Kaibo Foods Co Ltd (PINK:KKFC)

KAIBO FOODS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2012

(UNAUDITED)

(US dollars in thousands)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2012				2011				2012
Sales		$	11,411			$	15,683			$	37,100			$	29,836
Cost of sales			(8,124	)			(11,163	)			(25,764	)			(20,201	)
Gross margin			3,287				4,520				11,336				9,635
Operating expenses			(1,036	)			(679	)			(1,900	)			(1,312	)
Income from operations			2,251				3,841				9,436				8,323
Interest expense and other			(83	)			(79	)			(190	)			(155	)
Interest income and other			49				415				81				665
			(34	)			336				(109	)			510
Income before income taxes			2,217				4,177				9,327				8,833
Income tax expense			-				-				-				-
Net income		$	2,217			$	4,177			$	9,327			$	8,833
Net income per share:
Basic		$	0.09			$	0.17			$	0.40			$	0.37
Diluted		$	0.09			$	0.17			$	0.39			$	0.37
Weighted average shares outstanding used in the calculation of net income per share:
Basic			23,742,768				24,003,570				23,578,867				24,003,570
Diluted			24,003,570				24,003,570				24,003,570				24,003,570

KAIBO FOODS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(US dollars in thousands, except for share and per share data)

 

		Year Ended December 31,
		2009				2010				2011
Sales		$	64,463			$	91,794			$	108,100
Cost of sales			(36,452	)			(59,950	)			(71,949	)
Gross margin			28,011				31,844				36,151
Operating expenses:
Selling, distribution and administrative expenses			(3,487	)			(4,149	)			(4,327	)
Cost related to CFO Consultants, Inc. acquisition			-				(400	)			-
			(3,487	)			(4,549	)			(4,327	)
Income from operations			24,524				27,295				31,824
Other income (expense):
Interest expense			(187	)			(179	)			(210	)
Interest income and other			133				412				465
			(54	)			233				255
Income before income taxes			24,470				27,528				32,079
Income tax expense			(2,625	)			(1,587	)			-
Net income		$	21,845			$	25,941			$	32,079
Net income per share:
Basic		$	0.97			$	1.15			$	1.35
Diluted		$	0.97			$	1.14			$	1.34
Weighted average shares outstanding used in the calculation of net income per share:
Basic			22,493,475				22,579,082				23,792,964
Diluted			22,493,475				22,693,227				24,003,570

Due to the stabilization of the purchase price of potatoes resulting from a bumper harvest of potatoes in the third quarter of 2011, we worked overtime to extend our production which led to a surge in sales volume by 19.2% to 24,450 metric tons during the third quarter of 2011.

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

In connection with a recent Offering, the Company an its majority stockholder, Kai Bo Holdings Ltd. entered into a certain escrow agreement (the “Make Good Escrow Agreement”) with the Investors pursuant to which Kai Bo placed 4,600,000 shares of its common stock of the Company into escrow for distribution of up to 2,300,000 shares to Investors in each of 2011 and 2012 in the event that it fails to reach certain after tax net income targets for its 2010 and 2011 fiscal years.

2010: $25,882,536

2011: $33,382,670 

On December 21, 2010, CFO Consultants, Inc., a Nevada corporation entered into a securities purchase agreement with certain accredited investors (the “Investors”) for the issuance and sale of an aggregate of (i) 9,200,000 shares of the Company’s common stock, par value $.001 per share  and (ii) warrants to purchase up to 1,840,000 shares of the Company’s common stock underlying the warrant, each such warrant having an initial exercise price of $0.325 per share and expiring on the three year anniversary of the effective date of the increase of the Company’s authorized shares of its common stock for aggregate gross proceeds equal to approximately $2,300,000 (the “Offering”).

On October 21, 2010 Wai Bo International became a public entity via a reverse merger transaction.

Company Snapshot:

We are a leading PRC producer of high quality potato starch, a value added and functional ingredient in many different types of packaged and processed foods.

Industry Snapshot:

• Starch is a carbohydrate consisting of a large number of glucose units joined together by glycosidic bonds. This polysaccharide is produced by all green plants as an energy store. It is the most important carbohydrate in the human diet and is contained in such staple foods as potatoes, wheat, maize (corn) and rice. Potato starch is starch extracted from potatoes and is a very refined starch, containing minimal amount of protein or fat. Native potato starch is a white powder with a neutral taste and high adhesive properties. This functional additive is widely used in many types of Chinese processed foods including instant noodles, dumplings, sauces, meatballs and sausages.

• The potato starch industry in China is relatively young. According to an August 2010 report of the United States Department of Agriculture, approximately 90% of the potato starch factories categorized in China are characterized as small.

• Consumption of prepared and processed foods in the PRC has grown in step with the country’s urbanization trend. As people’s lives become busier, the traditional custom of making daily purchases of fresh raw produce from small farmers’ markets has increasingly given way to less frequent visits to supermarkets to buy prepared, packaged and processed foods.

Post Merger Share Calculation:

• 5,655,000: Pre reverse merger outstanding shares
• 361,920,000: Newly issued shares of Common Stock
• 9,441,667: Shares from convertible notes

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  377,016,667

Note: "On the Closing Date, we did not have sufficient authorized shares to complete the issuance of the entire amount of Exchange Shares and shares issuable pursuant to the Convertible Note, so only 38,000,000 shares were issued to the designee of the Waibo Shareholders at the closing, and no shares were issued to the holder of the Convertible Note. As soon as practicable after the Company effectuates an amendment to its Articles of Incorporation to increase its authorized shares, the Company will issue the remaining 323,920,000 shares to the Waibo Shareholders, as well as 9,441,667 shares to the holder of the Convertible Note. As a result of the transactions contemplated by the Exchange Agreement, Waibo became our wholly owned subsidiary."

Financial Snapshot:

• Sales increased by 21.5% from $53.1 million in 2008 to $64.5 million in 2009. 
• Sales increased by 27.2% from $22.8 million in 2009 to $29.0 million in 2010.
  
• Net income increased to $22,621,000 in 2009 from $18,850,833 in 2008
• Net income increased to  $11,310,500 for the six months 2010 from $7,540,333 in the 2009 comparable period.

Pro-forma income per share for the years ended December 31, 2007, 2008 and 2009 and for the six months ended June 30, 2009 and 2010 (considering the retroactive restatement to reflect the new capital structure as a result of the reverse acquisition) would be $0.03, $0.05, $0.06, $0.02 and $0.03, respectively, per share; the pro forma weighted average number of common shares outstanding would be 377,016,667 for each period presented.

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.

Auditor Information:

On October 21, 2010, we made the decision to appoint GHP Horwath, P.C. (“GHP”) as our new independent registered public accounting firm. The decision to engage GHP was approved by our Board of Directors on October 22, 2010.

Projected Capital Expenditures: