Attached files
| file | filename |
|---|---|
| EX-31.1 - EXHIBIT 31.1 - Hubei Minkang Pharmaceutical Ltd. | v233617_ex31-1.htm |
| EX-31.2 - EXHIBIT 31.2 - Hubei Minkang Pharmaceutical Ltd. | v233617_ex31-2.htm |
| EX-32.1 - EXHIBIT 32.1 - Hubei Minkang Pharmaceutical Ltd. | v233617_ex32-1.htm |
| EX-32.2 - EXHIBIT 32.2 - Hubei Minkang Pharmaceutical Ltd. | v233617_ex32-2.htm |
| EXCEL - IDEA: XBRL DOCUMENT - Hubei Minkang Pharmaceutical Ltd. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment #1)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2011.
or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
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For the transition period from to to
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Commission File Number :
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000-53231.
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HUBEI MINKANG PHARMACEUTICAL LTD.
(Exact name of registrant as specified in its charter)
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Nevada
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26-24106855
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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2808 Cowan Circle
Las Vegas, NV
(Address of principal executive offices)
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89107
(Zip Code)
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866-446-1869
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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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.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨ (Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
x Yes ¨ No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
¨ Yes ¨ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 9,547,169 shares of common stock with a par value of $0.001 as of August 11, 2011.
TABLE OF CONTENTS
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INTRODUCTORY NOTE
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1
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USE OF NAMES
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1
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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1
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PART I – FINANCIAL INFORMATION
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2
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Item 1. Financial Statements
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2
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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3
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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8
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Item 4. Controls and Procedures.
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8
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PART II - OTHER INFORMATION
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10
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Item 1. Legal Proceedings
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10
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Item 1A. Risk Factors
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10
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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10
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Item 3. Defaults upon Senior Securities
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11
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Item 4. [Removed and Reserved]
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11
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Item 5. Other Information
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11
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Item 6. Exhibits
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11
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INTRODUCTORY NOTE
This amendment to our quarterly report on Form 10-Q for the period ended June 30, 2011 (the “Relevant Report”) corrects the following reporting errors and omissions in our financial statements for the quarterly period ended June 30, 2011 (the “Relevant Statements”):
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·
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Financial Statements – The Balance Sheet in the Relevant Statements were amended to revise the authorized common stock from 1,350,000,000 shares to 168,750,000 shares and the issued and outstanding shares from 9,547,165 to 9,547,169.
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·
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Financial Statements – The Statement of Stockholders Equity (Deficit) in the Relevant Statements were amended under the column titled “Common Stock – Shares” to correct the voluntary surrender and cancellation of shares to properly reflect 10,000,000 during the fiscal year ended March 31, 2009.
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·
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Financial Statements – Note 4 (“Shareholders’ Loans”) to the Relevant Statements was amended to indicate that the loans made by our sole officer and director were repaid during the fiscal year ended March 31, 2011.
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Aside from the foregoing, this Form 10-Q/A has not been updated for events or information subsequent to the date of filing of the Relevant Report.
USE OF NAMES
In this annual report, the terms “Hubei Minkang,” “Company,” “we,” or “our,” unless the context otherwise requires, mean Hubei Minkang Pharmaceutical Ltd. and its subsidiaries, if any.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this quarterly report on Form 10-Q constitute “forward-looking statements” as that term is defined in applicable securities laws. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include: (1) a continued downturn in international economic conditions; (2) any adverse occurrence with respect to our patented technology; (3) our ability to bring new products to market; (4) market demand for our products; (5) shifts in industry capacity; (6) product development or other initiatives by our competitors; (7) fluctuations in the availability and cost of materials required to produce our products; (8) potential negative financial impact from claims, lawsuits and other legal proceedings or challenges; and (9) other factors beyond our control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. These forward-looking statements speak only as of the date on which they are made, and except to the extent required by applicable law, including the securities laws of the United States, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.
1
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our unaudited financial statements included in this Form 10-Q are as follows:
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F-1
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Balance Sheets as of June 30, 2011 (unaudited) and March 31, 2011 (unaudited);
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F-2
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Statements of Operations for the three months ended June 30, 2011 and 2010 and period from April 17, 2006 (inception) to June 30, 2011 (unaudited);
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F-3
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Statement of Stockholders’ Equity (Deficit) for period from April 17, 2006 (inception) to June 30, 2011 (unaudited);
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F-4
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Statements of Cash Flows for the three months ended June 30, 2011 and 2010 and period from April 17, 2006 (inception) to June 30, 2011 (unaudited); and
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F-5
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Notes to Financial Statements.
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These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2011, are not necessarily indicative of the results that can be expected for the full year.
2
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (unaudited)
As of June 30, 2011 and March 31, 2011
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June 30,
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March 31,
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|||||||
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2011
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2011
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|||||||
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ASSETS
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||||||||
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Current assets
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||||||||
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Cash
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$ | 558 | $ | 1,433 | ||||
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Prepaid expenses
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- | - | ||||||
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Total current assets
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558 | 1,433 | ||||||
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Oil and gas properties ( successful efforts basis)
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- | - | ||||||
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TOTAL ASSETS
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$ | 558 | $ | 1,433 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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||||||||
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Current liabilities
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||||||||
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Accounts payable and accrued liabilities
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$ | 138,031 | $ | 74,704 | ||||
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Shareholders’ loans- Note 4
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0 | 357,393 | ||||||
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TOTAL LIABILITIES
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138,031 | 432,097 | ||||||
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STOCKHOLDERS’ EQUITY( DEFICIT):
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||||||||
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Common stock, $.001 par value, 168,750,000 shares authorized, 9,547,169 ( 2011:8,117,597 ) shares issued and outstanding
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9,547 | 8,118 | ||||||
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Additional paid in capital
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2,930,713 | 2,570,282 | ||||||
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Share subscriptions
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- | - | ||||||
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Deficit accumulated during the exploration stage
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(3,077,733 | ) | (3,009,064 | ) | ||||
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Total stockholders’ equity (deficit)
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(137,473 | ) | (430,664 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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$ | 558 | $ | 1,433 | ||||
See accompanying notes to financial statements.
