred stock convertible into common stock upon the increase of the
authorized share capital of the Company together with other owners of Mega
Profit. In addition, Mega Profit also issued to the investor warrants to
purchase 818,182 shares of the common stock of Mega Profit at an exercise price
of $1.50 per share and warrants to purchase 545,455 shares of the common stock
of Mega Profit at an exercise price of $1.75 per share. No separate
consideration was paid for such warrants (the "Warrants"). The Warrants, which
were assumed by the Company upon the Merger, expire in four years.
Mega Profit was incorporated under the laws of the Cayman Islands on April 23,
2007. On October 26, 2007, Mega Profit 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"). On April 1,
2008, Mega Profit entered into an "Investment Agreement" with Harbin Mega Profit
to incorporate a subsidiary, Qinggang Mega Profit Agriculture Co., Ltd. ("Mega
Profit Agriculture").
5
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
1. ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Mega Profit has not carried on any substantive operations of its own. Instead,
it had entered certain exclusive agreements with Harbin Rodobo Dairy Co., Ltd.
("Harbin Rodobo"). Harbin Rodobo was incorporated on January 4, 2002 under the
laws of the PRC.
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 Harbin Rodobo and its
stockholders. Pursuant to these agreements, Harbin Mega Profit provides
exclusive consulting and other general business operation services to Harbin
Rodobo, in return for a consulting services fee which is equal to Harbin
Rodobo's revenue. In addition, Harbin Rodobo's shareholders have pledged their
equity interest in Harbin 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 Harbin 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 Harbin 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 Harbin Rodobo's activities
and enable Harbin Mega Profit to receive a majority of its expected residual
returns, Harbin Mega Profit accounts for Harbin Rodobo as a variable interest
entity ("VIE") under Financial Accounting Standards Board ("FASB")
Interpretation No. 46R, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". Accordingly, Harbin Mega Profit consolidates
Harbin Rodobo's results, assets and liabilities.
Harbin Mega Profit through its VIE, Harbin 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 Harbin Rodobo are under common control, the
consolidation of Harbin Mega Profit and Harbin Rodobo has been accounted for at
historical cost and prepared on the basis as if the aforementioned exclusive
agreements between Harbin Mega Profit and Harbin Rodobo had become effective as
of the beginning of the first period presented in the accompanying consolidated
financial statements.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. 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 three months ended December 31, 2008
and 2007 are not necessarily indicative of the results that may be expected for
the full years.
6
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL OF CONSOLIDATION - The consolidated financial statements include the
financial statements of the Company, its wholly-owned subsidiaries, Harbin Mega
Profit and Mega Profit Agriculture, and its VIE, Rodobo. All significant
inter-company transactions and balances between the Company, its subsidiaries
and VIE are eliminated upon consolidation.
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.
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
7
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT (Continued) - 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.
The Company periodically reviews the carrying value of long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets". 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 December 31, 2008.
REVENUE RECOGNITION - The Company's revenue recognition policies are in
compliance with Staff Accounting Bulletin 104 "Revenue Recognition, corrected
copy". 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.
ADVANCE FROM CUSTOMERS - 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 $45,588 and $12,110 for the three months
ended December 31, 2008 and 2007, respectively.
EMPLOYEE BENEFIT COSTS - Mandatory contributions are made to the Chinese
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.
EARNINGS PER SHARE - The Company computes earnings per share ("EPS") in
accordance with SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), and SEC
Staff Accounting Bulletin No. 98. SFAS No. 128 requires companies with complex
capital structures to present basic and diluted EPS. Basic EPS is measured as
net income divided by the weighted average common shares outstanding for the
period. Diluted EPS is similar to basic EPS but presents the dilutive effect on
a per share basis of potential common shares (e.g., convertible securities,
options and warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
8
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 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 and the statement of cash flows 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. Because cash
flows are translated based on the average translation rate, amounts related to
assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet. 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
December 31, 2008 and September 30, 2008, the exchange rate was 6.82 and 6.79
RMB per US Dollar, respectively.
INCOME TAXES - The Company utilizes 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
December 31, 2008 and September 30, 2008, respectively.
