Rodobo International today announced that it has adjusted its third quarter 2011 guidance previously announced on May 16, 2011 by reducing the sales revenue from the range of $23 - $26 million to the range of $12 - $14 million, and net income from the range of $3.5 - $3.8 to net loss in the range of $2 - $4 million, due to a delay of the online publicity of the new production license which the Company received in March, 2011.
While most of our products have an average shelf life of 18 to 24 months, we find that consumers are reluctant to buy products that have only 2 to 3 months of their remaining shelf life. As a result, we often pull these products from the shelves, mark them as "obsolete", and in accordance with standard industry practice, sell these products marked as "obsolete" to manufacturers of feedstuff for animals. In accordance with this practice, in May of 2010 we entered into a sales agreement with Harbin Longxin Feedstuff Co. to sell 38 tons of our infant formula milk powder that had been marked as "obsolete". In the sales agreement, Longxin expressly guaranteed that our obsolete milk powder would only be used as feedstuff for animals. All products sold to Longxin were marked "obsolete" by Rodobo, in accordance with our standard procedures.
We have been advised that despite our express instructions and the requirements of the sales agreement, Longxin resold our obsolete products to a third party manufacturer, Inner Mongolia Jiahaili Co., who illegally used the obsolete milk powder to produce food products for human consumption. A food safety authority reviewed this matter and reported it to the local police for further investigation. After investigating, the local police determined that there is no direct link between our company and Jiahaili's illegal activities. While we were unaware at the time that our obsolete products were resold in this manner, we have actively assisted the local police and will continue to do so while the police continue to investigate Jiahaili's activities until the matter is resolved. We intend to continue to vigorously investigate this situation and take any and all actions we deem appropriate to defend and protect Rodobo and its subsidiaries with respect to the circumstances and illegal usage of our products.
The General Administration of Quality Supervision, Inspection and Quarantine of the PRC (AQSIQ) has been made aware of this matter and has conservatively decided to delay our Publicity until the police investigation is closed. This delay in Publicity does not prevent us from utilizing our production license. While we have explained to our customers and distributors that we have received and can utilize our production license, this delay in Publicity has significantly impacted our sales. As a result of this, our production was impacted due to reduction of sales orders.