F-1
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (unaudited)
Three months ended June 30, 2011 and June 30, 2010
Period from April 17, 2006 (Inception) to June 30, 2011
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Three
months
ended June
30,
2011
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Three
months
ended June
30,
2010
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Period from
April 17, 2006
(Inception) to
June 30, 2011
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||||||||||
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Revenues
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$ | 0- | $ | 0- | $ | 0- | ||||||
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General and administrative expenses:
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||||||||||||
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Professional fees
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63,822 | 14,023 | 465,328 | |||||||||
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Depreciation
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0 | - | 2,379 | |||||||||
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Bank charges
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0 | - | 1,781 | |||||||||
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Foreign exchange loss (gain)
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0 | - | 92 | |||||||||
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Filing and registration
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380 | 3,365 | 25,412 | |||||||||
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Product development
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0 | - | 30,455 | |||||||||
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Office and miscellaneous
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0 | - | 9,835 | |||||||||
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Total general and administrative
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64,202 | 17,388 | 535,282 | |||||||||
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Net loss before other expense
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(64,202 | ) | (17,388 | ) | (535,282 | ) | ||||||
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Other income (expense)
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Impairment of oil and gas properties
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- | - | (2,319,800 | ) | ||||||||
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Interest income
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- | - | 3,765 | |||||||||
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Interest expense
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(4,467 | ) | (21,592 | ) | (226,092 | ) | ||||||
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Loss on sale of equipment
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-0- | -0- | (324 | ) | ||||||||
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Net loss
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$ | (68,669 | ) | $ | (38,980 | ) | $ | (3,077,733 | ) | |||
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Net loss per share:
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||||||||||||
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Basic and diluted
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$ | 0 .00 | $ | 0 .00 | ||||||||
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Weighted average shares outstanding:
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||||||||||||
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Basic and diluted, as adjusted for
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8,594,117 | 7,051,625 | ||||||||||
See accompanying notes to financial statements.
F-2
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited)
Period from April 17, 2006 (Inception) to March 31 201
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Common stock
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Additional paid-in
capital
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Share
subscriptions
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Deficit
accumulated
during the
development stage
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Total
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||||||||||||||||||||
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Shares
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Amount
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|||||||||||||||||||||||
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Issuance of common stock for cash @$.001
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16,875,000 | $ | 9,000 | $ | 81,000 | $ | -0- | $ | - | $ | 90,000 | |||||||||||||
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Net loss for the period
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- | - | - | - | (81,059 | ) | (81,059 | ) | ||||||||||||||||
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Balance, March 31, 2007
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16,875,000 | 9,000 | 81,000 | -0- | (81,059 | ) | 8,941 | |||||||||||||||||
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Proceeds of share subscription
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470,000 | 470,000 | ||||||||||||||||||||||
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Imputed interest on shareholder loan
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3,904 | 3,904 | ||||||||||||||||||||||
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Net loss for the period
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- | - | - | - | (128,230 | ) | (128,230 | ) | ||||||||||||||||
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Balance, March 31, 2008
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16,875,000 | $ | 9,000 | $ | 84,904 | $ | 470,000 | $ | (209,289 | ) | $ | 354,615 | ||||||||||||
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Proceeds of share subscription
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344,000 | 344,000 | ||||||||||||||||||||||
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Par value adjustment
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46,000 | (46,000 | ) | |||||||||||||||||||||
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Voluntary surrender and cancellation of shares
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(10,000,000 | ) | ||||||||||||||||||||||
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Issuance of common stock for $ 1 per share
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26,875 | 215 | 214,785 | (215,000 | ) | |||||||||||||||||||
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Issuance of common stock for $ .50 per share
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149,750 | 1,198 | 597,802 | (599,000 | ) | |||||||||||||||||||
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Imputed interest on shareholder loan
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80,720 | 80,720 | ||||||||||||||||||||||
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Net loss for the period
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- | - | - | - | (199,588 | ) | (199,588 | ) | ||||||||||||||||
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Balance, March 31, 2009
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7,051,625 | $ | 56,413 | $ | 932,211 | $ | -0- | $ | (408,877 | ) | $ | 579,747 | ||||||||||||
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Imputed interest on shareholder loan
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82,767 | 82,767 | ||||||||||||||||||||||
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Net loss for the period
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- | - | - | - | (1,831,371 | ) | (1,831,371 | ) | ||||||||||||||||
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Balance, March 31, 2010
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7,051,625 | $ | 56,413 | $ | 1,014,978 | $ | -0- | $ | (2,240,248 | ) | $ | (1,168,857 | ) | |||||||||||
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Shares issued for debt
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1,044,118 | 1,044 | 1,418,956 | 1,420,000 | ||||||||||||||||||||
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Imputed interest on shareholder loan
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54,234 | 54,234 | ||||||||||||||||||||||
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Effect of 8:1 reverse stock split
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(49,360 | ) | 49,360 | |||||||||||||||||||||
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Issuance of common shares for $ 1.50 per share
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21,850 | 21 | 32,754 | 32,775 | ||||||||||||||||||||
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Share correction
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4 | |||||||||||||||||||||||
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Net loss for the period
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- | - | - | - | (768,816 | ) | (768,816 | ) | ||||||||||||||||
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Balance, March 31, 2011
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8,117,597 | $ | 8,118 | $ | 2,570,282 | $ | - | $ | (3,009,064 | ) | $ | (430,664 | ) | |||||||||||
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Imputed interest on shareholder loan
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- | - | 4,467 | - | 4,467 | |||||||||||||||||||
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Shares issued for debt
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1,429,572 | 1,429 | 355,964 | 357,393 | ||||||||||||||||||||
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Net loss for the period
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(68,669 | ) | (68,669 | ) | ||||||||||||||||||||
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Balance, June 30, 2011
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9,547,169 | $ | 9,547 | $ | 2,930,713 | $ | - | $ | (3,077,733 | ) | $ | (137,473 | ) | |||||||||||
See accompanying notes to financial statements.
F-3
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (unaudited)
Three months ended June 30, 2011 and June 30, 2010
Period from April 17, 2006 (Inception) to June 30, 2011
|
Three months
ended June 30,
2011
|
Three months
ended June 30,
2010
|
Period from
April 17, 2006
(Inception) to
June 30, 2011
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||||||||||
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CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
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Net loss
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$ | (68,669 | ) | $ | (38,980 | ) | $ | (3,077,733 | ) | |||
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Adjustments to reconcile net loss to Cash used by operating activities:
|
||||||||||||
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Impairment
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0 | 0 | 2,319,800 | |||||||||
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Depreciation
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0 | 0 | 2,379 | |||||||||
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Imputed interest
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4,467 | 21,592 | 226,092 | |||||||||
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Loss on sale of property and equipment
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0 | 0 | 324 | |||||||||
| Change in non-cash working capital items | ||||||||||||
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Prepaid expenses
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0 | 0 | -0- | |||||||||
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Accounts payable and accrued liabilities
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63,327 | (9,361 | ) | 138,031 | ||||||||
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CASH FLOWS USED IN OPERATING ACTIVITIES
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(875 | ) | (26,749 | ) | (391,107 | ) | ||||||
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CASH FLOWS USED IN INVESTING ACTIVITIES
|
||||||||||||
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Oil and gas properties
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0 | 0 | (2,319,800 | ) | ||||||||
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Proceeds on disposal of property and equipment
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0 | 0 | 1,688 | |||||||||
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Purchase of property and equipment
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0 | 0 | (4,391 | ) | ||||||||
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CASH FLOWS USED IN INVESTING ACTIVITIES
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0 | 0 | (2,322,503 | ) | ||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||||||
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Loans from (repayments to)shareholders
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0 | 38,600 | 1,777,393 | |||||||||
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Share subscription received
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0 | 0 | 470,000 | |||||||||
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Proceeds from sales of common stock
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0 | 0 | 466,775 | |||||||||
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
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0 | 38,600 | 2,714,168 | |||||||||
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NET INCREASE (DECREASE) IN CASH
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(875 | ) | 11,851 | 558 | ||||||||
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Cash, beginning of period
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1,433 | 7,350 | -0- | |||||||||
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Cash, end of period
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$ | 558 | $ | 19,201 | $ | 558 | ||||||
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SUPPLEMENTAL CASH FLOW INFORMATION
|
||||||||||||
|
|
11 | |||||||||||
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Interest paid
|
$ | 0 | $ | 0 | $ | 0 | ||||||
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Shares issued to settle debt
|
$ | 357,393 | $ | 0 | $ | 1,777,393 | ||||||
See accompanying notes to financial statements.
F-4
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Hubei Minkang Pharmaceutical Ltd. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s filing with the SEC on Form 10-K. In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2011 as reported in Form 10-K, have been omitted.
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES
Nature of Business
Hubei Minkang Pharmaceutical Ltd. (“Hubei”) was incorporated as DGT Corp. in Nevada on April 17, 2006. On September 20, 2007, the Company completed a merger with subsidiary Blackrock Petroleum Corp. and changed its name from DGT Corp. to Blackrock Petroleum Corp. On June 5, 2008, the Company completed a merger with subsidiary Nexgen Petroleum Corp. and changed its name from Blackrock Petroleum Corp. to Nexgen Petroleum Corp. On October 20, 2010, the Company completed a merger with subsidiary Hubei Minkang Pharmaceutical Ltd., a Nevada corporation and as a result changed its name from Nexgen to Hubei Minkang Pharmaceutical Ltd.
On March 10, 2008, Hubei entered into a Farmout and Participation Agreement with respect to two test wells on an oil and gas lease dated December 22, 2007. Under the Farmout Agreement, Hubei pays 60% of all costs associated with the test wells to earn a 30% interest in the associated production spacing units. See Note 6.
Upon the intended completion of the reverse acquisition with HBMK Pharmaceutical Limited, a BVI corporation, the company will change its business focus to producing and marketing Traditional Chinese Medicine in China as well as various other countries.
Oil and Gas Properties
The Company accounts for oil and gas exploration and development costs using the successful efforts method. Geological and geophysical costs and the costs of carrying and retaining undeveloped properties are expensed as incurred. Exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, explanatory well costs will be expensed as dry holes. All exploratory wells are evaluated for economic viability within one year of well completion and the related capital costs are reviewed quarterly.
F-5
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (continued)
Exploratory well costs that discover potentially economically recoverable reserves in areas where a major capital expenditure would be required before production could begin and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area, remain capitalized as long as the additional exploratory work is underway or firmly planned.
During the year ended March 31, 2011, the Company recognized an impairment in its oil and gas properties in the amount of $ 647,450 (2010 - $ 1,672,350) such that the properties have been fully impaired.
Development Stage Company
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles related to accounting and reporting by development-stage companies. A development-stage company is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from.
Accounting Basis
The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted a March 31 fiscal year end.
Cash and Cash Equivalents
For the purposes of presenting cash flows, Hubei considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
The Company’s capital asset has been capitalized and is being depreciated over its estimated useful life on a straight line basis over a three year period.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, and shareholder loans. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
F-6
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of March 31, 2011, there have been no interest or penalties incurred on income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company is in the exploration stage and has yet to realize revenues from operations. Once the Company has commenced operations, it will recognize revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of June 30, 2011.