In June 2006, the FASB issued Interpretation 48, "Accounting for Uncertainty in
Income Taxes", an interpretation of FASB Statement No. 109, "Accounting for
Income Taxes." ("FIN 48"). 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 was
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.
Harbin Rodobo is entitled to a tax holiday of five years for full Enterprise
Income Tax exemption in China. The preferential tax treatment commenced in 2005
and will expire in 2009. The estimated tax savings for the three months ended
December 31, 2008 and 2007 amounted to $468,151 and $196,797, respectively. The
net effect on basic earnings per share had the income tax been applied would
decrease earnings per share from $1.30 to $0.98 for the three months ended
December 31, 2008 and $0.61 to $0.41 for the three months ended December 31,
2007.
9
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 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 December 31, 2008 and September 30, 2008 due
to the relatively short-term nature of these instruments.
CONCENTRATIONS OF BUSINESS AND CREDIT 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 December 2007, the FASB issued SFAS No.
141(R), "Business Combinations" ("SFAS 141(R)"). SFAS 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. SFAS 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 SFAS 141 (R) on its financial statements.
In December 2007, the FASB also issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements - an amendment of Accounting Research
Bulletin No. 51" ("SFAS 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. SFAS 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 SFAS 160 on its
financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS 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. SFAS 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 SFAS 161 on its financial
statements.
10
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
3. ACCOUNTS RECEIVABLE
The Company's accounts receivable as of December 31, 2008 and September 30, 2008
are summarized as follows:
December 31, September 30,
2008 2008
----------- -----------
Accounts receivable $ 1,543,028 $ 1,210,249
Less: Allowance for doubtful accounts 66,602 66,921
----------- -----------
Total net accounts receivable $ 1,476,426 $ 1,143,328
=========== ===========
The activity in the allowance for doubtful accounts as of December 31, 2008 and
September 30, 2008 is summarized as follows:
December 31, September 30,
2008 2008
------------ -------------
Three months Yearly
Beginning balance $ 66,921 $ 60,643
(Deductions) additions during the period (319) 6,278
------------ -------------
Ending balance $ 66,602 $ 66,921
============ =============
4. INVENTORIES
Inventories consist of the following as of December 31, 2008 and September 30,
2008:
December 31, September 30,
2008 2008
------------ ------------
Raw materials $ 338,684 $ 302,741
Work-in-progress 164,916 512,806
Finished goods 108,259 53,144
Packing materials 95,907 122,844
------------ ------------
Total inventories $ 707,766 $ 991,536
============ ============
11
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
5. FIXED ASSETS
Fixed assets consist of the following as of December 31, 2008 and September 30,
2008:
December 31, September 30,
2008 2008
------------- -------------
Building improvement $ 508,088 $ 411,901
Plant and machinery 591,225 522,494
Motor vehicles 21,226 21,217
Computers and equipment 8,960 9,003
------------- -------------
1,129,387 967,615
Less: accumulated depreciation (179,027) (155,536)
------------- -------------
Total fixed assets, net 950,361 812,079
Construction in progress -- 148,240
------------- -------------
$ 950,361 $ 960,319
============= =============
Depreciation expense was $24,217 and $7,766 for the three months ended December
31, 2008 and 2007, respectively.
6. DEPOSITS ON LAND AND EQUIPMENT
On April 1, 2008, the Company entered into an "Investment Agreement" with Harbin
Mega Profit to incorporate a subsidiary company, Mega Profit Agriculture As of
December 31, 2008, the Company made a total down payment of RMB 79,830,000
(approximately US$11,701,048) to acquire land, buildings and equipments under
the agreements with various parties. The remaining contract amount totals RMB
63,555,485 (approximately US$9,315,571).
As of December 31, 2008, Harbin Rodobo also made down payment of $1,028,655 to
purchase certain equipment.
7. 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
$732,869). The Company exclusively has the right to use the formula for 10 years
starting July 1, 2008. As of December 31, 2008, the Company has made an
installment payment of RMB 2,000,000 (approximately $293,148). Intangible assets
are amortized on a straight line basis over 10 years. Amortization expense was
$18,233 for the three months ended December 31, 2008.
