UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-K





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the fiscal year ended September 30,
2009


o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934




For
      the transition period from ____________________ to
      ____________________


Commission
file number 000-50340





RODOBO
INTERNATIONAL, INC.


(Exact
name of registrant as specified in its charter)





Nevada
            75-2980786(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)





380 Changjiang Road, Nangang District, Harbin,
      PRC
            150001(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number 86 0451 82260522





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
registered pursuant to Section 12(g) of the Act:




Common Stock, par value
$0.0001


(Title
of class)





Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.  o





Indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.  o





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  x 
  No  o














Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer or a smaller reporting company.  See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer o
            
            Accelerated
      filer oNon-accelerated
      filer o
            
            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 o    No
x





The aggregate
market value of the voting and non-voting common stock, other than shares held
by persons who may be deemed affiliates of the registrant, computed by reference
to the closing sales price for the registrant’s Common Stock on March 31, 2009,
as reported on the Over The Counter Bulletin Board, was approximately
$6,460,056.





As of
December 31, 2009, there were 16,216,717 shares of common stock, par value
$.0001 per share, and 0 shares of preferred stock, par value $.0001 per share,
issued and outstanding.































Rodobo
International, Inc.





Form
10-K





For
the fiscal year ended September 30, 2009





TABLE
OF CONTENTS







Page
      No.Cautionary
      Note on Forward Looking Statements
            1PART
      IItem
      1.
            Description
      of Business.
            2Item
      1A.
            Risk
      Factors
            17Item
      2.
            Description
      of Properties.
            43Item
      3.
            Legal
      Proceedings.
            43Item
      4.
            Submission
      of Matters to a Vote of Security Holders.
            43PART
      IIItem
      5.
            Market
      for Common Equity and Related Stockholder Matters and Issuer Purchase of
      Equity Securities.
            44Item
      6.
            Selected
      Financial Data.
            45Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            45Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk.
            56Item
      8.
            Financial
      Statements and Supplementary Data.
            56Item
      9.
            Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure.
            56Item
      9A(T).
            Controls
      and Procedures.
            57Item
      9B.
            Other
      Information.PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance.
            59Item
      11.
            Executive
      Compensation.
            62Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
            64Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence.
            65Item
      14.
            Principal
      Accountant Fees and Services.
            66PART
      IVItem
      15.
            Exhibits,
      Financial Statement Schedules.
            67


















CAUTIONARY
NOTE ON FORWARD LOOKING STATEMENTS




In addition
to historical information, this Annual Report on Form 10-K contains forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995.  The forward looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward looking statements.  Factors that
might cause such a difference include, but are not limited to, those discussed
in the sections entitled “Description of Business”, “Risk Factors”, and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”  Readers are cautioned not to place undue reliance on these
forward looking statements, which reflect management’s opinions only as of the
date thereof.  Readers should carefully review the risk factors described
in this Annual Report and in other documents that we file from time to time with
the Securities and Exchange Commission.




In some
cases, you can identify forward looking statements by terminology such as “may,”
“will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “projects,” “potential,” “proposed,” “intended,” or “continue” or
the negative of these terms or other comparable terminology. You should read
statements that contain these words carefully, because they discuss our
expectations about our future operating results or our future financial
condition or state other forward looking information. Although we believe that
the expectations reflected in the forward looking statements are reasonable, we
cannot guarantee future results, growth rates, and levels of activity,
performance or achievements. There may be events in the future that we are not
able to accurately predict or control. You should be aware that the occurrence
of any of the events described in these risk factors and elsewhere in this
Annual Report could substantially harm our business, results of operations and
financial condition, and that upon the occurrence of any of these events, the
trading price of our securities could decline. Moreover, new risks regularly
emerge and it is not possible for our management to predict all risks, nor can
we assess the impact of all risks on our business or the extent to which any
risk, or combination of risks, may cause actual results to differ from those
contained in any forward looking statements.





All forward
looking statements included in this Annual Report are based on information
available to us on the date of this Annual Report.  Except to the
extent required by applicable laws or rules, we undertake no obligation to
publicly update or revise any forward looking statement, whether as a result of
new information, future events or otherwise. All subsequent written and oral
forward looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
throughout this Annual Report.








INTRODUCTION





Unless
otherwise specified or required by context, as used in this annual report, the
terms “we,” “our,” “us” and the “Company” refer collectively to (i) Rodobo
International, Inc., a Nevada corporation (“Rodobo”) formerly known as
Navstar Media Holdings, Inc. (“Navstar”), (ii) Mega Profit
Limited (“Cayman Mega”),
a wholly-owned subsidiary of Rodobo and a Cayman Islands company, (iii) Harbin
Mega Profit Enterprise Management & Consultation Co., Ltd. (“Harbin Mega”), a wholly-owned
subsidiary of Cayman Mega and a wholly foreign-owned entity (“WFOE”) incorporated under the
laws of the People’s Republic of China, (iv)Harbin Rodobo Dairy Co., Ltd.
(“Harbin Rodobo”), a
wholly-owned subsidiary of Cayman Mega and a WFOE incorporated under the laws of
PRC, (v) Harbin Tengshun Technical Development Ltd., Co (“Tengshun Tech”), a PRC company
and a wholly-owned subsidiary of  Harbin Mega, and (vi) Qinggang Mega
Profit Agriculture Company (“Qinggang Mega”), a PRC company
and a variable interest entity (“VIE”) which we control through
the contractual arrangement (“VIE Arrangement”) between
Qinggang Mega and Harbin Mega.





Our financial
statements are stated in United States Dollars (US$) and are prepared in
accordance with United States Generally Accepted Accounting Principles (U.S.
GAAP). In this Annual Report, unless otherwise specified, all dollar amounts are
expressed in United States dollars.
















PART
I





Item
1.  Description of Business.





OVERVIEW





We are a
leading producer and distributor of powdered milk formula products in the
People’s Republic of China (“PRC” or “China”). We are currently one
of the largest non-state-owned dairy companies in China, ranking in the top 10%
of the dairy industry. Our target customers include infants, children,
middle-aged and elderly people in China. Our products for infants and children
are currently sold under the brand name of “Rodobo” and “Peer”, and our products
for the middle-aged and the elderly are currently sold under the brand name of
“Healif”. We have 15 company-owned raw milk collection stations and a new dairy
farm with 1,140 cows which started its operation in July 2009 and provide 65
tons of raw milk per day. We currently have a production facility with two
production lines which have raw milk processing capacity of 200 tons per day and
can produce 7 tons of dairy products per day. Our products have not been
implicated in the wide-spread melamine contamination scandal in China in the
year of 2008 and we expect to leverage our superior quality control in the
market, given that the Chinese government determined that many of our large
competitors violated food safety regulations.





CORPORATE
HISTORY





We were
originally incorporated on January 28, 2002 as a Nevada corporation under the
name of Premier Document Services, Inc. (“Premier”), which provided
document preparation and signatory services to mortgage, real estate and other
financial services firms in the Las Vegas, Nevada market. On November 30, 2005,
Premier acquired 100% of the capital stock of Navstar Communications Holdings,
Ltd, a Hong Kong Corporation, and changed its name to Navstar Media Holdings,
Inc. (“Navstar”). In
conjunction with the merger, Premier’s former Secretary and President, Crystal
Kim Han, purchased Premier’s existing document services business, including all
assets and liabilities. Navstar was the 70% owner of Happy Times Media, Inc.
(“Happy Times”), a PRC
company.   Navstar had a traditional business model of content
production, licensing and distribution in Television and Film.  Happy Times
TV was a media content producer in China and provided content for major national
and regional TV stations, and distributed television series and foreign movies.
It also generated a portion of its revenues through advertisements, televised
cultural events, corporate communications and exhibitions.  On
December 28, 2006, Navstar sold the 70% of the shares of Happy Times to the
minority shareholders of Happy Times and Happy Times ceased to be a subsidiary
of Navstar since then.As of January 1, 2007, Navstar ceased all of
its operations and focused on identifying merger candidates with substantial
operations to merge with. 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 (“Cayman Mega”), a Cayman
Islands company and Mr. Weihua Zhao who is the sole shareholder of Cayman Mega.
Pursuant to the Merger Agreement, Navstar acquired all of the issued and
outstanding equity interest in Cayman Mega from its sole shareholder in exchange
for shares, which upon the reverse stock split and the conversion of the
preferred stock into common stock would be equal 93% of the issued and
outstanding shares of common stock of the Company (the “Merger”). Concurrently, the
Company changed its name to “Rodobo International, Inc.” Prior to the Merger,
our company was a shell company as that term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the “Exchange Act”).












Cayman Mega
was incorporated under the laws of the Cayman Islands on April 23, 2007. On
October 26, 2007, Cayman Mega invested $1,380,000 to form its wholly-owned
subsidiary, Harbin Mega. Harbin Rodobo was formed on January 4, 2002 under the
PRC laws. Before December 31, 2008, Harbin Rodobo was controlled by Cayman Mega
as a VIE through exclusive contractual agreements in order to comply with PRC
laws regarding certain foreign ownership restrictions. Effective on January 1,
2009, the shareholders of Harbin Rodobo transferred their equity interests to
Cayman Mega and Harbin Rodobo became a wholly-owned subsidiary of Cayman Mega.
Qinggang Mega was incorporated under the laws of the PRC on April 1, 2008 and is
currently owned by Mr. Yanbin Wang, the CEO and Chairman of the Company and
another principal shareholder. On April 1, 2008, Cayman Mega entered into an
Investment Agreement with Harbin Mega and formed Qinggang Mega, for the purpose
of starting a dairy farm to secure reliable fresh milk supply in the wake of the
powdered-milk contamination scandal in China. In January 2009, the Company
loaned RMB 8,100,000 (approximately US$1.2 million) to Mr. Yanbin Wang and Mr.
Xuelong Wang (Mr. Yanbin Wang together with Mr. Xuelong Wang, collectively, the
“Qinggang Shareholders”)
to purchase 100% of the equity interest in Qinggang Mega. Subsequently, 85% of
the equity interest in Qinggang Mega was transferred from Harbin Mega to Mr.
Yanbin Wang and 15% was transferred to Mr. Xuelong Wang for the purpose of
obtaining government tax preferentiality in the wake of the powdered-milk
contamination scandal in China. By transferring ownership to PRC citizens,
Qinggang Mega became a PRC domestic company and is qualified to obtain tax
preferential treatment which is granted to the PRC domestic company opposed to a
subsidiary owned by a foreign company. These shareholders have pledged their
equity interests in Qinggang Mega as collateral for non-payment of loans.
(Please see more discussion regarding the VIE arrangement below.) Harbin
Tengshun Technical Development Ltd., Co. was formed as a wholly-owned subsidiary
of Harbin Mega under the PRC laws on November 9, 2009.





In November
2008, the Company effected a reverse stock split of 37.4 to 1.





In December
2008, we received a written consent in lieu of a meeting of stockholders
approving the increase of 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 shares to 230,000,000 authorized
capital, consisting of 200,000,000 shares of common stock par value $0.0001 per
share (the “Common
Stock”), and 30,000,000 shares of preferred stock, par value $0.0001 per
share (the “Preferred
Stock”). On April 2, 2009, we filed a Certificate of Amendment with the
Nevada Secretary of State and amended our Articles of Incorporation to reflect
the change in authorized capital.





The structure
of the Company as of date of this report was as follow:























Reverse
Merger and Concurrent Private Placement





On September
30, 2008, the Company under its former name of Navstar Media Holdings, Inc.,
entered into a Merger Agreement by and among the Company, its wholly owned
acquisition subsidiary Rodobo International, Inc. (“Merger Sub”), Cayman Mega, and
the sole shareholder of Cayman Mega. Pursuant to the Merger Agreement, the
Merger Sub acquired Cayman Mega and then merged with and into the Company (the
“Merger”). In
consideration of the acquisition of Cayman Mega by the Merger Sub, the Merger
Sub issued to the sole shareholder of Cayman Mega and his 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 after giving effect to a 37.4:1 reverse split,
which was done concurrently with the Merger; and (2)12,976,316 shares of
preferred stock which were convertible into 12,976,316 shares of common stock of
the Company. Upon the Merger and conversion of the preferred stock, the
shareholder of Cayman Mega and his designees owned 93% of issued and outstanding
shares of Common Stock of the Company.





In connection
with the Merger, 10,293,359 shares of common stock issued to former employees of
the Company and shareholders of prior subsidiaries were cancelled. Pursuant to
our agreements with certain convertible note holders who collectively held
convertible notes with an original face value of $1,000,000, all such notes were
suspended and upon the increase of the Company’s authorized number of shares in
April 2009 were converted into approximately 604,833 shares of the Company’s
common stock.





In connection
with the Merger, all of the officers and directors of the Company ultimately
resigned and Mr. Yanbin Wang was appointed as Chairman and Chief Executive
Officer and Ms. Xiuzhen Qiao was appointed as a Director and Chief Financial
Officer





On September
30, 2008, prior to and in conjunction with the Merger, Cayman Mega entered into
a Securities Purchase Agreement with an institutional investor and raised
$3,000,000 from such investor. Pursuant to the Securities Purchase Agreement,
upon the closing of the Merger, the institutional investor, together with the
sole shareholder of Cayman Mega received preferred stock which were converted
into common stock upon the increase of the authorized number of shares of the
Company.





In addition,
Cayman Mega also issued to the institutional investor four–year warrants to
purchase 818,182 shares of the common stock of Cayman Mega at an exercise price
of $1.50 per share and four –year warrants to purchase 545,455 shares of the
common stock of Cayman Mega at an exercise price of $1.75 per share. The
warrants were assumed by the Company upon the Merger.




VIE
Arrangement





On January 1,
2009, Harbin Mega entered into a series of variable interest entity contractual
agreements (“VIE
Agreements”) with Qinggang Mega and its two shareholders, pursuant to
which Harbin Mega effectively assumed management of the business activities of
Qinggang Mega and has the right to appoint all executives and senior management
and the members of the board of directors of Qinggang Mega.  The VIE
agreements are comprised of a series of agreements, including a Consulting
Services Agreement, Operating Agreement, Proxy Agreement, Equity Pledge
Agreement and Option Agreement, through which Harbin Mega has the right to
advise, consult, manage and operate Qinggang Mega for an annual fee in the
amount of Qinggang Mega’s yearly net profits after tax.  Additionally,
Qinggang Mega’s shareholders have pledged their rights, titles and equity
interest in Qinggang Mega as security for Harbin Mega to collect consulting and
services fees provided to Qinggang Mega through an Equity Pledge
Agreement.  In order to further reinforce Harbin Mega’s rights to
control and operate Qinggang Mega, Qinggang Mega’s shareholders have granted
Harbin Mega an exclusive right and option to acquire all of their equity
interests in Qinggang Mega through an Option Agreement.  Through these
contractual arrangements, Harbin Mega has the ability to substantially influence
Mega Profit’s daily operations and financial affairs, appoint its senior
executives and approve all matters requiring stockholders’
approval.







Our shares of
common stock are currently quoted on the Over-the-Counter Bulletin Board under
the symbol “RDBO.OB”.
  OUR
BUSINESS





Our operating
subsidiary, Harbin Rodobo, started to manufacture a series of dairy products in
2003 and has developed markets in Sichuan, Shanxi, Zhejiang, Fujiang, Henan,
Hebei, Liaoning, Hubei and Shandong provinces and Beijing since then. In 2004,
Harbin Rodobo reconstructed its production facilities to meet the Good
Manufacturing Practices (“GMP”) standard. Harbin Rodobo
also maintains the ISO 9001-2001 Management Certificate and Hazard Analysis and
Critical Control Point (“HACPP”) Quality System
Certificate. In 2005, Harbin Rodobo was awarded as a “Heilongjiang Famous Brand”
in the agricultural industry. On July 1, 2008, Harbin Rodobo entered into a
Technology Transfer Agreement with Chinese Nutrition Society (“CNS”), pursuant to which we
have the exclusive right to manufacture and market a powdered milk formula
specifically developed for the middle aged and seniors for 10 years starting
from July 1, 2008. CNS is a national scientific social group made up by
nutrition professionals and is a unit of the China Association for Science and
Technology and a country member of the International Union of Nutrition
Sciences. We currently markets this powdered milk formula under the brand name
of “Healif” (which means “Healthy Elderly” in Chinese.) On October 30, 2008, we
entered into a Purchase Agreement with Heilongjiang Shi Jie Research and
Development Service Ltd. Co. (“Shi Jie”) to acquire powdered
milk product formulas specifically developed for infants and children
(approximately US$0.4 million). We started to produce and market these formulas
under the brand name of “Peer” in July 2009.




Principal
Products





Formula Milk
Powder





Our primary
product is formula milk powder which can be divided into two major
sub-categories, formula for the infants and children and formula for the
middle-aged and elderly. Through our network of over 2000 sales people as of
September 2009, our branded products are distributed to over 3,000 retail
outlets throughout 9 provinces and Beijing in China.





We produce
formula milk powder for babies and young children formulated for zero to 6
months, 6 months to 1 year and 1 to 3 years old. These products are marketed
under the brand name of “Rodobo” and “Peer”.





We also
produce formula milk powder specially designed for the middle-aged and elderly
people in China. For example, alleviation of lactose intolerance, high-calcium
and iron enriched formula are designed to decrease the rate of calcium loss
through the aging process. These products are marketed under the brand name of
“Healif”.





5







Whole Milk
Powder





We also offer
fresh, sterilized, and spray-dried raw whole milk powder and whole milk with
supplemental ingredients to our customers. Raw milk powder is typically used to
produce ice-cream, and candies. It is also used as a raw material to produce
baked food, instant beverages, nutritional food and fast food. These products
are sold under the brand name of “Rodobo”.





Sales
generated from Whole Milk Powder Formula accounted 22.8% of total sales in the
fiscal year ended September 30, 2009 compared to 32.4% in the fiscal year ended
September 30, 2008. Sales generated from Baby/Infant Formula accounted 58.8% of
total sales in the fiscal year ended September 30, 2009 compared to 44.2% in the
fiscal year ended September 30, 2008. The newly launched product “Healthy
Elderly” achieved sales of $6.4 million in the fiscal year ended September 30,
2009, representing 18.4% of total sales.





BRAND
DEVELOPMENT AND MARKETING





Our marketing
strategy emphasizes local production and national distribution of our products,
which begins with local dairy herds and results in premium quality products for
a national market. We perform careful product positioning and targeted
marketing. Our products have received benefits from a considerable volume of
favorable press and other publications of mass circulation which have rated our
products highly.





Our marketing
and promotional efforts will continue to include:




●
            Redesigning
      packaging of products to promote a premium quality
  image.


●
            Refining
      and targeting our message, which to date has largely been the product of
      word-of-mouth and product reviews.


●
            Improving
      advertising material, including multi-color trade sell sheets and
      brochures.


●
            Further
      distinguishing our products from other dairy
  products.


●
            Expanding
      retail advertising, including print advertising, televised advertising and
      focused public relations.





We incurred
advertising costs of $494,148 during fiscal year ended September 30, 2009 and
$198,568 during fiscal year ended September 30, 2008.





PRODUCTION





Raw
Milk Processing





Processing of
our powdered formula begins with the collection and preparation of raw milk from
dairy farmers. We have 15 company-owned raw milk collection stations and
purchase raw milk directly from dairy farmers and certain dealers. In July 2009,
our new dairy farm which has 1,140 cows started its operation. The new dairy
farm currently provides 22 tons of raw milk per day and the raw milk collection
stations provide 43 tons of raw milk per day. Everyday, local dairy farmers
bring their dairy cattle to collection stations owned by us where raw milk is
automatically received using fully enclosed, stainless-steel vacuum milking
machines. These collection stations collect and transport the raw milk to our
production facilities after that.





We believe
that through securing local raw milk resources and adopting fast processing
techniques, we are able to preserve the fresh taste of milk. It takes us less
than 48 hours from milking to producing finished milk powder. In most large
dairies, we believe, this process may usually take three to four days or even
more.









Milk
processed by conventional farms for sale to regional dairies is usually stored
at the farm for a minimum of two days, and another full day will be spent on
delivering the fresh milk to the dairy facilities. The milk is then processed on
the following day. However, Rodobo’s standard is to process the raw milk within
12-24 hours after milking, depending upon the time of day when the raw milk is
delivered to us. During that period, the milk is chilled, transported,
separated, sterilized and spray-dried. When the raw milk is first received at
milk collection stations, fully enclosed, stainless-steel vacuum milking
machines are used to receive the raw milk. Once received, the raw milk no longer
has any contact with air and is immediately processed with refrigeration
equipment that cools the raw milk to about 4 degrees Celsius within three
seconds. The raw milk is then stored in air-tight tanks in preparation for
advanced processes, which include milk fat separation, sterilization and
spray-drying. Our milk is not
homogenized. During homogenization, pressurized milk is forced through openings
smaller than the size of the fat globules in milk, and the fat is broke into
smaller particles. Through this treatment, the milk fat remains in the milk and
will not be separated out in the form of cream. We believe that this process
adversely affects the taste and mouth feel of milk. In addition, our milk is
pasteurized at the lowest temperatures allowed by law to avoid imparting a
cooked flavor to the milk. When the milk is clarified and the butterfat is
removed to produce cream and skim milk, a process of cold separation is used,
rather than the more commonly adopted hot separation by other producers, which
we believe adversely affects the taste of milk.





Dairy
Product Processing





Our products
are produced in small batches using low temperature processing techniques to
maintain freshness and allow maximum flavor and nutrition retention. They are
made with wholesome ingredients. No chemicals or additives are added to the
milk. Because our products are produced locally, our dairy products arrive
sooner to our costumers in Rodobo’s marketing area through our distribution
network than most other producers. To assure the product quality, at the
beginning of processing, we take a small sample of the milk and inspect for
flavor, aroma, texture and appearance. In addition, inspectors regularly conduct
spot-checks for bacteria and butterfat content in products, as well as sanitary
conditions in our facilities.





Milk
Processing Facilities





Our 30,000
square meters production facility is located in Zhonghe Town, Qinggang County of
Heilongjiang Province. The Qinggang facility was constructed in compliance with
international GMP standards, and we also maintain ISO 9001 and HACCP quality
assurance certifications.





The Qinggang
facility is located in a pollution free area which has passed the test by the
government environmental protection agency. The Qinggang facility is surrounded
by farm land, and is approximately 1 kilometer away from downtown. In order to
ensure high quality products from our two dairy production lines, we utilize raw
milk collection, pretreatment, sterilization, nutrition ingredients, three-way
evaporation devices, drying tower, fluidized bed, and CIP cleaning technologies.
We can process up to 200 tons of raw milk and produce 7 tons of dairy products
daily. We combine advanced milk collection, concentration processes and dry
powder recovery technologies with secondary pelletized fluidized bed devices to
ensure our products’ high quality. We believe that our processing procedures
increase energy and economic efficiency during production, improve product
quality and enhance market competitiveness.





Among the 220
employees of our milk processing facilities as of September 30, 2009, 10 were
management, 15 were technicians, and 195 were engaged in manufacturing. The
factory operates continuously throughout the year.












RAW
MATERIALS AND SUPPLIERS





Our business
depends on maintaining a regular and adequate supply of high-quality raw
materials. A key ingredient for our powdered formulas is high-quality raw milk.
We have 15 company-owned raw milk collection stations and purchase raw milk
directly from dairy farmers and certain dealers. Our new dairy farm which has
1,140 cows started its operation on July 2009. The new dairy farm currently
provides 22 tons of raw milk per day and the milk collection stations provide 43
tons of raw milk per day. We pay market prices or premium prices in certain
regions for our raw milk. Our milk suppliers are primarily dairy farmers located
throughout Heilongjiang.





Whey protein
powder is another key ingredient used in the production of our powdered infant
formula products and our other dairy-based products. Like all powdered milk
producers, we use whey protein powder as the active ingredient to help
reconstituted dairy-based formula to mimic the consistency of breast milk, which
can constitute as much as 40.0% of the final powdered infant formula product by
weight. We purchased most of the whey protein from Beijing Milkyway Trade Corp.
and Shanghai Shengyu Co., Ltd.





Based on our
experience, prices of milk powder and whey protein powder can fluctuate over
relatively short periods of time depending on market conditions. Our sourcing
team carefully monitors price movements and makes major purchases at times when
prices are low, subject to projected customer order flow and other
factors.





For the
fiscal years ended September 30, 2009, our five largest raw material suppliers
accounted for 20% of our total raw material expenses. We did not have any single
supplier which accounted for over 10% of our total raw material
costs.





PRODUCT
DISTRIBUTION





We utilize a
dealer distribution model to deliver our products to end-users. Currently, our
powdered milk products are sold through distributors and our whole milk powder
products are sold directly to end users’ packaging plants. We have a
distribution team working out of our headquarters and coordinating a network of
over 2,000 distributors covering 3,000 retail stores across China. The
distributors, in turn, each hire one or two secondary agents who will assist
them in the distribution process, including inventory management, product sales
and service and payments.





Generally,
our products are delivered only after receipt of payment from the distributors.
Distributors usually have one year agreement with us and enter into new
agreements each year which specify sales targets and territories among other
provisions. We seek to expand the number of key provinces served by our
distribution network as part of our growth strategy.





The Company
emphasizes inventory management and carries minimum amounts of inventory to meet
customers’ delivery requirements. The Company does not provide rights to return
merchandise, except in some special cases (for example, the nation-wide melamine
contamination that occured in 2008). The Company only extends credit for 90
days, to customers who have steady orders, good payment history and good
credit.












CUSTOMERS





All our
revenue came from customers based in China. In the fiscal year ended September
30, 2009, one customer Chengdu Luoling accounted for 22% of our sales. No other
single customer accounts for more than 10% of our sales. The sales from our five
largest customers in the fiscal year ended September 30, 2009 amounted to $15.7
million which represented approximately 45% of our total sales. In fiscal year
ended September 30, 2008, three major customers, Chengdu Luoling, Harbin
Huijiabei Food Co., Ltd. and Jiangxi Meilu Dairy Co., Ltd. accounted for
approximately 48% of our net revenue, with each customer accounting for 24%, 13%
and 11%, respectively.





INTELLECTUAL
PROPERTIES




We applied to register our
brand name “Rodobo”, “Peer” and “Healif” with the Trademark Bureau of the State
Administration for Industry and Commerce. As of the date of this report, the
registration of “Rodobo” has been granted. It usually takes two years to two
years and a half to get the approvals.




On July 1,
2008, we entered into a Technology Transfer Agreement with China Nutrition
Society, pursuant to which we were granted an exclusive right for 10 years
starting on July 1, 2008 to produce a powdered milk formula specifically
developed for the middle aged and seniors. During that period, we have exclusive
rights to use the name of “China Nutrition Society Development” on our packages
for milk formula for the middle-aged and elderly.





On October
30, 2008, The Company entered into a “Purchase Agreement” with Heilongjiang Shi
Jie Research and Development Service Ltd. Co. (“Shi Jie”) to purchase powdered
milk product formulas specifically developed for infants and children for a
total fee of RMB 3,000,000 (approximately $439,477).





We rely on
trade secret protection and confidentiality agreements to protect our
proprietary information and know-how. Our management and each of our research
and development personnel have entered into a standard annual employment
contract, which includes a confidentiality clause. We currently do not hold any
patents.




RESEARCH
AND DEVELOPMENT ACTIVITIES





As of
September 30, 2009, we had 15 technicians, of which 5 were engaged in research
and development activities. These technicians monitor quality control at our
milk processing plants to ensure that our processing, packaging and distribution
result in high quality premium milk products that are safe and healthy for our
customers. These technicians also pursue methods and techniques to improve the
taste and quality of our milk products and to evaluate new milk products for
further production based upon changes in consumer tastes, trends and the
introduction of competitive products by other milk producers. We also conduct
research and development efforts with third parties. Our strategy is to acquire
rights to obtain licenses to technologies and products that are being developed
by third parties or develop new products through sponsored research and
development agreements. In the fiscal year of 2009 we further expanded our
product category by purchasing the exclusive right to manufacture and market a
powdered milk formula specially formulated for the middle-aged and elderly and
acquiring powdered milk product formulas specifically developed for infants and
children from Shi Jie.





