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EX-99.1 - KAIBO FOODS Co Ltd | v204354_ex99-1.htm |
EX-16.1 - KAIBO FOODS Co Ltd | v204354_ex16-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
(Amendment
No. 1)
Pursuant
to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of
Report(Date of Earliest Event Reported): October 21, 2010
CFO
CONSULTANTS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
(State or
other jurisdiction of incorporation)
333-149294
|
42-1749358
|
(Commission
File Number)
|
(IRS
Employer Identification No.)
|
Rm. 2102
F & G, Nan Fung Centre, 264-298 Castle Peak Rd.,
Tsuen
Wan, N.T., Hong Kong
(Address
of principal executive offices and zip code)
+852 2412
2208
(Registrant's
telephone number including area code)
(Registrant's
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 registrant under any of the following
provisions:
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting material
pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR
240.14a-12(b))
¨ 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
This
Amendment No. 1 to the Current Report on Form 8-K/A filed by CFO Consultants,
Inc., a Nevada corporation (“we,” “our,” “us,” or the “Company”), on October 22,
2010 (i) includes as Exhibit 99.1 the unaudited interim consolidated
financial statements of Hong Kong Wai Bo International Limited, a Hong Kong
corporation (“Waibo”) our wholly owned subsidiary, as of September 30, 2010 and
for the three and nine months ended September 30, 2010 and 2009, and the related
notes thereto (ii) updates the section titled “Management’s Discussion and
Analysis of Financial Condition, Results of Operations and Prospects,” as of
September 30, 2010 and for the three and nine months ended September 30, 2010
and 2009, (iii) includes Exhibit 16.1, the
letter from our previous independent registered public accounting firm agreeing
to the statements made in our October 21, 2010 Current Report on Form 8-K filing
as they relate to such firm (iv) includes certain Pro Forma per share
information for the three and nine months ended September 30,
2010 and (v) includes other information that would be disclosed by
Waibo were it filing a quarterly report on Form 10-Q with the Securities and
Exchange Commission with respect to the quarter ended September 30,
2010.
Forward
Looking Statements
This
amendment to Form 8-K and other reports filed by CFO Consultants, Inc. from time
to time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward looking statements and information that is based
upon beliefs of, and information currently available to, CFO Consultants, Inc’s
management as well as estimates and assumptions made by management. When
used in the Filings the words “anticipate”, “believe”, “estimate”, “expect”,
“future”, “intend”, “plan” or the negative of these terms and similar
expressions as they relate to us or our management identify forward looking
statements. Such statements reflect our current view with respect to future
events and are subject to risks, uncertainties, assumptions and other factors
(including the risks contained in the section of this report entitled “Risk
Factors”) relating to industry, our operations and results of operations. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended or planned.
Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results. The following discussion should
be read in conjunction with Waibo’s audited consolidated financial statements as
of December 31, 2008 and 2009 and for the years ended December 31, 2007, 2008
and 2009 and the related notes thereto included as an exhibit to the original
Form 8-K filed on October 22, 2010, and the unaudited interim consolidated
financial statements as of September 30, 2010 and for the three and nine months
ended September 30, 2009 and 2010 and the related notes thereto filed as an
exhibit to this Amendment No. 1 on Form 8-K/A.
Completion
of acquisition or disposition of assets
On
October 21, 2010, we completed the acquisition of Waibo pursuant to the terms of
an Agreement and Plan of Reorganization. The acquisition was
accounted for as reorganization affected by a share exchange, wherein Waibo is
considered the acquirer for accounting and financial reporting
purposes. The assets and liabilities of the acquired entity have been
brought forward at their book value and no goodwill has been
recognized. The remainder of this Item contains information that
would be disclosed by Waibo were it filing a quarterly report on Form 10-Q with
the Securities and Exchange Commission with respect to the quarter ended
September 30, 2010.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS
OVERVIEW
We are a
premium native potato starch manufacturer in the PRC. Our corporate
headquarters is based in Hong Kong and our operational headquarters is based in
Kunming city, Yunnan province. We began operations in 2004 and have factories
located in Yunnan, Guizhou and Gansu provinces of China. We primarily sell our
products to distributors and food processing companies in the PRC.
Our
products are currently sold under the “Wei Bao” and “Jiabao” brand names.