F-7
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (continued)
During the year ended March 31, 2011, the Company affected an 8:1 reverse share split. All share and per share data has been adjusted to reflect such stock split.
Recent Accounting Pronouncements
Hubei does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. There was no stock-based compensation issued to employees in 2011 or 2010.
The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered. There was no stock-based compensation issued by the Company to non-employees in 2011 or 2010.
NOTE 3 – INCOME TAXES
For the period ended June 30, 2011, Nexgen has incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $3,078,000 at June 30, 2011, and will expire beginning in the year 2026.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
|
2011
|
||||
|
Deferred tax asset attributable to:
|
||||
|
Net operating loss carryover
|
$ | 1,046,500 | ||
|
Valuation allowance
|
(1,046,500 | ) | ||
|
Net deferred tax asset
|
$ | - | ||
F-8
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 4 – SHAREHOLDERS’ LOANS
On March 3, 2008, a shareholder loaned the Company $622,500 which is due on demand bearing no interest. On July 22, 2008, the Company authorized the repayment of $40,000 of this loan to the shareholder. On March 20, 2008, the same shareholder loaned the Company $800,000 which is due on demand bearing no interest.
On March 25, 2008, another shareholder of the Company loaned the Company $225,000 which is due on demand bearing no interest. On May 20, 2008, the Company authorized the repayment of $100,000 of this loan to the shareholder. This same shareholder has loaned the Company the following amounts on the following dates which are due on demand bearing no interest:
|
Amount of Loan
|
Date of Loan
|
||
| $ | 132,840 |
August 28, 2008
|
|
| $ | 1,053 |
February 17, 2009
|
|
| $ | 8,000 |
June 15, 2009
|
|
| $ | 20,000 |
January 29, 2010
|
|
| $ | 18,000 |
March 26, 2010
|
|
| $ | 50,000 |
June 8, 2010
|
|
| $ | 50,000 |
July 8, 2010
|
|
On June 23, 2010, the Company authorized the repayment of $10,000 of this loan to the shareholder
On March 18, 2009, our sole officer and director loaned the Company $400, which is due on demand bearing no interest. In addition, on April 30, 2009, our sole officer and director loaned the Company $1,000, which is also due on demand bearing no interest. These loans were repaid during the fiscal year ended March 31, 2011.
Imputed interest at 5% per annum has been recorded as an increase in additional paid in capital.
During the period ended September 30, 2010, the Company was advised by the two shareholders that they had assigned their rights, title and interest in a portion of shareholder loans totaling $1,025,107 and $394,893 respectively, to third parties who are not shareholders of the Company. In September 2010, outstanding loans of $1,420,000 were converted into 8,352,941 (1,044,118 post-split) shares of common stock of the company at $.17 per share.
F-9
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 4 – SHAREHOLDERS’ LOANS (continued)
On June 28, 2011, the remaining shareholder who had a loan payable of $357,393, sold and assigned $178,697 of such loan payable to an individual in Singapore, who was also a shareholder, and $178,696 of such loan payable to an individual in Malaysia pursuant to an Agreement for the Sale and Assignment and Affirmation of Obligations (the “Assignment and Affirmation Agreement”) entered into with each of the individuals and the Company. On the same date and in conjunction with the Assignment and Affirmation Agreements, the assignees under such agreements entered into Agreements for Conversion of Indebtedness into Common Stock (the “Conversion Agreements”), whereby the Company agreed with each assignee to convert the indebtedness into an aggregate of 1,429,572 shares of common stock at a price of $.25 per share, which resulted in the elimination of $357,393 of indebtedness on the Company’s books.
NOTE 5 – COMMON STOCK
At inception, Hubei issued 9,000,000 shares of stock for $90,000 cash.
Effective September 20, 2007, Hubei affected a fifteen (15) for one (1) forward stock split.
On September 18, 2007, Hubei received stock subscription proceeds related to a private placement of 1,000,000 shares at $.50 per share. Subsequently, $455,000 of the subscription proceeds were returned. On February 20, 2008, Hubei received stock subscriptions proceeds of $425,000 related to a private placement of shares at $ .50 per share.
During the year ended March 31, 2009 Hubei received stock subscriptions proceeds of $129,000 related to a private placement of shares at $.50 per share and $215,000 related to a private placement of shares at $1.00 per share.
In September 2010, outstanding loans of $ 1,420,000 were converted into 8,352,941 (1,044,118 post-split) shares of common stock of the company at $.17 per share.
F-10
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 5 – COMMON STOCK (continued)
Effective October 20, 2010, Hubei affected an eight (8) for one (1) reverse stock split.
During the year ended March 31, 2011, Hubei received stock subscription proceeds related to a private placement of 21,850 shares at $1.50 per share. On April 27, 2011, Hubei issued the 21,850 shares due to the closing of the private placement at $1.50 per share.
During the quarter ended June 30, 2011, outstanding loans of $357,393 were converted into 1,429,572 post-split shares of common stock of the company at $.25 per share.
NOTE 6 – COMMITMENTS
On March 10, 2008, Nexgen entered into a Farmout and Participation Agreement with respect to two test wells on an oil and gas lease dated December 22, 2007. Under the Farmout Agreement, Nexgen is paying 60% of all costs associated with the test wells to earn a 30% interest in the associated production spacing units.
