UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported): February 15, 2011
HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC.
(Exact
name of Registrant as specified in its charter)
Nevada
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000-32253
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87-0650264
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer Identification Number)
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of
incorporation)
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16B/F
Ruixin Bldg., No. 25 Gaoxin Road
Xi’an,
Shaanxi Province, China 710075
(Address
of principal executive offices)
86-29-8822
4682
(Registrant’s
telephone number, including area code)
N/A
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(Former
name or former address, if changed since last
report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities
Act
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange
Act
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange
Act
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Item
4.02. Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review.
On
February 15 , the board of directors of Huifeng Bio-Pharmaceutical Technology,
Inc (the “Company”), based on the recommendation of the audit committee and in
consultation with management, concluded that, because of inadvertent errors
identified in the Company’s previously issued financial statements for the
fiscal year ended December 31, 2009 and the first three fiscal quarters of 2010,
the Company will restate its previously issued financial statements, including
the quarterly data for fiscal years 2010 and its selected financial data for the
relevant periods. Accordingly, investors should no longer rely upon the
Company’s previously released financial statements for these periods and any
earnings releases or other communications relating to these
periods.
As
discussed below, management discovered these non-cash errors during an internal
review to prepare responses to comments the Company received from the Securities
and Exchange Commission (the “SEC”) regarding the SEC’s review of the Company’s
Form 10-K for the year ended December 31, 2009 and the year-end financial
statements and audit. In response to the SEC comment letter, the
audit committee of the Company’s board of directors initiated an internal review
to determine the existence of and reason for errors and determined errors in the
classification of certain warrants and the accounting treatment of the
modification of certain convertible notes. In summary, as discussed
more particularly below, the outstanding warrants should be classified as
liability according to ASC 815-40, which became effective on January 1, 2009.
The Company erroneously classified the warrants as equity for the relevant
periods. The modification of convertible promissory notes originally
issued on December 31, 2007 should have been treated as an extinguishment of
debt pursuant to ASC 405-20.
None of
the financial statement errors implicate misconduct with respect to the Company
or its management or employees, which were based on a misunderstanding of
applicable accounting rules.
The
amounts disclosed below are the effect of these errors on each reporting period.
The impact of the individual errors will be disclosed in more detail in the
Company’s restated financial statements. The adjustments necessary to correct
the non-cash errors will have no effect on reported cash flow from
operations.
The
Company has discovered the following errors:
Warrant
Liabilities
On
December 31, 2007, the Company issued warrants in connection with the issuance
and sale of convertible promissory notes. The warrants were
classified as equity in the Company’s audited financial statements for fiscal
years 2007, 2008 and 2009. On January 1, 2009, FASB ASC Topic 815,
entitled “Derivatives and Hedging” (“ASC 815”) (previously EITF 07-5,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock”)), became effective, ASC 815 constitutes new
guidance for instruments indexed to an entity’s own stock and the resulting
liability or equity classification. In the context of responding to
the SEC’s comment letter, the Company performed an assessment of these warrants
and concluded that the warrants are within the scope of ASC
815. Accordingly, ASC 815 should have been adopted as of January 1,
2009 by classifying the warrants as liabilities measured at fair value with
changes in fair value recognized in earnings for each reporting period and
recording a cumulative-effect adjustment to the opening balance of retained
earnings.
We have
calculated the fair value of the warrants at the date of adoption of ASC 815 as
well as at March 31, 2010, June 30, 2010 and September 30, 2010, utilizing a
Black-Scholes-Merton stock option valuation model. Based on our
calculations and assessment of the materiality, we have concluded that our
previously filed Annual Report on Form 10-K for the year ended December 31, 2009
as well as our previously filed Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 2010 require restatement.
Extinguishment of
Debt
On
December 24, 2009, the Company and the remaining six holders holding convertible
promissory notes totaling $1,800,000, entered into a note amendment agreement
that (i) extended the maturity date of the Notes to June 30, 2011, (ii) reduced
the conversion price of the Notes from $1.00 to $0.80, (iii) reduced the
exercise price of warrants to purchase 450,000 shares of common stock from $1.50
to $1.00, (iv) extended the term of the warrants to December 31, 2011, and (v)
established a repayment schedule beginning on April 30, 2010 with the entire
remaining balance payable on June 30, 2011. In addition, the Company
agreed to issue the holders an aggregate of 450,000 shares of common stock in
consideration for entering into the amendment. The Company timely
disclosed the note modifications in its Form 10-K for the year ended December
31, 2009.
The
Company has performed an assessment of this transaction in accordance with ASC
470-50 “Modification and Extinguishments” and ASC 405-20 “Extinguishment of
Liabilities,” and determined that by applying the 10% cash flow test the
original and new convertible notes were substantially different and that as a
result the modification of the convertible promissory notes should have been
treated as an extinguishment of debt. As a result, the Company has
determined that its previously filed Annual Report on Form 10-K for the year
ended December 31, 2009 as well as our previously filed Quarterly Reports on
Form 10-Q for the quarters ended March 31, June 30 and September 30, 2010
require restatement.