The Wei Bao brand is targeted primarily to food processors and our Jiabao brand
is targeted to food service operators. We believe that our company is one of the
top 5 premium starch potato processors in the PRC, with a production capacity of
111,500 metric tons per year. In 2008, we received the “China’s Potato Starch
Industry Top Ten Best Selling Products”, “China’s Potato Starch Industry Top Ten
Customer Satisfaction Product” and “China’s Potato Starch Industry Top Ten Best
Brands” awards. Our Jiabao brand created in 2007 is gaining the acceptance
of our target customers.
Sales
We
normally enter into six-month agreements with our customers. The agreement
specifies the quantity that the customer believes they will buy during the
forthcoming six months and the negotiated price per metric ton. Our
customers are not charged a penalty for failing to purchase the quantities set
forth in our contracts. However, historically our customers have purchased the
set amount in the contracts. In the event the market price exceeds the 10%
of the price stipulated in the contract, the agreed price stated on the
agreement will be adjusted to the reflect the current market price.
We sell
premium quality native potato starch, which is usually sold for 5-10% more than
the average market price.
We have
established an extensive distribution network in the PRC. During the year ended
December 31, 2009, 57.4% and 42.6% of our products were sold to manufacturers
and distributors respectively.
Revenue
from sales of our native potato starch is recognized upon delivery of our
products to the railway station nearest to our respective factories at which
time the significant risks and rewards of ownership of our products are
transferred to the customers.
Our
revenue has increased from $33.1 million in 2007 to $ 64.5 million in 2009,
representing a compounded annual growth rate of 39.6%. This was
mainly due to the increase in demand for our products from existing and new
customers supported by the increase in our production capacity. We believe
that greater acceptance of our Wei Bao and Jiabao brands in the PRC and our
commitment to continuously improving the quality of our products was also a
contributing factor.
The main
factors that affect our revenue include the following:
(a)
|
Competition
|
We expect
to face competition from potato starch producers with more than 20,000 metric
tons annual production capacity and new entrants. Our future revenue growth
depends on our ability to compete effectively against such competitors on key
considerations including the price and quality of our products. If we are
unable to retain existing customers and secure new ones, or fail to develop new
products to meet the needs of our customers, our revenue and profitability may
be adversely affected.
(b)
|
Stable
supply of raw materials
|
Profitability
in the potato starch industry is materially affected by the need to maintain a
sufficient supply of potatoes at stable prices from farmers. These commodity
prices are determined by supply and demand. While the potato starch industry has
historically not been subject to wide fluctuations and cycles, we cannot
eliminate the risk of increased operating costs from potato price increases, and
it is very difficult to predict when and if price spiral cycles will
occur.
(c)
|
Alternative
raw materials or production
technology
|
If a new
source of starch is discovered as a substitute to native potato starch or new
production technologies are developed that render our production facilities
obsolete, our revenue and profitability may be adversely affected.
(d)
|
Our
production capacity
|
We
currently have a production capacity of 111,500 metric tons per year for native
potato starch. As at September 30, 2010, our production capacity utilization was
87%. We plan to establish new production lines for native potato starch,
modified potato starch and whole potato starch. We plan to increase
our production capacity to 184,500 metric tons by 2012. Should we
able to increase our production capacity in time to meet any increase in demand,
future growth of our revenue will be significantly improved.
(e)
|
Growth
of native potato starch industry
|
The PRC
continues to experience exponential economic and population growth. The per
capita usage of potato starch in the PRC is mere 0.8kg per annum, compared to
10kg in developed countries such as Europe and Japan. With the
increase in disposable income of the population and the per capita usage of
potato starch, the demand for our products will continue to rise and improve our
revenue and profitability.
Please
refer to the section “Risk Factors” included in the original Form 8-K filed on
October 22, 2010 for further information on other factors that may affect our
financial position or results of operations.
Cost
of sales
Our cost
of sales consist of cost of raw material, direct labor and production overhead,
which accounted for 84.4%, 2.1% and 13.5% of our cost of sales respectively for
each of the three years ended December 31, 2009.
Potatoes
are a key raw material and we source them from farmers in Yunnan, Gansu and
Guizhou provinces in the PRC.
Direct
labor includes salaries, wages and staff related costs of plant operators and
those who are directly involved in the production of our products. Overhead
consists mainly of depreciation charges on machinery, utilities (water and
electricity) and other factory related costs.