On or about April 11, 2008, the Company entered into a letter agreement (the “Letter Agreement”) with Montello Resources (USA) Ltd., Park Place Energy Corp., and Austin Developments Corp., dated effective April 11, 2008, whereby the parties agreed to amend the March 10, 2008 Farmout Agreement as follows: (i) Article 8 (Area of Mutual Interest) of the Farmout & Royalty Procedure attached as Schedule “C” to the Farmout Agreement shall apply; (ii) the Mutual Interest Lands shall comprise all PNG rights 50% or more of which are located within the boundaries of that area of lands located within Morgan County, State of Tennessee, USA as outlined on the map attached to the Letter Agreement; (iii) the Area of Mutual Interest shall be in effect until 11:50 pm on April 10, 2010; and (iv) the participating interests of the parties hereto in the Area of Mutual Interest during the term thereof shall be Montello – 35%, Park Place – 5%, Austin – 30% and the Company – 30%.
In addition, on or about April 11, 2008, the Company entered into a Farmout and Participation Agreement (the “Farmout Agreement”), which is effective as of April 11, 2008, with Montello Resources (USA) Ltd., a subsidiary of Montello Resources Ltd., Park Place Energy Corp., an Alberta corporation, and Austin Developments Corp., an Alberta corporation, with respect to two test wells on the oil and gas lease dated March 25, 2008 between Robert and Kathy Lavender, as lessors, and Montello Resources (USA) Ltd., as lessee, located in Morgan County, Tennessee. Under the Farmout Agreement the participating interests are as follows: Montello Resources (USA) Ltd., as operator, is paying 15% of all costs associated with the test well to earn a 35% interest in the associated production spacing units; Austin Developments Corp. is paying 20% of the costs to earn a 30% interest; Park Place Energy Corp. is paying 5% of the costs to earn a 5% interest; and the Company is paying 60% of the costs to earn a 30% interest. As of June 30, 2008, the Company has incurred $132,000 in capital expenditures on this property by participating in the drilling and completion of the Morgan Highpoint #5 test well, which has been cased and shut in.
F-11
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 6 – COMMITMENTS (continued)
On October 18, 2010, we entered into a letter of intent (“LOI”) with HBMK Pharmaceutical Limited (“HBMK”), a BVI corporation, whereby HBMK and us intend to complete a purchase agreement (the “Definitive Agreement”), where we will acquire 100% of the issued and outstanding shares of capital stock of HBMK (the “HBMK Shares”) in exchange for 28,000,000 shares of our common stock (the “Exchange Shares”), on the terms and subject to the conditions set out in the Definitive Agreement to be entered into between us and HBMK (the “Proposed Transaction”). HBMK is the sole shareholder of Hubei Minkang Pharmaceutical Co., Ltd., a company organized under the laws of the People’s Republic of China, which is a modern pharmaceutical enterprise that produces and markets Traditional Chinese Medicine in China as well as markets its products to the US, Japan, Canada, Singapore, Malaysia, Thailand and Hong Kong among other countries.
The LOI contains provisions that allow either party to terminate the LOI if the parties fail to enter into a Definitive Agreement on or before November 15, 2010, unless extended by mutual agreement of the parties in writing for a maximum of 14 days per extension. Since the parties failed to enter into a Definitive Agreement by November 15, 2010, Hubei entered into multiple extension agreements with HBMK. The most recent extension agreement contained a deadline of July 9, 2011.
NOTE 7 – LIQUIDITY AND GOING CONCERN
The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
F-12
HUBEI MINKANG PHARMACEUTICAL LTD.
(formerly Nexgen Petroleum Corp.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2011
NOTE 8 SUBSEQUENT EVENT
On July 8, 2011, the Company entered into a share exchange agreement with HBMK Pharmaceutical Limited (“HBMK”), a BVI corporation, and all of the shareholders of HBMK (the “Vendors”). Pursuant to the terms of the share exchange agreement, the Company has agreed to acquire all of the issued and outstanding shares of capital stock of HBMK from the Vendors in exchange for the issuance of 33,500,000 shares of common stock of the Company to the Vendors on a pro rata basis in accordance with each Vendor’s percentage ownership in HBMK, subject to the satisfaction or waiver of certain conditions precedent as set out in the share exchange agreement.
Effective August 1, 2011, the Company, HBMK Pharmaceutical Limited (“HBMK”) and all the shareholders of HBMK (the “Vendors”), entered into an Extension Agreement (the “Extension Agreement”) with respect to the Share Exchange Agreement that was entered into between the same parties, dated July 8, 2011. Since the closing date of the Share Exchange Agreement was to occur no later than August 1, 2011, the parties decided to enter into the Extension Agreement so that the latest closing date of the Share Exchange Agreement shall take place on or before August 16, 2011.
Upon the intended closing of the share exchange agreement, HBMK will become a wholly owned subsidiary of the Company. HBMK is the sole shareholder of Hubei Minkang Pharmaceutical Co., Ltd., a company organized under the laws of the People’s Republic of China, which is a modern pharmaceutical enterprise that produces and markets Traditional Chinese Medicines and some chemical pharmaceuticals in China as well as markets its products to the US, Japan, Canada, Singapore, Malaysia, Thailand and Hong Kong among other countries.
F-13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited financial statements and related notes. The discussion and analysis of our financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions. The following discussion should be read in conjunction with our unaudited interim financial statements and the related notes that appear elsewhere in this quarterly report.
Overview
We were incorporated in the State of Nevada on April 17, 2006, under the name DGT Corp. and commenced operations shortly thereafter. We intended to provide professional digital photo editing services for photo studios targeting potential customers in North America, with plans to expand globally.
However, in late 2007 we determined to change our business plan from the professional digital photo editing services and intended to focus our activities on the oil and gas industry as an exploration and development company.
We currently have no sources of revenue and we have not been satisfied with our business plan to operate as an oil and gas exploration and development company and have actively been seeking to create shareholder value with a more defined business plan.