EMPLOYEES





As of
September 30, 2009, we had approximately 2,280 employees on our payroll divided
as follow:15 are management staff, 15 are technical personnel, 205 are involved
in manufacturing, 2,000 of them are full-time sales and marketing employees Our
employees are not represented by a labor organization or covered by a collective
bargaining agreement. We have not experienced any significant labor disputes and
consider our relationship with our employees to be in good
standing.











We provide
our full time employees with employee benefits including the following three
state-mandated insurance plans:




·
            Old-age
      insurance: We withhold a portion of each employee’s salary determined by
      the provincial government, generally 8%, and contribute an additional
      amount required under the PRC laws, up to approximately 20% of the
      employee’s salary (this 20% represents our contribution as employer
      only).


·
            Medical
      insurance: We withhold approximately 2% of each employee’s salary, and
      contribute an additional amount totaling approximately 10% of total
      payroll expense.


·
            Unemployment
      Insurance: We withhold approximately 1% of each employee’s salary, and
      contribute an additional amount totaling approximately 2% of total payroll
      expense.





We also pay
social security insurance for every employee who enters into a long-term
contract with us.





We have a
system of human resource performance review and incentive policies that allows
personnel reviews to be conducted monthly, quarterly or annually.





We also have
workers compensation insurance for our employees. Our employees register workers
compensation insurance at our Human Resources Department on their start date,
which is also the effective date of their workers compensation insurance, and
workers compensation insurance will be terminated upon their termination of
employment with us. Our Human Resources Department fills out a “Workers
Compensation Insurance Adjustment Form” when the workers compensation insurance
adjusts due to other factors. The Human Resources Department files employees’
personal workers compensation insurance information on record for reference. The
Human Resources Department calculates the workers compensation insurance fees
and transfers the data to our Finance Department annually. The Finance
Department withholds the insurance fees from each employee’s
salary.




GOVERNMENT
REGULATIONS





Our PRC
consolidated operating subsidiaries and VIE are subject to PRC laws at state,
province and county levels. The following information summarizes the most
important regulations that are applicable to us and is qualified in its entirety
by reference to all particular statutory or regulatory provisions.





Food
Hygiene and Safety Laws and Regulations





As a producer
of nutritional products, and particularly dairy-based infant formula products,
in China, we are subject to a number
of PRC laws and regulations governing the manufacturing (including composition
of ingredients), labeling, packaging, safety and hygiene of food
products:





·
            the
      PRC Product Quality Law;


·
            the
      PRC Food Hygiene Law;


·
            the
      Access Conditions for Dairy Products Processing
  Industry;


·
            the
      Implementation Rules on the Administration and Supervision of Quality and
      Safety in Food Producing and Processing
  Enterprises;














·
            the
      Regulation on the Administration of Production Licenses for Industrial
      Products;





·
            the
      General Standards for the Labeling of Prepackaged
  Foods;





·
            the
      Implementation Measures on Examination of Dairy Product Production
      Permits;





·
            the
      Standardization Law;





·
            the
      Raw Milk Collection Standard;





·
            the
      Whole Milk Powder, Skimmed Milk Powder, Sweetened Whole Milk Powder and
      Flavored Milk Powder Standards; and





·
            the
      General Technical Requirements for Infant Formula Powder and Supplementary
      Cereal for Infants and Children.





These laws
and regulations set out safety and hygiene standards and requirements for
various aspects of food production, such as the use of additives, production,
packaging, handling, labeling and storage, as well as facilities and equipment.
Failure to comply with these laws and regulations may result in confiscation of
our products and proceeds from the sales of non-compliant products, destruction
of our products and inventory, fines, suspension of production and operation,
product recalls, revocation of licenses, and, in extreme cases, criminal
liability.





After the
melamine contamination incident in 2008, the PRC government authorities have
conducted several dairy industry inspections. In addition to the initial 22
companies implicated in the incident, these subsequent government inspections
have identified other companies with unacceptable contamination in their
products.




In March
2008, The PRC National Development and Reform Commission (“NDRC”) promulgated
the Access Conditions for Dairy Products Processing Industry. The Access
Conditions set forth the conditions an entity must satisfy in order to engage,
or continue to engage in the dairy products processing business in China,
including technique and equipment, product quality, energy and water
consumption, sanitation and environmental protection, as well as production
safety. Any new or continuing dairy products processing projects or enterprises
will be required to meet all the conditions and requirements set forth in the
Access Conditions.





The Access
Conditions also set forth requirements relating to the location, processing
capacity and raw milk source for any new or continuing dairy products processing
project or enterprise. Any new or continuing dairy processing projects or
enterprises that fail to meet the requirements will not be able to procure land,
license, permits, loan facilities and electricity necessary for the processing
of dairy products, and those projects or enterprises already in operation before
the promulgation of the Access Conditions will be deregistered and ordered to
shut down if they fail to meet the conditions within a two-year rectification
period.





In May 2008,
the NDRC issued the Dairy Industry Policies. According to the PRC government,
the Policies are the first set of comprehensive government policies on the dairy
industry in China, covering a broad range of matters such as industry planning,
closure of inefficient capacity, milk supply, quality control and product
safety, environmental protection and promotion of milk consumption. Moreover,
the Policies provide conditions that new entrants to the dairy industry must
meet in addition to the conditions set forth in the Access
Conditions.














On October 7,
2008, the State General Administration of Quality Supervision, Inspection and
Quarantine (“AQSIQ”) issued a national standard on the detection of melamine in
raw milk and dairy based products. On October 9, 2008, the State Council
promulgated with immediate effect a Regulation for the Quality and Safety
Supervision of Dairy Based Products, which, among other things, imposes more
stringent requirements for inspection, production, packaging, labeling and
product recall on dairy product producers. This regulation also established a
“Black-List” system to ensure that illegal business operators in the dairy
production chain are timely disclosed and severely punished.





It is
possible that additional regulatory requirements will be implemented, and
governmental enforcement efforts are likely to be more stringent. Since the
recent melamine scandal, the Chinese government has regulated the industry
further. Per these new regulations, each dairy company must purchase a melamine
testing device and products must be tested for possible melamine contamination
before coming off the production lines. Additionally, a representative from the
Bureau of Quality Supervision, Inspection and Quarantine will test the products.
Rodobo has purchased one such device with a cost of RMB140, 000, which is
approximately $20,300.





As a
manufacturer and distributor of food products, we are subject to the regulations
of China’s Ministry of Agriculture. This regulatory scheme governs the
manufacture (including composition and ingredients), labeling, packaging and
safety of food. It also (i) regulates manufacturing practices, including quality
assurance programs, for foods through its current good manufacturing practices
regulations, (ii) specifies the standards of identity for certain foods,
including our products, (iii) prescribes the format and content of many of the
products we sell, (iv) prescribes the format and content of certain nutritional
information required to appear on food product labels we use and (v) approves
and regulates claims of health benefits of food products such as
ours.





In addition,
China’s Ministry of Agriculture authorizes regulatory activity necessary to
prevent the introduction, transmission or spread of communicable diseases. These
regulations require, for example, pasteurization of milk and milk products. We
and our products are also subject to province and county regulations including
such measures as the licensing of dairy manufacturing facilities, enforcement of
standards for products, inspection of facilities and regulation of trade
practices in connection with the sale of dairy products.





Approvals,
Licenses and Certificates





Currently, we
are in compliance with all material respects of laws, regulations, rules,
specifications and have obtained all material permits, approvals and
registrations relating to our business. Regulations at the national, provincial
and county levels are subject to change. To date, compliance with governmental
regulations does not have a material adverse impact on our level of capital
expenditures, earnings or competitive position, however, because of the evolving
nature of such regulations, management is unable to predict the impact such
regulations may have in the foreseeable future.





ENVIRONMENTAL
MATTERS





Our
manufacturing facilities are subject to various pollution control regulations
with respect to noise, water and air pollution and the disposal of waste and
hazardous materials. We are also subject to periodic inspections by local
environmental protection authorities.





The major
environmental regulations applicable to us include:












·
            the
      Environmental Protection Law of the
PRC;





·
            the
      Law of PRC on the Prevention and Control of Water
    Pollution;





·
            Implementation
      Rules of the Law of PRC on the Prevention and Control of Water
      Pollution;





·
            the
      Law of PRC on the Prevention and Control of Air
  Pollution;





·
            Implementation
      Rules of the Law of PRC on the Prevention and Control of Air
      Pollution;





·
            the
      Law of PRC on the Prevention and Control of Solid Waste Pollution;
      and





·
            the
      Law of PRC on the Prevention and Control of Noise
    Pollution.





We are
periodically inspected by local environmental protection authorities. Our
operating subsidiaries have received certifications from the relevant PRC
government agencies in charge of environmental protection indicating that their
business operations are in material compliance with the relevant PRC
environmental laws and regulations. We are not currently subject to any pending
actions alleging any violations of applicable PRC environmental laws. To date,
the Company’s cost of compliance has
been insignificant. The Company does not believe the existence of these
environmental laws, as currently written and interpreted, will materially hinder
or adversely affect the Company’s business operations; however, there can be no
assurances of future events or changes in laws, or the interpretation of laws,
governing our industry.





INDUSTRY
OVERVIEW




China’s
population of 1.3 billion offers a huge market for the developing dairy
industry. The dairy industry is growing much faster than the growth of China’s
gross domestic product (“GDP”).  According to the statistics from the
Food and Agriculture Organization of the United Nations (“FAO”), total Chinese
milk production was the seventh largest in the world. It is widely predicted
that the growth of dairy industry in China will continue at a growth rate of
15% per year.





The Chinese
government views the dairy industry as an instrumental component in reforming
China’s agricultural system and concurrently increasing the income of farmers.
Additionally, the dairy industry plays a key role in improving the diet and
overall welfare of the Chinese people. Milk and dairy products have gradually
become a staple in the daily food intake of the Chinese. The “11th Five Years
Plan” urged that the average annual dairy consumption should reach 10kg per
person and should reach 16kg in 2015. Consequently, the dairy market is one of
the fast growing markets in China. China’s dairy industry has recently
experienced dramatic expansion, with an annual growth rate of approximately
10%-20%. Total revenues of China’s dairy industry grew from $8.33 billion in
2004 to $10.66 billion in 2005, $11.68 billion in 2006, and $18.95 billion in
2007. There are approximately 1,500 dairy producers in China. However, only
about 175 producers have received licenses from the government to sell their
products directly on the market (source: General Administration of Quality
Supervision, Inspection and Quarantine of P.R.C.).





Additionally,
only 5% of these 1,500 dairy producers produce over 1 million tons of dairy
products annually. Currently, six State-owned enterprises control more than half
of China’s dairy market. Because China’s dairy market is highly fragmented, we
believe that current market dynamics provide a significant opportunity for us to
acquire additional market share. We plan to increase market share through a
roll-up strategy whereby we acquire some of our competitors. In addition, we
plan marketing initiatives to increase market penetration with existing
customers. The Company has also recently hired some sales force personnel who
worked for one of our major competitors.









According to
the “China Food and Nutrition Development outline (2001-2010)” approved by
Chinese State Council, the dairy industry is one of the three food industries
that should be developed first. The outline required that in 2010, average
consumption of dairy per person should reach 16kg, in which the average
consumption of dairy per person for rural habitants and those who live in cities
and towns are 32kg and 7kg, respectively.  Experts predict that the
dairy output in China will be 20 million tons and 70 million tons in 2015 and
2030, respectively. Therefore, over the next few years, the Chinese dairy
industry should maintain a fast and sound growth momentum and the consumption of
dairy should continue to increase with the rise in living standard and change in
consumption behavior. The average consumption of dairy per person in China is
much lower than the world average.  This means the Chinese dairy
market has tremendous room for growth, especially as the economy continues to
boom.





According to
the National Bureau of Statistics of the PRC, about 15 million infants are born
in China each year. Each 0 - 6 month old baby will need 27.2 kg milk powder, for
an annual total demand of 90,000 tons. Each 6 - 12 month old baby will need 31
kg milk powder, for an annual total demand of 110,000 tons. But the current
supply is just 80,000 - 100,000 tons, leaving much room for
growth.  The infant dairy market in China is growing by 17% annually,
and has surpassed Japan, becoming the second largest infant formula dairy market
in the world, behind the U.S.




In September
2008, some of our competitors’ business was severely interrupted by the melamine
contamination incident in which the products of 22 Chinese formula producers
were found to be contaminated by melamine, a substance not approved for use in
food and linked to approximately 300,000 kidney illnesses among infants and
children in China. The milk supplies
in Hebei and Inner Mongolia found to be contaminated by melamine. So far, the
milk supplies from Heilongjiang Province (where we operate) have not been
seriously affected, and our products have not tested positive in the
contamination crackdown in China. This melamine contamination incident prompted
the Chinese government to conduct a nationwide investigation into how the milk
powder was contaminated, and caused a worldwide recall of certain milk powder
products produced within China.  On September 16,
2008, China’s Administration of
Quality Supervision, Inspection and Quarantine (AQSIQ) revealed that it had
tested samples from 175 dairy manufacturers, and published a list of 22
companies whose products contained melamine.  We passed the emergency
inspection and were not included on AQSIQ’s list.  We believe that the
inevitable contraction in the Chinese milk powder industry caused by this crisis
will lead to increased demand for our products, as well as present acquisition
opportunities.




Infant/Children
Milk Formula





China’s baby
food industry, dominated by infant formula, is a multi-billion dollar business
and has experienced an annual double-digit growth rate during the past five
years up until 2007 (source: “2006-2007 China Infant/Child Milk Powder Market
Research Report”). This growth resulted from increased demand which was the
cumulative byproduct of three factors: (a) increase in disposable income, (b)
penetration of milk formula into the rural market, and (c) female working
population growth. The Company anticipates that as income levels rise, Chinese
parents will spend more on infant formula due to demand for higher quality and
greater variety. China’s per capita dairy consumption is still relatively low,
implying ample room for continued industry growth. In 2005, China’s per capita
dairy intake was only 21.7 kg or about 20% of the global average (source: The
Chinese Academy of Agricultural Sciences, Agricultural Information Institute).
Milk consumption in China is not uniform across the population. The majority of
consumption occurs in large cities and economically developed regions, whereas
the consumption of the rural population is 1/10 of that of the urban population
(source: The Chinese Academy of Agricultural Sciences, Agricultural Information
Institute). This disparity represents a substantial opportunity for distribution
to rural regions.









There are
about 15 million new babies born each year in China according to the National
Statistics Bureau of the PRC. Rodobo’s management initially estimated that an
average infant in China consumes approximately 30 kilograms of dairy products
per year, and that infants generally consume dairy based formula products for
approximately 2.5 years. Therefore, Rodobo’s management has estimated the
potential market demand for infant formula products per year in China to be
approximately 1.45 million tons. Based on Chinese industry statistics,
management has calculated that the actual production volume of infant formula
dairy products was more than 300,000 tons in 2006. Therefore, management
believes there is great potential for demand-side growth for infant formula
dairy products in China. Rodobo’s management estimates that the total market
size of dairy based nutritional products for infants and children, in terms of
sales in China, was about $2 billion USD during 2006, representing a 5% growth
rate over the past year. Currently sales growth has been mainly derived from
increasing demand driven by medium size urban areas.




Infant
formula is a substitute for breastfeeding. Rodobo’s management believes that
Chinese women generally only breastfeed babies for the first six months of an
infant’s life. After the first 6 months, mothers usually choose infant formula
over breastfeeding for two primary reasons: (a) many mothers have to return to
work after 6 months, making breastfeeding harder to manage, and (b) infant
formula products currently available in the Chinese market provide adequate
nutritional value. Accordingly, mothers are comfortable using formula as an
adequate breast milk substitute. Empirical evidence also reflects the trend of
Chinese mothers’ increased acceptance and use of infant formula as a breast milk
substitute. The August 2006 World Health Organization (WHO) presentation stated
that the breastfeeding rate in China has been decreasing in recent years, with
select cities and regions dipping to around 61% of nursing mothers.





China’s
consumer goods market has rapidly developed in recent years, leading to
increased demand for more modern food products. Rising income levels have
allowed consumers to buy better quality and more sophisticated food products,
including those in the baby food sector. Because of the One Child Policy (state
policy allowing most Chinese families to have only one child), parents and
extended families tend to lavish a great amount of money, time and attention on
the only child. The demand for better quality products is derived from parents
being able to spend more on baby formula and nutritional products. This market
demand has led to the development of new products containing additional
nutrients, including various essential fatty acids, vitamins and
minerals.





Middle-aged
& Elderly Milk Formula





China’s
middle-aged & elderly milk formula industry is gradually emerging. China’s
large aging population has provided the basis for the formation and development
of the elderly market. At present, China’s elderly population has reached 130
million, accounting for nearly 11% of the total population. It is estimated that
from 2025 to 2040, the elderly population will grow from 274 million to more
than 400 million. In the next 50 years, China will experience a rapid growth
trend for its aging population.





The
improvement of the disposable income for the elderly as well as the improving
awareness of health and wellness creates enormous opportunities for the
development of the elderly market. About 45% of the people aged 60-65 years old
in urban areas are still working, as a result, in addition to pension income,
they also have additional stable income. According to a survey done by the China
Aging Research Center, there are 42.8% of the elderly in urban areas have
savings. While pension will be increased to 838.3 billion RMB by 2010 and 2.8
trillion RMB by 2003.











Due to the
physical reasons, the demand for health care products for the elderly, according
to the World Health Organization (“WHO”), has an incidence rate of 50% for
people aged over 50% and 80% for people over 55%. Forgetfulness, insomnia, high
blood pressure, high cholesterol, osteoporosis and other diseases are more
common. With the improvement on living standards and awareness of health and
wellness, the consumer demand on health improvement products will continue to
increase.





SEASONALITY





Dairy cows
generally produce more milk in temperate weather than in cold or hot weather and
extended unseasonably cold or hot weather could lead to lower than expected
production. But this fluctuation is not material to our business. Our adult
formula milk powder business has a certain level of seasonality as adults tend
to consume less milk powder in summer. As sales of adult milk powder only
accounts for approximately 10% of the total sales, our business does not appear
to be seasonal.





COMPETITION





Competitive
Environment





The formula
industry in China is highly
competitive. We generally compete with both multinational and domestic Chinese
infant formula producers. Competitive factors include brand recognition,
perceived quality, advertising, formulation, packaging and price. Many of our
competitors have significant market share in the markets we compete
in.





Our products
are positioned as premium products and, accordingly, are generally priced higher
than certain similar competitive products. While we believe that we compete
favorably in terms of quality, taste and freshness, our products may have higher
prices yet less brand recognition than certain other established brands. Our
premium products may also be considered in competition with non-premium quality
dairy products for discretionary food dollars. The melamine contamination in
2008 has severely affected many of our competitors and resulted in major
reshuffling in our industry. Rodobo views this as a competitive opportunity to
provide safe products to our customers and develop further brand loyalty.
Further, the Company believes that as the government has implemented new
regulations following the contamination scandal, consumers have rebuilt their
confidence in formula and will continue to use formula. The Company’s products
were tested by General Administration of Quality Supervision, Inspection and
Quarantine and were not implicated in the scandal. Indeed, the Company has not
experienced a decline in sales following the scandal.





Our
Competitors





We believe
that the following dairy companies are our most significant direct competitors
based in China: American Dairy, Inc., Synutra International, Inc. Emerald Dairy
Inc., and Yaolan Dairy, Inc. These are much larger producers with dominating
market share, but with lower profit margins than ours. In September 2008, some
of our competitors’ business including Synutra International, Inc was severely
interrupted by the melamine contamination incident in which the products of 22
Chinese formula producers were found to be contaminated by melamine, a substance
not approved for use in food and linked to approximately 300,000 kidney
illnesses among infants and children in China.





Our
Competitive Advantages





(1) Resource
advantage: We have our own raw milk collection stations. Therefore, our cost of
purchasing raw milk is currently approximately 0.2 yuan per kilogram (or 7%)
less than our competitors.


(2)
Production advantage: We own an infant formula production license issued by the
Chinese government. With our unique milk powder formula for the elderly, we have
exclusive rights to use the name of “China Nutrition Society Development” on our
package for ten years under the CNS’s authorization, which we use in connection
with our “Healthy Elderly” products under brand name “Healif”.








(3) Focused
market: Our marketing strategy is to provide high-end products for high-income
consumers in order to stand out from our competitors.
 (4)
Established market coverage: Rodobo has a well established distribution network
with footholds in three key sales regions: Chengdu district (covering Sichuan,
Shaanxi), Zhengzhou district (covering Henan, Shandong) and Fuzhou district
(covering Zhejiang, Fujian). These are key regions because of population
concentration, geographic location and being “trendsetting” areas that influence
other regions in China.





Executive
Offices in China





Our executive
offices in China are 380 Changjiang Road, Nangang District, Harbin, PRC. Our
telephone number is 86-0451-82260522. We maintain a website at www.rodobo.com
and www.rodobo.com.cn. Information contained on or accessed through our website
is not intended to constitute and shall not be deemed to constitute part of this
Annual Report.





Item
1A. Risk Factors.





Investing in our
securities involves a great deal of risk. You should carefully consider the
risks described below as well as other information provided to you in this
document, including information in the section of this document entitled
“Cautionary Note on Forward Looking Statements.”  The risks and
uncertainties described below are not the only ones facing the Company.
Additional risks and uncertainties not presently known to the Company or that
the Company currently believes are immaterial may also impair the Company’s
business operations.  If any of the following risks actually occur,
the Company’s business, financial condition or results of operations could be
materially adversely affected, the value of the Company’s Common Stock could
decline, and you may lose all or part of your investment.





Risks
Relating to Our Business





The
recent global economic and financial market crisis could significantly impact
our financial condition.





Current
global economic conditions could have a negative effect on our business and
results of operations. Economic activity in China, United States and throughout
much of the world has undergone a sudden, sharp economic downturn following the
recent housing downturn and subprime lending collapse in both the United States
and Europe.  Market disruptions have included extreme volatility in
securities prices, as well as severely diminished liquidity and credit
availability.  The economic crisis may adversely affect us in a
variety of ways. Access to lines of credit or the capital markets may be
severely restricted, which may preclude us from raising funds required for
operations and to fund continued expansion.  It may be more difficult
for us to complete strategic transactions with third parties. The financial and
credit market turmoil could also negatively impact our suppliers and customers,
which could decrease our ability to source, produce and distribute our products
and could decrease demand for our products. While it is not possible to predict
with certainty the duration or severity of the current disruption in financial
and credit markets, if economic conditions continue to worsen, it is possible
these factors could significantly impact our financial condition.












We
are highly dependent upon consumers’ perception of the safety and quality of our
products. Any ill effects, product liability claims, recalls, adverse publicity
or negative public perception regarding particular ingredients or products or
our industry in general, could harm our reputation and damage our brand, result
in costly and damaging recalls, and expose us to government investigations and
sanctions, which would materially and adversely affect our results of
operations.




We sell
products for human consumption, which involves risks such as product
contamination, spoilage and tampering. We may be subject to liability if the
consumption of any of our products causes injury, illness or death. Adverse
publicity or negative public perception regarding particular ingredients, our
products, our actions relating to our products, or our industry in general could
result in a substantial drop in demand for our products. This negative public
perception may include publicity regarding the safety or quality of particular
ingredients or products in general, of other companies or of our products or
ingredients specifically. Negative public perception may also arise from
regulatory investigations or product liability claims, regardless of whether
those investigations involve us or whether any product liability claim is
successful against us.





In 2008,
sales in China of substandard milk
formula contaminated with a substance known as melamine caused the death of six
infants as well as illness of nearly 300,000 others.  Although this
incident did not involve any of our products, China’s Administration of Quality
Supervision, Inspection and Quarantine found that the products of 22 Chinese
milk and formula producers were contaminated by melamine, a substance not
approved for use in food, which caused significant negative publicity for the
entire dairy industry in China.  Although we believe
that the inevitable contraction in the Chinese milk powder industry caused by
this crisis will lead to increased demand for our products, we can not be
certain that the illnesses caused by contamination in the milk powder industry,
whether or not related to our products, won’t lead to a sustained decrease in
demand for milk powder products produced within China, thereby having a material
adverse effect on our business.





In the past,
there have also been occurrences of counterfeiting and imitation of products in
China that have been widely
publicized. We cannot guarantee that contamination or counterfeiting or
imitation of our or similar products will not occur in the future or that we
will be able to detect it and deal with it effectively. Any occurrence of
contamination or counterfeiting or imitation could negatively impact our
corporate and brand image or consumers’ perception of our products or similar
nutritional products generally, particularly if the counterfeit or imitation
products cause injury or death to consumers. For example, in April 2004, sales
of counterfeit and substandard infant formula in Anhui, China caused the deaths of 13 infants
as well as harming many others. Although this incident did not involve the
counterfeiting of our products, it caused significant negative publicity for the
entire infant formula industry in China. The mere publication of
information asserting that infant formula ingredients or products may be harmful
could have a material adverse effect on us, regardless of whether these reports
are scientifically supported or concern our products or the raw materials used
in our products.




In addition,
we believe that the recent melamine incident and any other adverse news related
to formula products in China will
also result in increased regulatory scrutiny of our industry, which may result
in increased costs and reduce our margins and profitability. The government has
enhanced its regulations on the industry aimed to ensure the safety and quality
of dairy products, including but not limited to compulsory batch by batch
inspection. This is likely to increase our operating costs and capital
expenditure.












Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.





We have a
limited operating history, having commenced operations in 2002. We grew to our
present size only in 2008. Accordingly, you should consider our future prospects
in light of the risks and uncertainties experienced by early-stage companies in
evolving markets in the PRC. Some of these risks and uncertainties relate to our
ability to:




·
            offer
      new products to attract and retain a larger customer
  base;


·
            attract
      additional customers and increase spending per
  customer;


·
            increase
      awareness of our brand and continue to develop customer
      loyalty;


·
            respond
      to competitive market conditions;


·
            respond
      to changes in our regulatory
environment;


·
            manage
      risks associated with intellectual property
  rights;


·
            maintain
      effective control of our costs and
expenses;


·
            raise
      sufficient capital to sustain and expand our business;
  and


·
            attract,
      retain and motivate qualified
personnel.





Because we
are a relatively new company, we may not be experienced enough to address all
the risks in our business or in our expansion. If we are unsuccessful in
addressing any of these risks and uncertainties, our business may be materially
and adversely affected.





We
expect to incur costs related to our planned acquisitions and expansion into new
plants and ventures, which may not prove to be profitable. Moreover, failure to
execute our expansion plan could adversely affect our financial condition and
results of operations.




We have plans
to increase our annual production capacity to meet an expected increase in
demand for our products. Our decision to increase our production capacity is
based in part on our projections of increases in our sales volume and growth in
the size of the infant formula product market in China. If actual customer demand does
not meet our projections, we will likely suffer overcapacity problems and have
idle capacity, which may materially and adversely affect our financial condition
and results of operations. We anticipate that our proposed expansion of our milk
production facilities may include the acquisition and construction of new or
additional facilities. Our cost estimates and projected completion dates for
construction of new production facilities may change significantly as the
projects progress. In addition, our projects will entail significant
construction risks, including shortages of materials or skilled labor,
unforeseen environmental or engineering problems, weather interferences and
unanticipated cost increases, any of which could have a material adverse effect
on the projects and could delay their scheduled openings. A delay in scheduled
openings of production facilities will delay our receipt of sales revenues from
such facilities, which, when coupled with the increased costs and expenses of
our expansion, could cause a decline in our profits.




Our plans to
finance, develop, and expand our production facilities will be subject to the
many risks inherent in the rapid expansion of a high growth business enterprise,
including unanticipated design, construction, regulatory and operating problems,
and the significant risks commonly associated with implementing a marketing
strategy in changing and expanding markets. These projects may not become
operational within their estimated time frames and budgets as projected at the
time we enter into a particular agreement, or at all. In addition, we may
develop projects as joint ventures in an effort to reduce our financial
commitment to individual projects. The significant expenditures required to
expand our production plants may not ultimately result in increased
profits.