12
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
8. SHAREHOLDER'S EQUITY
Upon its inception, Mega Profit had a capital subscription receivable with an
amount of $50,000. On January 11, 2008, Mega Profit issued 14,500 shares of
common stock to an investor with proceeds of $1,450,000.
Prior to the Merger, the Company had 26,980,609 shares of common stock issued
and outstanding. In connection with the Merger consummated on September 30,
2008, the Company cancelled 10,293,359 shares of common stock issued to former
employees and shareholders of the Company and conducted a reverse stock split of
approximately 37.4 for 1 on the remaining outstanding shares of common stock,
which resulted in 461,883 shares outstanding post the reverse stock split. In
consideration of the Merger, the Company issued to Sellers and their designees
approximately 37,000,000 shares of common stock prior to and approximately
973,685 shares post the reverse stock split. Additionally, the Company issued to
Sellers and their designees 12,976,316 shares of convertible preferred stock
convertible into 12,976,316 shares of the common stock of the Company. As of
December 31, 2008, there were 1,435,568 shares of common stock and 12,976,316
shares of convertible preferred stock issued and outstanding.
On September 30, 2008, prior to and in conjunction with the Merger, Mega Profit
entered into a Securities Purchase Agreement with an institutional investor for
$3,000,000. As a result, upon the completion of the Merger, the investor
received preferred stock convertible into common stock upon the increase of the
authorized share capital of the Company together with other owners of Mega
Profit. Pursuant to the Merger agreement, no convertible preferred shares or
warrant may be converted to common stock until the authorized common stock is
increased to allow for such conversions. In addition, Mega Profit also issued to
the investor warrants to purchase 818,182 shares of the common stock of Mega
Profit at an exercise price of $1.50 per share and warrants to purchase 545,455
shares of the common stock of Mega Profit at an exercise price of $1.75 per
share. No separate consideration was paid for such warrants. The Warrants which
were assumed by the Company upon the Merger, expire in four years.
The Warrants meet the conditions for equity classification pursuant to FAS 133
"Accounting for Derivatives" and EITF 00-19 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock."
Therefore, these warrants were classified as equity and included in [no dividend
yield] Additional Paid-in Capital. The fair value of the warrants was calculated
using the Black-Scholes options pricing model using the following assumptions:
volatility 100%, risk free interest rate 3.99% and expected term of four years.
Following is a summary of the status of warrants activities as of December 31,
2008:
Outstanding Outstanding
Exercise September 30, Expired or December 31, Expiration
Price 2008 Granted Exercised 2008 Date
- --------- ------------- ------- ---------- ------------ ------------------
$ 1.50 818,182 - - 818,182 September 30, 2012
$ 1.75 545,455 - - 545,455 September 30, 2012
13
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
9. EARNINGS PER SHARE
The Company had 12,976,316 shares of convertible preferred stock as of December
31, 2008. They are not included in diluted weighted average shares calculation.
Pursuant to the Merger agreement, no convertible preferred shares may be
converted to common stock until the authorized common stock is increased to
allow for such conversions.
The Company had outstanding warrants to acquire 1,363,637 shares of common
stock. The warrants are anti-dilutive because the exercise prices are higher
than market price. They are not included in diluted weighted average shares
calculation.
In September 2008, the Company entered a reverse merger transaction. The Company
computes the weighted-average number of common shares outstanding in accordance
with SFAS 141(R). SFAS 141(R) states that in calculating the weighted average
shares when a reverse merger took place in the middle of the year, the number of
common shares outstanding from the beginning of that period to the acquisition
date shall be computed on the basis of the weighted-average number of common
shares of the legal acquiree (accounting acquirer) outstanding during the period
multiplied by the exchange ratio established in the merger agreement. The number
of common shares outstanding from the acquisition date to the end of that period
shall be the actual number of common shares of the legal acquirer (the
accounting acquiree) outstanding during that period.