Our shares of common stock were quoted for trading on the Over-the-Counter Bulletin Board (the “OTCBB”) on December 22, 2006, under the symbol “DGTR”. On September 20, 2007, our Company and its wholly owned subsidiary, Blackrock Petroleum Corp. merged and our name changed to Blackrock Petroleum Corp. Our trading symbol on the OTCBB was changed to “BRPC”. On May 21, 2008, we underwent another merger with our wholly owned subsidiary Nexgen Petroleum Corp. At that time our name was changed to Nexgen Petroleum Corp. and our trading symbol on the OTCBB was changed to “NXPE” effective June 9, 2008. On October 20, 2010, we merged with our wholly owned subsidiary, Hubei Minkang Pharmaceutical Ltd., and as result of such merger our name changed to Hubei Minkang Pharmaceutical Ltd. our trading symbol on the OTCBB was changed to “HBMK” effective October 21, 2010.
Effective September 20, 2007, a forward stock split of our authorized, issued and outstanding common stock was undertaken on a fifteen (15) to one (1) basis. As a result, our authorized capital increased from 90,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001 to 1,350,000,000 shares of common stock with a par value of $0.001 and 10,000,000 shares of preferred stock with a par value of $0.001. Our issued and outstanding share capital increased from 9,000,000 shares of common stock to 135,000,000 shares of common stock.
On April 18, 2008, Mr. Hsien Loong Wong, President, CEO and a director of the Company, who held in aggregate 94,500,000 post forward stock split shares of common stock of the Company, voluntarily agreed to surrender for cancellation in aggregate 80,000,000 shares of common stock in order to encourage equity investment into the Company. The cancellation of these 80,000,000 shares took place on April 18, 2008, resulting in Mr. Wong reducing his share holdings to only 14,500,000 shares registered in his name at that time.
Effective October 20, 2010, a reverse stock split of our authorized, issued and outstanding common stock was undertaken on a one (1) to eight (8) basis. As a result, our authorized capital decreased from 1,350,000,000 shares of common stock with par value of $0.001 per share and 10,000,000 shares of preferred stock with par value of $0.001 per share to 168,750,000 shares of common stock with par value of $0.001 per share and 10,000,000 shares of preferred stock with par value of $0.001 per share. Our issued and outstanding capital decreased from 64,765,941 shares of common stock to 8,095,747 shares of common stock.
3
We maintain our statutory registered agent’s office at Nevada Agency & Transfer Company, 50 West Liberty Street, Suite 880, Reno, Nevada, 89501 and our business office is located at 2808 Cowan Circle, Las Vegas, NV 89107. This is our mailing address as well.
Plan of Operations
We have not yet generated or realized any revenues from our business operations. Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated any revenues to date. There is no assurance we will ever reach this point. Accordingly, we must raise cash from other sources. Our only other source for cash at this time is investments by others in us.
We intended to acquire interests in leases for oil and gas prospects either through farmout arrangements, participation arrangements or straight acquisition of oil and gas interests, and then drill exploratory and development wells with the help of other industry participants. We did not intend to operate any properties. We intended to focus our oil and gas activities in North America as well as other regions.
We currently have an interest in an oil and gas property in Morgan County, Tennessee, however, due to (i) delays with the operator on the Morgan Highpoint Project, (ii) not having any foreseeable plans with the other participants for exploration on such properties, and (iii) lack of available funds to proceed with any exploration on such properties, management determined to fully impair the value of the Morgan County, Tennessee properties in the fiscal year ended March 31, 2011.
To date, we have not been as successful as hoped at developing our oil and gas interests in Morgan County, Tennessee. We have realized that this business may not present the best opportunity for our company to realize value for our shareholders. As a result, we have actively been seeking to create shareholder value with a more defined business plan. On October 18, 2010, we entered into a letter of intent with HBMK Pharmaceutical Limited (“HBMK”), whereby we intend to acquire 100% of the issued and outstanding shares of the capital stock of HBMK (the “HBMK Shares”) in exchange for 28,000,000 shares of our common stock (the “Exchange Shares”), on the terms and subject to the conditions to be set out in a Definitive Agreement to be entered into between us and HBMK (the “Proposed Transaction”). The successful closing of the Proposed Transaction would result in a change of our business from the exploration and development of oil and gas interests to the production and marketing of Traditional Chinese Medicines and Over-The-Counter pharmaceuticals.
On July 8, 2011, we entered into a share exchange agreement (the “Share Exchange Agreement”) with HBMK and all of the shareholders of HBMK (the “Vendors”). Pursuant to the terms of the Share Exchange Agreement, we have agreed to acquire all of the issued and outstanding shares of capital stock of HBMK from the Vendors in exchange for the issuance of 33,500,000 shares of our common stock to the Vendors on a pro rata basis in accordance with each Vendor’s percentage ownership in HBMK, subject to the satisfaction or waiver of certain conditions precedent as set out in the Share Exchange Agreement. At the closing of the Share Exchange Agreement, HBMK will become our wholly owned subsidiary.
Effective August 1, 2011, we entered into an Extension Agreement (the “Extension Agreement”) with HBMK Pharmaceutical Limited (“HBMK”) and all the shareholders of HBMK (the “Vendors”) with respect to the Share Exchange Agreement that was entered into between the same parties, dated July 8, 2011. Since the closing date of the Share Exchange Agreement was to occur no later than August 1, 2011, the parties decided to enter into the Extension Agreement so that the latest closing date of the Share Exchange Agreement shall take place on or before August 16, 2011.