Our future
success depends on our ability to expand our business to address expected
growth in demand for our current and future products. Our ability to add
production capacity and increase output is subject to significant risks and
uncertainties, including:




the
availability of additional funding to expand our production capacity, build new
processing and packaging facilities, make additional investments in our
subsidiaries, acquire additional businesses or production facilities, purchase
additional fixed assets and purchase raw materials on favorable terms or at
all;





·
            delays
      and cost overruns as a result of a number of factors, many of which may be
      beyond our control, such as problems with equipment vendors and suppliers
      of raw materials;




·
            failure
      to maintain high quality control
  standards;





·
            global
      or local shortage of raw materials, such as raw milk or whey protein
      powder;





·
            our
      inability to obtain, or delays in obtaining, required approvals by
      relevant government
authorities;





·
            diversion
      of significant management attention and other resources;
    and





·
            failure
      to execute our expansion plan
effectively.





As our business
grows, we will need to implement a variety of new and upgraded operational and
financial systems, procedures and controls, including improvements to our
accounting and other internal management systems by dedicating additional
resources to our reporting and accounting functions, and improvements to our
record keeping and contract tracking system. We will need to respond to
competitive market conditions and continue to enhance existing products and
develop new products, and retain existing customers and attract new customers.
We will also need to recruit more personnel and train and manage our growing
employee base. Furthermore, we will need to maintain and expand our
relationships with our current and future customers, suppliers, distributors and
other third parties, and there is no guarantee that we will
succeed.





When our
future expansion projects become operational, we will be required to add and
train personnel, expand our management information systems and control expenses.
If we do not successfully address our increased management needs or are
otherwise unable to manage our growth effectively, our operating results could
be materially and adversely affected.





If we
encounter any of the risks described above, or are otherwise unable to establish
or successfully operate additional production capacity or to increase production
output, we may be unable to grow our business and revenues, reduce our operating
costs, maintain our competitiveness or improve our profitability, and our
business, financial condition, results of operations and prospects may be
adversely affected.





We
may not succeed in identifying suitable acquisition targets, which could
adversely affect our ability to expand our operations and service offerings and
enhance our competitiveness.





We have
pursued and may in the future pursue strategic acquisition opportunities to
increase our scale and geographic presence and expand the number of our product
offerings. However, we may not be able to identify suitable acquisition or
investment candidates, or, even if we do identify suitable candidates, we may
not be able to complete those transactions on terms commercially favorable to us
or at all, which could adversely affect our competitiveness and our growth
prospects.









If we acquire
other companies in the future, we could face the following risks:
  ·
                difficulty
      in assimilating the target company’s personnel, operations, products,
      services and technology into our
  operations;
 ·
                the
      presence of unforeseen or unrecorded
  liabilities;
 ·
                entry
      into unfamiliar markets;
 ·
                inability
      to generate sufficient revenues to offset acquisition costs;
      and
 ·
                tax
      and accounting issues.
   
 Many recently joined
employees may decide not to work with us or to leave shortly after joining our
company. These difficulties could disrupt our ongoing business, distract our
management and current employees and increase our expenses, including write-offs
or impairment charges. Acquired companies also may not perform to our
expectations for various reasons, including the loss of key personnel, key
distributors, key suppliers or key customers, and our strategic focus may
change. As a result, we may not realize the benefits we anticipated. If we fail
to integrate acquired businesses or realize the expected benefits, we may lose
the return on the investment in these acquisitions or incur additional
transaction costs and our operations may be negatively impacted as a result.
Further, any acquisition or investment that we attempt, whether or not
completed, or any media reports or rumors with respect to any such transactions,
may adversely affect our competitiveness, our growth prospects, and the value of
our Common Stock.





Our
business is capital intensive and our growth strategy may require additional
capital that may not be available on favorable terms or at all.





We have, in
the past, obtained loans and sold our Common Stock to raise additional capital.
Our business requires significant capital and although we believe that our
current cash, and cash flow from operations will be sufficient to meet our
present and reasonably anticipated cash needs, we may, in the future, require
additional cash resources due to changed business conditions, implementation of
our strategy to expand our production capacity or other investments or
acquisitions we may decide to pursue.  If cash from available sources is
insufficient or unavailable due to restrictive credit markets, or if cash is
used for unanticipated needs, we may require additional capital sooner than
anticipated. Our ability to obtain additional capital on acceptable terms or at
all is subject to a variety of uncertainties, including:





·
            Investors’
      perceptions of, and demand for, companies in our
  industry;


·
            Investors’
      perceptions of, and demand for, companies operating in
    China;


·
            Conditions
      of the U.S. and other capital markets in which we may seek to raise
      funds;


·
            Our
      future results of operations, financial condition and cash
      flows;


·
            Governmental
      regulation of foreign investment in companies in particular
      countries;


·
            Economic,
      political and other conditions in the United States, China, and other
      countries; and


·
            Governmental
      policies relating to foreign currency
  borrowings.












In the event
that we are required or choose to raise additional funds, we may be unable to do
so on favorable terms or at all.




We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings.  There
is no assurance that we will be able to secure suitable financing in a timely
fashion or at all.  In addition, there is no assurance that we will be
able to obtain the capital we require by any other means.  Future
financings through equity investments are likely to be dilutive to our existing
stockholders.  Also, the terms of securities we may issue in future
capital transactions may be more favorable for our new
investors.  Newly issued securities may include preferences, superior
voting rights, the issuance of warrants or other derivative securities, and the
issuances of incentive awards under equity employee incentive plans, which may
have additional dilutive effects.  Further, we may incur substantial
costs in pursuing future capital and/or financing, including investment banking
fees, legal fees, accounting fees, printing and distribution expenses and other
costs.  We may also be required to recognize non-cash expenses in
connection with certain securities we may issue, such as convertible notes and
warrants, which will adversely impact our financial condition.




If we cannot
raise additional funds on favorable terms or at all, we may not be able to carry
out all or parts of our strategy to maintain our growth and competitiveness or
to fund our operations.  If the amount of capital we are able to raise
from financing activities, together with our revenues from operations, is not
sufficient to satisfy our capital needs, even to the extent that we reduce our
operations accordingly, we may be required to cease operations.




Our
products may not achieve market acceptance.





We are
currently selling our products principally in northern China. Achieving market
acceptance for Rodobo’s products, particularly in new markets, will require
substantial marketing efforts and the expenditure of significant funds. There is
substantial risk that any new markets may not accept or be receptive to our
products. In addition, we intend to market our products as premium and
super-premium products and to adopt a corresponding pricing model, which may not
be accepted in new or existing markets. Market acceptance of our current
and proposed products will depend, in large part, upon our ability to inform
potential customers that the distinctive characteristics of our products make
them superior to competitive products and justify their pricing. Our current and
proposed products may not be accepted by consumers or able to compete
effectively against other premium or non-premium dairy products. Lack of market
acceptance would limit our revenues and profitability.





We
maintain inventories of raw materials and finished products, and our inventories
may spoil.





Most of our
finished products have an average shelf life of 18 to 24 months. Our raw
materials, excluding raw milk, have an average shelf life of 12 months. Our
inventory levels are based, in part, on our expectations regarding future sales.
While we do not currently maintain large inventory levels for long periods, we
may in future periods experience inventory buildup if our sales slow for any
reason. Any significant shortfall in sales may result in higher inventory levels
of raw materials and finished products than we require, thereby increasing our
risk of inventory spoilage and corresponding inventory write-downs and
write-offs, which may materially and adversely affect our results of
operations.












In the past several years
we have derived a significant portion of our revenues from a small group of
customers. If we were to become dependent again upon a few customers, such
dependency could negatively impact our business, operating results and financial
condition.





In the fiscal
year ended September 30, 2009, we have one customer Chengdu Luoling accounted
for 22% of our sales. The sale from our five largest customers in the fiscal
year ended September 30, 2009 amounted to $15.7 million which represented
approximately 45% of our total sales. In fiscal year ended September 30, 2008,
our three major customers, Chengdu Luoling, Harbin Huijiabei Food Co., Ltd. and
Jiangxi Meilu Dairy Co., Ltd. accounted for approximately 48% of our net
revenue, with each customer accounting for 24%, 13% and 11%, respectively. As
our customer base may change from year-to-year, during such years that the
customer base is highly concentrated, the loss of, or reduction of our sales to,
any of such major customers could have a material adverse effect on our
business, operating results and financial condition.




Changing
consumer preferences make demand for our products unpredictable.





Rodobo is
subject to changing consumer preferences and nutritional and health-related
concerns. Our business could be affected by certain consumer concerns about
dairy products, such as the fat, cholesterol, calorie, sodium and lactose
content or contamination of such products. A significant percentage of customers
in China are lactose intolerant, and may therefore prefer other beverages.
Rodobo could become subject to increased competition from companies whose
products or marketing strategies address these consumer concerns more
effectively.





Adverse
medical research relating to milk and demand for milk could decrease the demand
for our products. Periodically, medical and other studies are released and
announcements by medical and other groups are made which raise concerns over the
healthfulness of cow’s milk in the human diet. A study may be published or an
announcement made concerning the healthfulness of cow’s milk which may result in
a decrease in demand for dairy products in China.





We
may experience problems with product quality or product performance, or the
perception of such problems, which could adversely affect our reputation or
result in a decrease in customers and revenue, unexpected expenses and loss of
market share.




Our operating
results depend, in part, on our ability to deliver high quality products on a
timely and cost-effective manner. Our quality control and food safety management
systems are complex. For example, there are over 1,100 quality control points
throughout the whole production process. If the quality of any of our products
deteriorated, it could result in delays in shipments, cancellations of orders or
customer returns and complaints, loss of goodwill, and harm to our brand and
reputation.





Any quality
problems associated with the milk powder produced by these suppliers would also
affect our products’ quality and lead to negative publicity against us,
adversely affecting our reputation and brand, and causing a decrease in sales of
our products and a loss of market share. For example, the recent melamine
contamination incident in China has
resulted in certain of our products being contaminated, impacting our brand and
reputation.





We
depend on suppliers for 2/3 of our raw milk and other raw
materials,  a shortage of which could result in reduced production and
sales revenues and/or increased production costs. We also may be exposed to the
risks associated with failure in suppliers’ quality control.





Raw milk is
the primary raw material we use to produce our products. As we pursue our growth
strategy, we expect raw milk demands to continue to grow. Though we have our own
cow farm, 2/3 of our raw milk comes from milk farmers. Our raw milk supply is
limited by the ability of the individual dairy farmers to provide raw milk in
the amount and quality to meet our requirements. Raw milk production is, in
turn, influenced by a number of factors that are beyond our control including,
but not limited to, the following:








·seasonal factors: dairy cows generally produce more milk in
      temperate weather than in cold or hot weather and extended unseasonably
      cold or hot weather could lead to lower than expected
      production;
 ·environmental factors: the volume and quality of milk produced by
      dairy cows is closely linked to the quality of the nourishment provided by
      the environment around them, and, therefore, if environmental factors
      cause the quality of nourishment to decline, milk production could decline
      and we may have difficulty finding sufficient raw milk;
  and
 ·governmental agricultural and environmental policy: declines in
      government grants, subsidies, provision of land, technical assistance and
      other changes in agricultural and environmental policies may have a
      negative effect on the viability of individual dairy farms, and the
      numbers of dairy cows and quantities of milk they are able to
      produce.




We purchase
2/3 of our raw milk from individual dairy farmers without long-term contractual
arrangements and do not have guaranteed supply contracts with any of our raw
material suppliers. Some of our suppliers may, without notice or penalty,
terminate their relationship with us at any time. If any supplier is unwilling
or unable to provide us with high quality raw materials in required quantities
and at acceptable prices, we may be unable to find alternative sources or at
commercially acceptable prices, on satisfactory terms, in a timely manner, or at
all.





In addition
to that, the supply of raw milk may be insufficient to meet demand which would
limit our growth. In order to meet our projected needs, we expect that we will
need to continue to increase the number of milk collection centers from which we
source our raw milk and purchase cows. We cannot assure you that we will be able
to acquire additional milk collection centers or that there will be sufficient
supplies of raw milk from individual dairy farmers and cooperatives to be
provided to any milk collection centers. If we are not able to renew our
contracts with suppliers or find new suppliers to provide raw milk we will not
be able to meet our production goals and our sales revenues will
fall.  Any interruption in our supply of raw milk could materially and
adversely affect our results of operations, financial condition and business
prospects.





If we are
forced to expand our sources for raw milk as we attempt to implement our growth
strategy, it may be more and more difficult for us to maintain our quality
control over the handling of the product in our supply and manufacturing
chain.  A decrease in the quality of our raw materials would cause a
decrease in the quality of our product and could damage our reputation and cause
sales to decrease.





Even if we
are able to source sufficient quantities of raw milk or our other raw materials
to meet our needs, downturns in the supply of such raw materials caused by one
or more of these factors could lead to increased raw material costs which we may
not be able to pass on to the consumers of our products, causing our profit
margins to decrease.





Possible
volatility of raw milk costs makes our operating results difficult to predict,
and a steep cost increase could cause our profits to diminish
significantly.





The current
policy of China since the mid-1990s has focused on moving the industry in a more
market-oriented direction. These reforms have resulted in the potential for
greater price volatility relative to past periods, as prices are more responsive
to the fundamental supply and demand aspects of the market. These changes in
China’s dairy policy could increase the risk of price volatility in the dairy
industry, making our net income difficult to predict. Also, if prices are
allowed to escalate sharply, our costs will rise which will lead to a decrease
in profits. The raw materials we use are subject to price fluctuations due to
various factors beyond our control, including increasing market demand,
inflation, severe climatic and environmental conditions, commodity price
fluctuations, currency fluctuations, changes in governmental and agricultural
regulations and programs and other factors. We also expect that our raw material
prices will continue to fluctuate and be affected by inflation in the future.
Changes to our raw materials prices may result in increases in production and
packaging costs, and we may be unable to raise the prices of our products to
offset these increased costs in the short-term or at all. As a result, our
results of operations may be materially and adversely affected.












We
might face inventory write-down if milk powder inventory continues to increase
and milk powder prices continue to decline.





Due to the
decline in the consumption of dairy based products in the PRC as a result of the
melamine contamination incident and the significant increase in milk powder
imports, there has been a nationwide inventory build up of domestically produced
milk powder in the PRC. According to the Dairy Industry Association of China, as of March 31, 2009, surplus
milk powder inventory in the PRC was estimated at 300,000 tons and is expected
to continue to rise. Such inventory build up has caused a significant decline in
milk powder prices. If milk powder inventory continues to rise and the milk
powder prices continue to fall, we might face significant inventory write-down
which will adversely affect our financial results.





The
milk business is highly competitive and, therefore, we face substantial
competition in connection with the marketing and sale of our
products.





Our products
compete with other premium quality dairy brands as well as less expensive,
non-premium brands. Rodobo’s milk faces competition from non-premium milk
producers distributing milk in our marketing area and other milk producers
packaging their milk in glass bottles and other special packaging which serve
portions of our marketing area. Most of our competitors are well established,
have greater financial, marketing, personnel and other resources, have been in
business for longer periods of time than Rodobo, and have products that have
gained wide customer acceptance in the marketplace. The largest competitors of
Rodobo are state-owned dairies owned by the government of China. Large foreign
milk companies have also entered the milk industry in China. The greater
financial resources of such competitors will permit them to procure retail store
shelf space and to implement extensive marketing and promotional programs, both
generally and in direct response to advertising claims by Rodobo. The milk
industry is also characterized by the frequent introduction of new products,
accompanied by substantial promotional campaigns. We may be unable to compete
successfully or our competitors may develop products which have superior
qualities or gain wider market acceptance than ours.





More
mothers may breastfeed their babies rather than use our products, resulting in
reduced demand for our products and adversely affecting our
revenues.




Our results
of operations are affected by the number of mothers who choose to use our
products rather than breastfeeding their babies. Much publicly available data
suggests that breastfeeding has many health benefits for the baby that cannot be
replicated by dairy-based infant formula products. Additionally, popular
literature, cultural pressure, government policies and medical advice in China generally promote the benefits of
breastfeeding. For example, on August 1, 2007, China’s Ministry of Health issued an
Infant Feeding Strategy which promoted breastfeeding and requested all local
relevant departments to publicize the benefits of breastfeeding through radio
broadcasting, television and newspapers during World Breastfeeding Week, which
took place in early August 2007. Thus, to the extent that private, public and
government sources increasingly promote the benefits of breastfeeding, there
could be a reduced demand for our products and our revenues could be adversely
affected.





In addition,
we believe the recent melamine contamination incident has deteriorated customer
confidence in the safety and quality of infant formula products and the number
of mothers (and future mothers) who choose to breastfeed their babies may
significantly increase. The overall market demand for infant formula products
may slow or decline and any reduced demand for our products will negatively
impact our revenues and growth prospects.














Inadequate
property and general liability insurance expose Rodobo to the risk of loss of
our property as well as liability risks in the event of litigation against the
Company.





Operation of
our facilities involves many risks, including equipment failures, natural
disasters, industrial accidents, power outages, labor disturbances and other
business interruptions. Except for some property, automobile insurance and
personal injury insurance, Rodobo and its subsidiaries do not carry enough
property insurance, general liability insurance or product liability insurance
to cover the full risks of our business operations. We do not have other
insurance such as business liability or disruption insurance coverage for our
operations in the PRC. As a result, any material loss or damage to our
properties or other assets could lead to an increase in costs to replace or
repair lost or damaged property and, possibly, a decline in revenues from lost
use of the lost or damaged property.


As of the
date of this report we have 1,140 cows with a value of approximately2.5 million.
If a major outbreak of mad cow disease (bovine spongiform encephalopathy),
bovine tuberculosis, or bovine TB, or other fatal disease occurred, we could
suffer substantial losses of such assets.




In addition,
we sell products for human consumption, which involves risks such as product
contamination or spoilage, product tampering and other adulteration of our
products. We may be subject to liability if the consumption of any of our
products causes injury, illness or death. In addition, we may recall products in
the event of contamination or damage. A significant product liability judgment
or a widespread product recall may negatively impact our profitability for a
period of time depending on product availability, competitive reaction and
consumer attitudes. Even if a product liability claim is unsuccessful or is not
fully pursued, the negative publicity surrounding any assertion that our
products caused illness or injury could adversely affect our reputation with
existing and potential customers and our corporate and brand image. We would
also have to incur defense costs, including attorneys’ fees, even if a claim is
unsuccessful. We currently do not have liability insurance with respect to
product liability claims. Any product liabilities claims could have a material
adverse effect on its business, operating results and financial
condition.




As
we increase the scale of our operations, we may be unable to maintain the level
of quality we currently attain by producing our products in small
batches.





Our products
are manufactured in small batches with milk from the farms of local farmers. We
may be unable to maintain the quality of our dairy products as we increase our
production. Increased production levels may cause Rodobo to modify its current
manufacturing methods and will necessitate the use of milk from other additional
sources. A decline in the quality of our products could damage Rodobo’s
business, operations and finances.




Extensive
regulation of the food processing and distribution industry in China could
increase our expenses resulting in reduced profits.





Rodobo is
subject to extensive regulation by China’s Agricultural Ministry, and by other
county and local authorities in jurisdictions in which our products are
processed or sold, regarding the processing, packaging, storage, distribution
and labeling of our products. Applicable laws and regulations governing our
products may include nutritional labeling and serving size requirements. Our
processing facilities and products are subject to periodic inspection by
national, county and local authorities. We believe that we are currently in
substantial compliance with all material governmental laws and regulations and
maintain all material permits and licenses relating to our operations.
Nevertheless, we may fall out of substantial compliance with current laws and
regulations or may be unable to comply with any future laws and regulations. Due
to the recent melamine contamination in China, our industry has become more
highly scrutinized. It is possible that additional regulatory requirements will
be implemented, and governmental enforcement efforts are likely to be more
stringent To the extent that new regulations are adopted, Rodobo will be
required to conform its activities in order to comply to such regulations, which
may increase our costs and reduce our profitability. Our failure to comply with
applicable laws and regulations could subject Rodobo to civil remedies,
including fines, injunctions, recalls or seizures, as well as potential criminal
sanctions, which could have a material adverse effect on our business,
operations and financial condition.














Any
future outbreak of severe acute respiratory syndrome or avian influenza in China, or similar adverse public
health developments, may disrupt our business and operations.





Our business
and operations could be materially and adversely affected by the outbreak of
swine flu, avian influenza, severe acute respiratory syndrome, or SARS, or other
similar adverse public health development. Recently, there have been reports on
the occurrences of swine flu in various countries. Any prolonged recurrence of
an adverse public health development may result in the temporary closure of
businesses in China by the PRC
government in order to avoid congregation in closed spaces to help prevent
disease transmission. Such occurrences would disrupt our business operations and
adversely affect our results of operations. We have not adopted any written
preventive measures or contingency plans to combat any future outbreak of avian
influenza, SARS or any other epidemic.





Any
major outbreak of illness or disease relating to cows in China and in the regions in which we
import milk powder could lead to significant shortfalls in the supply of our raw
milk and milk powder, and could result in consumers avoiding dairy products,
which could result in substantial declines in our sales and possibly substantial
losses.





A major
outbreak of any illness or disease in cows in China and globally could lead to a
serious loss of consumer confidence in, and demand for, dairy products. A major
outbreak of mad cow disease (bovine spongiform encephalopathy), bovine
tuberculosis, or bovine TB, or other serious disease in the principal regions
supplying our raw milk and milk powder could lead to significant shortfalls in
the supply of our raw milk and milk powder. Limited cases of bovine TB have
occurred in several parts of China
in the past. Furthermore, adverse publicity about these types of concerns,
whether or not valid, may discourage consumers from buying dairy products or
cause production and delivery disruptions. If consumers generally were to avoid
our products, our sales would decline substantially and we could suffer
substantial losses.




We
depend on key personnel and our business may be severely disrupted if we lose
the services of our key executives and employees.





Our future
prospects are heavily dependent upon the continued service of our key
executives, particularly Mr. Yanbin Wang, who is the founder, Chief Executive
Officer, Chairman of the Board, and a major shareholder of our company. We rely
on his expertise in our business operations, and on his personal relationships
with the relevant regulatory authorities, our customers and suppliers. We also
rely on other senior executives, such Xiuzhen Qiao, our Chief Financial Officer.
If one or more of our key executives and employees are unable or unwilling to
continue in their present positions, we may not be able to replace them easily
and our business may be severely disrupted. In addition, if any of our key
executives or employees joins a competitor or forms a competing company, we may
lose customers and suppliers and incur additional expenses to recruit and train
personnel. We do not maintain key-man life insurance for any of our key
executives.





Furthermore,
as we expect to continue to expand our operations and develop new products, we
will need to continue attracting and retaining experienced management and key
research and development personnel.





Competition
for experienced management and research and development personnel in China is intense, and the availability
of experienced, suitable and qualified candidates is limited. Competition for
these individuals may require us to pay higher compensation and other benefits
in order to attract and retain them, which could have a material adverse effect
on our financial condition and results of operations. We may also be unable to
attract or retain the personnel necessary to achieve our business objectives,
and any failure in this regard could severely disrupt our business and
growth.













We incur
significant costs as a result of operating as a public company; our management
will be required to devote substantial time to new compliance
initiatives.




Prior to the
share exchange transaction in September 2008, our management had never operated
a public company. As a public company with substantial operations, we will
increase legal, accounting and other expenses. The costs of preparing and filing
annual and quarterly reports, proxy statements and other information with the
SEC and furnishing audited reports to stockholders is time-consuming and
costly.




Ensuring that
we have adequate internal financial and accounting controls and procedures in
place to help ensure that we can produce accurate financial statements on a
timely basis is a costly and time-consuming effort that needs to be re-evaluated
frequently. As a public company, we need to document, review, test and, if
appropriate, improve our internal controls and procedures in connection with
Section 404 of the Sarbanes-Oxley Act, which requires annual management
assessments of the effectiveness of our internal control over financial
reporting and a report by our independent auditors. Implementing any appropriate
changes to our internal controls might entail substantial costs in order to add
personnel and modify our existing accounting systems, take a significant period
of time to complete, and distract our officers and employees from the operation
of our business.  These changes might not, however, be effective in
maintaining the adequacy of our internal controls, and could adversely affect
our operating results and our ability to operate our business.





If we fail to
establish and maintain an effective system of internal control, we may not be
able to report our financial results accurately or to prevent
fraud.  Any inability to report and file our financial results
accurately and timely could harm our business and adversely impact the trading
price of our Common Stock.




We are
required to establish and maintain internal controls over financial reporting,
disclosure controls, and to comply with other requirements of the Sarbanes-Oxley
Act and the rules promulgated by the SEC thereunder. Our management, including
our Chief Executive Officer and Chief Financial Officer, cannot guarantee that
our internal controls and disclosure controls will prevent all possible errors
or all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. In addition, the design of a control system must reflect
the fact that there are resource constraints and the benefit of controls must be
relative to their costs. Because of the inherent limitations in all control
systems, no system of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within Rodobo has been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake.
Further, controls can be circumvented by individual acts of some persons, by
collusion of two or more persons, or by management override of the controls. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Over time, a control may become inadequate because of changes in
conditions or the degree of compliance with policies or procedures may
deteriorate. Because of inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be
detected.

















Risks Relating to the Our Corporate
Structure





Our corporate
structure, in particular our variable interest entity arrangements (the “VIE
agreements”), are subject to significant risks, as set forth in the following
risk factors.





We are a holding
company that depends on cash flow from our operating subsidiary Harbin Rodobo,
and our VIE Qinggang Mega to meet our obligations.




After the
consummation of the share exchange in September 30, 2008, we became a holding
company with no material assets.  Currently, all our operations are
conducted by Harbin Rodobo and Qinggang Mega.  We currently expect
that the earnings and cash flow of our subsidiaries will primarily be retained
and used by us in their operations.





We
depend upon the VIE Arrangements in conducting our business in the PRC, which
may not be as effective as direct ownership.





Our
affiliation with the Qinggang Mega is managed through several exclusive
agreements between the Company and Qinggang Mega.  The VIE Arrangements may
not be as effective in providing us with control over Qinggang Mega as direct
ownership. The VIE Arrangements are governed by the PRC laws and provide for the
resolution of disputes through court proceedings pursuant to the PRC laws.
Accordingly, the VIE Arrangements would be interpreted in accordance with the
PRC laws. If Qinggang Mega or its shareholders fail to perform the obligations
under the VIE Arrangements, we may have to rely on legal remedies under the PRC
laws, including seeking specific performance or injunctive relief, and claiming
damages, and there is a risk that we may be unable to obtain these remedies. The
legal environment in China is not as developed as in other jurisdictions. As a
result, uncertainties in the PRC legal system could limit our ability to enforce
the VIE Arrangements.





We
may not be able to consolidate the financial results of some of our affiliated
companies or such consolidation could materially adversely affect our operating
results and financial condition.





A substantial
part of our business are conducted through Qinggang Mega which currently is
considered for accounting purposes as variable interest entities (“VIEs”), and
we are considered the primary beneficiary, enabling us to consolidate its
financial results in our consolidated financial statements. In the event that in
the future a company we hold as a VIE would no longer meet the definition of a
VIE, or we are deemed not to be the
primary beneficiary, we would not be able to consolidate line by line that
entity’s financial results in our consolidated financial statements for PRC
purposes. Also, if in the future an affiliate company becomes a VIE and we
become the primary beneficiary, we would be required to consolidate that
entity’s financial results in our consolidated financial statements for PRC
purposes. If such entity’s financial results were negative, this could have a
corresponding negative impact on our operating results for PRC purposes.
However, any material variations in the accounting principles, practices and
methods used in preparing financial statements for PRC purposes from the
principles, practices and methods generally accepted in the United States and in
the SEC accounting regulations must be discussed, quantified and reconciled in
financial statements for United States and SEC purposes.





The
contractual arrangements between the Company and Qinggang Mega may result in
adverse tax consequences.





PRC laws and
regulations emphasize the requirement of an arm’s length basis for transfer
pricing arrangements between related parties. The laws and regulations also
require enterprises with related party transactions to prepare transfer pricing
documentation to demonstrate the basis for determining pricing, the computation
methodology and detailed explanations. Related party arrangements and
transactions may be subject to challenge or tax inspection by the PRC tax
authorities.