10. MAJOR CUSTOMERS
The following table presents sales from major customers for the three months
ended December 31, 2008 and 2007:
Three Months Ended December 31,
2008 2007
----------------------------- ------------------------------
% of Accounts % of Accounts
total receivable total receivable
Sales sales balance Sales sales balance
---------- ----- ---------- ---------- ----- ----------
Chengdu Luoling $1,481,729 17% $ 297,145 $ 906,186 21% $ 231,182
Jiamusi Duoduo 1,432,859 16% 179,553 340,823 8% 177,875
Jiangxi Meilu -- 0% 73,597 843,012 19% 247,340
---------- ----- ---------- ---------- ----- ----------
Total $2,914,588 33% $ 550,295 $2,090,021 48% $ 656,397
========== ===== ========== ========== ===== ==========
14
RODOBO INTERNATIONAL, INC.
(FORMERLY NAVSTAR MEDIA HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
11. COMMITMENTS 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$146,574) 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 was extended to July 6, 2030 and effective July
5, 2010, the annual rent payment will be reduced to RMB 600,000 (approximately
US$87,944), payable in two installments each year. Under the amended agreement,
the Company is also required to make a minimum RMB 400,000 (approximately
US$58,630) of annual improvements or betterment to the leased facility when the
new lease term becomes effective.
On April 1, 2008, the Company entered into an "Investment Agreement" with Harbin
Mega Profit to incorporate a subsidiary company, Mega Profit Agriculture. As of
December 31, 2008, the Company made a total down payment of RMB 79,830,000
(approximately US$11,701,048) to acquire land, buildings and equipments under
the agreements with various parties. The remaining contract amount totals RMB
63,555,485 (approximately US$9,315,571).
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward - Looking Statements
- ----------------------------
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are "forward-looking statements." Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "intends," "plan" "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, and similar expressions are intended to identify
forward-looking statements. We remind readers that forward-looking statements
are merely predictions and therefore inherently subject to uncertainties and
other factors and involve known and unknown risks that could cause the actual
results, performance, levels of activity, or our achievements, or industry
results, to be materially different from any future results, performance, levels
of activity, or our achievements, or industry results, expressed or implied by
such forward-looking statements. Such forward-looking statements appear in Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as elsewhere in this Quarterly Report and include
statements regarding our outlook for the coming months and information with
respect to any other plans and strategies for our business. The factors
discussed herein and expressed from time to time in our filings with the
Securities and Exchange Commission ("SEC") could cause actual results and
developments to be materially different from those expressed in or implied by
such statements. Except as required by law, we undertake no obligation to
release publicly the result of any revision to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Further information on potential
factors that could affect our business is described in Part I, Item 1A, "Risk
Factors" of our Annual Report on Form 10-K for the fiscal year ended September
30, 2008. Readers are also urged to carefully review and consider the various
disclosures we have made in that report.
Our financial statements are stated in thousands United States Dollars (US$) and
are prepared in accordance with United States Generally Accepted Accounting
Principles.
In this quarterly report, unless otherwise specified, all dollar amounts are
expressed in United States dollars and all references to "common shares" refer
to the common shares in our capital stock. References to "yuan", "renminbi" or
"RMB" are to the Chinese yuan, which is also known as the renminbi.
As used in this quarterly report, the terms "we", "us", "our", and "Rodobo" mean
Rodobo International, Inc. and its wholly owned subsidiaries, unless otherwise
indicated or as otherwise required by the context
16
Overview
We are one of the largest non-state-owned dairy companies in China, ranking in
the top 10% of the industry. Our industry niche is the dairy-based nutritional
products market. Our operations include production, marketing, research and
development, packaging and the management of raw milk resources. Our target
market is comprised of infants, children, pregnant women, nursing mothers and
other adults. Our revenues are derived solely from sales of our products.
On September 30, 2008, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") among its wholly owned acquisition subsidiary, Rodobo
International, Inc., a Nevada corporation, Mega Profit Limited ("Mega") and
Shareholders of Mega. Pursuant to the Merger Agreement, Navstar Media Holdings,
Inc. acquired 100% ownership interest in Mega, which owned 100% of Harbin Rodobo
Dairy Co., Ltd. ("Harbin Rodobo"). At the closing, the Company acquired all of
the issued and outstanding capital stock of Mega from Mega's shareholders in
exchange for shares of common stock and shares of convertible preferred stock,
which upon conversion of the preferred stock into common stock will equal 93% of
the issued and outstanding shares of common stock of the Company (the "Merger").
Concurrently with the Merger, the Company changed its name to "Rodobo
International, Inc." pursuant to Chapter 92A the Revised Nevada Statutes.
Mega Profit has not carried on any substantive operations of its own. Instead,
it had entered certain exclusive agreements with Harbin Rodobo. Mega's wholly
owned subsidiary, Harbin Mega Profit Management Consulting Co., Ltd ("Harbin
Mega Profit") through its variable interest entity, Harbin 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". Harbin Mega Profit provides exclusive consulting and
other business operation services to Harbin Rodobo and in return receives a
consulting services fee equal to the revenues of Harbin Rodobo.
In connection with the Merger, 10,293,359 shares of common stock issued to
former employees of Rodobo and shareholders of prior subsidiaries were
cancelled. Per agreements with certain convertible note holders holding
collectively $1,000,000 original face value of the convertible notes ("Notes"),
all Notes have been suspended and upon increase of the Company's authorized
share capital the Notes shall be converted into approximately 458,490 shares of
the Company's common stock.
Effective on November 12, 2008, we effected a reverse stock split of 37.4 to 1.
Our shares of common stock are quoted on the Over the Counter Bulletin Board
under the symbol "RDBO.OB".
Results of Operations
The following table sets forth for the periods indicated the statement of
operations and each category as a percentage of net sales.
17
Three Months Ended December 31,
-------------------------------------------------------
2008 % of 2007 % of % of
sales sales change
----------- ------- ----------- ------- --------
Net sales $ 8,860,825 100.0% $ 4,033,253 100.0% 119.7%
Cost of goods sold 4,357,117 49.2% 2,814,203 69.8% 54.8%
----------- -----------
Gross profit 4,503,708 50.8% 1,219,050 30.2% 269.4%
----------- -----------
Operating expenses:
Distribution expenses 2,119,352 23.9% 550,402 13.6% 285.1%
General and administrative expenses 388,682 4.4% 162,604 4.0% 139.0%
Depreciation and amortization expenses 42,450 0.5% 7,766 0.2% 446.6%
----------- -----------
Total operating expenses 2,550,484 28.8% 720,772 17.9% 253.9%
----------- -----------
Operating income 1,953,224 22.0% 498,278 12.4% 292.0%
Subsidies -- 0.0% 94,187 2.3% -100.0%
Other (expenses) income (80,618) -0.9% 3,891 0.1% -217.2%
----------- -----------
Income before income taxes 1,872,606 21.1% 596,356 14.8% 214.0%
Provision for income taxes -- 0.0% -- 0.0% n/a
Net income 1,872,606 21.1% 596,356 14.8% 214.0%
----------- -----------
Other comprehensive income:
Foreign currency translation
adjustment (39,780) -0.4% 110,305 2.7% -136.1%
----------- -----------
Comprehensive income $ 1,832,826 20.7% $ 706,661 17.5% 159.4%
=========== ===========
Three Months Ended December 31, 2008 Compared to Three Months Ended September
30, 2008
Net Sales:
Net sales for the three months ended December 31, 2008 were $8.9 million, an
increase of approximately $4.8 million or 119.7% compared to net sales for the
three months ended December 31, 2007. This increase was primarily driven by
volume growth, with the average selling price remaining flat over both periods.
We continued our efforts to develop distribution networks and expand the market
areas in the six provinces in which we currently sell products. The increase was
also attributed to the launch of a new product series called Healthy Elderly
("Healthy Elderly") in October 2008. Sales for Healthy Elderly were
approximately $1.9 million in the three months ended December 31, 2008.
Gross Profit:
Our gross profit increased approximately $3.3 million for the three months ended
December 31, 2008, up 269.4% compared to the gross profit for the three months
ended December 31, 2007. The overall gross profit margin had been improved from
30.2% in 2007 to 50.8% in 2008.
