Hubei Minkang Pharmaceutical Lt (OTC:HBMK)

Hubei Minkang Pharmaceutical Ltd. 

Consolidated Statements of Operations and Comprehensive Income

 

				For the Nine Months				For the Three Months				For the Nine Months				For the Three Months
				Ended				Ended				Ended				Ended
				September 30, 2014				September 30, 2014				September 30, 2013				September 30, 2013
				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue				$	6,579,273			$	2,012,626			$	10,991,479			$	4,314,787
Cost of Goods Sold
	Cost of goods sold				3,801,945				979,422				5,903,356				2,210,078
	Inventory obsolescence and markdowns				-				-				369,342				1,556
Cost of Goods Sold					3,801,945				979,422				6,272,698				2,211,634
Gross Margin					2,777,328				1,033,204				4,718,781				2,103,153
Operating Expenses
	Selling expenses				1,202,821				273,188				2,027,761				742,044
	Professional fees				85,775				20,008				134,571				26,904
	Research and development				426,440				396,010				48,445				26,979
	General and administrative expenses				1,768,780				363,840				2,255,049				768,220
		Total operating expenses			3,483,816				1,053,046				4,465,826				1,564,147
Income (Loss) from Operations					(706,488	)			(19,842	)			252,955				539,006
Other (Income) Expense:
	Government grants - energy conservation				(41,011	)			(13,643	)			(40,516	)			(13,632	)
	Interest income				(23,175	)			(7,521	)			(22,631	)			(8,180	)
	Interest expense				164,998				55,446				166,192				55,403
	Forgiveness of debt				-				-				(180,000	)			-
	Other (income) expense				(92,134	)			(48,837	)			4,130				3,768
		Other (income) expense, net			8,678				(14,555	)			(72,825	)			37,359
Income (Loss) before Income Tax Provision					(715,166	)			(5,287	)			325,780				501,647
Income Tax Provison					17,459				(18	)			(29,801	)			89,675
Net Income (Loss)					(732,625	)			(5,269	)			355,581				411,972
Other Comprehensive Income (Loss)
	Foreign currency translation gain (loss)				(78,880	)			2,715				290,973				71,831
		Total other comprehensive income (loss)			(78,880	)			2,715				290,973				71,831
Comprehensive Income (Loss)				$	(811,505	)		$	(2,554	)		$	646,554			$	483,803
Net Income (Loss) Per Common Share - Basic and Diluted				$	(0.01	)		$	(0.00	)		$	0.01			$	0.01
Weighted average common shares outstanding:
	- basic and diluted				52,189,045				52,189,045				52,189,045				52,189,045

Management Discussion and Analysis

Revenues

We had sales of $2,012,626 for the three month period ended September 30, 2014 as compared to sales of $4,314,787 for the three month period ended September 30, 2013. The decrease in sales was mainly due to decreased production of our major products Yinxing Damo Zhusheye and An Ka Huangmin Jiaonang. Specifically, Yinxing Damo Zhusheye accounted for $1,251,413 of sales revenue for the three month period ended September 30, 2014 and $3,016,406 of sales revenue for the three month period ended September 30, 2013; An Ka Huangmin Jiaonang accounted for $163,035 of sales revenue for the three month period ended September 30, 2014 and $474,760 of sales revenue for the three month period ended September 30, 2013. The decrease in the sales of Yinxing Damo Zhusheye was caused by low stock of inventory. In accordance with the National Medicine Administration Law of the People's Republic of China, all manufacturers of pharmaceutical products are required to comply with applicable Good Manufacturing Practices (“GMP”) certifications and renew GMP Certificates every five years. The Company’s GMP certification for Yinxing Damo Zhusheye expired on December 31, 2013, and therefore can no longer engage in producing this product. The Company is working on obtaining required GMP certificate. Yinxing Damo Zhusheye sold during this quarter was produced before December 31, 2013. The decrease in sales of An Ka is believed to be a result of seasonal fluctuation in demand.

We had total cost of goods sold of $979,422 for the three months ended September 30, 2014 as compared to $2,210,078 for the three month ended September 30, 2013. The decrease of cost of goods sold was mainly due to the decreased production of our major product Yinxing Damo Zhusheye and An Ka Huangmin.

We had gross profit of $1,033,204 for the three months ended September 30, 2014 as compared to gross profit of $2,103,153 for the three months ended September 30, 2013. Our gross profit decreased principally as a result of the decrease in sales of Yinxing Damo Zhusheye and An Ka Huangmin for the three months ended September 30, 2014.