Expected
impact of the restatement
The
estimated necessary adjustments to the Company’s consolidated balance sheets and
statements of operations are summarized in the tables below. The Company is
still in the process of completing its review of the restated financial
statements, and, therefore, the estimated adjustments described below are
preliminary. While the Company expects to report the estimated adjustments
described below, there can be no assurance that the final adjustments that are
made as part of the restatement will not differ materially from the estimated
adjustments.
Fiscal
Year 2009
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Q1
2010
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Q2
2010
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Q3
2010
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As
Reported
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Adjustments
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As
Restated
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As
Reported
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Adjustments
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As
Restated
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As
Reported
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Adjustments
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As
Restated
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As
Reported
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Adjustments
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As
Restated
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Total
Liabilities
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$ | 3,030,341 | $ | 864,097 | $ | 3,894,438 | $ | 3,087,491 | $ | 780,884 | $ | 3,868,375 | $ | 3,241,536 | $ | 618,877 | $ | 3,860,413 | $ | 3,345,925 | $ | 563,155 | $ | 3,909,080 | ||||||||||||||||||||||||
Additional
paid in capital
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$ | 10,315,847 | $ | (536,285 | ) | $ | 9,779,562 | $ | 10,388,755 | $ | (536,285 | ) | $ | 9,852,470 | $ | 10,896,366 | $ | (536,285 | ) | $ | 10,360,081 | $ | 12,642,737 | $ | (536,285 | ) | $ | 12,106,452 | ||||||||||||||||||||
Unappropriated
retained earnings
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$ | 2,189,692 | $ | (327,812 | ) | $ | 1,861,880 | $ | 3,053,581 | $ | (244,599 | ) | $ | 2,808,982 | $ | 4,585,883 | $ | (82,592 | ) | $ | 4,503,291 | $ | 6,741,813 | $ | (26,870 | ) | $ | 6,714,943 | ||||||||||||||||||||
Net
income
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$ | 3,042,860 | $ | (619,320 | ) | $ | 2,423,540 | $ | 892,094 | $ | 83,213 | $ | 975,307 | $ | 2,499,927 | $ | 254,220 | $ | 2,754,147 | $ | 4,775,256 | $ | 300,941 | $ | 5,076,197 | |||||||||||||||||||||||
Basic
net income per common share
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$ | 0.15 | $ | (0.03 | ) | $ | 0.12 | $ | 0.04 | - | $ | 0.04 | $ | 0.10 | $ | 0.01 | $ | 0.11 | $ | 0.19 | $ | 0.01 | $ | 0.20 |
In
accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the
Company’s management has been assessing the effectiveness of the Company’s
internal controls over financial reporting and disclosure controls. Based on
this assessment, the Company expects to report a material weakness in the
Company’s internal controls over financial reporting, and, therefore, concludes
that internal controls over financial reporting as of September 30, 2010 are not
effective. Although the assessment is not yet complete, management expects to
recommend to the audit committee of the Company’s board of directors certain
remedial actions that include (i) the addition of more experienced
accounting staff with US Certified Public Accountant certificate at the
Company’s enterprise; (ii) a formal training program for all accounting and
finance personnel, so that they remain current with accounting rules,
regulations and trends, (iii) a thorough review of the finance and
accounting departments, to ensure that the areas of responsibilities are
properly matched to the staff competencies and that the lines of communication
and processes are as effective as practicable.
The audit
committee and management have discussed the matters disclosed in this current
report on Form 8-K with Baker Tilly Hong Kong, the Company’s independent
registered public accounting firm. The Company is working diligently to complete
the restatement of its financial statements.
Statements
in this report, including but not limited to those relating to the Company’s or
management’s intentions, beliefs, expectations, hopes, projections, assessment
of risks, estimations, plans or predictions for the future, including the impact
of the restatement, timing of filings with the SEC and other statements that are
not historical facts are forward-looking statements that are based on current
expectations. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that these
expectations will prove correct. Important factors that could cause
actual results to differ materially from those in the forward-looking statements
include delays and uncertainties that may be encountered in connection with the
restatement, final audits and reviews by the Company and its auditors, and other
risks described in the Company’s annual report on Form 10-K for the year ended
December 31, 2009 and its other filings with the SEC. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. Investors should not place undue reliance on
forward-looking statements. Each forward-looking statement speaks
only as of the date of the particular statement and the Company undertakes no
duty to update any forward-looking statement.
SIGNATURES
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 hereunto
duly authorized.
Huifeng
Bio-Pharmaceutical Technology, Inc.
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By:
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/s/
Jing’an Wang
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Jing’an
Wang
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Date:
February 17, 2011
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Chief
Executive Officer
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