The improvement of gross profit margin was mainly driven by the shift from
low-margin products (Whole Milk Powder Formula) to high-margin products
(Baby/Infant Formula, Healthy Elderly) over periods. Our Whole Milk Powder
Formula product line historically had a relatively lower gross margin (11-16%)
than other product lines. Sales from Whole Milk Powder Formula were 21.7% of
total sales in the three months ended December 31, 2008 compared to 53.4% in the
three months ended December 31, 2007. Our Baby/Infant Formula product line
historically had a relatively higher gross margin (62-66%). Sales from
Baby/Infant Formula were 51.8% of total sales in the three months ended December
31, 2008 compared to 16.2% in the three months ended December 31, 2007. The
launch of the Healthy Elderly product line achieved sales of $1.9 million in the
three months ended December 31, 2008, equaling 21.6% of total sales. Gross
margin for Healthy Elderly was 54.6%.
18
Operating expenses:
Operating expenses for the three months ended December 31, 2008 were $2.6
million, an increase of approximately $1.8 million or 253.9% compared to the
three months ended December 31, 2007. Operating expenses as a percentage of net
sales increased from 17.9% in 2007 to 28.8% in 2008.
Distribution expenses increased approximately $1.6 million, up 285.1% for the
three months ended December 31, 2008, compared with the figure for the three
months ended December 31, 2007. The increase was mainly due to an increase of
$1.3 million in distributor rebates as a result of sales increase and market
expansion. The increase was also attributed to an increase of $0.09 million in
freight costs.
General and administrative expenses increased by $0.23 million, or approximately
139.0%, from $0.16 million in 2007 to $0.39 million in 2008. The increase was
primarily due to $0.18 million of incremental expenses incurred by Mega, Harbin
Mega Profit Management Consulting Co., Ltd. and Qinggang Mega Profit Agriculture
Co., Ltd. ("Mega Agriculture"), subsidiaries of the Company that were
incorporated in fiscal 2008. The increase was also attributed to an increase of
$0.02 million in rent due to the new Beijing sales office and an increase of
$0.01 million in travel expense.
Depreciation and amortization expenses increased by $0.03 million from $0.01
million in the three months ended December 31, 2007 to $0.04 million in the
three months ended December 31, 2008. Depreciation expenses increased by $0.02
million, primarily due to building improvements at our Qinggang production
facilities and the purchase of equipment to support our sales growth. In the
three months ended December 31, 2008, there was approximately $0.02 million of
amortization expenses associated with the intangible assets, the right to use a
milk powder product formula developed for the middle-aged and elderly by China
Nutrition Society, we acquired in fiscal 2008. There was no amortization
expenses in the three months ended December 31, 2007.
Overall increase in operating expenses was less than the increase in net sales.
We realized a 292.0% increase (approximately $1.5 million) in income from
operations in the three months ended December 31, 2008 compared with the three
months ended December 31, 2007.
Net Income:
We achieved $1.9 million of net income for the three months ended December 31,
2008, an increase of $1.3 million (approximately 214.0%) compared with $0.6
million for the three months ended December 31, 2007. The increase was mainly
attributable to the increase in sales, partially offset by increase in cost of
goods sold and operating expenses.
19
Liquidity and Capital Resources
The following table summarizes the cash flows for the three months ended
December 31, 2008 and 2007.
Three Months Ended
December 31,
2008 2007
----------- -----------
Net cash provided by operating activities $ 248,795 $ 437,482
----------- -----------
Net cash (used in) investing activities (1,922,180) (406,200)
----------- -----------
Net cash provided by (used in) financing
activities 2,971,033 (11,776)
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents (110) 105,983
----------- -----------
Net increase (decrease) in cash and cash
equivalents 1,297,538 19,489
Cash and cash equivalents, beginning of period 659,029 33,302
----------- -----------
Cash and cash equivalents, end of period $ 1,956,567 $ 52,791
=========== ===========
Our cash balance increased by $1.3 million to $2.0 million at December 31, 2008,
as compared to $0.7 million at September 30, 2008. The increase was mainly
attributable to net cash provided by operating activities of $0.2 million and
net cash provided by financing activities of $3.0 million, being offset by cash
used in investing activities of $1.9 million.
Net Cash Provided By Operating Activities
For the three months ended December 31, 2008, we generated $0.2 million in
operating activities, compared with $0.4 million provided by operating
activities for the three months ended December 31, 2007. The decrease in net
cash flows provided from operating activities was attributable primarily to the
increase in net income of $1.3 million and decrease in inventory of $0.6 million
being offset by a decrease in accounts payable and other payable of $1.2 million
and a decrease in advances from customers of $1.1 million.