Under a tax
inspection, if our transfer pricing arrangements between Qinggang Mega and us
are judged as tax avoidance, or related documentation does not meet the
requirements, Qinggang Mega and we may be subject to material adverse tax
consequences, such as transfer pricing adjustment. A transfer pricing adjustment
could result in a reduction, for PRC tax purpose, of adjustments recorded by us,
which could adversely affect us by (i) increasing Qinggang Mega’s tax liabilities without
reducing our subsidiaries’ tax liabilities, which could further result in
interest being levied to us for unpaid taxes; or (ii) limiting the ability
of our PRC companies to maintain preferential tax treatment and other financial
incentives.





Our
controlling shareholder has potential conflicts of interest with our company
which may adversely affect our business.





Mr. Yanbin
Wang is the chairman and chief executive officer of our company and he owns 85%
of the equity interest in Qinggang Mega. Mr. Wang has a duty of loyalty and care
to us under U.S. laws when there are any potential conflicts of interests
between our company and Qinggang Mega. We cannot assure you, however, that when
conflicts of interest arise, he will act completely in our interests or that
conflicts of interests will be resolved in our favor. For example, he may
determine that it is in Qinggang Mega’s interests to sever the contractual
arrangements with us, irrespective of the effect such action may have on us. In
addition, he could violate his legal duties by diverting business opportunities
from us to others, thereby affecting the amount of payment Qinggang Mega is
obligated to remit to us under the consulting services agreements.





In the event
that you believe that your rights have been infringed under the securities laws
or otherwise as a result of any one of the circumstances described above, it may
be difficult or impossible for you to bring an action against us or our officers
or directors whom reside within China. Even if you are successful in bringing an
action, the laws of China may render you unable to enforce a judgment against
our assets and management, all of which are located in China.





We
rely on the approval certificates and business license held by Qinggang Mega and
any deterioration of the relationship between Qinggang Mega and us could
materially and adversely affect the overall business operation of the
Company





Pursuant to
the VIE Arrangements, a substantial part of our business in China will be
undertaken on the basis of the approvals, certificates and business license as
well as other requisite licenses held by Qinggang Mega. There is no assurance
that Qinggang Mega will be able to renew its licenses or certificates when their
terms expire with substantially similar terms as the ones they currently
hold.





Further, our
relationship with Qinggang Mega is governed by the VIE Arrangements, which are
intended to provide us, through our indirect ownership of WFOE, with effective
control over the business operations of Qinggang Mega.  However, the
VIE Arrangements may not be effective in providing control over the applications
for and maintenance of the licenses required for our business operations. Any
entity of Qinggang Mega could violate the VIE Arrangements, go bankrupt, suffer
from difficulties in its business or otherwise become unable to perform its
obligations under the VIE Arrangements and, as a result, our operations,
reputation, business and stock price could be severely harmed.





The
exercise of our option to purchase part or all of the equity interests in the
any entity of Qinggang Mega under the Option Agreement might be subject to
approval by the PRC government.  Our failure to obtain this approval
may impair our ability to substantially control the VIE entities and could result in
actions by VIE entities that
conflict with our interests.












Our option
agreement with Qinggang Mega gives
us, the option to purchase all or part of the equity interests in Qinggang Mega,
however, the option may not be exercised if the exercise would violate any
applicable laws and regulations in China or cause any license or permit held by,
and necessary for the operation of Qinggang Mega, to be cancelled or
invalidated.  Under the PRC laws, if a foreign entity, through a
foreign investment company that it invests in, acquires a domestic related
company, China’s regulations regarding mergers and acquisitions would
technically apply to the transaction.  Application of these
regulations requires an examination and approval of the transaction by China’s
Ministry of Commerce (“MOFCOM”), or its local counterparts.  Also, an
appraisal of the equity or assets to be acquired is mandatory. We can’t
guarantee you that we can pass such examination and get the approval to acquire
any entity of Qinggang Mega. If we are not able to purchase the equity of
Qinggang Mega, then we will lose a substantial portion of our ability to control
Qinggang Mega and our ability to ensure that Qinggang Mega will act in our
interests.





Because
we rely on the consulting services agreement with Qinggang Mega for part of our
revenue, the termination of this agreement will severely and detrimentally
affect our continuing business viability under our current corporate
structure.





We are a
holding company and a substantial part of our business operations are conducted
through the contractual arrangements between Qinggang Mega and us. As a result,
we currently rely for approximately 10% of our revenues on consulting fees from
Qinggang Mega pursuant to the consulting services agreement. The consulting
services agreement may be terminated by written notice of Qinggang Mega or us in
the event that: (a) one party causes a material breach of the agreement,
provided that if the breach does not relate to a financial obligation of the
breaching party, that party may attempt to remedy the breach within 14 days
following the receipt of the written notice; (b) one party becomes bankrupt,
insolvent, is the subject of proceedings or arrangements for liquidation or
dissolution, ceases to carry on business, or becomes unable to pay its debts as
they become due; (c) we terminates our operations; (d) Qinggang Mega’s business
license or any other license or approval for its business operations is
terminated, cancelled or revoked; or (e) circumstances arise which would
materially and adversely affect the performance or the objectives of the
agreement.





Additionally,
we may terminate the consulting services agreement without cause. Because
neither we nor our subsidiaries own equity interests of Qinggang Mega, the
termination of the consulting services agreement would sever our ability to
continue receiving payments from Qinggang Mega under our current holding company
structure. While we are currently not aware of any event or reason that may
cause the consulting services agreement to terminate, we cannot assure you that
such an event or reason will not occur in the future. In the event that the
consulting services agreement is terminated, this may have a severe and
detrimental effect on our continuing business viability under our current
corporate structure, which, in turn, may affect the value of your
investment.





Risks
Associated With Doing Business in China





Our
operations and assets in China are subject to significant political and economic
uncertainties over which we have little or no control and may be unable to alter
our business practice in time to avoid the possibility of reduced
revenues.





Doing
business outside the United States, particularly in China, subjects us to
various risks including changing economic and political conditions, major work
stoppages, exchange controls, currency fluctuations, armed conflicts and
unexpected changes in United States and foreign laws relating to tariffs, trade
restrictions, transportation regulations, foreign investments and taxation.
Changes in the PRC laws and regulations, or their interpretation, or the
imposition of confiscatory taxation, restrictions on currency conversion,
imports and sources of supply, devaluations of currency or the nationalization
or other expropriation of private enterprises could have a material adverse
effect on our business, results of operations and financial condition. Under its
current leadership, the Chinese government has been pursuing economic reform
policies that encourage private economic activities and greater economic
decentralization. There is no assurance, however, that the Chinese government
will continue to pursue these policies, or that it will not significantly alter
these policies from time to time without notice. We have no control over most of
these risks and may be unable to anticipate changes in international economic
and political conditions. Therefore, we may be unable to alter our business
practice in time to avoid the possibility of reduced revenues.












We derive all of our sales in China
and a slowdown or other adverse developments in the PRC economy may materially
and adversely affect our business.





All of our
assets are located in China and our revenue is derived from our operations in
China. We anticipate that our revenues generated in China will continue to
represent all of our revenues in the near future. Accordingly, our results of
operations and prospects are subject, to a significant extent, on the economic,
political and legal developments in China. Although the PRC economy has grown
significantly in recent years, we cannot assure you that such growth will
continue. In addition, the Chinese government also exercises significant control
over Chinese economic growth through the allocation of resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. Efforts
by the Chinese government to slow the pace of growth of the Chinese economy
could result in reduced demand for our products. A slowdown in overall economic
growth, an economic downturn or recession or other adverse economic developments
in the PRC may materially reduce the demand for our products and materially and
adversely affect our business.





The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.




We are
dependent on our relationship with the local government in the province in which
we operate our business. Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership.  Our ability to operate in
China may be harmed by changes in its laws and regulations, including those
relating to taxation, environmental regulations, land use rights, property and
other matters. The central or local governments of in the PRC jurisdictions
may impose new, stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our
compliance with such regulations or interpretations. Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties.





In addition,
another obstacle to our operations in China is governmental, judicial and other
corruption. There are significant risks that we will be unable to obtain
necessary permits or licenses, or recourse in any legal disputes with suppliers,
customers or other parties with whom we conduct business, if desired, as a
result China’s underdeveloped and sometimes corrupt governmental and judicial
systems.





If relations
between the United States and China worsen, investors may be unwilling to hold
or buy our stock and our stock price may decrease.




At various
times during recent years, the United States and China have had significant
disagreements over political and economic issues. Controversies may arise in the
future between these two countries. Any political or trade controversies between
the United States and China, whether or not directly related to our business,
could reduce the price of our Common Stock.












The
PRC government’s recent measures to curb inflation rates could adversely affect
future results of operations.




In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation.  Rapid economic growth can lead to growth in the
money supply and rising inflation.  In April 2008, the change in
China’s Consumer Price Index increased to 8.5% according to the National Bureau
of Statistics of China, or the NBS. If prices for our products rise at a rate
that is insufficient to compensate for the rise in the costs of supplies, it may
have an adverse effect on profitability.  These factors have led to
the adoption by Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation.  High inflation may in the future cause Chinese
government to impose controls on credit and/or prices, or to take other action,
which could inhibit economic activity in China, and thereby harm the market for
our products.





Recently, the
government of China undertook various measures to alleviate the effects of
inflation, especially with respect to key commodities. On January 16, 2008, the
PRC National Development and Reform Commission announced national price controls
on various products, including milk. Similarly, the government of China may
conclude that the prices of infant formula or other of our products are too high
and may institute price controls that would limit our ability to set prices for
our products as we might wish. The government of China has also encouraged local
governments to institute price controls on similar products. Such price controls
could adversely affect our future results of operations and, accordingly, the
price of our common stock.





Currency fluctuations and
restrictions on currency exchange may adversely affect our business, including
limiting our ability to convert Chinese Renminbi into foreign currencies and, if
Chinese Renminbi were to decline in value, reducing our revenue in U.S. dollar
terms.





Our reporting
currency is the U.S. dollar and our operations in China use their local currency
as their functional currencies. Substantially all of our revenue and expenses
are in Chinese Renminbi. We are subject to the effects of exchange rate
fluctuations with respect to any of these currencies. For example, the value of
the Renminbi depends to a large extent on Chinese government policies and
China’s domestic and international economic and political developments, as well
as supply and demand in the local market. Since 1994, the official exchange rate
for the conversion of Renminbi to the U.S. dollar had generally been stable and
the Renminbi had appreciated slightly against the U.S. dollar. However, on July
21, 2005, the Chinese government changed its policy of pegging the value of
Chinese Renminbi to the U.S. dollar.  Under the new policy, Chinese
Renminbi may fluctuate within a narrow and managed band against a basket of
certain foreign currencies. It is possible that the Chinese government could
adopt a more flexible currency policy, which could result in more significant
fluctuation of Chinese Renminbi against the U.S. dollar. We can offer no
assurance that Chinese Renminbi will be stable against the U.S. dollar or any
other foreign currency.





Our financial
statements are translated into U.S. dollars at the average exchange rates in
each applicable period. To the extent the U.S. dollar strengthens against
foreign currencies, the translation of these foreign currencies denominated
transactions results in reduced revenue, operating expenses and net income for
our international operations. Similarly, to the extent the U.S. dollar weakens
against foreign currencies, the translation of these foreign currency
denominated transactions results in increased revenue, operating expenses and
net income for our international operations. We are also exposed to foreign
exchange rate fluctuations as we convert the financial statements of our foreign
consolidated subsidiaries into U.S. dollars in consolidation.  If
there is a change in foreign currency exchange rates, the conversion of the
foreign consolidated subsidiaries’ financial statements into U.S. dollars will
lead to a translation gain or loss which is recorded as a component of other
comprehensive income.  In addition, we have certain assets and
liabilities that are denominated in currencies other than the relevant entity’s
functional currency. Changes in the functional currency value of these assets
and liabilities create fluctuations that will lead to a transaction gain or
loss.  We have not entered into agreements or purchased instruments to
hedge our exchange rate risks, although we may do so in the
future.  The availability and effectiveness of any hedging transaction
may be limited and we may not be able to hedge our exchange rate
risks.













The
State Administration of Foreign Exchange (“SAFE”) restrictions on currency
exchange may limit our ability to receive and use our sales revenue effectively
and to pay dividends.





All of our
sales revenue and expenses are denominated in the Chinese currency, Renminbi.
Under PRC law, the Renminbi is currently convertible under the “current
account,” which includes dividends and trade and service-related foreign
exchange transactions, but not under the “capital account,” which includes
foreign direct investment and loans. Currently, our PRC operating subsidiaries
may purchase foreign currencies for settlement of current account transactions, including payments
of dividends to us, without the approval of SAFE, by complying with certain
procedural requirements.  However, the relevant PRC government
authorities may limit or eliminate our ability to purchase foreign currencies in
the future. Since a significant amount of our future revenue will be denominated
in Renminbi, any existing and future restrictions on currency exchange may limit
our ability to utilize revenue generated in Renminbi to fund our business
activities outside China that are denominated in foreign
currencies.





Foreign
exchange transactions by PRC operating subsidiaries under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of or need to register with PRC government authorities, including SAFE.
In particular, our PRC operating subsidiaries, borrows foreign currency through
loans from us or other foreign lenders, these loans must be registered with
SAFE, and if we finance our PRC operating subsidiaries by means of additional
capital contributions, these capital contributions must be approved by certain
government authorities, including the Ministry of Commerce, or their respective
local counterparts. These limitations could affect our PRC operating
subsidiaries’ ability to obtain foreign exchange through debt or equity
financing.





The PRC
government also may at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents us from obtaining foreign currency, we may be unable to pay the
interest and principal on the Notes, pay dividends or meet obligations that may
be incurred in the future that require payment in foreign currency.





Recent
PRC regulations relating to acquisitions of PRC companies by foreign entities
may create regulatory uncertainties that could restrict or limit our ability to
operate. Our failure to obtain the prior approval of the China Securities
Regulatory Commission, or the CSRC, for the listing and trading of our common
stock could have a material adverse effect on our business, operating results,
reputation and trading price of our common stock, and may also create
uncertainties in the future.




The PRC State
Administration of Foreign Exchange, or “SAFE,” issued a public notice in
November 2005, known as Circular 75, concerning the use of offshore holding
companies in mergers and acquisitions in China. The public notice provides that
if an offshore company controlled by PRC residents intends to acquire a PRC
company, such acquisition will be subject to registration with the relevant
foreign exchange authorities. The public notice also suggests that registration
with the relevant foreign exchange authorities is required for any sale or
transfer by the PRC residents of shares in an offshore holding company that owns
an onshore company. The PRC residents must each submit a registration form to
the local SAFE branch with respect to their ownership interests in the offshore
company, and must also file an amendment to such registration if the offshore
company experiences material events, such as changes in the share capital, share
transfer, mergers and acquisitions, spin-off transactions or use of assets in
China to guarantee offshore obligations.











On August 8,
2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned Assets
Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce,
the China Securities Regulatory Commission and SAFE, released a substantially
amended version of the Provisions for Foreign Investors to Merge with or Acquire
Domestic Enterprises (the “Revised M&A Regulations”), which took effect
September 8, 2006. These new rules significantly revised China’s regulatory
framework governing onshore-to-offshore restructurings and foreign acquisitions
of domestic enterprises. These new rules signify greater PRC government
attention to cross-border merger, acquisition and other investment activities,
by confirming MOFCOM as a key regulator for issues related to mergers and
acquisitions in China and requiring MOFCOM approval of a broad range of merger,
acquisition and investment transactions. Further, the new rules establish
reporting requirements for acquisition of control by foreigners of companies in
key industries, and reinforce the ability of the Chinese government to monitor
and prohibit foreign control transactions in key industries.




Among other
things, the revised M&A Regulations include new provisions that purport to
require that an offshore special purpose vehicle, or SPV, formed for listing
purposes and controlled directly or indirectly by PRC companies or individuals
must obtain the approval of the CSRC prior to the listing and trading of such
SPV’s securities on an overseas stock exchange.  On September 21,
2006, the CSRC published on its official website procedures specifying documents
and materials required to be submitted to it by SPVs seeking CSRC approval of
their overseas listings.  However, the application of this PRC
regulation remains unclear with no consensus currently existing among the
leading PRC law firms regarding the scope and applicability of the CSRC approval
requirement.




If the CSRC
or another PRC regulatory agency subsequently determines that CSRC approval was
required for our restructuring, we may face regulatory actions or other
sanctions from the CSRC or other PRC regulatory agencies. These regulatory
agencies may impose fines and penalties on our operations in the PRC, limit our
operating privileges in the PRC, or take other actions that could have a
material adverse effect on our business, financial condition, results of
operations, reputation and prospects, as well as the trading price of our Common
Stock.




Also, if
later the CSRC requires that we obtain its approval, we may be unable to obtain
a waiver of the CSRC approval requirements, if and when procedures are
established to obtain such a waiver. Any uncertainties and/or negative publicity
regarding this CSRC approval requirement could have a material adverse effect on
the trading price of our common stock. Furthermore, published news reports in
China recently indicated that the CSRC may have curtailed or suspended overseas
listings for Chinese private companies.




It is
uncertain how our business operations or future strategy will be affected by the
interpretations and implementation of Circular 75 and the Revised M&A
Regulations. It is anticipated that application of the new rules will be subject
to significant administrative interpretation, and we will need to closely
monitor how MOFCOM and other ministries apply the rules to ensure that our
domestic and offshore activities continue to comply with PRC law. Given the
uncertainties regarding interpretation and application of the new rules, we may
need to expend significant time and resources to maintain compliance. In
addition to that, we cannot predict how these regulations will affect our future
acquisition strategy and business operations. For example, if we decide to
acquire additional PRC companies, we or the owners of such companies may not be
able to complete the filings and registrations, if any, required by the SAFE
notices. This may restrict our ability to implement our acquisition strategy and
could adversely affect our business and prospects. Compliance with the New
M&A Rules, and any related approval processes, including obtaining approval
from the Ministry of Commerce, may delay or inhibit our ability to complete such
transactions, which could affect our ability to expand our business or maintain
our market share.












Extensive
regulation of the food processing and distribution industry in China could increase our expenses
resulting in reduced profits.





We are
subject to extensive regulation by China’s Agricultural Ministry, and by
other provincial and local authorities in jurisdictions in which our products
are processed or sold, regarding the processing, packaging, storage,
distribution and labeling of our products. Applicable laws and regulations
governing our products may include nutritional labeling and serving size
requirements. Our processing facilities and products are subject to periodic
inspection by national, provincial and local authorities. We believe that we are
currently in substantial compliance with all material governmental laws and
regulations and maintain all material permits and licenses relating to our
operations. Nevertheless, we may fall out of substantial compliance with current
laws and regulations or may be unable to comply with any future laws and
regulations. To the extent that new regulations are adopted, we will be
required, possibly at considerable expense, to adjust our activities in order to
comply with such regulations. Our failure to comply with applicable laws and
regulations could subject us to civil remedies, including fines, injunctions,
recalls or seizures, as well as potential criminal sanctions, which could have a
material adverse effect on our business, operations and finances.





Under
the New EIT Law, we may be classified as a “resident enterprise” of China, which
would likely result in unfavorable tax consequences to us and our non-PRC
shareholders.





Under China’s
Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, which
became effective in 2008, an enterprise established outside of China with “de
facto management bodies” within China is considered a “resident enterprise,”
meaning that it can be treated in a manner similar to a Chinese enterprise for
enterprise income tax purposes.  Under the implementing rules of the
New EIT Law, de facto management means substantial and overall management and
control over the production and operations, personnel, accounting, and
properties of the enterprise.  Because the New EIT Law and its
implementing rules are new, it is unclear how tax authorities will determine tax
residency based on the facts of each case.





If the PRC
tax authorities determine that we are a “resident enterprise” for PRC enterprise
income tax purposes, unfavorable PRC tax consequences could follow. First, we
may be subject to enterprise income tax at a rate of 25% on our worldwide
taxable income as well as PRC enterprise income tax reporting obligations.
Second, although under the New EIT Law and its implementing rules dividends paid
to us from our PRC subsidiaries would qualify as “tax-exempt income,” such
dividends may be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax, have not yet issued
guidance with respect to the processing of outbound remittances to entities that
are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new
“resident enterprise” classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC shareholders and
with respect to gains derived by our non-PRC shareholders from transferring our
shares. We are actively monitoring the possibility of “resident enterprise”
treatment for the 2008 and 2009 tax years and are evaluating appropriate
organizational changes to avoid this treatment, to the extent
possible.




If we were
treated as a “resident enterprise” by PRC tax authorities, we would be subject
to tax in both the U.S. and China,
and our PRC tax may not be creditable against our U.S. tax.  In
addition, we have not accrued any tax liability associated with the possible
payment of dividends to our U.S. parent company. Such a tax would be an added
expense appearing on our income statement, which would reduce our net
income.












Limited
and uncertain trademark protection in China makes the ownership and use of our
trademark uncertain.





We have
obtained trademark registrations for the use of our trade name “Rodobo”, which
has been registered with the PRC Trademark Bureau of the State Administration
for Industry and Commerce with respect to our milk products.  We
believe our trademark is important to the establishment of consumer recognition
of our products.  However, due to uncertainties in PRC trademark law,
the protection afforded by our trademark may be less than we currently expect
and may, in fact, be insufficient. Moreover, even if it is sufficient, in the
event it is challenged or infringed, we may not have the financial resources to
defend it against any challenge or infringement and such defense could in any
event be unsuccessful. Moreover, any events or conditions that negatively impact
our trademark could have a material adverse effect on our business, operations
and finances.





Our
lack of patent protection could permit our competitors to copy our trade secrets
and formula and thus gain a competitive advantage.





Rodobo has no
patents covering our products or production processes, and we expect to rely
principally on know-how and the confidentiality of our formulae and production
processes for our products and our flavoring formulae in producing competitive
product lines. In order to protect our proprietary technology and processes, we
also rely in part on nondisclosure agreements with our key employees, licensing
partners, third-party producers, consultants, agents and other organizations to
which we disclose our proprietary information. Any breach of confidentiality by
our executives or employees having access to our formula could result in our
competitors gaining access to such formula. The ensuing competitive disadvantage
could reduce our revenues and our profits. The actions we have taken to protect
our intellectual property rights may not be adequate to provide us with
meaningful protection or commercial advantage. As a result, third parties may
use the intellectual property or proprietary technologies that we have developed
and compete with us, which could have a material adverse effect on our business,
financial condition and operating results.





PRC
intellectual property-related laws and their implementation are still under
development. Accordingly, intellectual property rights and confidentiality
protections in China may not be as
effective as in the United States or many other countries. In addition, policing
unauthorized use of proprietary technology can be difficult and expensive.
Litigation may be necessary to enforce our intellectual property rights and the
outcome of any such litigation may not be in our favor. Given the relative
unpredictability of China’s legal
system and potential difficulties enforcing a court judgment in China, there is no guarantee that we
would be able to halt the unauthorized use of our intellectual property through
litigation in a timely manner or at all. Furthermore, any such litigation may be
costly and may divert management attention away from our business and cause us
to expend significant resources. An adverse determination in any such litigation
will impair our intellectual property rights and may harm our business,
prospects and reputation. In addition, we have no insurance coverage against
litigation costs and would have to bear all costs arising from such litigation
to the extent we are unable to recover them from other parties. The occurrence
of any of the foregoing could have a material adverse impact on our business,
financial condition and results of operations.





Because our principal assets are
located outside of the United States and all of our directors and our officers
will reside outside of the United States, it may be difficult for you to enforce
your rights based on the United States federal securities laws against us and
our officers and directors in the United States or to enforce judgments of
United States courts against us or them in the PRC.





All of our
officers and directors will reside outside of the United States. In addition,
our operating subsidiary is located in the PRC and all of its assets are located
outside of the United States. China does not have a treaty with United States
providing for the reciprocal recognition and enforcement of judgments of courts.
It may therefore be difficult for investors in the United States to enforce
their legal rights based on the civil liability provisions of the United States
federal securities laws against us in the courts of either the United States or
the PRC and, even if civil judgments are obtained in courts of the United
States, to enforce such judgments in the PRC courts. Further, it is unclear if
extradition treaties now in effect between the United States and the PRC would
permit effective enforcement against us or our officers and directors of
criminal penalties, under the United States federal securities laws or
otherwise.












The
PRC legal system embodies uncertainties which could limit the legal protections
available to us and you, or could lead to penalties on us.





The PRC legal
system is a civil law system based on written statutes. Unlike common law
systems, it is a system in which decided legal cases have little precedential
value. In 1979, the PRC government began to promulgate a comprehensive system of
laws and regulations governing economic matters in general. Our PRC operating
subsidiaries are subject to laws and regulations applicable to foreign
investment in China. In addition, all of our subsidiaries and VIE that are
incorporated in China are subject to all applicable Chinese laws and
regulations. Because of the relatively short period for enacting such a
comprehensive legal system, it is possible that the laws, regulations and legal
requirements are relatively recent, and their interpretation and enforcement
involve uncertainties. These uncertainties could limit the legal protections
available to us and other foreign investors, including you, and may lead to
penalties imposed on us because of the different understanding between the
relevant authority and us. For example, according to current tax laws and
regulation, we are responsible to pay business tax on a “Self-examination and
Self-application” basis. However, since there is no clear guidance as to the
applicability of those preferential treatments, we may be found in violation of
the interpretation of local tax authorities with regard to the scope of taxable
services and the percentage of tax rate and therefore might be subject to
penalties, including but not limited to monetary penalties. In addition, we
cannot predict the effect of future developments in the PRC legal system,
particularly with regard to the Internet, including the promulgation of new
laws, changes to existing laws or the interpretation or enforcement thereof, or
the preemption of local regulations by national laws.





We may have limited legal recourse
under the PRC laws if disputes arise under our contracts with third
parties.





The Chinese
government has enacted significant laws and regulations dealing with matters
such as corporate organization and governance, foreign investment, commerce,
taxation and trade.  However, their experience in implementing,
interpreting and enforcing these laws and regulations is limited, and our
ability to enforce commercial claims or to resolve commercial disputes is
unpredictable. If our new business ventures are unsuccessful, or other adverse
circumstances arise from these transactions, we face the risk that the parties
to these ventures may seek ways to terminate the transactions, or, may hinder or
prevent us from accessing important information regarding the financial and
business operations of these acquired companies. The resolution of these matters
may be subject to the exercise of considerable discretion by agencies of the
Chinese government, and forces unrelated to the legal merits of a particular
matter or dispute may influence their determination. Any rights we may have to
specific performance, or to seek an injunction under the PRC laws, in either of
these cases, are severely limited, and without a means of recourse by virtue of
the Chinese legal system, we may be unable to prevent these situations from
occurring. The occurrence of any such events could have a material adverse
effect on our business, financial condition and results of operations. Although
legislation in China over the past 30 years has significantly improved the
protection afforded to various forms of foreign investment and contractual
arrangements in China, these laws, regulations and legal requirements are
relatively new and their interpretation and enforcement involve uncertainties,
which could limit the legal protection available to us, and foreign investors,
including you.  The inability to enforce or obtain a remedy under any
of our future agreements could result in a significant loss of business,
business opportunities or capital and could have a material adverse impact on
our operations.








38








Our
labor costs are likely to increase as a result of changes in Chinese labor
laws.




We expect to
experience an increase in our cost of labor due to recent changes in Chinese
labor laws which are likely to increase costs further and impose restrictions on
our relationship with our employees. In June 2007, the National People’s
Congress of the PRC enacted new labor law legislation called the Labor Contract
Law and more strictly enforced existing labor laws.  The new law,
which became effective on January 1, 2008, amended and formalized workers’
rights concerning overtime hours, pensions, layoffs, employment contracts and
the role of trade unions.  As a result of the new law, the Company has
had to reduce the number of hours of overtime its employees can work,
substantially increase the salaries of its employees, provide additional
benefits to its employees, and revise certain other of its labor practices.The increase in labor
costs has increased the Company’s operating costs, which increase the Company
has not always been able to pass through to its customers. As a result, the
Company has incurred certain operating losses as its cost of manufacturing
increased.  In addition, under the new law, employees who either have
worked for the Company for 10 years or more or who have had two consecutive
fixed-term contracts must be given an “open-ended employment contract” that, in
effect, constitutes a lifetime, permanent contract, which is terminable only in
the event the employee materially breaches the Company’s rules and regulations
or is in serious dereliction of his duty. Such non-cancelable employment
contracts will substantially increase its employment related risks and limit the
Company’s ability to downsize its workforce in the event of an economic
downturn. No assurance can be given that the Company will not in the future be
subject to labor strikes or that it will not have to make other payments to
resolve future labor issues caused by the new laws.  Furthermore,
there can be no assurance that the labor laws will not change further or that
their interpretation and implementation will vary, which may have a negative
effect upon our business and results of operations.