In
addition to the volume of production, our costs of sales are affected by, (i)
factors affecting the costs of raw materials, namely, the market demand and
supply conditions for potatoes, and harvesting conditions; (ii) factors
affecting labor costs, namely demand and supply of labor, general wage levels,
and government regulations; as well as (iii) factors affecting general
manufacturing overhead, namely, our depreciation expense resulting from capital
expenditures and general prices of utilities charges.
Operating
expenses
Our
operating expenses consist of selling and distribution costs and administrative
expenses.
Our
selling and distribution costs consist of transportation costs, salaries and
staff welfare expenses of sales personnel, entertainment expenses and
telecommunication expenses incurred by our sales personnel. Our facilities are
strategically located near railways, which we use as the main method of
transporting our products. We only pay for shipment of our products
to the railway station. Our customers pay for the railway transfer
fee. Transportation costs accounted for an average of 79.5% of our
selling and distribution costs incurred during 2007 to 2009.
Our
administrative and other expenses consist of salaries and staff related expenses
for administrative personnel, depreciation charges, entertainment expenses and
other office related expenses. The major components of administrative and other
expenses include salaries and depreciation which accounted for an average of
30.0% and 20.0% of our administrative expenses incurred during 2007 to 2009
respectively.
Other
non-operating income
Other
non-operating income consists of government subsidies, bank interest income and
other items. All of our PRC subsidiaries are accredited with “Leading
Enterprise” status, which has entitled them to receive various forms of
preferential treatment from the local and state governments including government
subsidies and infrastructural assistance. The subsidies received related to
agriculture land development fund contributions, commitment to produce high
quality native potato starch and our contribution to rural agriculture
development.
Interest
expenses
Our
interest expenses comprise mainly interest on bank borrowings, which were
incurred for working capital purposes.
Income
tax expenses
The PRC
has enacted a tax policy that entitles a foreign corporation to a full exemption
from both PRC state and local corporate income tax for the first two profitable
calendar years of its operations and thereafter a 50% relief from the PRC state
corporate income tax and full exemption from local corporate income tax for the
following three calendar years. Our PRC subsidiaries, namely Yunnan
WeiLi, Guizhou WeiLi and Gansu WeiBao, qualify for such tax exemptions. The
circular entitled “Scope of Preliminary Processing of Agricultural Products
Entitled to Preferential Enterprise Income Tax Policies (Trial Implementation)”
published by Ministry of Finance and State Administrative of Taxation, entitled
us to a full exemption from PRC corporate income tax since January 1, 2008. Our
native potato starch qualifies for this exemption and as a result none of
our subsidiaries are subject to PRC corporate income tax.
Pursuant
to the New Tax Law, dividends declared by our PRC subsidiaries to their parent
company incorporated in Hong Kong are subject to withholding tax of 5% or
10%. In accordance with Caishui (2008) No. 1 issued by State Tax
Authorities, undistributed profits from our PRC subsidiaries up to December 31,
2007 will be exempt from withholding tax when they are distributed in the
future. As a result, a provision for dividend withholding tax has
been made starting January 1, 2008. As a United States public
company, we do not intend to pay such dividends.
Seasonality
From May
through July, we typically halt our production process at our facilities located
in Yunnan and Guizhou provinces. The potato-planting season typically
begins in March and the potatoes are delivered to our facilities from August
until December. The farmers store remaining unsold potatoes in
cellars for up to four months, which allows us to expand our production
period until April.
Our Gansu
factory is in one of the colder regions in China and typically halts
production during January and February and resumes production from
March to May. It typically shuts down again during June and
July and resumes production in August. During the off-season, we spend time
performing routine maintenance.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We have
identified certain accounting policies that are significant to the preparation
of the financial statements. Critical accounting policies are those that are
both most important to the portrayal of our results of operations and financial
condition and require management’s most difficult, subjective, or complex
judgment, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent
periods. Certain accounting estimates are particularly sensitive because
of their significance to financial statements and because of the possibility
that future events affecting the estimate may differ significantly from
management’s current judgments. We believe the following critical
accounting policies involve the most significant estimates and judgments used in
the preparation of the financial statements.
Property,
plant and equipment
Property,
plant and equipment are stated at cost less accumulated depreciation.
Expenditures for routine repairs and maintenance are expensed as
incurred.