4
Conditions Precedent to the Closing of the Share Exchange Agreement
The closing of the share exchange agreement is subject to the satisfaction of conditions precedent to closing as set forth in the share exchange agreement, including the following:
|
1.
|
no material adverse effect will have occurred with the business or assets of HBMK Pharmaceutical Limited since the effective date of the share exchange agreement;
|
|
2.
|
our company, HBMK Pharmaceutical Limited and the Vendors will have received all third-party consents and approvals contemplated by the share exchange agreement;
|
|
3.
|
no suit, action or proceeding will be pending or threatened which would prevent the consummation of any of the transactions contemplated by the share exchange agreement;
|
|
4.
|
our company will be reasonably satisfied with our due diligence investigation of HBMK Pharmaceutical Limited and its subsidiaries; and
|
|
5.
|
the board of directors of our company, HBMK Pharmaceutical Limited and the corporate Vendors will have approved the transactions contemplated by the share exchange agreement.
|
Due to conditions precedent to closing, including those set out above, and the risk that the conditions precedent will not be satisfied, there is no assurance that we will complete the share exchange as contemplated in the share exchange agreement. In the event that we are unable to complete the share exchange agreement, our management will continue to search for alternative business opportunities to pursue.
Results of Operations
The following discussion of our financial condition and results of operations should be read together with the unaudited interim financial statements and the notes to the unaudited interim financial statements included in this quarterly report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
Three Month Period Ended June 30, 2011
Revenues: We did not generate any revenues during the three month period ended June 30, 2011.
Professional fees: Professional fees were $63,822 and $14,023 for the three months ended June 30, 2011 and 2010, respectively. This increase in professional fees can be attributed to increased expenses in connection with the letter of intent and share exchange agreement with HBMK, and conversion of indebtedness matters.
Depreciation: Depreciation expenses were Nil and Nil for the three months ended June 30, 2011 and 2010, respectively.
Bank charges: Bank charges and interest expenses were Nil and Nil for the three months ended June 30, 2011 and 2010, respectively.
Foreign exchange loss (gain): Foreign exchange loss (gain) was Nil and Nil for the three months ended June 30, 2011 and 2010, respectively.
Filing and registration: Filing and registration expenses were $380 and $3,365 for the three months ended June 30, 2011 and 2010, respectively.
Office and miscellaneous: Office and miscellaneous expenses were Nil and Nil for the three months ended June 30, 2011 and 2010, respectively.
Interest expense: Interest expenses were $4,467 and $21,592 for the three months ended June 30, 2011 and 2010, respectively. The decrease in interest expense was attributed to the decrease in shareholder loans during the three month period ended June 30, 2011.
Net Loss: Net loss was $68,669 and $38,980 for the three months ended June 30, 2011 and 2010, respectively. This increase in net loss of $29,689 resulted primarily from an increase in professional fees from $14,023 during the three months ended June 30, 2010 to $63,822 during the three months ended June 30, 2011.
5
Cash Flow Used in Operating Activities
Operating activities used $391,107 in cash for the period from inception (April 17, 2006) to June 30, 2011. Our net loss of $3,077,733 was the primary component of our negative operating cash flow.
Cash Flow Provided by Financing Activities
Net cash flows provided by financing activities for the period from inception (April 17, 2006) to June 30, 2011 was $2,714,168 represented as loans from shareholders of $1,777,393, which includes the repayment of shareholders loans of $151,400, and proceeds from the sale of our stock as well as share subscriptions received of $936,775.
Cash Flow Provided by Investing Activities
Investing activities for the period from inception (April 17, 2006) to June 30, 2011, used $4,391 for the purchase of equipment and $2,319,800 for the acquisition of oil and gas property interests, offset by proceeds received on the sale of equipment of $1,688 for a total of $2,322,503.
As of June 30, 2011, we had total current assets, consisting of cash, of $558 and current liabilities, consisting of accounts payable and accrued liabilities, of $138,031. As a result, on June 30, 2011, we had a working capital deficiency of $137,473.
We are a development stage corporation and have not generated any revenue to date from our activities. Despite our hope for revenues in the foreseeable future, if we receive any at all, will be far less than necessary to carry out our business forward without additional financing. We have cash in the amount of $558 as of June 30, 2011, which is not anticipated to be sufficient to meet our projected expenditures in the next twelve months. Thus, in order to meet our capital needs, we will need to raise additional funds through the issuance of equity securities or through debt financing. There can be no assurance that we will be successful in raising additional capital or that actual cash requirements will not exceed our estimates. We intend to fulfill any additional cash requirement through the sale of our equity securities. We currently do not have any arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unsuccessful in raising sufficient funds through future capital raising efforts, we may review other financing options.
On June 28, 2011, we agreed to settle the outstanding amount of $357,393 owed to two creditors by the issuance of 1,429,572 shares of our common stock.
We estimate that the cash needed to fund general expenditures for the next twelve month period is approximately $200,000. Our expenditures for the next twelve months are expected to include professional fees, consulting fees, transfer agent fees, bank charges and miscellaneous expenses.
In the event that our expenditures exceed estimates, our required expenditures over the next twelve months will increase. In the event that we complete the share exchange agreement with HBMK, we expect that these expenditures may increase to reflect the expenditures necessary to pursue our new business plan.
Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow from stockholders or other outside sources to sustain operations and meet our obligations on a timely basis and ultimately to attain profitability. We have limited capital with which to pursue our business plan. There can be no assurance that our future operations will be significant and profitable or that we will have sufficient resources to meet our objectives.
There are no assurances that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.
6
In addition to the issues set out above regarding our ability to raise capital, global economies are currently undergoing a period of economic uncertainty. This has resulted in numerous adverse effects, including unprecedented volatility in financial markets and stock prices, slower economic activity, decreased consumer confidence and commodity prices and reduced corporate profits and capital spending. We anticipate that the current economic conditions and the credit shortage will adversely impact our ability to raise financing.
Loan Obligations
On March 3, 2008, a shareholder loaned us $622,500 which is due on demand bearing no interest. On July 22, 2008, we authorized the repayment of $40,000 of this loan to the shareholder. On March 20, 2008, the same shareholder loaned us $800,000 which is due on demand bearing no interest.