We must comply with the Foreign
Corrupt Practices Act.





We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some of our competitors, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in mainland China. If our
competitors engage in these practices, they may receive preferential treatment
from personnel of some companies, giving our competitors an advantage in
securing business or from government officials who might give them priority in
obtaining new licenses, which would put us at a
disadvantage.  Although we inform our personnel that such practices
are illegal, we can not assure you that our employees or other agents will not
engage in such conduct for which we might be held responsible.  If our
employees or other agents are found to have engaged in such practices, we could
suffer severe penalties.





If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with SAFE. We may also face regulatory uncertainties that
could restrict our ability to adopt equity compensation plans for our directors
and employees and other parties under PRC laws.





On April 6,
2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also know as “Circular 78.” It is not clear
whether Circular 78 covers all forms of equity compensation plans or only those
which provide for the granting of stock options. For any plans which are so
covered and are adopted by a non-PRC listed company, such as our company, after
April 6, 2007, Circular 78 requires all participants who are PRC citizens to
register with and obtain approvals from SAFE prior to their participation in the
plan. In addition, Circular 78 also requires PRC citizens to register with SAFE
and make the necessary applications and filings if they participated in an
overseas listed company’s covered equity compensation plan prior to April 6,
2007. We believe that the registration and approval requirements contemplated in
Circular 78 will be burdensome and time consuming.














In the
future, we may adopt an equity incentive plan and make numerous stock option
grants under the plan to our officers, directors and employees, some of whom are
PRC citizens and may be required to register with SAFE. If it is determined that
any of our equity compensation plans are subject to Circular 78, failure to
comply with such provisions may subject us and participants of our equity
incentive plan who are PRC citizens to fines and legal sanctions and prevent us
from being able to grant equity compensation to our PRC employees. In that case,
our ability to compensate our employees and directors through equity
compensation would be hindered and our business operations may be adversely
affected.





Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC operating companies, we may not be able to pay dividends to our
shareholders.





The
Wholly-Foreign Owned Enterprise Law (1986), as amended and the Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises (“WFOE”) may pay dividends only out of their
accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. Additionally, WFOE is required to set aside a certain
amount of their accumulated profits each year, if any, to fund certain reserve
funds.  These reserves are not distributable as cash dividends except
in the event of liquidation and cannot be used for working capital
purposes.





Furthermore,
if our consolidated subsidiaries in China incur debt on their own in the future,
the instruments governing the debt may restrict its ability to pay dividends or
make other payments. If we or our consolidated subsidiaries are unable to
receive all of the revenues from our operations due to these contractual or
dividend arrangements, we may be unable to pay dividends on our Common Stock. In
addition, under current PRC law, we must retain a reserve equal to 10 percent of
net income after taxes, not to exceed 50 percent of registered capital.
Accordingly, this reserve will not be available to be distributed as dividends
to our shareholders. We presently do not intend to pay dividends in the
foreseeable future. Our management intends to follow a policy of retaining all
of our earnings to finance the development and execution of our strategy and the
expansion of our business.





We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.





The PRC
historically has been deficient in western style management and financial
reporting concepts and practices, as well as in modern banking, and other
control systems.  We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC.  As a
result of these factors, and especially given that we expect to be a publicly
listed company in U.S. and subject to regulation as such, we may experience
difficulty in establishing management, legal and financial controls, collecting
financial data and preparing financial statements, books of account and
corporate records and instituting business practices that meet western
standards.  We may have difficulty establishing adequate management,
legal and financial controls in the PRC.  Therefore, we may, in turn,
experience difficulties in implementing and maintaining adequate internal
controls as required under Section 404 of the Sarbanes-Oxley Act of 2002 and
other applicable laws, rules and regulations.  This may result in
significant deficiencies or material weaknesses in our internal controls which
could impact the reliability of our financial statements and prevent us from
complying with SEC rules and regulations and the requirements of the
Sarbanes-Oxley Act of 2002.  Any such deficiencies, weaknesses or lack
of compliance could have a materially adverse effect on our business and the
public announcement of such deficiencies could adversely impact our stock
price.





40








Our
bank accounts are not insured or protected against loss.




We maintain
our cash with various banks located in China. Our cash accounts are not insured
or otherwise protected. Should any bank holding our cash deposits become
insolvent, or if we are otherwise unable to withdraw funds, we would lose the
cash on deposit with that particular bank.





Risks
related to an investment in our common stock





Shares
of our Common Stock lack a significant trading market.





Our Common
Stock trades on over-the-counter bulletin board market (OTCBB) under the symbol
“ROBO.OB”. This market tends to be highly illiquid. There can be no assurance
that an active trading market in our Common Stock will develop, or if such a
market develops, that it will be sustained. In addition, there is a greater
chance for market volatility for securities that trade on the OTCBB as opposed
to securities that trade on a national exchange or quotation system. This
volatility may be caused by a variety of factors, including the lack of readily
available quotations, the absence of consistent administrative supervision of
“bid” and “ask” quotations, and generally lower trading volume. The price at
which investors purchase shares of our Common Stock may not be indicative of the
price that will prevail in the trading market. Investors may be unable to sell
their shares of Common Stock at or above their purchase price, which may result
in substantial losses.





The
limited public trading market may cause volatility in our stock
price.





The quotation
of our Common Stock on the OTCBB does not assure that a meaningful, consistent
and liquid trading market currently exists, and in recent years such market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices of many smaller companies like us. Our Common Stock
is thus and will be subject to significant volatility. Sales of substantial
amounts of our Common Stock, or the perception that such sales might occur,
could adversely affect prevailing market prices of our Common
Stock.





The
market price for our stock may be volatile.




The market
price for our stock may be volatile and subject to wide fluctuations in response
to factors including the following:





·
            liquidity
      of the market for the shares;


·
            actual
      or anticipated fluctuations in our quarterly operating
      results;


·
            changes
      in financial estimates by securities research
  analysts;


·
            changes
      in the economic performance or market valuations of other pharmaceutical
      companies;


·
            announcements
      by us or our competitors of new products, acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;


·
            addition
      or departure of key personnel;


·
            fluctuations
      of exchange rates between RMB and the U.S.
  dollar;


·
            intellectual
      property litigation;


·
            our
      dividend policy; and


·
            general
      economic or political conditions in
China.





In addition,
the securities market has from time to time experienced significant price and
volume fluctuations that are not related to the operating performance of
particular companies.  These market fluctuations may also materially
and adversely affect the market price of our stock.





41








Our
Com mon
Stock may be considered a “penny stock,” and thereby be subject to additional
sale and trading regulations that may make it more difficult to
sell.




Our Common
Stock, which is currently quoted for trading on the OTCBB, may be considered to
be a “penny stock” if it does not qualify for one of the exemptions from the
definition of “penny stock” under Section 3a51-1 of the Exchange Act, as
amended. If at any time we have net tangible assets of $5,000,000 or less and
our shares of Common Stock have a market price per share of less than $5.00,
transactions in our Common Stock may be subject to the “penny stock” rules
promulgated under the Securities Exchange Act of 1934. The principal result or
effect of being designated a “penny stock” is that securities broker-dealers
participating in sales of our Common Stock will be subject to the “penny stock”
regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange
Act.  For example, Rule 15g-2 requires broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document at least two business days before effecting any transaction in a penny
stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers
in penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to: (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult and time consuming for holders of
our Common Stock to resell their shares to third parties or to otherwise dispose
of them in the market or otherwise.





We
have the right to issue up to 30,000,000 shares of “blank check” preferred
stock, which may adversely affect the voting power of the holders of other of
our securities and may deter hostile takeovers or delay changes in management
control.





Our
certificate of incorporation provides that we may issue up to 30,000,000 shares
of preferred stock from time to time in one or more series, and with such
rights, preferences and designations as our board of directors may determinate
from time to time. Our board of directors, without further approval of our
common stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred stock.
Issuances of shares of preferred stock could, among other things, adversely
affect the voting power of the holders of other of our securities and may, under
certain circumstances, have the effect of deterring hostile takeovers or
delaying changes in management control.  Such an issuance would dilute
existing stockholders, and the securities issued could have rights, preferences
and designations superior to our common stock.





We
do not foresee paying cash dividends in the foreseeable future and, as a result,
our investors’ sole source of gain, if any, will depend on capital appreciation,
if any.





We have never
paid cash dividends on our Common Stock and we do not plan to declare or pay any
cash dividends on our shares of Common Stock in the foreseeable future and
currently intend to retain any future earnings for funding growth. As a result,
investors should not rely on an investment in our securities if they require the
investment to produce dividend income. Capital appreciation, if any, of our
shares may be investors’ sole source of gain for the foreseeable future.
Moreover, investors may not be able to resell their shares of the Company at or
above the price they paid for them.















Item
2.  Description of Property.





Under the
current PRC law, land is owned by the state, and parcels of land in rural areas
which is known as collective land is owned by the rural collective economic
organization “Land use rights” are granted to an individual or entity after
payment of a land use right fee is made to the applicable state or rural
collective economic organization. Land use rights allow the holder the right to
use the land for a specified long-term period, generally 70 years for
residential use, 50 years for industrial use, and 40 years for commercial and
other uses. The term is renewable in theory. Unlike the typical case in Western
nations, granted land must be used for the specific purpose for which it was
granted.





Qinggang Mega
entered into a land use right agreement on June 20, 2008 with Qinggang County
Zhonghe Township Wupailiu Village Committee, which sets forth the right to use
grassland of 2,400 acre until December 31, 2034. Under the agreement, the total
fees amounted to RMB 21.8 million (approximately US$3.2 million). Qinggang Mega
was also obligated to pay a one-time relocation compensation in the amount of
RMB 2.0 million (approximately US$0.3 million) to the residents who lived on the
grassland. The grassland was put into use starting July 1, 2009.





On July 1,
2004, Rodobo entered into a lease agreement with Heilongjiang Jinniu Dairy Co.,
Ltd. (“Jinniu”) to lease
its production facilities in Qinggang, Heilongjiang. Under this lease agreement,
Harbin Rodobo is obligated to pay RMB1,000,000 (approximately US$146,398) 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, Harbin Rodobo and Jinniu
amended the lease agreement. The lease term was extended to July 6, 2030 and
effective on July 5, 2010, the annual rent payment will be reduced to RMB
600,000 (approximately US$87,839), payable in two installments each year. Under
the amended agreement, Harbin Rodobo is also required to make a minimum of RMB
400,000 (approximately US$58,317) for annual improvements or betterment to the
leased facility when the new lease term becomes effective.





We also have
a lease agreement for our office building in Harbin which has an area of 300
square meters and the lease will expire in 2012. We are obligated to pay RMB
480,000 (approximately US$69,980) per year under the office lease.





As of
September 30, 2009, Qinggang Mega made a total down payment of RMB 61,000,000
(approximately US$8,935,988) to acquire land, buildings and equipment from
various parties. The remaining contract amount totals RMB 82,635,885
(approximately US$12,105,463). As of September 30, 2009, Harbin Rodobo also made
down payment of $1,025,441 to purchase certain equipment. As of September 30,
2009, the equipment has not been received, the site construction has not been
completed and part of land has not been put into use. We expect to receive the
government certification related to the land in late 2010.





Item
3.  Legal Proceedings.





From time to
time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm business. We are currently not aware of
any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on business, financial condition or
operating results.





Item
4.  Submission of Matters to a Vote of Security Holders.





None
















PART
II





Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.





Our shares of
common stock began quotation on the Over-the-Counter Bulletin Board on November
2, 2004, and are currently quoted under the symbol “RDBO.OB”.  The following tables
set forth, for the calendar quarter indicated, the quarterly high and low sales
price for the Company’s common stock as reported on the OTC Bulletin Board.
Trading in the common stock in the over-the-counter market has been limited and
sporadic and the quotations set forth below are not necessarily indicative of
actual market conditions. Further, the quotations merely reflect the prices at
which transactions were proposed, and do not necessarily represent actual
transactions. Effective on November 12, 2008, the Company effected a reverse
stock split of 37.4 to 1. The prices below reflect the price per share
adjusted for the reverse split.





FISCAL
      YEAR ENDED SEPTEMBER 30, 2008
            
            High
            
            
            LowFirst
      Quarter Ended December 31, 2007
            
            $
            8.60
            
            
            $
            2.78Second
      Quarter Ended March 31, 2008
            
            $
            2.78
            
            
            $
            2.43Third
      Quarter Ended June 30, 2008
            
            $
            2.43
            
            
            $
            1.39Fourth
      Quarter Ended September 30, 2008
            
            $
            1.39
            
            
            $
            1.04





FISCAL
      YEAR ENDED SEPTEMBER 30, 2009
            
            High
            
            
            LowFirst
      Quarter Ended December 31, 2008
            
            $
            3.00
            
            
            $
            0.01Second
      Quarter Ended March 31, 2009
            
            $
            4.50
            
            
            $
            0.75Third
      Quarter Ended June 30, 2009
            
            $
            4.50
            
            
            $
            4.00Fourth
      Quarter Ended September 30, 2009
            
            $
            4.00
            
            
            $
            1.50








On January 6,
2010, the per-share closing price of our Common Stock, as reported by the OTC
Bulletin Board, was $2.65.





Record Holders





As of
December 31, 2009, a total 16,216,717 shares of Common Stock were issued and
outstanding.





As of
December 31, 2009, there were 309 stockholders of record of our Common Stock.
Our registrar and transfer agent is Pacific Stock Transfer Company. Their
address is 500 E. Warm Springs Rd., Suite 240, Las Vegas, NV 89119, U.S.A.,
telephone: (702) 361-3033.





Dividend
Policy





We have not
declared or paid any cash dividends to date, and we do not intend to declare any
cash dividends on the shares of our common stock in the foreseeable future. We
intend to retain any future earnings for use in the operation and expansion of
our business. Any future decision to pay dividends on shares of our common stock
will be solely at the discretion of our board of directors and will depend on
our financial condition, results of operations, capital requirements,
restrictions in future financing agreements, if any, and other business and
financial considerations our board of directors may deem relevant.












Securities
Authorized for Issuance under Equity Compensation Plans




None





Repurchases
of Equity Securities





None





Recent
Sales of Unregistered Securities





On August 8,
2009, we issued 1,020,000 shares of our common stock to employees and a
consultant of the Company in consideration for services to be rendered starting
from the fourth quarter of fiscal year 2009. In addition we issued 180,000
shares of our common stock in connection with a settlement of fees owed by
Navstar Media Holdings, Inc. These issuances were deemed exempt under Regulation
S, Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended.





Item
6.  Selected Financial Data.





We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
required to provide the information contained in this item pursuant to
Regulation S-K.





Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.





The following
discussion and analysis of financial condition and results of operations relates
to the operations and financial condition reported in the financial statements
of Rodobo International, Inc. for the fiscal years ended September 30, 2009 and
2008 and should be read in conjunction with such financial statements and
related notes included in this report.  Those statements in the
following discussion that are not historical in nature should be considered
to be forward looking statements that are inherently uncertain. Actual
results and the timing of events may differ materially from those contained in
these forward looking statements due to a number of factors, including those
discussed in the “Cautionary Note on Forward Looking Statements” set forth
above.





We are a
leading producer and distributor of powdered milk formula products and one of
the largest non-state-owned dairy companies in China. Our primary products
including formulamilk power for infants
and children sold under the brand name of “Rodobo” and “Peer”, and formula milk
power for the middle-aged and the elderly sold under the brand name of “Healif”.
We also produce and market raw whole milk powder which is used to produce
ice-cream, candies, baked food, instant beverages, nutritional food and fast
food. Our primary operations are conducted through our subsidiary Harbin Rodobo.
In July 2009, we started our own cow farm through our VIE Qinggang Mega and
currently we have 1,140 cows providing 22 tons of raw milk per day to Harbin
Rodobo for further processing. On November 9, 2009, Harbin Tengshun Technical
Development Ltd., Co., was formed as a wholly-owned subsidiary of Harbin Mega
under the PRC laws.

















Results
of Operations





Year
Ended September 30, 2009 Compared to Year Ended September 30, 2008





The
following table sets forth the statement of operations and each category as a
percentage of net sales:


Years
      Ended September 30,
              
              
              Change2009
              
              
              %
      of sales
              
              
              2008
              
              
              %
      of sales
              
              
              $
              
              
              
              %Net
      sales
              
              $
              34,690,987
              
              
              
              100.0%
              
              
              $
              22,141,967
              
              
              
              100.0%
              
              
              $
              12,549,020
              
              
              
              56.7%Cost
      of goods sold
              
              
              17,089,006
              
              
              
              49.3%
              
              
              
              11,701,134
              
              
              
              52.8%
              
              
              
              5,387,872
              
              
              
              46.0%Gross profit
              
              
              17,601,981
              
              
              
              50.7%
              
              
              
              10,440,833
              
              
              
              47.2%
              
              
              
              7,161,148
              
              
              
              68.6%Operating
      expenses:Distribution
      expenses
              
              
              9,790,602
              
              
              
              28.2%
              
              
              
              4,223,722
              
              
              
              19.1%
              
              
              
              5,566,880
              
              
              
              131.8%General
      and administrative expenses
              
              
              1,454,994
              
              
              
              4.2%
              
              
              
              997,565
              
              
              
              4.5%
              
              
              
              457,429
              
              
              
              45.9%Total operating expenses
              
              
              11,245,596
              
              
              
              32.4%
              
              
              
              5,221,287
              
              
              
              23.6%
              
              
              
              6,024,309
              
              
              
              115.4%-Operating
      income
              
              
              6,356,385
              
              
              
              18.3%
              
              
              
              5,219,546
              
              
              
              23.6%
              
              
              
              1,136,839
              
              
              
              21.8%Subsidy
      income
              
              
              438,971
              
              
              
              1.3%
              
              
              
              98,627
              
              
              
              0.4%
              
              
              
              340,344
              
              
              
              345.1%Other
      (expenses) income
              
              
              236
              
              
              
              0.0%
              
              
              
              10,427
              
              
              
              0.0%
              
              
              
              (10,190
              )
              
              
              -97.7%Income
      before income taxes
              
              
              6,795,593
              
              
              
              19.6%
              
              
              
              5,328,600
              
              
              
              24.1%
              
              
              
              1,466,993
              
              
              
              27.5%Provision
      for income taxes
              
              
              -
              
              
              
              0.0%
              
              
              
              -
              
              
              
              0.0%
              
              
              
              -
              
              
              
              n/aNet
      income
              
              $
              6,795,593
              
              
              
              19.6%
              
              
              $
              5,328,600
              
              
              
              24.1%
              
              
              
              1,466,993
              
              
              
              27.5%Other
      comprehensive income:Foreign currency translation adjustment
              
              
              (42,274
              )
              
              
              -0.1%
              
              
              
              723,826
              
              
              
              3.3%
              
              
              
              (766,100
              )
              
              
              -105.8%Comprehensive
      income
              
              $
              6,753,319
              
              
              
              19.5%
              
              
              $
              6,052,426
              
              
              
              27.3%
              
              
              
              700,893
              
              
              
              11.6%





Net
Sales:





Net sales for
the fiscal year ended September 30, 2009 were $34.7 million, an increase of
approximately $12.5 million or 56.7%, compared to net sales for the fiscal year
ended September 30, 2008. 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
9 provinces and Beijing in which we currently sell products. The increase was
also attributed to the launch of a new product series called “Healthy Elderly”
under our adult formula product line in October 2008. Since then all our
products under adult formula product line are sold under the brand name of
“Healthy Elderly”. Due to the popularity of Healthy Elderly among our customers,
sales generated from adult formula product line increased by approximately $2.5
million from $3.9 million in the fiscal year ended September 30, 2008 to $6.4
million in the fiscal year ended September 30, 2009. We also launched another
new product series called “Peer” under our baby/infant formula product line in
July 2009. Sales generated from Peer product series were approximately $0.7
million for the fiscal year ended September 30, 2009.





Cost
of Goods Sold:





Cost of goods
sold increased approximately $5.4 million, or 46.0% from $11.7 million for the
year ended September 30, 2008 to $17.1 million for the year ended September 30,
2009. This increase was primarily attributable to the sales increase over
periods and the increase in cost of raw materials.











Gross
Profit:





Our gross
profit increased approximately $7.2 million for the fiscal year ended September
30, 2009, and went up 68.6% compared to the gross profit for the fiscal year
ended September 30, 2008. The overall gross profit margin had improved from
47.2% in the fiscal year ended September 30, 2008 to 50.7% in the fiscal year
ended September 30, 2009.


The
improvement of our gross profit margin was mainly driven by the shift from
low-margin products such as Whole Milk Powder Formula to high-margin products
such as Baby/Infant Formula, and Healthy Elderly over these 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 22.8% of total sales in the fiscal year ended September 30, 2009 compared
to 32.4% in the fiscal year ended September 30, 2008. Our Baby/Infant Formula
product line historically had a relatively higher gross margin (62-66%). Sales
from Baby/Infant Formula were 58.8% of total sales in the fiscal year ended
September 30, 2009 compared to 44.2% in the fiscal year ended September 30,
2008. The newly launched product line “Healthy Elderly” achieved sales of $6.4
million in the fiscal year ended September 30, 2009, 18.4% of total sales. Gross
margin for Healthy Elderly was 52.8% for the fiscal year ended September 30,
2009.





Operating
expenses:





Operating
expenses for the fiscal year ended September 30, 2009 were $11.2 million, an
increase of approximately $6.0 million or 115.4% compared to the fiscal year
ended September 30, 2008. Operating expenses as a percentage of net sales
increased from 23.6% in 2008 to 32.4% in 2009.





Distribution
expenses increased by approximately $5.6 million, and went up 131.8% for the
fiscal year ended September 30, 2009, compared with the figure for the fiscal
year ended September 30, 2008. The increase was mainly due to an increase of
$5.2 million in distribution expense reimbursements as a result of sales
increases and market expansion. The increase was also attributed to an increase
of $0.2 million in freight costs and an increase of $0.1 million in
salaries.





General and
administrative expenses increased by $0.5 million, or approximately 45.9%, from
$1.0 million for the fiscal year ended September 30, 2008 to $1.5 million for
the fiscal year ended September 30, 2009. The increase was primarily due to $0.3
million of incremental expenses incurred by our subsidiaries, Cayman Mega,
Harbin Mega and our VIE, Qinggang Mega. The increase was also attributed to $0.3
million of stock-based compensation expenses in the fiscal year ended September
30, 2009. On August 8, 2009, the Company granted 1,020,000 restricted shares of
its common stock to employees and a consultant of the Company in consideration
for services to be rendered starting from July 1, 2009. We did not incur
stock-based compensation expenses in the fiscal year ended September 30,
2008.





Overall, due
to the increase in net sales and the improvement in gross profit margin,
offsetting by the increase in operating expenses, we realized a 21.8% increase
(approximately $1.1 million) in income from operations in the fiscal year ended
September 30, 2009 compared to the fiscal year ended September 30,
2008.





Income
Tax:





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 on December 31, 2009. Qinggang Mega is qualified for tax exemptions due
to a government tax preferential policy for agriculture industry. The estimated
tax savings amounted to $1,698,898 and $1,379,856 for the years ended September
30, 2009 and 2008, respectively. The net effect on basic earnings per share had
the income tax been applied would decrease earnings per share from $1.01 to
$0.76 for the year ended September 30, 2009 and $3.71 to $2.75 for the year
ended September 30, 2008.












Net
Income:





We achieved
$6.8 million of net income for the fiscal year ended September 30, 2009, an
increase of $1.5 million (approximately 27.5%) compared with $5.3 million for
the fiscal year ended September 30, 2008. This increase in net income was mainly
attributable to the increase in net sales, partially offset by an increase in
cost of goods sold and operating expenses. This increase in net income was also
attributable to an increase of $0.34 million (approximately 345.1%) of subsidy
income from the government, from $0.1 million for the fiscal year ended
September 30, 2008 to $0.44 million for the fiscal year ended September 30,
2009.





Foreign
Currency Translation Adjustments:





Foreign
currency translation adjustments for the fiscal year ended September 30, 2009
were $0.04 million, a decrease of $0.8 million or 105.8% compared to the amount
for the fiscal year ended September 30, 2008. The decrease was primarily due to
the stronger US dollar against the RMB Yuan during the fiscal year ended
September 30, 2009 and the weaker US dollar against the RMB Yuan during the
fiscal year ended September 30, 2008. The exchange rate was 6.83 RMB per US
Dollar at September 30, 2009 versus 6.79 RMB per US Dollar at September 30, 2008
and 7.49 RMB per US Dollar at September 30, 2007.





Loans to Related
Parties:





In January
2009, the Company loaned RMB 8.1 million (approximately US$1.2 million) to Mr.
Yanbin Wang  and Mr. Xuelong Wang for them to acquire the equity
interests in Qinggang Mega. Mr. Yanbin Wang  and Mr. Xuelong Wang.
pledged to the Company their equity interest in Qinggang Mega for the repayment
of the loans. The transaction, including the loan, was made solely in order for
the Company to obtain government tax preferential treatment in the wake of the
powered-milk contamination scandal in China, and not for any personal interest
of the shareholders. By transferring ownership to PRC citizens, Qinggang Mega
became a PRC domestic company and is qualified to obtain tax preferential
treatment which are granted to the PRC domestic company opposed to a subsidiary
owned by a foreign company. The loans bear no interest. The loans are eliminated
for accounting purposes with the capital of Qinggang Mega, which is treated as a
Variable Interest Entity, during consolidation. As of September 30, 2009, the
total amount of interest-free loans to Mr. Yanbin Wang and Mr. Xuelong Wang. was
RMB $8.1 million (approximately US$1.2 million).





Loans
from Related Parties:





During the
ordinary course of business, the Company, from time to time, temporarily borrows
money from its principal shareholders or officers to finance the working capital
as needed. The borrowings are usually unsecured, non-interest bearing and due on
demand. The Company had shareholder loans in the amount of $1,185,062 and
$18,079 as of September 30, 2009 and September 30, 2008, respectively. The
$1,185,062 loans as of September 30, 2009 are expected to be paid by September
30, 2010.












Liquidity
and Capital Resources





The
following table summarizes the cash flows for the fiscal years ended September
30, 2009 and 2008:




Years Ended September 30,2009
                
                
                2008Net
      cash provided by operating activities
                
                
                3,611,060
                
                
                
                7,164,959Net
      cash used in investing activities
                
                
                (6,799,459
                )
                
                
                (7,646,652
                )Net
      cash provided by financing activities
                
                
                4,171,998
                
                
                
                1,077,182Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (2,370
                )
                
                
                30,239Net
      increase in cash and cash equivalents
                
                
                981,229
                
                
                
                625,728Cash
      and cash equivalents, beginning of period
                
                
                659,030
                
                
                
                33,302Cash
      and cash equivalents, end of period
                
                $
                1,640,259
                
                
                $
                659,030
  Our cash
balance increased by $0.98 million to $1.64 million on September 30, 2009, as
compared to $0.66 million on September 30, 2008. The increase was mainly
attributable to net cash provided by operating activities of $3.6 million, net
cash provided by financing activities of $4.2 million, offset by net cash used
in investing activities of $6.8 million in the fiscal year ended September 30,
2009.





Net
Cash Provided by Operating Activities





For the
fiscal year ended September 30, 2009, we generated approximately $3.6 million in
cash from operating activities, compared with $7.2 million generated in cash
from operating activities for the fiscal year ended September 30, 2008. The
decrease in net cash flows provided by operating activities was attributable
primarily to the increase in net income of $1.5 million, offset by an increase
in accounts receivable and other receivables of $0.4 million, an increase in
inventory of $1.2 million, a decrease in accounts payable and other payable of
$1.3 million and a decrease in advances from customers of $2.2
million.