Net Income (Loss)

Our net income (loss) was ($5,269) and $411,972 for three months ended September 30, 2014 and 2013, respectively. The decrease in net income of $417,241 resulted primarily from a decrease in sales of Yinxing Damo Zhusheye and An Ka Huangmin Jiaonang. The sales of Yinxing Damo Zhusheye decreased by $1,764,993 for the three months ended September 30, 2014, compared to the three months ended September 30, 2013; An Ka Huangmin Jiaonang decreased by $311,725 for the three months ended September 30, 2014, compared to the three months ended September 30, 2013.

Management Discussion and Analysis

Revenues

We had sales of $1,681,211 for the three month period ended June 30, 2014 as compared to sales of $3,945,140 for the three month period ended June 30, 2013. The decrease in sales was mainly due to decreased production of our major products Yinxing Damo Zhusheye and An Ka Huangmin Jiaonang. Specifically, Yinxing Damo Zhusheye accounted for $552,511 of sales revenue for the three month period ended June 30, 2014 and $2,782,993 of sales revenue for the three month period ended June 30, 2013; An Ka Huangmin Jiaonang accounted for $254,064 of sales revenue for the three month period ended June 30, 2014 and $ $509,273 of sales revenue for the three month period ended June 30, 2013. The decrease in the sales of Yinxing Damo Zhusheye was caused by low stock of inventory. In accordance with the National Medicine Administration Law of the People's Republic of China, all manufacturers of pharmaceutical products are required to comply with applicable Good Manufacturing Practices (“GMP”) certifications and renew GMP Certificates every five years. The Company’s GMP certification for Yinxing Damo Zhusheye expired on December 31, 2013, and therefore can no longer engage in producing this product. The Company is working on obtaining required GMP certificate. Yinxing Damo Zhusheye sold during this quarter was produced before December 31, 2013. The decrease in sales of An Ka is believed to be a result of seasonal fluctuation in demand.

Net Income (Loss)

Our net loss was $645,072 for the three months ended June 30, 2014 as compared to a net income of $229,848 for three months ended June 30, 2013. The decrease in our net income of $874,920 resulted primarily from a decrease in sales of our major products Yinxing Damo Zhusheye and An Ka Huangmin Jiaonang. The sales of Yinxing Damo Zhusheye decreased by $2,230,482 for the three months ended June 30, 2014, compared to the three months ended June 30, 2013; The sales of An Ka Huangmin Jiaonang decreased by $255,209 for the three months ended June 30, 2014, compared to the three months ended June 30, 2013.

Hubei Minkang Pharmaceutical Ltd.

Consolidated Statements of Operations and Comprehensive Income

Management Discussion and Analysis

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Revenues

We had sales of $2,885,436 for the three month period ended March 31, 2014 as compared to sales of $2,731,552 for the three month period ended March 31, 2013.  The increase in sales was mainly attributable to increased sales of the product An Ka Huangmin Jiaonang.  The product Yinxing Damo Zhusheye accounted for $1,442,718 of sales revenue for the three month period ended March 31, 2014 and $1,515,936 of sales revenue for the three month period ended March 31, 2013.  An Ka Huangmin Jiaonang accounted for $721,359 of sales revenue for the three month period ended March 31, 2014 and $ $543,831 of sales revenue for the three month period ended March 31, 2013.

We had total cost of goods sold of $1,676,138 for the three months ended March 31, 2014 as compared to $1,617,846 for the three month ended March 31, 2013. The increase of cost of goods sold was mainly due to the increase in the cost of raw material of our major product An Ka Huangmin.

We had gross profit of $1,209,298 for the three months ended March 31, 2014 as compared to gross profit of $1,113,706 for the three months ended March 31, 2013. Our gross profit increased principally as a result of the increase in sales of An Ka Huangmin for the three months ended March 31, 2014.

Net Income (Loss)

Our net income (loss) was ($82,284) and ($286,239) for three months ended March 31, 2014 and 2013, respectively.  The increase in net income of $203,955 resulted primarily from an increase in sales of An Ka Huangmin Jiaonang. The sales of An Ka Huangmin Jiaonang increased by $177,528 for the three months ended March 31, 2014, compared to the three months ended March 31, 2013.