Net Cash Used in Investing Activities
For the three months ended December 31, 2008, we used $1.9 million in investing
activities, compared with $0.4 million used in investing activities for the
three months ended December 31, 2007. This increase was due primarily to $1.9
million of deposits on land and equipment in connection with the construction of
Mega Agricultural new dairy farms.
20
Net Cash Provided By Financing Activities
For the three months ended December 31, 2008, approximately $3.0 million was
provided by financing activities, compared with approximately $0.01 million used
in financing activities for the three months ended September 30, 2008. This
increase in net cash from financing activities was primarily due to the receipt
of a $3.0 million investment associated with an investment agreement that Mega
entered into with an investor on September 30, 2008.
On April 1, 2008, we entered into an "Investment Agreement" with Harbin Mega
Profit to incorporate a subsidiary company, Mega Agriculture. As of December 31,
2008, we made a total down payment of RMB 79,830,000 (approximately
US$11,701,048) to acquire land, buildings and equipments under the agreements
with various parties. The remaining contract amount totals RMB 63,555,485
(approximately US$9,315,571).
On September 30, 2008, prior to and in conjunction with the Merger, Mega entered
into an investment agreement with an investor for $3.0 million. As a result,
upon the Merger, the investor received preferred stock which is convertible into
shares of common stock upon the increase of the authorized share capital of the
Company together with other owners of Mega. In addition, Mega issued to the
investor warrants to purchase 818,182 shares of common stock of Mega at an
exercise price of $1.50 per share and warrants to purchase 545,455 shares of
common stock of Mega at an exercise price of $1.75 per share, with no separate
consideration being paid for such warrants (the "Warrants"). The Warrants, which
were assumed by the Company upon the Merger, expire in four years. The Company's
shareholders approved the increase in authorized share capital by written
consent which approval will be effective 20 days following notice to the
shareholders not party to such consent.
Outlook
Over the next twelve months, we intend to pursue our primary objective of
increasing market share, building our own dairy farm and improving raw milk
resources. We believe that we have sufficient funds to operate our existing
business for the next twelve months. In addition to funds available from
operation earnings, we may need external sources of capital for our expansion.
There can be no assurance that we will be able to obtain such additional
financing at acceptable terms to us, or at all.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our SEC reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer ("CEO")
and our Chief Financial Officer ("CFO"), as appropriate to allow timely
decisions regarding required disclosures.
21
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO and our
CFO, of the effectiveness of our disclosure controls and procedures as defined
in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on
that evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective.
Changes in Internal Control Over Financial Reporting - There has been no
change in our internal control over financial reporting during the first quarter
of fiscal 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
22
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On December 12, 2008, we received a written consent in lieu of a meeting of
stockholders approving the increase in our authorized capital from 16,604,278
shares, consisting of 1,604,278 shares of Common Stock par value $0.001 per
share, and 15,000,000 shares of preferred stock, par value $0.001 per share, to
230,000,000 authorized capital, consisting of 200,000,000 shares of common stock
par value $0.0001, and 30,000,000 shares of preferred stock, par value $0.0001
per share. In connection therewith, we filed a preliminary information statement
with the SEC. Upon the filing of a definitive information statement, we will
mail a copy to our shareholders of record. At least 20 days after the mailing of
the information statement, we will file a Certificate of Amendment with the
Nevada Secretary of State to amend our Articles of Incorporation to increase our
authorized share capital. The Certificate of Amendment will become effective
when it is filed with the Nevada Secretary of State.
Item 6. Exhibits.
31.1* Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
*Filed herewith.
**Furnished herewith.
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Rodobo International, Inc.
By: /s/ Yanbin Wang
---------------
Yanbin Wang
Chief Executive Officer,
Principal Executive Officer
Dated: February 17, 2009
By: /s/ Xiuzhen Qiao
----------------
Xiuzhen Qiao, Chief Financial Officer
Principal Financial and Accounting Officer
Dated: February 17, 2009
24