Net
Cash Used in Investing Activities





We usually
finance our operations from funds generated by operating activities. For the
fiscal year ended September 30, 2009, we spent $6.8 million in investing
activities, compared with $7.6 million in investing activities for the fiscal
year ended September 30, 2008. This decrease was primarily due to $2.6 million
of deposits on land and equipment in connection with the construction of
Qinggang Mega’s new dairy farm, compared to $10.4 million of such deposits for
the fiscal year ended September 30, 2008, offset by $2.6 million of purchase of
biological assets and $1.0 million of deposits on biological assets. Biological
assets consist of dairy cows we breed in the Company’s pastures for milking
purposes. In June 2009, Qinggang Mega acquired dairy cows for a total amount of
$2.6 million. As of September 30, 2009, we also made a down payment of $1.0
million to purchase additional dairy cows, which we expect to receive in January
2010.












Net
Cash Provided By Financing Activities





For the
fiscal year ended September 30, 2009, approximately $4.2 million was provided by
financing activities, compared with approximately $1.1 million provided by
financing activities for the fiscal year 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 we entered into
with an investor on September 30, 2008 and received in October 2008 and due to
$1.2 million of loans from our principal shareholders to temporarily finance our
working capital needs.





Outlook





Over the next
twelve months, we intend to pursue our primary objective of increasing market
share in China diary industry. We are also evaluating acquisition and
consolidation opportunities in China’s fragmented dairy industry. We believe
that we have sufficient funds to operate our existing business for the next
twelve months. We usually finance our operations from funds generated by
operating activities. However, in addition to funds available from operations,
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





As of the
date of this report, we do not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors. We have not entered into any other financial guarantees
or other commitments to guarantee the payment obligations of any third parties.
We have not entered into any derivative contracts that are indexed to our shares
and classified as shareholder’s equity or that are not reflected in our
consolidated financial statements. Furthermore, we do not have any retained or
contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity. We do not
have any variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or
research and development services with us.





Inflation





In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation.  During the past ten years, the rate of inflation
in China has been as high as 20.7% and as low as -2.2%.  These factors
have led to the adoption by Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation.  While inflation has been more moderate
since 1995, high inflation may in the future cause Chinese government to impose
controls on credit and/or prices, or to take other action, which could inhibit
economic activity in China, and thereby harm the market for our
products.












SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





PRINCIPLES OF CONSOLIDATION -The accompanying consolidated financial statements include the financial
statements of the Company, its wholly-owned subsidiaries, Cayman Mega, Harbin
Mega, Harbin Rodobo and the VIE, Qinggang Mega. All significant inter-company
transactions and balances between the Company, its subsidiaries and VIE are
eliminated upon consolidation.





RISKS OF LOSSES- The Company
is potentially exposed to risks of losses that may result from business
interruptions, injury to others (including employees) and damage to
property.  These losses may be uninsured, especially due to the fact that
the Company's operations are in China, where business insurance is not readily
available.  If: (i) information is available before the Company's financial
statements are issued or are available to be issued indicates that such loss is
probable and (ii) the amount of the loss can be reasonably estimated, an
estimated loss will be accrued by a charge to income.  If such loss is
probable but the amount of loss cannot be reasonably estimated, the loss shall
be charged to the income of the period in which the loss can be reasonably
estimated and shall not be charged retroactively to an earlier period.  As
of September 30, 2009 and 2008, the Company has not experienced any uninsured
losses from injury to others or other losses.





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.





SUBSEQUENT EVENTS -The
Company has evaluated subsequent events that have occurred through the filing
date and has determined there were no material events since the balance sheet
date of this report.





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
      yearsMachinery, equipment
      and automobiles
            5
    years













Construction
in progress represents the direct costs of construction or acquisition incurred.
Upon completion and readiness for use of the assets, capitalization of these
costs ceases and the cost of construction in progress is transferred to fixed
assets. No depreciation is provided until the project is completed and the
assets are ready for intended use.





The
Company periodically reviews the carrying value of long-lived assets in
accordance with ASC 360, “Property, Plant, and Equipment”. 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 amount by which
the carrying value exceeded the fair value of assets. Based on its review, the
Company believes that there were no impairments of its long-lived assets as of
September 30, 2009.





BIOLOGICAL
ASSETS





Immature biological assets –Biological assets consist of dairy cows held in the Company’s pastures
for milking purposes. Immature biological assets are recorded at cost, including
acquisition costs and feeding costs, incurred in bringing the asset to its
intended productive state. Once the asset reaches productive state, the cost of
the immature biological asset is transferred to mature biological assets using
the weighted average cost method.





Mature biological assets –Mature biological assets are recorded at cost. When biological assets 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 live of the mature biological assets of 7 years using the
straight-line method. The estimated residual value of biological assets is 25%.
Feeding and management costs incurred on mature biological assets are included
as costs of goods sold on the consolidated statements of income and other
comprehensive income.





The
Company reviews the carrying value of biological assets for impairment whenever
events and circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows
are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current health
status of the asset and production capacity. There were no impairments recorded
in the fiscal years ended September 30, 2009 and 2008.




REVENUE RECOGNITION -The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin 104. Sales revenue is recognized at the date of shipment to customers
when a formal arrangement exists, the price is fixed or determinable, the
delivery is completed, no other significant obligations of the Company exist and
collectability is reasonably assured. The Company does not provide customers
with rights to return merchandise.





The
Company’s products are sold primarily through two sources: formulated powdered
milk products are sold through distributors throughout China, and bulk powdered
milk products are sold directly to other packaging plants. Generally, formulated
powdered milk products are delivered upon receipt of payments from distributors
and revenue is recognized upon delivery of products. For some distributors with
a good credit history, the Company also provides credit sales with a 90-day
term. For bulk powdered milk products, all deliveries are made upon receipt of
payments from end users and revenue is recognized upon delivery of
products.












ADVANCE FROM CUSTOMERS -Revenue from the sale of goods 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 $494,148 and $198,568 for the years ended September
30, 2009 and 2008, respectively.





STOCK-BASED COMPENSATION –The
Company adopted the fair value recognition provisions of ASC 718,
“Compensation-Stock Compensation” (“ASC 718”). Under the fair value recognition
provisions of ASC 718, the Company is required to measure the cost of employee
services received in exchange for share-based compensation measured at the grant
date fair value of the award.





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 ASC 260,
“Earnings per Share” (“ASC 260”). ASC 260 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.





FOREIGN CURRENCY TRANSLATION -The Company’s principal country of operations is 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 September 30, 2009 and 2008, the exchange rate was 6.83
and 6.79 RMB per US Dollar, respectively.





FAIR VALUE OF FINANCIAL INSTRUMENTS -The carrying amounts of certain financial instruments, including cash,
accounts receivable, other receivables, accounts payable, accrued expenses,
advances from customers, and other payables approximate their fair values as of
September 30, 2009 and 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 PRC which are
not protected by FDIC insurance or other insurance. The Company’s operations are
carried out in the PRC. Accordingly, the Company’s business, financial condition
and results of operations may be influenced by the political, economic and legal
environments in the PRC and the general state of the PRC’s economy. The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. The Company’s operating results may be adversely affected by
changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.





NEW ACCOUNTING PRONOUNCEMENTS –In June 2009, the FASB issued ASC 105,  “The FASB
Accounting Standards Codification TM and the Hierarchy of Generally Accepted
Accounting Principles – a replacement of FASB Statement No. 162”. The FASB
Accounting Standards Codification TM (“Codification”) will become the source of
authoritative U.S. generally accepted accounting principles (“GAAP”) recognized
by FASB to be applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. On the effective date of ASC 105, the
Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting literature not included
in the Codification will become nonauthoritative.





ASC 105
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. Adoption of ASC 105 did not have a
material impact on the Company’s results of operations or financial
position.


In
June 2009, the FASB issued ASC 810, “Amendments to FASB Interpretation
No. 46(R)” to improve financial reporting by enterprises involved with
variable interest entities. ASC 810 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
“Consolidation of Variable Interest Entities”, as a result of the elimination of
the qualifying special-purpose entity concept in SFAS No. 166 and
(2) concerns about the application of certain key provisions of FIN 46(R),
including those in which the accounting and disclosures under the Interpretation
do not always provide timely and useful information about an enterprise’s
involvement in a variable interest entity. ASC 810 will be effective as of the
beginning of each reporting entity’s first Annual Reporting period that begins
after November 15, 2009, for interim periods within the first Annual
Reporting period, and for interim and Annual Reporting periods thereafter.
Earlier application is prohibited. The Company does  not expect the
adoption of ASC 810 to have a material impact on the Company’s results of
operations or financial position.





In
May 2009, the FASB issued ASC 855, “Subsequent Events”, (“ASC 855”) which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. An entity should apply the requirements of ASC 855
to interim or annual financial periods ending after June 15, 2009. Adoption
of ASC 855 did not have a material impact on the Company’s results of operations
or financial position.




On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of ASC 820 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 became effective on October 10, 2008, and its adoption did not have a
material impact on the Company’s financial position or results of
operations.












Issuance
of Common Stock





On August
8, 2009, we issued 1,020,000 shares of our common stock to employees and a
consultant of the Company in consideration for services to be rendered starting
from the fourth quarter of fiscal year 2009. In addition we issued 180,000
shares of our common stock in connection with a settlement of fees owed by
Navstar Media Holdings, Inc. These issuances were deemed exempt under Regulation
S, Regulation D and/or Section 4(2) of the Securities Act of 1933, as
amended.





On May
12, 2009, we issued 12,976,316 shares of common stock to all shareholders of our
convertible preferred stock at a 1:1 ratio conversion for all outstanding shares
of preferred stock. In addition, we issued 604,833 shares of our common stock to
holders of convertible notes that have been converted.


























Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk.





We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
required to provide the information contained in this item pursuant to
Regulation S-K.





Item
8.  Financial Statements.





Our
Consolidated Financial Statements and Notes thereto and the report of Friedman
LLP and Bagell, Josephs, Levine & Company, LLC, our independent registered
public accounting firms, are set forth on pages F-1 through F-20 of this
Report.





Item
9.  Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.





On September
30, 2008, in connection with the acquisition of Mega, the Company terminated the
services of Bernstein & Pinchuk LLP, as the Company’s independent auditor.
Bernstein & Pinchuk LLP performed the audits for the year ended December 31,
2007, which report did not contain any adverse opinion or a disclaimer of
opinion, nor was it qualified as to audit scope or accounting principles but did
carry a modification as to going concern. During the Company’s most recent
fiscal year and during any subsequent interim period prior to Bernstein &
Pinchuk LLP’s termination as the Company’s independent auditors, there were no
disagreements with Bernstein & Pinchuk LLP with respect to accounting or
auditing issues of the type discussed in Item 304(a)(1)(iv) of Regulation S-K.
On September 30, 2008, the Company provided Bernstein & Pinchuk LLP with a
copy of this disclosure and requested that it furnish a letter to the Company,
addressed to the SEC, stating that it agreed with the statements made herein or
the reasons why it disagreed.





A letter from
Bernstein & Pinchuk LLP was provided on September 30, 2008 and was filed as
exhibit 16.1 to the Company’s Current Report on Form 8-K/A on November 5,
2008.





On September
30, 2008, the Company’s board of directors approved the engagement of the firm
of Bagell, Josephs, Levine & Company, LLC (“BJL”) as the Company’s
independent auditors. During the Company's two most recent fiscal years or any
subsequent interim period prior to engaging BJL, the Company had not consulted
BJL regarding any of the accounting or auditing concerns stated in Item
304(a)(2) of Regulation S-K.





On January 8,
2010, the Company was notified that the audit practice of BJL was combined with
Friedman LLP (“Friedman”) effective as of January 1, 2010. On January 8, 2010,
BJL resigned as the independent registered public accounting firm of the Company
and, with the approval of the Audit Committee of the Company’s Board of
Directors, Friedman was engaged as the Company’s independent registered public
accounting firm.





During the
two years ended September 30, 2009 and from September 30, 2009 through the
engagement of Friedman as the Company’s independent registered public accounting
firm, neither the Company nor anyone on its behalf consulted Friedman with
respect to any accounting or auditing issues involving the Company. In
particular, there was no discussion with the Company regarding (i) the
application of accounting principles to a specified transaction either completed
or proposed, or the type of audit opinion that might be rendered on the
financial statements and Friedman did not provide a written report or oral
advice to the Company that was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue;
or (ii) any matter that was either the subject of a disagreement, as described
in Item 304 of Regulation S-K (“Regulation S-K”) promulgated by the Securities
and Exchange Commission (the “SEC”), with BJL, or a “reportable event” as
described in Item 304(a)(1)(v) of Regulation S-K.












BJL performed
audits of the Company’s consolidated financial statements for the year ended
September 30, 2008. BJL’s report did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles.





During the
two years ended September 30, 2009, and from September 30, 2009 through the
January 8, 2010, there were no (i) disagreements between the Company and BJL on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of BJL, would have caused BJL to make reference to the
subject matter of such disagreements in connection with its report, or (ii)
“reportable events,” as described in Item 304(a)(1)(v) of Regulation
S-K.





BJL has
furnished a letter addressed to the SEC dated January 11, 2010, and was filed as
exhibit 16.1 to the Company’s Current Report on Form 8-K/A on January 12,
2010.




Item
9A(T).  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





The Company
conducted an evaluation under the supervision of the Chief Executive Officer and
Chief Financial Officer (its principal executive officer and principal financial
officer, respectively), regarding the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of September 30, 2009. Based on the aforementioned evaluation,
management has concluded that the Company’s disclosure controls and procedures
were effective as of September 30, 2009.





Management’s
Report on Internal Control over Financial Reporting





Management of
the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. The
Company’s internal control over financial reporting has been designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles generally accepted in the United States
of America.





The Company’s
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets of the Company; provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and
expenditures are being made only in accordance with authorization of management
and directors of the Company; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the Company’s
financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management, including the Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of the Company’s internal control over financial
reporting at September 30, 2008. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in
Internal Control-Integrated Framework. Based on that assessment under those
criteria, management has determined that, at September 30, 2009, the Company’s
internal control over financial reporting was effective.









This Annual
Report does not include an attestation report of our Company’s registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our Company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit our
Company to provide only management’s report in this Annual
Report.





Limitations
on the Effectiveness of Controls





Our
disclosure controls and procedures are designed to provide reasonable, not
absolute, assurance that the objectives of our disclosure control system are
met.  Because of inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.  Our Chief Executive
Officer and Chief Financial Officer have concluded, based on their evaluation as
of the end of the period covered by this report, that our disclosure controls
and procedures were sufficiently effective to provide reasonable assurance that
the objectives of our disclosure control system were met.





Changes
in Internal Control over Financial Reporting





There were no
changes in our internal controls over financial reporting identified in
connection with the evaluation that occurred during the fiscal year ended
September 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.























PART
III




Item
10.  Directors, Executive Officers and Corporate
Governance.





Our
directors and executive officers and their ages as of September 30, 2009 are as
follows:





Name
            
            Age
            
            Position(s)
      HeldYanbin
      Wang
            
            
            37
            
            President,
      Chief Executive Officer and Chairman of the BoardXiuzhen
      Qiao
            
            
            36
            
            Chief
      Financial Officer, Corporate Secretary and DirectorJames
      Hu
            
            
            36
            
            Independent
      DirectorJie
      Li
            
            
            40
            
            Independent
      DirectorZhiqiang
      E
            
            
            38
            
            Independent
      Director





The term of
office of each director expires at our annual meeting of stockholders or until
their successors are duly elected and qualified. Our officers serve at the
discretion of our Board of Directors.





There are no
arrangements between our directors and any other person pursuant to which our
directors were nominated or elected for their positions.  There are no
family relationships between any of our directors or executive
officers.





Yanbin
Wang





Yanbin Wang
has been serving as our President, Chief Executive Officer and Chairman of the
Board since September 30, 2008. Mr. Wang has been the Chairman of the Board and
General Manager of Harbin Rodobo since 2002. Prior to that, he was founder and
General Manger of Harbin Jinyu Maltose Syrup Co., Ltd (“Jinyu”) from 1997 to 2003.
Jinyu has been one of the leading maltose syrup suppliers in China since 1998.
Mr. Wang obtained his EMBA in Economy Management from Tsinghua University in
2007, and he obtained his bachelor’s degree from Harbin Light Industry
College.





Qiao,
Xiuzhen





Xiuzhen Qiao
has been serving as our Director and Chief Financial Officer since September 30,
2008 and Corporate Secretary since November 2009. Ms. Qiao has more than 10
years of experience in accounting and corporate finance areas. Prior to joining
Rodobo in 2007, she was the Chief Financial Officer of Harbin Runtong Group, a
private company engaged in consumer beverages. Ms. Qiao started her career as an
accountant at the Runtong Group in 1996. She studied at the Harbin Institute of
Technology, majoring in management. Prior to that, she studied at the Harbin
Childcare Training School.





Hu,
James





James Hu has
been serving as our director since December 3, 2009. Mr. Hu has been a director
of General Steel Holdings Inc. (NYSE: GSI) since February 2009.  Mr.
Hu is currently Head of Credit Analysis at Standard Chartered Bank (China)
Limited, where he manages risk assessment on large Chinese state owned entities
and private companies. Mr. Hu has been employed by Standard Chartered Bank
(China) Limited since April 2006.  Previously, Mr. Hu was a Senior
Auditor with Deloitte Touche Tohmatsu in the U.S. before moving on to hold
management positions at both U.S. and China-based firms, with significant
experience in mergers and acquisitions analysis and Sarbanes-Oxley
implementation. His education includes a Bachelor’s degree in Economics from the
University of California at Berkeley and a Masters degree in Business
Administration from the Darden Graduate School at the University of Virginia. He
is a California licensed certified public accountant.












Li,
Jie





Jie Li has
been serving as our director since December 3, 2009. Mr. Li has served as the
Chief Financial Officer of China Automotive Systems Inc. (NASDAQ: CAAS) since
September 2007 and prior to that position he served as the Corporate Secretary
from December 2004. Prior to joining China Automotive Systems Inc. in September
2003, Mr. Li was the Assistant President of Jingzhou Jiulong Industrial Inc from
1999 to 2003 and the general manger of Jingzhou Tianxin Investment Management
Co. Ltd. from 2002 to 2003. Mr. Li has a Bachelor’s degree from the University
of Science and Technology of China. He also completed his graduate studies in
economics and business management at the Hubei Administration
Institute.





E,
Zhiqiang





Zhiqiang E
has been serving as our director since November 16, 2009. He graduated in June
1996 from Northeast Agriculture University of Food Science. He worked at
Heilongjiang Dairy Industry Technology Development Center, Test Factory, the
predecessor of Heilongjiang Dairy Group Co. Ltd from September 1996 to May 1997.
In 1996, he engaged in establishment of National Dairy Engineering Technology
Research Center as manager of several projects until 1999. One of these projects
Non Dairy Based (Soy Protein) Infant Formula Series Food was awarded with Major
Science & Technology Benefit of Heilongjiang Province. While in National
Dairy Testing Center, he was in charge of reviewing Industrial Production
License of National Infants Formula Milk Powder, and responsible for
interpretation for all issues in review. National Dairy Standardization Center
is under centralized management of industry standardization. During 2002 and
2006, he was in charge of preparing and revising of 19 standards in connection
with dairy products, production and quality inspection, among which one is
international standard, 13 national standards, and 5 industry standards and
codes.  At present, he serves as director of Division of Regulations
at National Dairy Testing Center, assisting National Bureau of Quality
Inspection in dealing with technical problems in production of dairy
products.





Key
Employees





Below are the
biographies of certain key non-officer employees of our company:





Liu,
Songbin, Chief Production Officer, 52





Mr. Liu has
served as the Chief Production Officer since 2004. Previously Mr. Liu was the
director of supply in Harbin Jinxin Dairy Company. Prior to 1993, he was the
director of supply in Harbin Hunan Textile Co. Ltd.





Qi,
Junna, Chief Marketing Officer, 34





Ms. Qi has
served as CMO since 2006. From 2004 to 2005, Ms. Qi was the Sales Manager in
Shandong Songfu Co., Ltd. From 2002 to 2003, Ms. Qi was the Sales Manager in
Shanghai Huaguan Dairy Co., Ltd. Ms. Qi graduated with a Finance Degree from the
Fujian Institute of Media and Broadcast in 1997.












Involvement
in Certain Legal Proceedings





None





Code
of Conduct and Ethics





We have not
adopted a code of ethics or a code of conduct that applies to its principal
executive officer, principal financial officer, principal accounting officer,
controller, or to persons performing similar functions. We intend to adopt a
code of ethics or a code of conduct during the fiscal year of 2010.





Corporate
Governance





Board
of Directors





We have five
members serving on our Board of Directors, of which three are independent
directors. All actions of the Board of Directors require the approval of a
majority of the directors in attendance at a meeting at which a quorum is
present.




Director
Independence





Our board has
determined that each of Jie Li, James Hu, and Zhiqiang E are independent
directors within the meaning of applicable NASDAQ Stock Market and SEC rules. As
of the date of this 10-K, our common stock is traded on the OTC Bulletin Board.
The OTC Bulletin Board does not impose on us standards relating to director
independence or the makeup of committees with independent directors, or provide
definitions of independence.





Committees
of the Board of Directors





Audit
Committee





The board of
directors has an Audit Committee, which is comprised of James Hu (Chairman), Jie
Li and Zhiqiang E. The board of directors has examined the composition of the
Audit Committee in light of the regulations under the Exchange Act and the
current listing standards and regulations of the NASDAQ Stock Market LLC
applicable to audit committees. Based upon this examination, the board of
directors has determined that each of the Audit Committee members is an
“independent” director within the meaning SEC and NASDAQ regulations. Mr.
Hu qualifies as an “audit committee financial expert” as that term is defined in
applicable regulations of the SEC. The Audit Committee’s responsibilities
include:





·
            The
      appointment, replacement, compensation, and oversight of work of the
      independent auditor, including resolution of disagreements between
      management and the independent auditor regarding financial reporting, for
      the purpose of preparing or issuing an audit report or performing other
      audit, review or attest services.





·
            Reviewing
      and discussing with management and the independent auditor various topics
      and events that may have significant financial impact on our company or
      that are the subject of discussions between management and the independent
      auditors.





The board of
directors is in the process of preparing a written charter for the Audit
Committee that sets forth the foregoing and further defined the duties and
responsibilities of the Audit Committee.














Compensation
Committee





The board of
directors has a Compensation Committee, which is comprised of Jie Li (Chairman),
James Hu and Zhiqiang E, each of whom is an independent director. The
Compensation Committee is responsible for the design, review, recommendation and
approval of compensation arrangements for our directors, executive officers and
key employees, and for the administration of our equity incentive plans, if any,
including the approval of grants under such plans to our employees, consultants
and directors. The Compensation Committee also reviews and determines
compensation of our executive officers, including our Chief Executive Officer.
The board of directors is in the process of preparing a written charter for the
Compensation Committee that sets forth the foregoing and further defined the
duties and responsibilities of the Compensation Committee.





Nominating
and Corporate Governance Committee





The board of
directors has a Nominating and Corporate Governance Committee, which is
comprised Zhiqiang E (Chairman), Jie L and James Hu. The Nominating and
Corporate Governance Committee assists in the selection of director nominees,
approves director nominations to be presented for shareholder approval at our
annual general meeting and fills any vacancies on our board of directors,
considers any nominations of director candidates validly made by shareholders,
and reviews and considers developments in corporate governance practices. The
board of directors is in the process of preparing a written charter for the
Nominating and Corporate Governance Committee that sets forth the foregoing and
further defined the duties and responsibilities of the Nominating and Corporate
Governance Committee.





Audit
Committee Financial Expert





The board of
directors has an Audit Committee, which is comprised of James Hu, Jie Li and
Zhiqiang E. The board of directors has examined the composition of the Audit
Committee in light of the listing standards of the Nasdaq Stock Market and the
regulations under the Exchange Act applicable to audit committees. Based upon
this examination, the board of directors has determined that each of the Audit
Committee members is an “independent” director within the meaning of such
listing standards and the Exchange Act and the rules and regulations thereunder.
James Hu qualifies as an “audit committee financial expert” as that term is
defined in applicable regulations of the SEC.





Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who beneficially own more than 10% of a registered class
of our equity securities (“ten percent stockholders”) to file reports of
ownership and changes in ownership with the SEC. Officers, directors and ten
percent stockholders are charged by the SEC regulations to furnish us with
copies of all Section 16(a) forms they file.




Based solely
upon a review of copies of Section 16(a) reports and representations received by
us from reporting persons, and without conducting any independent investigation
of our own, in fiscal year ended on September 30, 2009, our officers, directors
and ten percent stockholders are in compliance with Section 16(a).





Item
11.  Executive Compensation.





The following
table sets forth all annualized compensation paid to our named executive
officers at the end of the fiscal years ended September 30, 2009 and
2008.  Individuals we refer to as our “named executive officers”
include our Chief Executive Officer, Chief Financial Officer, and our most
highly compensated executive officers whose salary and bonus for services
rendered in all capacities exceeded $100,000 during the fiscal year ended
September 30, 2009 and 2008.












All the
executive officers were paid in RMB and the amounts reported in this table have
been converted from Renminbi to U.S. dollars based on the September 30, 2009
conversion rate of RMB 6.8290 to $1.00.





SUMMARY
COMPENSATION TABLE


Name
      and principal position
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
                Awards
                ($)
              
              Option
                Awards
                ($)
              
              Non-Equity
      Incentive  Plan Compensation
                ($)
              
              Nonqualified
      Deferred Compensation Earnings
                ($)
              
              All
      Other Compensation
                ($)
              
              Total
                ($)Yanbin
      Wang
              
              14,643.43
              
              --
              
              --
              
              --
              
              --
              
              --
              
              --
              
              14,643.4314,643.43
              
              --
              
              --
              
              --
              
              --
              
              --
              
              --
              
              14,643.43Xiuzhen
      Qiao
              
              14,643.43
              
              --
              
              --
              
              --
              
              --
              
              --
              
              --
              
              14,643.4314,643.43
              
              --
              
              --
              
              --
              
              --
              
              --
              
              --
              
              14,643.43
  No other
officer of the Company has received any compensation during the last fiscal year
that exceeds $100,000. No options or rights were granted to any employee,
executive officer or director of the Company during the last fiscal
year.





We strive to
provide our named executive officers (as defined in Item 402 of Regulation S-K)
with a competitive base salary that is in line with their roles and
responsibilities when compared to peer companies of comparable size in similar
locations.





It is not
uncommon for PRC private companies in northeastern China to have base salaries
as the sole form of compensation. The base salary level is established and
reviewed based on the level of responsibilities, the experience and tenure of
the individual and the current and potential contributions of the individual.
Base salaries are reviewed periodically and at the time of promotion or other
changes in responsibilities.





We plan to
implement a more comprehensive compensation program, which takes into account
other elements of compensation, including, without limitation, short and long
term compensation, cash and non-cash, and other equity-based compensation such
as stock options. We expect that this compensation program will be comparable to
the programs of our peer companies and aimed to retain and attract talented
individuals.




Grants
of Plan-Based Awards


None





Outstanding
Equity Awards at Fiscal Year-End


None





Option
Exercise and Stock Vested


None












Pension
and Retirement Plans





Currently, we
do not offer any annuity, pension or retirement benefits to be paid to any of
our officers, directors or employees.  As required by China law,
the Company contributes to the “insurance and public housing funds” program
defined by the Department of Labor.  These contributions are similar
to the Social Security and Medicare programs in the US. There are also no
compensatory plans or arrangements with respect to any individual named above
which results or will result from the resignation, retirement or any other
termination of employment with our company, or from a change in our
control.





Nonqualified
Deferred Compensation





We do not
maintain any non-qualified defined contribution or deferred compensation
plans.





Compensation
of Directors





As of the
date of this report, Mr. Yanbin Wang and Ms. Xiuzhen Qiao are paid in their
capacity as executive officers of the Company and they do not receive any
additional compensation for their service as directors.





Under the
term of oral agreements with James Hu, Jie Li and Zhiqiang E, we issue 15,000
shares of Common Stock per year to James Hu, 15,000 shares to Jie Li and 10,000
shares to Zhiqiang E as compensation for their services to us.