Management Discussion and Analysis

Revenues

Hubei Minkang PRC had sales of $14,742,964 and total cost of goods sold of $8,314,457 for the year ended December 31, 2013 as compared to sales of $13,918,655 and total cost of goods sold of $6,961,109 for the year ended December 31, 2012. The increase in sales was mainly due to increased sales of Yinxing Dame Zhusheye. Yinxing Dame Zhusheye accounted for $9,288,067 of sales revenue in the year ended December 31, 2013 and $8,615,647 of sales revenue in the year ended December 31, 2012. An Ka Huangmin Jiaonang accounted for $2,506,304 of sales revenue in the year ended December 31, 2013 and $1,990,368 of sales revenue in the year ended December 31, 2012.

Hubei Minkang PRC recorded inventory obsolescence and markdown expenses of $139,112 for the year ended December 31, 2013 and $201,840 for the year ended December 31, 2012. Hubei Minkang PRC had gross profit of $6,289,392 for the year ended December 31, 2013 as compared to gross profit of $6,755,706 for the year ended December 31, 2012.

Net Income (Loss)

The net income (loss) was $127,268 and $961,120 for the fiscal years ended December 31, 2013 and 2012, respectively. The decrease in net income of $833,852 resulted primarily from an increase of cost of goods sold, increase in selling expenses, increase in professional fees, increase in research and development expenses and increase of general and administrative expenses. The sales of Yinxing Dame Zhusheye increased by $672,420 for the fiscal year ended December 31, 2013, compared to the fiscal year ended December 31, 2012. The sales of An Ka Huangmin Jiaonang increased by $515,936 for the fiscal year ended December 31, 2013, compared to the fiscal year ended December 31, 2012.

Item 1.01 Entry into a Material Definitive Agreement

On May 2, 2013, our indirect wholly-owned subsidiary, Hubei Minkang Pharmaceutical Co., Ltd. ("Hubei Minkang PRC"), and Bank of Communications Co., Ltd., Yichang Branch, ("Bank of Communications") executed a Liquid Capital Loan Contract (the "Loan Contract"), where Hubei Minkang PRC arranged to loan RMB 10,000,000 (the "Loan") to be used for purchasing medical materials and paying for utilities, which funds were withdrawn by Hubei Minkang PRC on May 17, 2013. The Loan has a term of one year and is due on May 17, 2014 having an interest rate of 6.6% per annum, which is calculated and paid on the 20^th of each month.

The foregoing description of Loan Contract does not purport to be complete and is qualified in its entirety by reference to the Loan Contract, which is filed as Exhibit 10.1 hereto, and is incorporated by reference herein.

The Loan Contract is secured maximum mortgage agreement No. A101430249 ("Maximum Mortgage Agreement #1") and maximum mortgage agreement No. DA101L130249-1 ("Maximum Mortgage Agreement #2"), both dated May 2, 2013, between Hubei Minkang PRC and Bank of Communications. Under the Maximum Mortgage Agreement #1, the Loan Contract is collateralized by certain of Hubei Minkang PRC's land use rights. Under the Maximum Mortgage Agreement #2, the Loan Contract is collateralized by certain of Hubei Minkang PRC's buildings.

The foregoing descriptions of Maximum Mortgage Agreement #1 and Maximum Mortgage Agreement #2 do not purport to be complete and are qualified in their entirety by reference to the Maximum Mortgage Agreement #1, which is filed as Exhibit 10.2 hereto and the Maximum Mortgage Agreement #2, which is filed as Exhibit 10.3 hereto, both of which are incorporated by reference herein.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Effective June 19, 2013, the board of directors of Hubei Minkang Pharmaceutical Ltd. (the "Company") accepted the resignations of Loke Hip Meng as the Chief Financial Officer of the Company and Johnny Lian Tian Yong as a director of the Company. Also effective on June 19, 2013, the board of directors of the Company accepted the consent to act as Chief Financial Officer of the Company of Lee Tong Tai.

On May 7, 2012, our indirect wholly-owned subsidiary, Hubei Minkang Pharmaceutical Co., Ltd. ("Hubei Minkang PRC"), and Bank of Communications Co., Ltd., Yichang Branch, ("Bank of Communications") executed a loan contract (the "Loan Contract"), where Hubei Minkang PRC loaned RMB 10,000,000 to be used as liquidity, with a loan period from May 7, 2012 to May 7, 2013 and having an interest rate of 7.872% per annum, which is calculated and paid on the 20th of each month, with principal due May 7, 2013.

 

Hubei Minkang Pharmaceutical Ltd.