Depreciation
is calculated on the straight-line basis over each asset’s estimated useful life
down to the estimated residual value of each asset. Estimated useful lives are
as follows:
Land
use rights
|
52
– 55 years
|
|
Buildings
|
20
years
|
|
Motor
vehicles
|
5
years
|
|
Plant
and machinery
|
10
years
|
|
Other
equipment
|
5
years
|
We review
and evaluate property, plant and equipment for impairment when events or changes
in circumstances indicate that the related carrying amounts may not be
recoverable. Impairment is considered to exist if the total estimated future
cash flows on an undiscounted basis are less than the carrying amount of the
assets. An impairment loss is measured and recorded based on discounted
estimated future cash flows. Our estimates of future cash flows are based on
numerous assumptions, and it is possible that actual future cash flows will be
significantly different than the estimates which are subject to significant
risks and uncertainties. Management believes that there is no
impairment to property, plant and equipment as of December 31, 2008 and 2009 and
September 30, 2010.
Revenue
recognition
We
generate our revenues from the selling of native potato starch
products. Revenues from product sales are recognized only when
persuasive evidence of an arrangement exists; delivery has occurred and the
customers' acceptance has been received; the price to the customer is fixed or
determinable; and collectability is reasonably assured. Generally,
these criteria are met upon shipment of products and transfer of title to
customers.
Inventories
Inventory
is stated at the lower of cost or market. Inventory is valued using the weighted
average method, which approximates actual cost. Capitalized costs include
materials, labor and manufacturing overhead related to the purchase and
production of inventories. Excess and obsolete inventory reserves are
established based upon the Group’s evaluation of the quantity of inventory on
hand relative to demand. The total reserve for obsolete inventory was
zero as of December 31, 2008 and 2009 and September 30, 2010.
Allowance
for Doubtful Accounts
An
allowance for doubtful accounts is provided based on an evaluation of the
collectability of accounts receivable, and other receivables. An allowance for
doubtful accounts is provided, when considered necessary, primarily consisting
of an analysis based on current information available about the customer or
borrower. Receivable losses are charged against the allowance when the Group
believes the uncollectability of the receivable is confirmed. Subsequent
recoveries, if any, are credited to the allowance. Total allowance for doubtful
accounts was zero as of December 31, 2008 and 2009 and September 30,
2010.
RECENTLY
ISSUED ACCOUNTING GUIDANCE
In
January 2010, the Financial Accounting Standards Board (the “FASB”) issued
additional disclosure requirements for fair value measurements. In accordance
with the new guidance, the fair value hierarchy disclosures are to be further
disaggregated by class of assets and liabilities. A class is often a subset of
assets or liabilities within a line item in the balance sheet. In addition,
significant transfers between Levels 1 and 2 of the fair value hierarchy will be
required to be disclosed. These additional requirements were effective for us on
January 1, 2010. These amendments will not have a material impact on the
consolidated financial statements; however they will require additional
disclosures. In addition, the guidance requires more detailed disclosures of the
changes in Level 3 instruments. These changes will be effective for us on
January 1, 2011 and are not expected to have a material impact on our
consolidated financial statements.
In June
2009, the FASB approved its Accounting Standards Codification (the “ASC” or
“Codification”) as the single source of authoritative United States accounting
and reporting standards applicable for all nongovernmental entities, with the
exception of the Securities and Exchange Commission (the “SEC”) and its staff.
The Codification, which changes the referencing of financial standards, was
effective for interim or annual financial periods ending after September 15,
2009. Therefore, beginning in the third quarter of fiscal year 2009, all
references made to US GAAP use the new Codification numbering system prescribed
by the FASB. As the Codification is not intended to change or alter existing US
GAAP, it did not have any impact on our consolidated financial
statements.
In
May 2009, the FASB issued guidelines on subsequent event accounting which
set forth: 1) the period after the balance sheet date during which management of
a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; 2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. These guidelines were effective for
annual periods ending after June 15, 2009. In
February 2010, the FASB amended this standard whereby companies that file
with the SEC are required to evaluate subsequent events through the date the
financial statements are issued, but are no longer required to disclose in the
financial statements that they have done so or disclose the date through which
subsequent events have been evaluated. Management evaluates all subsequent
events through the date of the issuance of our consolidated financial
statements.