As of the
date of this report, we have no formal written arrangements or agreements to
compensate our directors for services they provide as directors. We plan to
implement a compensation program for our independent directors, as and when they
are appointed, which we anticipate will include such elements as an annual
retainer, meeting attendance fees and stock options. The details of that
compensation program will be negotiated with each independent
director.





Employment
Agreements





As the date
of this report we do not have any employment agreements in place with our
officers or key employees other than those standard agreements the Company’s
Chinese subsidiaries entered into with each employee.




Item 12. 
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.





The table
sets forth below certain information regarding the beneficial ownership of our
common stock as of December 31, 2009, based on 16,216,717 aggregate shares of
common stock outstanding as of such date, by: (i) each person who is known by us
to own beneficially more than 5% of our outstanding common stock with the
address of each such person, (ii) each of our present directors and officers,
and (iii) all officers and directors as a group.





Beneficial
ownership is determined in accordance with SEC rules and generally includes
voting or investment power with respect to securities. Unless otherwise
indicated, the stockholders listed in the table have sole voting and investment
power with respect to the shares indicated. Unless otherwise noted, the
principal address of each of the stockholders, directors and officers listed
below is c/o Rodobo International, Inc. 380 Changjiang Road Nangang District,
Harbin, PRC 150001.









All share
ownership figures include shares of our Common Stock issuable upon securities
convertible or exchangeable into shares of our Common Stock within sixty (60)
days of December 31, 2009, which are deemed outstanding and beneficially owned
by such person for purposes of computing his or her percentage ownership, but
not for purposes of computing the percentage ownership of any other
person.





Name
      of Beneficial Owner (1)
            
            Amount and Nature of
              Beneficial Ownership
              (2)
            
            
            Percentage of Class as ofYanbin
      Wang
            
            
            3,000,000
            
            
            
            18.5%Xiuzhen
      Qiao
            
            
            100,000
            
            
            
            *Zhiqiang
      E
            
            
            10,000
            
            
            
            0%Jie
      Li
            
            
            15,000
            
            
            
            0%James
      Hu
            
            
            15,000
            
            
            
            0%Dream
      High Limited(3)
            
            
            2,950,000
            
            
            
            18.25%China
      Reinv Partners, L.P.
            
            
            2,727,273
            
            
            
            16.8%All
      Directors and Officers as a group (5 persons)
            
            
            3,140,000
            
            
            
            19.4%





*
            Less
      than 1%


(1)
            Except
      as otherwise indicated, the address of each beneficial owner is c/o 380
      Changjiang Road, Nangang District, Harbin,
PRC.


(2)
            Beneficial
      ownership has been determined in accordance with Rule 13d-3 under the
      Exchange Act. Unless otherwise noted, we believe that all persons named in
      the table have sole voting and investment power with respect to all shares
      of common stock beneficially owned by
them.


(3)
            Dream
      High Limited is 100% owned by Weihua
Zhao.






Item 13.  Certain
Relationships and Related Transactions, and Director
Independence.




Mr. Yanbin
Wang, the Company’s Chairman, Chief Executive Officer owns 85% of the equity
interest in the Qinggang Mega. In January 2009, the Company loaned RMB 8.1
million (approximately US$1.2 million) to Mr. Yanbin Wang  and Mr.
Xuelong Wang for them to acquire the equity interests in Qinggang Mega. The
transaction, including the loan, was made solely in order for the Company to
obtain government tax preferential treatment in the wake of the powered-milk
contamination scandal in China, and not for any personal interest of the
shareholders. The loans bear no interest. The Qinggang shareholders have pledged
their shares in the Qinggang Mega as collateral for non-payment of loans and for
fees on consulting services due to the Company. As of September 30, 2009, the
total amount of interest-free loan to the shareholders of the Qinggang Mega was
RMB $8.1 million (approximately US$1.2 million).





On January 1,
2009, Harbin Mega entered into a series of VIE Agreements with Qinggang Mega and
its two shareholders, pursuant to which Harbin Mega effectively assumed
management of the business activities of Qinggang Mega and has the right to
appoint all executives and senior management and the members of the board of
directors of Qinggang Mega.  The VIE agreements are comprised of a
series of agreements, including a Consulting Services Agreement, Operating
Agreement, Proxy Agreement, Equity Pledge Agreement and Option Agreement,
through which Harbin Mega has the right to advise, consult, manage and operate
Qinggang Mega for an annual fee in the amount of Qinggang Mega’s yearly net
profits after tax.  Additionally, Qinggang Mega’s shareholders have
pledged their rights, titles and equity interest in Qinggang Mega as security
for Harbin Mega to collect consulting and services fees provided to Qinggang
Mega through an Equity Pledge Agreement.  In order to further
reinforce Harbin Mega’s rights to control and operate Qinggang Mega, Qinggang
Mega’s shareholders have granted Harbin Mega an exclusive right and option to
acquire all of their equity interests in Qinggang Mega through an Option
Agreement.  Through these contractual arrangements, Harbin Mega has
the ability to substantially influence Mega Profit’s daily operations and
financial affairs, appoint  its senior executives and approve all
matters requiring stockholders’ approval. Qinggang Mega started its operation as
a dairy farm in July 2009 and provides raw milk to Harbin Rodobo for further
processing. As of the date of this report Qinggang Mega provides raw milk only
to the Company.










During the
ordinary course of business, the Company, from time to time, temporarily borrows
money from its principal shareholders or officers to finance the working capital
as needed. The borrowings are usually unsecured, non-interest bearing and due on
demand. The Company had shareholder loans in the amount of $1,185,062 and
$18,079 as of September 30, 2009 and September 30, 2008, respectively. The
$1,185,062 loans as of September 30, 2009 are expected to be paid by September
30, 2010.





To the best
of our knowledge, other than as set forth above, there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which we were or are to be a
party, in which the amount involved exceeds $120,000, and in which any director
or executive officer, or any security holder who is known by us to own of record
or beneficially more than 5% of any class of our common stock, or any member of
the immediate family of any of the foregoing persons, has an
interest.





Review,
Approval or Ratification of Related Party Transactions





Our Board of
Director is responsible for reviewing all “Related Person Transactions” as
defined by Item 404 of Regulation S-K of the rules promulgated by the SEC.
Directors and executive officers are responsible for bringing a potential
Related Person Transaction to the attention of our Board.





In reviewing
a related person transaction, the Board will, after reviewing all material
information regarding the transaction, take into account, among other factors it
deems appropriate, whether the transaction is on terms no less favorable than
terms generally available to an unaffiliated third party under the same or
similar circumstances and the extent of the related person’s interest in the
transaction.




Item 14.  Principal
Accountant Fees and Services.





On September
30, 2008, the Company retained Bagell, Josephs, Levine & Company, LLC, which
was combined with Friedman LLP effective as of January1, 2010, as independent
auditors to audit our financial statements for the fiscal year ended September
30, 2009. Prior to that, Bernstein & Pinchuk LLP had served as our
independent auditor.





The following
table sets forth fees billed to us by our independent registered public
accounting firms during the fiscal years ended September 30, 2009 and September
30, 2008 for: (i) services rendered for the audit of our annual financial
statements and the review of our quarterly financial statements; (ii) services
by our independent registered public accounting firms that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as audit fees; (iii) services rendered in connection
with tax compliance, tax advice and tax planning; and (iv) all other fees for
services rendered.




September
      30, 2009
              
              
              September
      30, 2008Audit
      Fees
              
              $
              97,500
              
              
              $
              80,000Audit
      Related Fees
              
              $
              5,000
              
              
              $
              5,000Tax
      Fees
              
              $
              0
              
              
              $
              0All
      Other Fees
              
              $
              0
              
              
              $
              0TOTAL
              
              $
              102,500
              
              
              $
              85,000











PART
IV





Item
      15.
            Exhibits,
      Financial Statement Schedules.







Number
            
            Description3.1
            
            Articles
      of incorporation (incorporated by reference to Exhibit 3.1 of Form 10-SB
      filed July 14, 2003)3.2
            
            Composite
      copy of the Amended and Restated Articles of Incorporation of the Company,
      as amended on April 2, 2009 (incorporated by reference to Exhibit 3.1 of
      our Quarterly Report on Form 10-Q filed May 15, 2009)3.3
            
            Bylaws
      (incorporated by reference to Exhibit 3.2 of Form 10-SB filed July 14,
      2003)4.1
            
            Form
      of Common Stock Purchase Warrant (incorporated by reference to Exhibit 3.1
      of our Quarterly Report on Form 10-Q filed May 15,
2009)10.1
            
            Agreement
      and Plan of Merger dated September 30, 2008, by and among Navstar Media
      Holdings, Inc., Rodobo International, Inc, and Mega Profit Limited
      (incorporated by reference to Exhibit 10.1 of our Current Report on Form
      8-K filed October 6, 2008).)10.2
            
            Consulting
      Service Agreement entered into by and between Harbin Mega and Qinggang
      Mega*10.3
            
            Operating
      Agreement entered into by and among Harbin Mega, Qinggang Mega and
      Qinggang Shareholders on January 1, 2009*10.4
            
            Option
      Agreement entered into by and among Harbin Mega, Qinggang Mega and
      Qinggang Shareholders on January 1, 2009*10.5
            
            Proxy
      Agreement entered into by and between Harbin Mega and Qinggang Mega
      Shareholders on January 01, 2009*10.6
            
            Equity
      Pledge Agreement entered into by and among Harbin Mega, Qinggang Mega
      and Qinggang Shareholders on January 1, 2009*21.1
            
            Subsidiaries
      of Registrant *31.1
            
            Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*32.2
            
            Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*
































RODOBO
INTERNATIONAL, INC.





INDEX
TO FINANCIAL STATEMENTS





Report
      of Independent Registered Public Accounting Firm – Friedman LLP.
            F-2Report
      of Independent Registered Public Accounting Firm – Bagell
      Josephs, Levine & Company, LLC.
            F-3Consolidated
      Balance Sheets as of September 30, 2009 and 2008
            F-4Consolidated
      Statements of Income and Other Comprehensive Income for the fiscal years
      ended September 30, 2009 and 2008
            F-5Consolidated
      Statement of Stockholders’ Equity for the fiscal years ended September 30,
      2009 and 2008
            F-6Consolidated
      Statements of Cash Flows for the fiscal years ended September 30, 2009 and
      2008
            F-7Notes
      to Consolidated Financial Statements
            F-8
































REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the
Board of Directors and Stockholders
 Rodobo
International, Inc. and
affiliate
 We have
audited the accompanying consolidated balance sheet of Rodobo International,
Inc. and affiliate as of September 30, 2009, and the related consolidated
statements of operations, cash flows and stockholders' equity for the year ended
September 30, 2009. Company's management is responsible for these consolidated
financial statements. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of September 30, 2009, and the consolidated results of its operations and its
cash flows for the year ended September 30, 2009 in conformity with accounting
principles generally accepted in the United States of America.
 As
discussed in Note 19 to the financial statements, the accompanying financial
statements for the year ended September 30, 2008 have been
restated.
 
 
 /s/
Friedman LLP
 
 Marlton,
NJ
 January
11, 2010





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To the
Board of Directors and Shareholders of


Rodobo
International, Inc.


(Formerly
Navstar Media Holdings, Inc)





We have
audited the accompanying consolidated balance sheets of Rodobo International,
Inc. (the “Company) as of September 30, 2008 and 2007 and the related
consolidated statements of income, cash flows, and shareholders’ equity for each
of the years in the two-year period ended September 30, 2008. Rodobo
International, Inc.’s management is responsible for these financial
statements.  Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with standards established by the Public
Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Rodobo International, Inc.
as of September 30, 2008 and 2007 and the results of its operations and cash
flows for each of the years in the two-year period ended September 30, 2008 in
conformity with accounting principles generally accepted in the United States of
America.














/s/
Bagell Josephs, Levine & Company, LLC


Bagell
Josephs, Levine & Company, LLC


Marlton,
New Jersey





December
28, 2008
















RODOBO
INTERNATIONAL, INC.
 CONSOLIDATED
BALANCE SHEETS
  As
      of September 30,2009
                  
                  
                  2008(Restated)ASSETSCurrent
      assets:Cash and cash equivalents
                  
                  $
                  1,640,259
                  
                  
                  $
                  659,030Accounts receivable - net of allowance for bad debts of$0 and $66,921, respectively
                  
                  
                  2,015,044
                  
                  
                  
                  1,143,328Advances to employees
                  
                  
                  5,602
                  
                  
                  
                  185,500Other receivables
                  
                  
                  -
                  
                  
                  
                  162,006Inventories
                  
                  
                  1,576,723
                  
                  
                  
                  991,536Prepaid expenses
                  
                  
                  19,040
                  
                  
                  
                  26,510Total
      current assets
                  
                  
                  5,256,668
                  
                  
                  
                  3,167,910Property,
      plant and equipment, net:Fixed assets, net of accumulated depreciation
                  
                  
                  738,537
                  
                  
                  
                  812,079Construction in progress
                  
                  
                  -
                  
                  
                  
                  148,240738,537
                  
                  
                  
                  960,319Biological
      assets, net
                  
                  
                  2,499,625
                  
                  
                  
                  -Other
      assets:Deposits on biological assets
                  
                  
                  988,818
                  
                  
                  
                  -Deposits on land and equipment
                  
                  
                  9,961,429
                  
                  
                  
                  10,873,562Intangible assets, net
                  
                  
                  4,526,117
                  
                  
                  
                  717,978Total
      other assets
                  
                  
                  15,476,364
                  
                  
                  
                  11,591,540Total
      assets
                  
                  $
                  23,971,194
                  
                  
                  $
                  15,719,769LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts payable
                  
                  $
                  1,246,818
                  
                  
                  $
                  2,165,061Other payable
                  
                  
                  50,293
                  
                  
                  
                  171,286Accrued expenses
                  
                  
                  175,456
                  
                  
                  
                  1,054,580Advance from customers
                  
                  
                  -
                  
                  
                  
                  1,162,184Due to related parties
                  
                  
                  1,185,062
                  
                  
                  
                  18,079Total
      current liabilities
                  
                  
                  2,657,629
                  
                  
                  
                  4,571,189Stockholders'
      equityConvertible preferred stock, $0.0001 par value, 30,000,000 shares
      authorized,-0- and 12,976,316 shares issued and outstanding as of September 30,
      2009and
      2008, respectively
                  
                  
                  -
                  
                  
                  
                  1,298Common stock, $0.0001 par value, 200,000,000 shares
      authorized,16,216,717 and 1,435,568 shares issued and outstanding as of
      September 30, 2009and
      2008, respectively
                  
                  
                  1,622
                  
                  
                  
                  143Common stock to be issued
                  
                  
                  -
                  
                  
                  
                  61Additional paid in capital
                  
                  
                  4,355,085
                  
                  
                  
                  3,943,538Additional paid in capital - warrants
                  
                  
                  971,788
                  
                  
                  
                  971,788Subscription receivable
                  
                  
                  (50,000
                  )
                  
                  
                  (3,050,000
                  )Retained earnings
                  
                  
                  15,189,860
                  
                  
                  
                  8,394,267Accumulated other comprehensive income
                  
                  
                  845,210
                  
                  
                  
                  887,484Total
      stockholders' equity
                  
                  
                  21,313,565
                  
                  
                  
                  11,148,579Total
      liabilities and stockholders' equity
                  
                  $
                  23,971,194
                  
                  
                  $
                  15,719,769
 The
accompanying notes are an integral part of these consolidated financial
statements








RODOBO
INTERNATIONAL, INC.


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


YEARS
ENDED SEPTEMBER 30, 2009 AND 2008





Years
      Ended September 30,2009
            
            
            2008(Restated)Net
      sales
            
            $
            34,690,987
            
            
            $
            22,141,967Cost
      of goods sold
            
            
            17,089,006
            
            
            
            11,701,134Gross
      profit
            
            
            17,601,981
            
            
            
            10,440,833Operating
      expenses:Distribution
      expenses
            
            
            9,790,602
            
            
            
            4,223,722General
      and administrative expenses
            
            
            1,454,994
            
            
            
            997,565Total
      operating expenses
            
            
            11,245,596
            
            
            
            5,221,287Operating
      income
            
            
            6,356,385
            
            
            
            5,219,546Subsidy
      income
            
            
            438,971
            
            
            
            98,627Other
      income
            
            
            236
            
            
            
            10,427Income
      before income taxes
            
            
            6,795,593
            
            
            
            5,328,600Provision
      for income taxes
            
            
            -
            
            
            
            -Net
      income
            
            $
            6,795,593
            
            
            $
            5,328,600Other
      comprehensive income:Foreign
      currency translation adjustment
            
            
            (42,274
            )
            
            
            723,826Comprehensive
      income
            
            $
            6,753,319
            
            
            $
            6,052,426Earnings
      per shareBasic
            
            $
            1.01
            
            
            $
            3.71Diluted
            
            $
            0.42
            
            
            $
            0.35Weighted
      average shares outstandingBasic
            
            
            6,708,121
            
            
            
            1,435,568Diluted
            
            
            16,026,645
            
            
            
            15,196,717








The
accompanying notes are an integral part of these consolidated financial
statements














RODOBO
INTERNATIONAL, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


YEARS
ENDED SEPTEMBER 30, 2009 AND 2008




Convertible
      Preferred Stock
              
              
              Common
      Stock
              
              
              Common
      Stock
                To
      Be
              
              
              Additional
      Paid in
              
              
              Additional
      Paid in Capital -
              
              
              Subscription
              
              
              Retained
              
              
              Accumulated
      Other
                ComprehensiveShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Issued
              
              
              Capital
              
              
              Warrants
              
              
              Receivable
              
              
              Earnings
              
              
              Income
              
              TotalBalance
      at
                September
      30, 2007
              
              
              12,976,316
              
              
              $
              1,298
              
              
              
              973,685
              
              
              $
              97
              
              
              $
              -
              
              
              $
              465,433
              
              
              $
              -
              
              
              $
              (50,000
              )
              
              $
              3,065,667
              
              
              $
              163,658
              
              $
              3,646,153Acquisition
      of net assets Navstar
              
              
              -
              
              
              
              -
              
              
              
              461,883
              
              
              
              46
              
              
              
              61
              
              
              
              (107
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              -Originalcapitalcontributed
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,450,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              1,450,000Issuance
      ofwarrants
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (971,788
              )
              
              
              971,788
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              -Capitalraised
      in
                connectionwithreversemerger
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,000,000
              
              
              
              -
              
              
              
              (3,000,000
              )
              
              
              -
              
              
              
              -
              
              
              -Net
      income for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,328,600
              
              
              
              -
              
              
              5,328,600Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              723,826
              
              
              723,826Balance
      at
                September
      30, 2008 (Restated)
              
              
              12,976,316
              
              
              $
              1,298
              
              
              
              1,435,568
              
              
              $
              143
              
              
              $
              61
              
              
              $
              3,943,538
              
              
              $
              971,788
              
              
              $
              (3,050,000
              )
              
              $
              8,394,267
              
              
              $
              887,484
              
              $
              11,148,579Capital
      received in connection with reverse merger
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,000,000
              
              
              
              -
              
              
              
              -
              
              
              3,000,000Conversion
      of convertible preferred stock
              
              
              (12,976,316
              )
              
              
              (1,298
              )
              
              
              12,976,316
              
              
              
              1,298
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              -Issuance
      of common stock
              
              
              -
              
              
              
              -
              
              
              
              604,833
              
              
              
              61
              
              
              
              (61
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              -Issuance
      of common stock
              
              
              -
              
              
              
              -
              
              
              
              180,000
              
              
              
              18
              
              
              
              -
              
              
              
              129,982
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              130,000Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              1,020,000
              
              
              
              102
              
              
              
              -
              
              
              
              281,565
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              281,667Additional
      paid in capital
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              -Net
      income for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,795,593
              
              
              
              -
              
              
              6,795,593Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (42,274
              )
              
              (42,274
              )Balance
      at
                September
      30, 2009
              
              
              -
              
              
              $
              -
              
              
              
              16,216,717
              
              
              $
              1,622
              
              
              $
              -
              
              
              $
              4,355,085
              
              
              $
              971,788
              
              
              $
              (50,000
              )
              
              $
              15,189,860
              
              
              $
              845,210
              
              $
              21,313,565


The
accompanying notes are an integral part of these consolidated financial
statements









RODOBO
INTERNATIONAL, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED SEPTEMBER 30, 2009 AND 2008





Years
      Ended September 30,2009
            
            
            2008(Restated)Cash
      flows from operating activitiesNet
      income
            
            $
            6,795,593
            
            
            $
            5,328,600Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
      and amortization
            
            
            430,620
            
            
            
            84,376Allowance
      for doubtful accounts
            
            
            (66,488
            )
            
            
            -Stock-based
      compensation
            
            
            281,667
            
            
            
            -Changes
      in assets and liabilities:(Increase)
      decrease in -Accounts
      receivable, advance to employees and other receivables
            
            
            (470,664
            )
            
            
            (38,382
            )Inventories
            
            
            (589,470
            )
            
            
            564,101Prepaid
      expenses
            
            
            7,321
            
            
            
            125,194Advances
      to suppliers
            
            
            -
            
            
            
            145,723Increase
      (decrease) in -Accounts
      payable and other payable
            
            
            (879,211
            )
            
            
            467,785Accrued
      expenses
            
            
            (743,651
            )
            
            
            (522,406
            )Advance
      from customers
            
            
            (1,154,657
            )
            
            
            1,009,968Net
      cash provided by operating activities
            
            
            3,611,060
            
            
            
            7,164,959Cash
      flows from investing activitiesPurchase
      of fixed assets
            
            
            (30,360
            )
            
            
            (344,165
            )Cash
      used for construction in progress
            
            
            -
            
            
            
            (84,324
            )Purchase
      of biological assets
            
            
            (2,562,291
            )
            
            
            -Investment
      advances
            
            
            -
            
            
            
            3,466,043Deposits
      on biological assets
            
            
            (987,686
            )
            
            
            -Deposits
      on land and equipment
            
            
            (2,633,828
            )
            
            
            (10,402,414
            )Purchase
      of intangible assets
            
            
            (585,295
            )
            
            
            (281,792
            )Net
      cash used in investing activities
            
            
            (6,799,459
            )
            
            
            (7,646,652
            )Cash
      flows from financing activitiesProceeds
      from subscription receivable
            
            
            3,000,000
            
            
            
            -Proceeds
      from capital contribution
            
            
            -
            
            
            
            1,450,000Proceeds
      from related party loan
            
            
            1,185,223
            
            
            
            -Repayment
      to related party loan
            
            
            (13,225
            )
            
            
            (372,818
            )Net
      cash provided by financing activities
            
            
            4,171,998
            
            
            
            1,077,182Effect
      of exchange rate changes on cash and cash equivalents
            
            
            (2,370
            )
            
            
            30,239Net
      increase in cash and cash equivalents
            
            
            981,229
            
            
            
            625,728Cash
      and cash equivalents, beginning of year
            
            
            659,030
            
            
            
            33,302Cash
      and cash equivalents, end of year
            
            $
            1,640,259
            
            
            $
            659,030Supplemental
      disclosures of cash flow information:Interest
      paid
            
            $
            4,882
            
            
            $
            12,993Income
      taxes paid
            
            $
            -
            
            
            $
            -Non-cash
      investing and financing activities:Common stock to be issued to settle liability
            
            $
            -
            
            
            $
            130,000Common stock issued for stock-based compensation
            
            $
            3,315,000
            
            
            $
            -Transfer
      deposit on land to intangible asset
            
            $
            3,486,955
            
            
            $
            -




The
accompanying notes are an integral part of these consolidated financial
statements















RODOBO
INTERNATIONAL, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008 (RESTATED)





1.
            ORGANIZATION
      AND BASIS OF PRESENTATION





Rodobo
International, Inc. (the “Company”), through its subsidiaries, Mega Profit
Limited (“Cayman Mega”),
a corporation formed under the laws of the Cayman Islands, Harbin Mega Profit
Management Consulting Co., Ltd. (“Harbin Mega”), a wholly
foreign-owned entity incorporated under the laws of the People’s Republic of
China (“PRC” or “China”), and  Harbin
Rodobo Dairy Co., Ltd. (“Harbin
Rodobo”), a corporation established on January 4, 2002 also under the
laws of the PRC, is engaged in the production, processing, distribution and
development of powdered milk products in the PRC for infants, children,
middle-aged and the elderly under the brand names of “Rodobo”, “Healthy Elderly”
and “Peer”.





On April 1,
2008, another separate entity, Qinggang Mega Profit Agriculture Co., Ltd.
(“Qinggang Mega”), was
incorporated under the laws of the PRC, for the purpose of starting a dairy farm
to secure reliable fresh milk supply in the wake of the powdered-milk
contamination scandal in China.  Qinggang Mega is owned by two of the
principal shareholders of the Company but controlled by Harbin Mega through a
series of contractual arrangements. In addition, Qinggang Mega’s shareholders
have pledged their equity interests in Qinggang Mega to Harbin Mega, irrevocably
granted Harbin Mega an exclusive option to purchase, to the extent permitted
under PRC law, all or part of the equity interests in Qinggang Mega and agreed
to entrust all the rights to exercise their voting power to the person(s)
appointed by Harbin Mega. Through these contractual arrangements, Harbin Mega
has the ability to substantially influence Qinggang Mega’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 obligate Harbin Mega to absorb a majority of the risk of loss from
Qinggang Mega’s activities and enable Harbin Mega to receive a majority of its
expected residual returns, Harbin Mega accounts for Qinggang Mega as a Variable
Interest Entity (“VIE”) under ASC 810 “Consolidation”. Accordingly, Harbin Mega
consolidates Qinggang Mega’s results, assets and liabilities.




The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America.





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





PRINCIPLES OF
CONSOLIDATION -The accompanying consolidated financial statements
include the financial statements of the Company, its wholly-owned subsidiaries,
Cayman Mega, Harbin Mega and Harbin Rodobo and the VIE, Qinggang Mega. 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.





RISKS OF
LOSSES- The Company is potentially exposed to risks of losses that may
result from business interruptions, injury to others (including employees) and
damage to property.  These losses may be uninsured, especially due to the
fact that the Company's operations are in China, where business insurance is not
readily available.  If: (i) information is available before the Company's
financial statements are issued or are available to be issued indicates that
such loss is probable and (ii) the amount of the loss can be reasonably
estimated, an estimated loss will be accrued by a charge to income.  If
such loss is probable but the amount of loss cannot be reasonably estimated, the
loss shall be charged to the income of the period in which the loss can be
reasonably estimated and shall not be charged retroactively to an earlier
period.  As of September 30, 2009 and 2008, the Company has not experienced
any uninsured losses from injury to others or other losses.







F-8





SUBSEQUENT EVENTS -The Company has evaluated subsequent events that have occurred through
the filing date and has determined there were no material events since the
balance sheet date of this report.





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  weighted average 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.  Management compares the cost of inventory with market value and
an allowance is made for writing down the inventory to its market value, if
lower.  Management writes off obsolete inventory when it
occurs.





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
      yearsMachinery, equipment
      and automobiles
              5
    years
 
 Construction in
progress represents the direct costs of construction or acquisition incurred.
Upon completion and readiness for use of the assets, capitalization of these
costs ceases and the cost of construction in progress is transferred to fixed
assets. No depreciation is provided until the project is completed and the
assets are ready for intended use.





IMPAIRMENT OF LONG-LIVE ASSETS - The
Company periodically reviews the carrying value of long-lived assets in
accordance with ASC 360, “Property, Plant, and Equipment”. When estimated future
cash flows generated by those assets are less than the carrying amounts of the
assets, the Company recognizes an impairment loss equal to the amount by which
the carrying value exceeds the fair value of assets. Based on its review, the
Company believes that there were no impairments of its long-lived assets as of
September 30, 2009.





BIOLOGICAL
ASSETS





Immature biological
assets –Biological assets consist of dairy cows held in the Company’s
pastures for milking purposes. Immature biological assets are recorded at cost,
including acquisition costs and feeding costs, incurred in bringing the asset to
its intended productive state. Once the asset reaches productive state, the cost
of the immature biological asset is transferred to mature biological assets
using the weighted average cost method.











Mature biological
assets –Mature biological assets are recorded at cost. When biological
assets 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 live of the mature biological assets of 7
years using the straight-line method. The estimated residual value of biological
assets is 25%. Feeding and management costs incurred on mature biological assets
are included as costs of goods sold on the consolidated statements of income and
other comprehensive income.