 

Consolidated Statements of Income and Comprehensive Income

 

		For the Three Months				For the Three Months
		Ended				Ended
		March 31, 2012				March 31, 2011
		(Unaudited)				(Unaudited)
Net Revenues		$	2,687,939			$	2,818,413
Cost of Goods Sold			1,464,304				1,537,929
Gross Margin			1,223,635				1,280,484
Operating Expenses
Advertising expenses			8,940				6,099
Selling expenses			346,890				416,833
Professional fees			65,849				-
Research and development			9,331				6,422
General and administrative expenses			654,901				482,075
Total operating expenses			1,085,911				911,429
Income from Operations			137,724				369,055
OTHER (INCOME) EXPENSE:
Government grants - energy conservation			(5,265	)			-
Interest income			(4,236	)			(2,429	)
Interest expense			55,808				21,756
Other (income) expense			5,248				(9,569	)
Other (income) expense, net			51,555				9,758
Income before Income Tax Provision			86,169				359,297
Income Tax Provision			52,745				89,825
Net Income			33,424				269,472
Other Comprehensive Income
Foreign currency translation gain			51,095				60,555
Total other comprehensive income			51,095				60,555
Comprehensive Income		$	84,519			$	330,027
Net Income Per Common Share - Basic and Diluted		$	0.00			$	0.01
Weighted average common shares outstanding:
- basic and diluted			43,047,169				33,500,000

 

During the next 12 months, management anticipates proceeding with expansion plans to acquire at least a 51% interest of a sales distribution company for approximately $1.5 million and to increase commercialization of Hubei Minkang PRC’s products including the marketing distribution of existing and potential future products which is anticipated to cost approximately $700,000. However, if we are not able to raise the required funds for such expansion plans, then we may have to delay some or all of our expansion plans.

Item 3.02 Unregistered Sales of Equity Securities

On April 27, 2012, we completed a private placement financing involving the sale of 1,130,270 restricted shares of our common stock (each a "Share") to one individual at a subscription price of $0.70 per Share for gross proceeds of $791,189.

In connection with the issuance of the Shares, we relied on the exemption from registration under the United States Securities Act of 1933, as amended, provided by Regulation S, based on representations and warranties provided by the purchaser of the Shares in the subscription agreement entered into between the purchaser and us.

On January 11, 2012, our indirect wholly-owned subsidiary, Hubei Minkang Pharmaceutical Co., Ltd. ("Hubei Minkang PRC"), and Hubei Bank Co., Ltd. (Yichang Branch) ("Hubei Bank") executed a loan contract ("Loan Contract #1"), where Hubei Minkang PRC loaned RMB 5,000,000 to be used as liquidity, with a loan period from January 11, 2012 to January 11, 2013 and having an interest rate of 7.315% per annum, which is calculated and paid monthly.

YICHANG, HUBEI, CHINA--(Marketwire - Feb. 29, 2012) - Hubei Minkang Pharmaceutical Ltd. (OTCBB:HBMK) ("Hubei Minkang" or the "Company") is pleased to announce that its Chinese subsidiary, Hubei Minkang Pharmaceutical Co., Ltd. ("Hubei PRC") has recently signed a Memorandum of Understanding with Henan Wanlong Pharmaceutical Co., Ltd. ("Henan Wanlong") of Zhengzhou, Henan, China with respect to a proposal for Hubei PRC to acquire 51% of Henan Wanlong to expand distribution and increase sales growth.

The proposed transaction with Henan Wanlong would result in the Company indirectly acquiring 51% of Henan Wanlong through a share exchange, a modest capital injection by the Company into Henan Wanlong to support business expansion and provide the Company with access to Henan Wanlong's extensive sales network allowing for wider distribution of Hubei Minkang's products to generate substantial sales growth.

Henan Wanlong is a sales distribution company focused on supplying injection drugs to hospitals throughout China. Current turnover is estimated at RMB 700 million to 800 million (US $111 million to $127 million). For the past five years, Henan Wanlong has been the sole distributor for Hubei Minkang's flagship drug, Yinxing Damo Zhusheye. The contract was recently renewed for another three years.

According to Hubei Minkang's President, CEO and Director, Lee Tong Tai, the MOU with Henan Wanlong is another key step in Hubei Minkang's ongoing strategic plan to expand its distribution network throughout China.

"We know the market for injectable drugs is continuing to expand," said Mr. Lee. "Collaborating with Henan Wanlong creates an opportunity to access hospitals throughout China and take advantage of that growth."