Results
of Operations
Comparison
of the three months and nine months ended September 30, 2010 to
2009
Sales
Our sales
increased by 19.7% from $15.6 million for the third quarter of 2009 to $18.7
million for the third quarter of 2010 as a result of the increase in our selling
prices by 27.4% in the third quarter of 2010 compared to that of
2009.
Our sales
increased by 24.1% from $38.4 million for the nine months of 2009 to $47.7
million for the nine months of 2010 as a result of the increase in our selling
prices by 20.5% in the nine months of 2010 compared to that of
2009.
Cost of sales
Our cost
of sales increased by 54.4% from $8.5 million for the third quarter of 2009 to
$13.2 million for the third quarter of 2010, primarily due to corresponding
increases in the average purchase price of potatoes and sales
volume.
Our cost
of sales increased by 35.3% from $22.0 million for the nine months of 2009 to
$29.8 million for the nine month of 2010, primarily due to corresponding
increases in the average purchase price of potatoes and sales
volume.
Gross
profit and gross profit margin
The price
of agricultural products increased significantly during the third quarter of
2010. The average purchase price of potatoes increased by 36.3% from
RMB405 per metric ton in 2009 to RMB552 per metric ton for the nine months of
2010 compared to that of 2009.
The
increase in the average purchase price of potatoes in 2010 resulted in an
increase in the ratio of our cost of sales as a percentage to our
sales. Consequently, our gross profit margin decreased from
45.4% for the third quarter of 2009 to 29.5% for the third quarter of
2010, while it decreased from 42.7% for the nine months of 2009 to 37.6%
for the nine months of 2010.
The
increase in our selling prices did not offset with the significant increase in
purchase price of potatoes during the three months ended September 30, 2010 due
to the seasonality of our business, in which we start our production process in
August of each year. This resulted in decrease in gross profit from $7.1 million
for the third quarter of 2009 to $5.5 million for the third quarter of
2010. However, we are generally able to pass through the
increases in the purchase price of potatoes to our customers within
approximately one month. Our customers are well informed
regarding potato prices and the fact that potatoes are our major cost of
sales. As our sales people are able to explain the price
changes, we did not experience difficulty in gaining full customer acceptance on
our price adjustments. We successfully increased our selling price
and improved our gross profit margin beginning in September
2010.
Despite
the recent major price changes, we did not lose any anticipated orders and were
able to maintain our overall gross profit levels. We believe that we have the
ability to transfer incremental cost to our customers by making timely
adjustments to our selling price. As a result, our total gross profit
still increased by 9.2% from $16.4 million for nine months of 2009 to
$17.9 million for nine months of 2010.
Operating
expenses
Operating
expenses decreased by 49.0% from $1.0 million for the third quarter of 2009 to
$0.5 million for the third quarter of 2010. The decrease was due to professional
services incurred during the third quarter of 2009 that were not necessary
during the third quarter of 2010. However, operating expenses for the
year remained stable decreasing by 2.2% from $2.5 million for the nine
months of 2009 to $2.4 million for the nine months of 2010 due to an increase in
distribution expenses which was primarily attributable to the increase in sales,
staff salaries and office expenses.
Income
tax expense
Income
tax expense decreased by 26.2% from $0.6 million for the third quarter of 2009
to $0.5 for the third quarter of 2010 while increasing 10.4% from $1.4 million
for the nine months of 2009 to $1.6 million for the nine months of
2010. The PRC subsidiaries have been entitled to full exemption on
enterprise income tax in the PRC since January 1, 2008. The changes
were attributable to a 10% withholding tax on undistributed profits earned by
the PRC subsidiaries.
LIQUIDITY
AND CAPITAL RESOURCES
We have
historically financed operations primarily through internally generated cash,
loans borrowed from banks and advances from shareholders. Going forward, we
believe our sources of liquidity will be satisfied by using a combination of
cash provided by our operating activities and proceeds from future offerings
after the reverse merger.