The Company
reviews the carrying value of biological assets for impairment whenever events
and circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows
are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current health
status of the asset and production capacity. There were no impairments recorded
in the years ended September 30, 2009 and 2008.





REVENUE RECOGNITION -The Company’s revenue recognition policies are in compliance with Staff
Accounting Bulletin 104. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectability is reasonably assured. The Company does not provide customers
with rights to return merchandise.





The Company’s
products are sold primarily through two sources: formulated powdered milk
products are sold through distributors throughout China, and bulk powdered milk
products are sold directly to other packaging plants. Generally, formulated
powdered milk products are delivered upon receipt of payments from distributors
and revenue is recognized upon delivery of products. For some distributors with
a good credit history, the Company also provide credit sales with a 90-day term.
For bulk powdered milk products, all deliveries are made upon receipt of
payments from end users and revenue is recognized upon delivery of
products.





ADVANCE FROM
CUSTOMERS -Revenue from the sale of goods 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 $494,148 and $198,568 for the years ended September
30, 2009 and 2008, respectively.





STOCK-BASED
COMPENSATION –The Company adopted the fair value recognition provisions
of ASC 718, “Compensation-Stock Compensation” (“ASC 718”). Under the fair value
recognition provisions of ASC 718, the Company is required to measure the cost
of employee services received in exchange for share-based compensation measured
at the grant date fair value of the award.





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 ASC
260, “Earnings per Share” (“ASC 260”). ASC 260 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.









FOREIGN CURRENCY
TRANSLATION -The Company’s principal country of operations is 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 September 30, 2009 and
2008, the exchange rate was 6.83 and 6.79 RMB per US Dollar,
respectively.





FAIR VALUE OF
FINANCIAL INSTRUMENTS -The carrying amounts of certain financial
instruments, including cash, accounts receivable, other receivables, accounts
payable, accrued expenses, advances from customers, and other payables
approximate their fair values as of September 30, 2009 and 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 PRC which are not protected by FDIC insurance or other
insurance.





The Company’s
operations are carried out in the PRC. Accordingly, the Company’s business,
financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC and the general state of
the PRC’s economy.





The Company’s
operations in the PRC are subject to specific considerations and significant
risks not typically associated with companies in the North America and Western
Europe. The Company’s operating results may be adversely affected by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.





NEW ACCOUNTING
PRONOUNCEMENTS –In June 2009, the FASB issued ASC
105,  “The FASB Accounting Standards Codification TM and the Hierarchy
of Generally Accepted Accounting Principles – a replacement of FASB Statement
No. 162”. The FASB Accounting Standards Codification TM (“Codification”)
will become the source of authoritative U.S. generally accepted accounting
principles (“GAAP”) recognized by FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On
the effective date of ASC 105, the Codification will supersede all then-existing
non-SEC accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative.





ASC 105 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. Adoption of ASC 105 did not have a material
impact on the Company’s results of operations or financial
position.









In
June 2009, the FASB issued ASC 810, “Amendments to FASB Interpretation
No. 46(R)” to improve financial reporting by enterprises involved with
variable interest entities. ASC 810 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
“Consolidation of Variable Interest Entities”, as a result of the elimination of
the qualifying special-purpose entity concept in SFAS No. 166 and
(2) concerns about the application of certain key provisions of FIN 46(R),
including those in which the accounting and disclosures under the Interpretation
do not always provide timely and useful information about an enterprise’s
involvement in a variable interest entity. ASC 810 will be effective as of the
beginning of each reporting entity’s first Annual Reporting period that begins
after November 15, 2009, for interim periods within the first Annual
Reporting period, and for interim and Annual Reporting periods thereafter.
Earlier application is prohibited. The Company does  not expect the
adoption of ASC 810 to have a material impact on the Company’s results of
operations or financial position.





In
May 2009, the FASB issued ASC 855, “Subsequent Events”, (“ASC 855”) which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. An entity should apply the requirements of ASC 855
to interim or annual financial periods ending after June 15, 2009. Adoption
of ASC 855 did not have a material impact on the Company’s results of operations
or financial position.





On October
10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active,” which clarifies the
application of ASC 820 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. FSP 157-3 became
effective on October 10, 2008, and its adoption did not have a material impact
on the Company’s financial position or results of operations.





3.
            ACCOUNTS
      RECEIVABLE





The Company’s
accounts receivable as of September 30, 2009 and 2008 are summarized as
follows:





September 30, 2009
            
            
            September 30, 2008Accounts
      receivable
            
            $
            2,015,044
            
            
            $
            1,210,249Less:
      Allowance for doubtful accounts
            
            
            -
            
            
            
            66,921Total
      net accounts receivable
            
            $
            2,015,044
            
            
            $
            1,143,328





The activity
in the allowance for doubtful accounts as of September 30, 2009 and 2008 is
summarized as follows:




September
      30, 2009
            
            
            September
      30, 2008Beginning
      balance
            
            $
            66,921
            
            
            $
            60,643Change
      during the period
            
            
            (66,921
            )
            
            
            6,278Ending
      balance
            
            $
            -
            
            
            $
            66,921













4.
            INVENTORIES


Inventories
consist of the following as of September 30, 2009 and 2008:




September 30, 2009
            
            
            September 30, 2008Raw
      materials
            
            $
            196,504
            
            
            $
            302,741Work-in-progress
            
            
            1,272,575
            
            
            
            512,806Finished
      goods
            
            
            48,863
            
            
            
            53,144Packing
      materials
            
            
            58,780
            
            
            
            122,844Total
      inventories
            
            $
            1,576,723
            
            
            $
            991,536





The increase
in work-in-progress as of September 30, 2009 compared to September 30, 2008 is
primarily due to the increase in work-in-progress of bulk powdered milk and the
new brand “Peer” formula which the Company launched in July 2009.





5.
            FIXED
      ASSETS





Fixed assets
consist of the following as of September 30, 2009 and 2008:





September 30, 2009
            
            
            September 30, 2008Building
      improvement
            
            $
            507,803
            
            
            $
            411,901Plant
      and machinery
            
            
            599,270
            
            
            
            522,494Motor
      vehicles
            
            
            21,104
            
            
            
            21,217Computers
      and equipment
            
            
            12,119
            
            
            
            9,0031,140,296
            
            
            
            967,615Less:
      accumulated depreciation
            
            
            (401,759
            )
            
            
            (155,536
            )Total
      fixed assets, net
            
            
            738,537
            
            
            
            812,079Construction
      in progress
            
            
            -
            
            
            
            148,240$
            738,537
            
            
            $
            960,319




Depreciation
expense was $246,769 and $66,764 for the years ended September 30, 2009 and
2008, respectively.


6.
            BIOLOGICAL
      ASSETS





Biological
assets consist of the following as of September 30, 2009 and 2008:





September 30, 2009
            
            
            September 30, 2008Mature
      biological assets
            
            $
            1,826,018
            
            
            $
            -Immature
      biological assets
            
            
            739,211
            
            
            
            -2,565,229
            
            
            
            -Less:
      accumulated depreciation
            
            
            (65,604
            )
            
            
            -Total
      biological assets, net
            
            $
            2,499,625
            
            
            $
            -





Depreciation
expense was $65,529 for the year ended September 30, 2009.














7.
            DEPOSITS
      ON BIOLOGICAL ASSETS





As of
September 30, 2009, Qinggang Mega made a total down payment of RMB 6,750,000
(approximately US$988,818) to purchase additional dairy cows. The Company
expects to receive these dairy cows in January 2010.





8.
            DEPOSITS
      ON LAND AND EQUIPMENT





As of
September 30, 2009, Qinggang Mega made a total down payment of RMB 61,000,000
(approximately US$8,935,988) to acquire land, buildings and equipment from
various parties. The remaining contract amount totals RMB 82,635,885
(approximately US$12,105,463). As of September 30, 2009, Harbin Rodobo also made
down payment of $1,025,441 to purchase certain equipment. As of September 30,
2009, the equipment has not been received, the site construction has not been
completed and part of land has not been put into use. We expect to receive the
government certification related to the land in late 2010.





9.
            INTANGIBLE
      ASSETS





On July 1,
2008,  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 $721,461) to be paid to CNS. The Company has the
exclusive right to use the formula for 10 years starting July 1, 2008. As of
September 30, 2009, the Company has made a first installment payment of RMB
3,000,000 (approximately $439,477) to CNS. The remaining payment will be due on
demand. Intangible assets are amortized on a straight line basis over 10 years.
Amortization expense was $73,162 and $18,410 for the year ended September 30,
2009 and 2008, respectively.





On October
30, 2008, The Company entered into a “Purchase Agreement” with Heilongjiang Shi
Jie Research and Development Service Ltd. Co. (“Shi Jie”) to obtain powdered
milk product formulas specifically developed for infants and children with a
total fee of RMB 3,000,000 (approximately $439,477). As of September 30, 2009,
the Company has made the full payment. The Company started to use the formulas
for its “Peer” product line in July 2009. The amount is amortized on a straight
line basis over 10 years starting July 1, 2009. Amortization expense was $10,974
for the year ended September 30, 2009.





All land in
the People’s Republic of China is government owned and cannot be sold to any
individual or company. However, the government grants the user a “land use
right” (the Right) to use the land and the power line underneath. Qinggang Mega
entered into a land use right agreement on June 20, 2008 with Qinggang County
Zhonghe Township Wupailiu Village Committee, which sets forth the right to use a
2,400 acre grassland until December 31, 2034. Under the agreement, the total
fees amounted to RMB 21.8 million (approximately US$3.2 million). Qinggang Mega
was also obligated to pay a one-time relocation compensation in the amount of
RMB 2.0 million (approximately US$0.3 million) to the residents who lived on the
grassland. The grassland was put into use starting July 1, 2009. The land use
right and related relocation compensation costs are amortized on a straight line
basis over 25.5 years from July 1, 2009 to December 31, 2034. Amortization
expense was $34,186 for the year ended September 30, 2009.


Based upon
current assumptions, the Company expects that its intangible assets will be
amortized over the next five years according to the following
schedule:
 
 As
      of September 30,2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              Thereafter
              
              
              TotalLand
      use right
              
              $
              136,743
              
              
              $
              136,743
              
              
              $
              136,743
              
              
              $
              136,743
              
              
              $
              136,743
              
              
              $
              2,773,012
              
              
              $
              3,456,728Formula
      technology
              
              
              117,059
              
              
              
              117,059
              
              
              
              117,059
              
              
              
              117,059
              
              
              
              117,059
              
              
              
              484,093
              
              
              
              1,069,389Total
              
              $
              253,802
              
              
              $
              253,802
              
              
              $
              253,802
              
              
              $
              253,802
              
              
              $
              253,802
              
              
              $
              3,257,105
              
              
              $
              4,526,117


10.
            RELATED
      PARTY TRANSACTIONS





Qinggang Mega
operates the Company’s own dairy farm and sells milk to Harbin Rodobo (refer to
note 18 “Segment Information”).












Qinggang Mega
is directly owned by Mr. Yanbin Wang, the Company’s Chairman, Chief Executive
Officer and a major shareholder, and Mr. Xuelong Wang, another principal
shareholder of the Company. The capital investment in Qinggang Mega was funded
by the Company through the Company’s shareholders and is recorded as
interest-free loans to the above related parties. As of September 30, 2009, the
total amount of interest-free loans to the shareholders of the Qinggang Mega was
RMB $8.1 million (approximately US$1.2 million).These loans are eliminated
for accounting purposes with the capital of Qinggang Mega, which is treated as a
VIE, during consolidation. The shareholders of Qinggang Mega have pledged their
shares in Qinggang Mega as collateral for non-payment of loans or for fees on
consulting services due to the Company.





During the
normal course of the business, the Company, from time to time, temporarily
borrows money from its principal shareholders or officers to finance the working
capital as needed. The amounts are usually unsecured, non-interest bearing
and due on demand. The Company had shareholder loans in the amount of $1,185,062
and $18,079 as of September 30, 2009 and September 30, 2008, respectively. The
$1,185,062 loans as of September 30, 2009 are expected to be paid by September
30, 2010.








11.
            STOCKHOLDER’S
      EQUITY





During the
year ended September 30, 2009, the Company had the following equity
transactions:




On April 2,
2009, the Company increased its 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 shares to 230,000,000
authorized capital, consisting of 200,000,000 shares of common stock par value
$0.0001per share, and 30,000,000 shares of preferred stock, par value $0.0001
per share.. As a result, the 12,976,316 shares of convertible preferred stock
were converted to common stock on May 12, 2009. On May 12, 2009, the Company
issued 604,833 shares of its common stock to certain former note holders of the
shell company and 180,000 shares of its common stock to predecessor auditors in
connection with the settlement of fees based on the agreements reached prior to
the Merger. On August 8, 2009, the Company issued 1,020,000 shares of its common
stock to employees and a consultant of the Company in consideration for services
to be rendered starting from July 1, 2009 (as described in Note 12 hereto). As
of September 30, 2009, there were 16,216,717 shares of common stock issued and
outstanding.




12.
            STOCK-BASED
      COMPENSATION





On August 8,
2009, the Company granted 1,020,000 restricted shares of its common stock to
employees and a consultant of the Company in consideration for services to be
rendered starting from July 1, 2009. The restricted shares granted to employees
are to be vested once a year over a period of three or two years. The fair value
of the awards is measured based on the grant date stock price at $3.25 per
share. The amortization of share-based compensation expense was $281,667 for the
year ended September 30, 2009.





A summary of
the status of the Company’s unearned stock compensation as of September 30, 2009
and changes for the year ended September 30, 2009 is presented
below:




Unearned
      stock compensation as of October 1, 2008
            
            $
            -Unearned
      stock compensation granted
            
            
            3,315,000Compensation
      expenses debited to statement of operations with a credit to
      additional paid-in capital
            
            
            (281,667
            )Unearned
      stock compensation as of September 30, 2009
            
            $
            3,033,333















13.
            WARRANTS





On September
30, 2008, prior to and in conjunction with the Merger, Mega Profit Limited
(“Cayman Mega”) entered into a Securities Purchase Agreement with an
institutional investor for $3,000,000. As a result, upon the completion of the
Merger, the institutional investor, together with other owners of Cayman Mega,
received preferred stock convertible into common stock upon the increase of the
authorized share capital of the Company. In addition, Cayman Mega also issued to
the institutional investor warrants to purchase 818,182 shares of the common
stock of Cayman Mega at an exercise price of $1.50 per share and warrants to
purchase 545,455 shares of the common stock of Cayman Mega 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 ASC 815, “Derivatives
and Hedging” 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 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% (no dividend yield) and expected term of four years. The
fair value of those warrants at the grant date was calculated at
$971,788.





The following
is a summary of the status of warrants activities as of September 30,
2009:


Warrants
              
              
              Weighted
      Average
              
              
              Average
      Remaining
              
              
              Aggregate
      IntrinsicOutstanding
              
              
              Exercise
      Price
              
              
              Life
      in years
              
              
              ValueOutstanding,
      September 30, 2008
              
              
              1,363,637
              
              
              $
              1.60
              
              
              
              4.00
              
              
              $
              -Granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Outstanding, September
      30, 2009
              
              
              1,363,637
              
              
              $
              1.60
              
              
              
              3
              
              
              $
              2,181,819






14.
            EARNINGS
      PER SHARE





The Company
has outstanding warrants to acquire 1,363,637 shares of common stock. These
warrants are included in diluted weighted average shares
calculation.





In September
2008, the Company entered into a reverse merger transaction with Cayman Mega
(the “Merger”). The Company computes the weighted-average number of common
shares outstanding in accordance with ASC 805. ASC 805 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 (the 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 will be the actual number of
common shares of the legal acquirer (the accounting acquiree) outstanding during
that period.












The following
table sets forth earnings per share calculation:





For
      the Years Ended September 30,2009
            
            
            2008
              (restated)Basic
      earnings per shareNet
      Income
            
            $
            6,795,593
            
            
            $
            5,328,600Weighted
      average number of  common shares
    outstanding-Basic
            
            
            6,708,121
            
            
            
            1,435,568Earnings
      per share-Basic
            
            $
            1.01
            
            
            $
            3.71Diluted
      earnings per shareNet
      Income
            
            $
            6,795,593
            
            
            $
            5,328,600Weighted
      average number of common shares outstanding-Basic
            
            
            6,708,121
            
            
            
            1,435,568Effect
      of dilutive convertible preferred stock
            
            
            7,963,547
            
            
            
            12,976,316Effect
      of dilutive warrants
            
            
            681,818
            
            
            
            -Effect
      of dilutive common stock to be issued
            
            
            525,048
            
            
            
            784,833Effect
      of dilutive securities - unvested shares
            
            
            148,110
            
            
            
            -Weighted
      average number of common shares outstanding-Diluted
            
            
            16,026,645
            
            
            
            15,196,717Earnings
      per share-Diluted
            
            $
            0.42
            
            
            $
            0.35





As of
September 30, 2009, the Company had unvested stock awards of 1,020,000 shares.
The Company had no unvested stock awards as of September 30, 2008. All unvested
stock awards were included in the diluted earnings per share
calculation.





15.
            TAXATION





The Company
utilizes ASC 740, “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 financial 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.





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 on December 31, 2009. Qinggang Mega is qualified for tax exemptions due
to a government tax preferential policy for agriculture industry. The estimated
tax savings amounted to $1,698,898 and $1,379,856 for the years ended September
30, 2009 and 2008, respectively. The net effect on basic earnings per share had
the income tax been applied would decrease earnings per share from $1.01 to
$0.76 for the year ended September 30, 2009 and $3.71 to $2.75 for the year
ended September 30, 2008.













16.
            MAJOR
      CUSTOMERS





The
following table presents sales from major customers with individual sales over
10% of total net revenue for the years ended September 30, 2009 and
2008:




Years
      Ended September 30,2009
              
              
              2008Sales
              
              
              %
      of sales
              
              
              Accountsreceivable
              
              
              %
      of
                  accountsreceivable
              
              
              Sales
              
              
              %
      of sales
              
              
              Accountsreceivable
              
              
              %
      of accountsreceivableChengdu
      Luoling
              
              $
              7,735,503
              
              
              
              22%
              
              
              $
              939,652
              
              
              
              47%
              
              
              $
              5,289,986
              
              
              
              24%
              
              
              $
              -
              
              
              
              0%Harbin
      Huijiabei
              
              
              494,574
              
              
              
              1%
              
              
              
              -
              
              
              
              0%
              
              
              
              2,934,149
              
              
              
              13%
              
              
              
              103,406
              
              
              
              9%Jiangxi
      Meilu
              
              
              -
              
              
              
              0%
              
              
              
              -
              
              
              
              0%
              
              
              
              2,464,044
              
              
              
              11%
              
              
              
              455,160
              
              
              
              40%Total
              
              $
              8,230,077
              
              
              
              23%
              
              
              $
              939,652
              
              
              
              47%
              
              
              $
              10,688,179
              
              
              
              48%
              
              
              $
              558,566
              
              
              
              49%





At September
30, 2009, the total receivable balance due from these customers was $939,652. At
September 30, 2008, the total receivable balance due from these customers was
$455,161.





17.
            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$146,492) 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$87,895), payable in two installments each year. Under the amended agreement,
the Company is also required to make a minimum annual payment of RMB 400,000
(approximately US$58,597) for improvements or betterment to the leased facility
when the new lease term becomes effective.





As of
September 30, 2009, Qinggang Mega made a total down payment of RMB 61,000,000
(approximately US$8,935,988) to acquire land, buildings and equipment from
various parties. The remaining contract amount totals RMB 82,635,885
(approximately US$12,105,463).





18.
            SEGMENT
      INFORMATION





The Company
follows the provisions of ASC 280, “Disclosures about Segments of an Enterprise
and Related Information”, which establishes standards for reporting information
about operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and assess performance. The Company’s chief operating
decision maker has been identified as the Chief Executive Officer.





Although
historically the Company operated and managed its business as a single
reportable segment, with the initial operations of the dairy farm in July 2009,
it has two reportable segments in fiscal year 2009: dairy products and dairy
farm. The dairy products segment produces and sells dairy products, including
powered milk products for infants, children, middle-aged and the elderly. The
dairy products segment includes the operation of Harbin Rodobo. The dairy farm
segment operates the Company’s own dairy farm through the operation of Qinggang
Mega and provides milk to its dairy products segment. As the Company primarily
generates its revenues from customers in the PRC, no geographical segments are
presented.












The
measurement of segment income is determined as earnings before income taxes. The
measurement of segment assets is based on the total assets of the segment,
including intercompany advances among the PRC entities. Segment income and
segment assets are reported to the Company’s chief operating decision maker
(“CODM”) using the same accounting policies as those used in the preparation of
these consolidated financial statements. From July to September 2009, there have
been sales transactions between the two operating segments in addition to
intersegment advances.





The segment
information for the reportable segments for the year ended September 30, 2009 is
as follows:




Dairy
                
                
                Dairy
                
                
                
                
                
                Segment
                
                
                Inter-segment
                
                
                ConsolidatedProducts
                
                
                Farm
                
                
                Corporate
                
                
                Total
                
                
                Elimination
                
                
                TotalUS$
                
                
                US$
                
                
                US$
                
                
                
                
                
                US$
                
                
                US$Net
      sales
                
                
                34,690,987
                
                
                
                1,226,904
                
                
                
                -
                
                
                
                35,917,891
                
                
                
                (1,226,904
                )
                
                
                34,690,987Interest
      (expenses) income
                
                
                (2,677
                )
                
                
                2,679
                
                
                
                234
                
                
                
                236
                
                
                
                -
                
                
                
                236Depreciation
      and amortization
                
                
                430,620
                
                
                
                -
                
                
                
                -
                
                
                
                430,620
                
                
                
                -
                
                
                
                430,620Segment
      net income (loss) before tax
                
                
                7,090,774
                
                
                
                688,671
                
                
                
                (693,743
                )
                
                
                7,085,702
                
                
                
                (290,109
                )
                
                
                6,795,593Segment
      assets
                
                
                22,228,403
                
                
                
                16,035,265
                
                
                
                6,023,486
                
                
                
                44,287,154
                
                
                
                (20,315,960
                )
                
                
                23,971,194
 
 The segment
information for the reportable segments for the year ended September 30, 2008 is
as follows:


Dairy
              
              
              Dairy
              
              
              
              
              
              Segment
              
              
              Inter-segment
              
              
              ConsolidatedProducts
              
              
              Farm
              
              
              Corporate
              
              
              Total
              
              
              Elimination
              
              
              TotalUS$
              
              
              US$
              
              
              US$
              
              
              
              
              
              US$
              
              
              US$Net
      sales
              
              
              22,141,967
              
              
              
              -
              
              
              
              -
              
              
              
              22,141,967
              
              
              
              -
              
              
              
              22,141,967Interest
      income (expenses)
              
              
              7,122
              
              
              
              4,404
              
              
              
              (1,099
              )
              
              
              10,427
              
              
              
              -
              
              
              
              10,427Depreciation
      and amortization
              
              
              84,376
              
              
              
              -
              
              
              
              -
              
              
              
              84,376
              
              
              
              -
              
              
              
              84,376Segment
      net income (loss) before tax
              
              
              5,594,309
              
              
              
              3,150
              
              
              
              (268,859
              )
              
              
              5,328,600
              
              
              
              -
              
              
              
              5,328,600Segment
      assets
              
              
              15,710,517
              
              
              
              9,887,092
              
              
              
              3,065,815
              
              
              
              28,663,424
              
              
              
              (12,943,655
              )
              
              
              15,719,769


A
reconciliation of reportable segment net sales, net income before tax and assets
to the consolidated total is as follows:


2009
              
              
              2008US$
              
              
              US$Net salesTotal
      net sales for reportable segments
              
              
              35,917,891
              
              
              
              22,141,967Elimination
      of intersegment sales
              
              
              (1,226,904
              )
              
              
              -Consolidated
      net sales
              
              
              34,690,987
              
              
              
              22,141,9672009
              
              
              2008US$
              
              
              US$Net income before taxTotal
      net income before tax for reportable segments
              
              
              7,085,702
              
              
              
              5,328,600Elimination
      of unrealized profit
              
              
              (290,109
              )
              
              
              -Consolidated
      net income before tax
              
              
              6,795,593
              
              
              
              5,328,6002009
              
              
              2008US$
              
              
              US$AssetsTotal
      assets for reportable segments
              
              
              44,287,154
              
              
              
              28,663,424Elimination
      of intercompany receivables
              
              
              (20,025,851
              )
              
              
              (12,929,214
              )Eliminaiton
      of intercompany investment advances
              
              
              -
              
              
              
              (14,441
              )Elimination
      of unrealized profit in inventories
              
              
              (290,109
              )
              
              
              -Consolidated
      total assets
              
              
              23,971,194
              
              
              
              15,719,769







19.
            RESTATEMENT





Pursuant to
the merger agreement signed on September 30, 2008, the Company was to issue
604,833 shares of its common stock to certain former note holders of the shell
company. Since the Company did not have sufficient authorized common stock
shares to issue the aforementioned shares as of September 30, 2008, those shares
should have been reported as common stock to be issued, separately from
Additional paid in capital as of September 30, 2008. Thus, the Company
reclassified $61 to a separate account Common stock to be issued under equity
section.





In addition
to the merger agreement, the Company also reached an agreement to issue 180,000
shares of its common stock associated with a settlement of fees owed to the
predecessor auditors. Alternatively, the Company could also settle the fees in
cash in the amount of $130,000. The Company chose to settle by shares. Since the
Company did not have sufficient authorized common stock shares to issue the
aforementioned shares as of September 30, 2008, the cost of those shares should
have been reported as accrued expenses as of September 30, 2008. Thus, the
Company’s general and administrative expenses increased by $130,000 for the year
ended September 30, 2008.





Upon further
review, the Company includes the 12,976,316 shares of convertible preferred
stock in the computation of diluted earnings per share for the year ended
September 30, 2008.





The Company
restated its 2008 financial statements accordingly and the impact of this
restatement on the financial statements as originally reported is summarized
below:





September
      30, 2008
            
            
            September
      30, 2008As
      Reported
            
            
            As
      RestatedOn
      balance sheetAccrued
      expenses
            
            $
            924,580
            
            
            $
            1,054,580Convertible
      preferred stock
            
            
            12,976
            
            
            
            1,298Common
      stock
            
            
            1,436
            
            
            
            143Common
      stock to be issued
            
            
            -
            
            
            
            61Additional
      paid in capital
            
            
            3,930,628
            
            
            
            3,943,538Retained
      earnings
            
            
            8,524,267
            
            
            
            8,394,267On
      income statementGeneral
      and administrative expenses
            
            
            782,391
            
            
            
            912,391Net
      income
            
            $
            5,458,600
            
            
            $
            5,328,600Earnings
      per shareBasic
            
            $
            3.80
            
            
            $
            3.71Diluted
            
            $
            3.80
            
            
            $
            0.35Weighted
      average shares outstandingBasic
            
            
            1,435,568
            
            
            
            1,435,568Diluted
            
            
            1,435,568
            
            
            
            15,196,717On
      statement of cash flowsNet
      income
            
            $
            5,458,600
            
            
            $
            5,328,600(Decrease)
      in accrued expenses
            
            
            (652,406
            )
            
            
            (522,406
            )
















SIGNATURES





Pursuant to
the requirements of Section 13 or 15(d) 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.





Dated:
January 13, 2010




/s/
      Yanbin WangYanbin
      WangChief
      Executive Officer and Chairman








Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.









Signature
              
              Title
              
              Date/s/
      Yanbin
      Wang
              
              Chief
      Executive Officerand
      Chairman
              
              January
      13, 2010Yanbin
      Wang/s/
      Xiuzhen
      Qiao
              
              Chief
      Financial Officer,  Corporate Secretary,and
      Director
              
              January
      13, 2010Xiuzhen
      Qiao/s/
      James
      Hu
              
              Director
              
              January
      13, 2010James
      Hu/s/
      Jie Li
              
              Director
              
              January
      13, 2010Jie
      Li/s/
      Zhiqiang
      E
              
              Director
              
              January
      13, 2010Zhiqiang
      E