		Three months ended September 30,
		2011	2010	2011	2010
Net Revenues		$    3,181,496	$     4,461,102	$  8,305,281	$  11,067,250
Costs of Goods Sold		1,610,148	1,992,985	4,253,671	5,017,902
Gross Margin		1,571,348	2,468,117	4,051,610	6,049,348
Operating Expenses
Advertising expenses		2,266	1,644	9,071	13,661
Selling expenses		628,409	571,091	1,449,980	1,629,168
Professional fees		260,436	-	260,436	-
Research & development		20,386	21,293	31,416	36,180
Stamp tax on Minkang change of ownership	504,298		-	504,298	-
General and administrative expenses		484,678	423,283	1,552,153	1,335,903
Total operating expenses		1,900,473	1,017,311	3,807,354	3,014,912
Income (Loss) from Operations before Other (Income) Expense		(329,125)	1,450,806	244,256	3,034,436
Other (Income) Expense
Government grants - energy conservation		(2,254)	-	(2,254)	-
Interest income		13,814	(9,042)	(6,064)	(11,724)
Interest expense		50,135	39,198	118,873	119,909
Other (income) expense	19,086		(70,016)	14,422	11,004
Other (income) expense, net		80,781	(39,860)	124,977	119,189
Income (Loss) from Operations before Income Tax Provisions	(409,906)		1,490,666	119,279	2,915,247
Income Tax Provision (Benefit)	(68,204)		427,933	53,466	804,118
Net Income (Loss)		(341,702)	1,062,733	65,813	2,111,129

We intend to focus on the business operations of our subsidiary Hubei Minkang PRC. Hubei Minkang PRC is a modern pharmaceutical company that is engaged in the research, development, manufacture and marketing of TCM and some chemical pharmaceuticals in the PRC as well as markets its products to the US, Japan, Canada, Singapore, Malaysia, Thailand and Hong Kong among other countries.

During the next 12 months, management anticipates proceeding with expansion plans to acquire at least a 51% interest of a sales distribution company for approximately $1.5 million and to increase commercialization of Hubei Minkang PRC's products including the marketing distribution of existing and potential future products which is anticipated to cost approximately $700,000. However, if we are not able to raise the required funds for such expansion plans, then we may have to delay some or all of our expansion plans.

Our primary source of funds for the interim period ended September 30, 2011, included cash flow from operations, loans from the Bank of Communications, Yichang Branch and the Yichang City Commercial Bank, and a working capital advance from an unrelated third party. During the next 12 months, management anticipates proceeding with expansion plans to acquire at least a 51% interest of a sales distribution company for approximately $1.5 million and to increase commercialization of Hubei Minkang PRC's products including the marketing distribution of existing and potential future products which is anticipated to cost approximately $700,000. However, if we are not able to raise the required funds for such expansion plans, then we may have to delay some or all of our expansion plans.

On September 21, 2011 became a public entity via a reverse merger transaction.

Company Snapshot:

A large-scale pharmaceutical company that mainly produces and markets Traditional Chinese Medicines

Industry Snapshot:

Traditional Chinese Medicine (“TCM”) is a comprehensive medical system that originated in China more than 3,000 years ago.

Core concepts are based on the theories of Yin-Yang and the five elements, which are based on the ancient Chinese observing nature's cycles and changes. They held that wood, fire, earth, metal, and water were the basic substances constituting the material world. These five basic substances were considered an indispensable part of daily life. They also noted that the material world is in a constant state of flux due to the dynamic movement and mutual antagonism of yin and yang factors. TCM holds that a person’s health depends on a constant struggle between the opposing forces of yin and yang, or heat and cold, as expressed through the five elements. TCM sees excesses or imbalances in the body as the cause of illness or disease.

TCM uses Chinese herbal medicines to help to restore balance and enable the body to regain health. These medicines comprise a combination of herbs, minerals and animal products, and complement other related therapies such as acupuncture, acupressure, massage and restorative physical exercises, such as T’ai Chi or Qi Qong.

Post Merger Share Calculation:

•   8,594,117: Pre reverse merger outstanding shares
• 33,500,000: Newly issued shares of Common Stock

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  42,094,117

Financial Snapshot: December Year End

2010 vs. 2009

• Net Income: $2.2 million vs. $800 Thousand   

Three Months 2011 vs 2010

• Net Income: $269 Thousand vs. $264 Thousand 

Pro Forma Valuation: using  price and new share count

• Trailing EPS: $0.05
• Trailing P/E: 5.4