The
following table sets out a summary of our cash flow during the nine months ended
September 30, 2010:
Nine
Months Ended
September
30,
|
||||||||
2009
|
2010
|
|||||||
(Dollars
in thousands)
|
||||||||
Net
cash provided by operating activities
|
$ | 19,245 | $ | 23,695 | ||||
Net
cash used in investing activities
|
(9 | ) | (158 | ) | ||||
Net
cash used in financing activities
|
(2,460 | ) | (22,363 | ) | ||||
Net
increase in cash and cash equivalents
|
16,776 | 1,174 | ||||||
Effect
of foreign exchange rate on changes in cash and cash
equivalents
|
(2 | ) | 135 | |||||
Cash
and cash equivalents at beginning of year
|
4,388 | 22,131 | ||||||
Cash
and cash equivalents at end of year
|
$ | 21,162 | $ | 23,440 |
Cash
flow from operating activities
We derive
our cash flow from operating activities principally from receipt of payments for
sales of our products. Our cash outflow from operating activities is
principally from purchases of raw materials.
For the
nine months ended September 30, 2010, we had net cash generated from operating
activities of $23.7 million, which was primarily contributed by net income
before working capital changes of $14.2 million and a decrease, representing
customer repayments, in trade accounts receivable of $9.3
million. The decrease in trade accounts receivable was primarily due
to seasonality of sales.
For the
nine months ended September 30, 2009, we had net cash generated from operating
activities of $19.2 million, which was primarily contributed by net income
before working capital changes of $12.5 million and a decrease, representing
customer repayments, in trade accounts receivable of $6.5
million. The decrease in trade accounts receivable was primarily due
to seasonality of sales.
Cash
flow from investing activities
Our cash
outflow from investing activities is principally for purchases of property,
plant and equipment during the nine months ended September 30, 2009 and
2010.
Cash
flow from financing activities
We derive
our cash inflow from financing activities principally from bank borrowings and
advances from shareholders. Our cash outflow from financing
activities relates primarily to repayment of bank borrowings, advances to
shareholders and the payment of dividends.
For the
nine months ended September 30, 2010, we had net cash used in financing
activities of $22.4 million, which was due to the net cash outflow used to pay
dividends of $22.8 million, net repayment of bank borrowings of $0.7 million
offset by net advances received from shareholders of $1.1
million.
For the
nine months ended September 30, 2009, we had net cash used in financing
activities of $2.5 million, which was due to the net cash outflow used to repay
advances to shareholders of $2.5 million.
NET
CURRENT ASSETS
The
following table sets out our current assets and current liabilities as at the
dates indicated:
December
31,
|
September
30,
|
|||||||
2009
|
2010
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 22,131 | $ | 23,440 | ||||
Trade
accounts receivable, net
|
18,117 | 9,035 | ||||||
Inventories
|
1,199 | 2,299 | ||||||
Prepayments
and other receivables
|
405 | 468 | ||||||
41,852 | 35,242 | |||||||
Current
liabilities:
|
||||||||
Trade
accounts payable
|
14 | 284 | ||||||
Accruals
and other payables
|
1,800 | 1,902 | ||||||
Income
taxes payable
|
2,623 | 2,898 | ||||||
Short
term borrowings
|
3,631 | 2,990 | ||||||
Dividends
payable
|
22,809 | - | ||||||
Due
to shareholders
|
596 | 1,650 | ||||||
31,473 | 9,724 | |||||||
Net
current assets
|
$ | 10,379 | $ | 25,518 |
We had
net current assets of $25.5 million as of September 30, 2010. The
significant improvement in net current assets as of September 30, 2010 from
December 31, 2009 of $15.1 million was primarily due to the decrease in
dividends payable of $22.8 million.
Trade
accounts receivable
Our trade
accounts receivable represent receivables from customers for sales of products.
We had trade accounts receivable of $9.0 million and $18.1 million as of
September 30, 2010 and December 31, 2009, respectively. The decrease
in trade receivables as of September 30, 2010 was due primarily to seasonality
of our sales, as approximately 40% of annual sales are contributed during the
fourth quarter of the year.
The table
below sets out our trade accounts receivable turnover days for the period
indicated:
Year
Ended
|
Nine
Months Ended
|
|||||||
December
31,
|
September
30,
|
|||||||
2009
|
2010
|
|||||||
Trade
accounts receivable turnover days (note)
|
91 | 77 |
Note:
|
Trade
accounts receivable turnover days is equal to the average trade accounts
receivable divided by sales and multiplied by 365 days (274 days for the
September 30, 2010 period). Average trade accounts receivable are equal to
trade accounts receivable at the beginning of the year plus trade accounts
receivable at the end of the year and divided by
two.
|
The
reduction in trade accounts receivable turnover days in 2010 to 77 days was as a
result of low trade accounts receivable being outstanding as of September 30,
2010 due to seasonality of sales.