On March 25, 2008, another shareholder loaned us $225,000 which is due on demand bearing no interest. On May 20, 2008, we authorized the repayment of $100,000 of this loan to the shareholder. This same shareholder has loaned us the following amounts on the following dates which are due on demand bearing no interest:
|
Amount of Loan
|
Date of Loan
|
||
| $ | 132,840 |
August 28, 2008
|
|
| $ | 1,053 |
February 17, 2009
|
|
| $ | 8,000 |
June 15, 2009
|
|
| $ | 20,000 |
January 29, 2010
|
|
| $ | 18,000 |
March 26, 2010
|
|
| $ | 50,000 |
June 8, 2010
|
|
| $ | 50,000 |
July 8, 2010
|
|
On June 23, 2010, we authorized the repayment of $10,000 of this loan to the shareholder.
On March 18, 2009, our sole officer and director loaned us $400, which is due on demand bearing no interest. In addition, on April 30, 2009, our sole officer and director loaned us $1,000, which is also due on demand bearing no interest. On June 23, 2010, we authorized the repayment of $1,400 of this loan to the officer and director.
Imputed interest at 5% per annum has been recorded as an increase in additional paid in capital.
During the period ended September 30, 2010, we were advised by the two shareholders who had loaned us funds that they had assigned their rights, title and interest in a portion of shareholder loans totaling $1,025,107 and $394,893 respectively, to third parties who are not shareholders. After the assignment, the loans payable to shareholders was $357,393 and other loans payable was $1,420,000.
On September 14, 2010, the outstanding loans of $1,420,000 were converted into 8,352,941 (1,044,118 post-split) shares of our common stock at $0.17 per share.
On June 28, 2011, the remaining shareholder who had a loan payable of $357,393, sold and assigned $178,697 of such loan payable to an individual in Singapore, who was also a shareholder, and $178,696 of such loan payable to an individual in Malaysia pursuant to an Agreement for the Sale and Assignment and Affirmation of Obligations (the “Assignment and Affirmation Agreement”) entered into with each of the individuals and us. On the same date and in conjunction with the Assignment and Affirmation Agreements, the assignees under such agreements entered into Agreements for Conversion of Indebtedness into Common Stock (the “Conversion Agreements”), whereby we agreed with each assignee to convert the indebtedness into an aggregate of 1,429,572 shares of common stock at a price of $.25 per share, which resulted in the elimination of $357,393 of indebtedness on our books.
7
Off-Balance Sheet Arrangements
There are no 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 is material to investors.
Going Concern Statement
We have negative working capital, have not yet received revenues from sales of products or services, and have recurring losses from operations. The continuation of our company as a going concern is dependent upon our Company attaining and maintaining profitable operations and raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the year ended March 31, 2011, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Under the direction of our Chief Executive Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) there continue to be material weaknesses in the Company’s internal controls over financial reporting, that the weaknesses constitute a “deficiency” and that this deficiency could result in misstatements of the foregoing accounts and disclosures that could result in a material misstatement to the financial statements for the current period that would not be detected, and (ii) accordingly, our disclosure controls and procedures were not effective as of June 30, 2011.
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Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
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(1)
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
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(2)
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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 of the company are being made only in accordance with authorizations of management and Directors of the company; and
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(3)
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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 financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of June 30, 2011 management assessed the effectiveness of our internal control over financial reporting and concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of June 30, 2011.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our Board of Directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
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Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
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1.
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we plan to create a position to segregate duties consistent with control objectives and plan to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us; and
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2.
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we plan to appoint one or more outside directors to our Board of Directors who shall be appointed to the audit committee resulting in a fully functioning audit committee that will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
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Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2011.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during our fiscal quarter of the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
On April 27, 2011, we issued 21,850 shares of our common stock to two individuals due to the closing of our private placement at $1.50 per share for total gross proceeds of $32,775. We believe that the issuances are exempt from registration under Regulation S promulgated under the Securities Act of 1933, as amended, as the securities were issued to the individuals through offshore transactions which were negotiated and consummated outside of the United States.
The proceeds from the above transactions have been or will be used for general corporate purposes.
On June 29, 2011, we issued 714,788 shares of our common stock to an individual in Singapore pursuant to an Agreement for Conversion of Indebtedness to Common Stock, dated June 28, 2011, entered into with the individual in Singapore at a price of $0.25 per share resulting in the elimination of $178,697 of indebtedness on our books. We believe that the issuance is exempt from registration pursuant to Section 3(a)(9) and/or Regulation S promulgated under the Securities Act of 1933, as amended, as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.
In addition, on June 29, 2011, we issued 714,784 shares of our common stock to an individual in Malaysia pursuant to an Agreement for Conversion of Indebtedness to Common Stock, dated June 28, 2011, entered into with the individual in Malaysia at a price of $0.25 per share resulting in the elimination of $178,696 of indebtedness on our books. We believe that the issuance is exempt from registration pursuant to Section 3(a)(9) and/or Regulation S promulgated under the Securities Act of 1933, as amended, as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.
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None.
N/A.
None.
ITEM 6. EXHIBITS
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(a)
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Exhibit List
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31.1
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Certificate pursuant to Rule 13a-14(a)
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31.2
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Certificate pursuant to Rule 13a-14(a)
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32.1
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Certificate pursuant to 18 U.S.C. §1350
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32.2
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Certificate pursuant to 18 U.S.C. §1350
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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HUBEI MINKANG PHARMACEUTICAL LTD.
(Registrant)
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Date: August 26, 2011
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By: /s/ Hsien Loong Wong
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Hsien Loong Wong
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President, CEO, CFO, Secretary, Treasurer and Director
(Principal Executive Officer and Principal Financial Officer)
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