Inventories
Our
inventories increased to $2.3 million as of September 30, 2010 from $1.2 million
as of December 31, 2009. The increase was due to increase in purchase
prices for potatoes during the period.
The
following table sets out the summary of balance of our inventories as of the
dates indicated:
December
31,
|
September
30,
|
|||||||
2009
|
2010
|
|||||||
Raw
materials
|
$ | 364 | $ | 1,105 | ||||
Finished
goods
|
835 | 1,194 | ||||||
$ | 1,199 | $ | 2,299 |
The
following table sets out the inventory turnover days as of the dates
indicated:
Year Ended
December 31,
|
Nine Months Ended
September 30,
|
|||||||
2009
|
2010
|
|||||||
Inventory
turnover days
|
13 | 16 |
Note:
|
The
calculation of inventory turnover days is based on the average inventory
balances divided by cost of goods sold and multiplied by 365days for the
year (274 days for the September 30, 2010 period). Average
inventory balances are equal to inventory balance at the beginning of the
year plus inventory balances at the end of the year and divided by
two.
|
The
inventory turnover days remained stable for September 30, 2010 and December 31,
2009.
Trade
accounts payable
Our trade
accounts payable primarily represented the amount we owed to our suppliers for
the purchase of raw materials, mainly potatoes, packaging materials and
coal.
Due
to shareholders
The
balances of amount due to shareholders of $1.7 million and $0.6 million as of
September 30, 2010 and December 31, 2009 are unsecured, interest free and have
no fixed terms of repayment.
Property,
plant and equipment
Net plant
and machinery and other office equipment, amounted to $7.8 million and $8.2
million as of September 30, 2010 and December 31, 2009,
respectively. We had no significant additions to property, plant and
equipment during the periods presented.
Capital
Expenditures
The
following table sets out the historical capital expenditures during the period
indicated:
Year Ended
December 31,
|
Nine Months Ended
September 30,
|
|||||||
2010
|
2010
|
|||||||
Furniture,
fixtures and office equipment
|
$ | 11 | $ | 158 |
The
following table sets out our projected capital expenditures for the three years
ending December 31, 2012:
December
31,
|
||||||||||||
2010
|
2011
|
2012
|
||||||||||
(Dollars
in thousands)
|
||||||||||||
Land
use rights
|
$ | 4,399 | $ | 8,798 | $ | 34,164 | ||||||
Buildings
|
- | 13,137 | 7,871 | |||||||||
Plant
and machinery
|
- | 20,528 | 7,966 | |||||||||
$ | 4,399 | $ | 42,463 | $ | 50,001 |
We expect
that the capital expenditures for the three years ending December 2012 will be
primarily used for land use rights, buildings, and plant and machinery to
establish new production lines for native potato starch, modified potato starch
and whole potato starch.
We expect
to finance our projected capital expenditures mainly by the net proceeds from
future offerings after the reverse merger and cash generated from operating
activities.
COMMITMENT
AND CONTINGENCIES
(a)
|
Capital
commitments
|
As of
September 30, 2010, we had entered into agreements with the People’s Government
of the Zhaoyang District, Yunnan Province to purchase property, plant and
equipment totaling approximately $19 million related to the construction of two
production facilities.
(b)
|
Lease
commitments
|
Operating
lease commitments include commitments under non-cancellable lease agreements for
our office premises, as well as a land lease. The leases expire
from July 2011 through October 2042. The yearly future minimum rental
payments required as of September 30, 2010 were as follows:
(Dollars
in thousands)
|
||||
2011
|
$ | 464 | ||
2012
|
73 | |||
2013
|
73 | |||
2014
|
27 | |||
2015
|
22 | |||
Thereafter
|
602 | |||
$ | 1,261 |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate
Risk
We
deposit surplus funds with Chinese banks earning daily interest. We do not
invest in any instruments for trading purposes. All of our
outstanding debt instruments carry fixed rates of
interest. Therefore, our operations generally are not directly
sensitive to fluctuations in interest rates. All debt outstanding as
of September 30, 2010 is short term. A hypothetical 1.0% increase in
the annual interest rates for all of our outstanding borrowings at September 30,
2010 would not have any material impact on our net income before provision for
income taxes for the quarter.
Foreign
Exchange Risk
The value
of the RMB against the United States dollar and other currencies is affected by,
among other things, changes in China’s political and economic conditions. Since
July 2005, the RMB has no longer been pegged to the United States dollar at a
constant exchange rate. Although the People’s Bank of China regularly intervenes
in the foreign exchange market to prevent significant short-term fluctuations in
the exchange rate, the RMB may appreciate or depreciate within a flexible peg
range against the United States dollar in the medium to long term. Moreover, it
is possible that in the future, China’s governmental authorities may lift
restrictions on fluctuations in the RMB exchange rate and lessen intervention in
the foreign exchange market.
Because
substantially all of the earnings from our Chinese subsidiaries are denominated
in RMB, but our reporting currency is the United States dollar, fluctuations in
the exchange rate between the United States dollar and the RMB will affect our
balance sheet and our earnings per share in United States dollars. In addition,
appreciation or depreciation in the value of the RMB relative to the United
States dollar would affect our financial results reported in United States
dollar terms without giving effect to any underlying change in our business or
results of operations.
We do not
believe that foreign currency exchange rate fluctuations have had a material
impact on our consolidated balance sheet as of September 30, 2010 and earnings
per share for the three and nine months ended September 30, 2010 and 2009.
The impact in actual U.S. dollars that foreign currency translation had on our
consolidated balance sheet, statements of comprehensive income and shareholders’
equity are reported in the line item “Foreign currency translation adjustments”
within other comprehensive income. The impact that foreign currency translation
had on our consolidated statement of cash flows is reported in the line item
“Effect of exchange rates on changes in cash and cash equivalents” in our
consolidated statement of cash flows.
Inflation
Inflationary
factors such as increases in the cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling,
general and administrative expenses as a percentage of net revenues if the
selling prices of our products do not increase with these increased
costs.
CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
As of
September 30, 2010, Waibo was not subject to the disclosure controls and
procedures requirements, as such term is defined under Rule 13a-14(c)
promulgated under the Exchange Act.
As Waibo
was not subject to the requirements of Sections 13a-15 or 15d-15 as of September
30, 2010, our Chief Executive Officer (who was also our principal executive
officer) and Chief Financial Officer (who was also our principal financial
officer) did not conduct the evaluation required by such
provisions.
LEGAL
PROCEEDINGS
None
RISK
FACTORS
Refer to
the Section “Risk Factors” in the Company’s original Current Report on Form 8-K
filed on October 22, 2010.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
DEFAULTS
UPON SENIOR SECURITIES
None
OTHER
INFORMATION
None
Financial Statement and
Exhibits.
(a)
Financial Statements of Business Acquired.
The
Unaudited Consolidated Financial Statements of Waibo as of September 30, 2010
and for the three and nine months ended September 30, 2010 and 2009 are filed as
Exhibit 99.1 to this current report and are incorporated herein by
reference.
(b)
Pro Forma Financial Information
Except as
set forth in the paragraph below relating to pro forma per share information,
pro forma statements of operations of the Company for the nine months ended
September 30, 2009 and 2010 are not presented, as pro-forma financial
information for the periods would be virtually identical to the historical
statement of operations of Wai Bo for each period.
Pro-forma
income per share for the three and nine months ended September 30, 2009 and 2010
(considering the retroactive statement to reflect the new capital structure as a
result of the reverse acquisition) would be $0.01, $0.01, $0.03 and $0.04,
respectively, per share; the pro-forma weighted average number of common shares
outstanding would be 377,016,667 for each period presented.
Pro-forma
financial information as of September 30, 2010 is not presented as pro-form
financial information would be virtually identical to the historical
consolidated balance sheet of Wai Bo as of September 30, 2010.
(c)
Exhibits.
Exhibit
No.
|
Description
|
|
16.1
|
Letter
of Sam Kan and Company dated December 3, 2010.
|
|
99.1
|
|
The
Unaudited Interim Consolidated Financial Statements of Waibo as of
September 30, 2010 and for the three and nine months ended September 30,
2010 and
2009
|
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 thereunto
duly authorized.
CFO
CONSULTANTS, INC.
|
|
By:
|
/s/ Joanny Kwok
|
Name
|
Joanny
Kwok
|
Title:
|
Chief
Executive Officer
|
Dated:
December 6, 2010