HK GRAPHENE TECHNOLOGY CORP - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - HK GRAPHENE TECHNOLOGY CORP	v231437_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - HK GRAPHENE TECHNOLOGY CORP	v231437_ex32-1.htm
EXCEL - IDEA: XBRL DOCUMENT - HK GRAPHENE TECHNOLOGY CORP	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 333-140148

LORETO RESOURCES CORPORATION

(Exact Name of Small Business Issuer as Specified in its Charter)

Nevada	20-5308449
(State of Incorporation)	(IRS Employer Identification No.)

1266 1st Street, Suite 4

Sarasota, FL 34236

(941) 365-5081

(Address of principal executive offices and telephone number)

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

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 (§232.405 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 x 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. (Check One):

Large accelerated filer ¨	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller Reporting company)

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

There were 70,298,322 shares of common stock issued and outstanding as of August 15, 2011.

LORETO CORPORATION

INDEX

		Page

Part I Financial Information

Item 1	Financial Statements

	Consolidated Balance Sheets (unaudited)	3

	Consolidated Statements of Expenses (unaudited)	4

	Consolidated Statements of Cash Flows (unaudited)	5

	Notes to the Consolidated Financial Statements (unaudited)	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8

Item 4	Controls and Procedures	11

Part II Other Information		13

Item 6	Exhibits	13

Signatures		14

Exhibits – Certifications of the Principal Executive Officer and the Principal Financial Officer

Exhibits – Certifications of the Chief Executive Officer and the Chief Financial Officer

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The financial statements of Loreto Resources Corporation (the “Company”) required to be filed with this Quarterly Report on Form 10-Q were prepared by management and commence on the following page, together with the related Notes. In the opinion of management, these financial statements fairly present the financial condition of the Company, but should be read in conjunction with the financial statements of the Company for the period ended December 31, 2010, previously filed on Form 10-K with the Securities and Exchange Commission.

LORETO RESOURCES CORPORATION

(An Exploration Stage Company)

Consolidated Balance Sheets

Unaudited

	As of			As of
	June 30,			December 31,
	2011			2010

ASSETS

Current Assets
Cash	$	1,986		$	8,235
Prepaid expenses		13,430			40,290
Due from related party		10,986			10,712
Total Current Assets		26,402			59,237

Non-Current Assets
Deposits		11,104			5,952

TOTAL ASSETS	$	37,506		$	65,189

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable	$	10,352		$	17,912
Insurance financing		4,911			33,789
Notes and interest payable		224,705			135,458
Notes and interest payable-related party		27,954			16,811
Total Current Liabilities		267,922			203,970

Total Liabilities		267,922			203,970

Stockholders' Deficit:
Common stock, $.001 par value, 300,000,000 shares authorized; 70,298,322 shares issued and outstanding as of June 30, 2011 and December 31, 2010		70,298			70,298
Additional paid-in capital		3,587,843			3,587,842
Deficit accumulated during development stage		(3,888,557	)		(3,796,921	)
Total Stockholders' Deficit		(230,416	)		(138,781	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	37,506		$	65,189

LORETO RESOURCES CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Expenses

Unaudited

													June 28, 2006
	Three Months			Three Months			Six Months			Six Months			(Inception)
	Ended			Ended			Ended			Ended			through
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010			June 30, 2011
Revenues
Revenues	$	-		$	-		$	-		$	-		$	-
Total revenues		-			-			-			-			-

Operating costs
General and administrative expenses		40,314			622,263			80,501			889,814			3,920,792

Loss from operations		(40,314	)		(622,263	)		(80,501	)		(889,814	)		(3,920,792	)

Other income (expense):
Interest income		2			9			5			61			10,049
Interest expense		(6,237	)		(226	)		(11,140	)		(786	)		(15,611	)
Gain on forgiveness of debt		-			16,221			-			16,221			37,797

Total other income (expense)		(6,235	)		16,004			(11,135	)		15,496			32,235

Net loss	$	(46,549	)	$	(606,259	)	$	(91,636	)	$	(874,318	)	$	(3,888,557	)

Loss per share - basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)

Weighted average number of common shares outstanding -basic and diluted		70,298,322			70,100,000			70,298,322			70,100,000

See accompanying notes to Unaudited Consolidated Financial Statements

LORETO RESOURCES CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

Unaudited

							June 28, 2006
							(Inception)
							through
	Six Months Ended			Six Months Ended			June 30,
	June 30, 2011			June 30, 2010			2011

Cash Flows from Operating Activities
Net loss	$	(91,636	)	$	(874,318	)	$	(3,888,557	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option expense		-			640,826			1,372,158
Common stock issued for services		-			-			4,500
Gain on forgiveness of debt		-			(16,221	)		(37,797	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		21,708			18,561			65,200
Accounts payable		(7,559	)		58,983			97,730
Accounts payable-related party		-			77,057			160,389
Interest accrued on notes payable		9,232			-			11,273
Interest accrued on notes payable-related party		1,148			-			1,416
Due from related party		(274	)		(21,859	)		(10,986	)
Net cash used in operating activities		(67,381	)		(116,971	)		(2,224,674	)

Cash Flows from Financing Activities
Loan from stockholder		-			-			13,200
Issuance of common stock, net of offering costs		-			-			2,058,313
Repayment of insurance financing		(28,878	)		(29,609	)		(84,823	)
Proceeds from notes payable		80,015			-			213,432
Proceeds from notes payable-related party		9,995			-			26,538
Net cash provided by (used in) financing activities		61,132			(29,609	)		2,226,660

Net Increase (Decrease) in Cash		(6,249	)		(146,580	)		1,986

Cash at Beginning of Period		8,235			148,013			-
Cash at End of Period	$	1,986		$	1,433		$	1,986

Supplemental Cash Flow Information
Cash paid for interest	$	759		$	-		$	2,034
Cash paid for income taxes	$	-		$	-		$	-

Non-Cash Investing and Financing Activities
Debt forgiveness by related party	$	-		$	153,844		$	173,589
Insurance financing	$	-		$	-		$	44,141
Stock issued for settlement of accounts payable	$	-		$	-		$	49,580

See accompanying notes to Unaudited Consolidated Financial Statements

LORETO RESOURCES CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

June 30, 2011

(Unaudited)

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Loreto Resources Corporation (the “Company”) was incorporated on June 28, 2006 in the state of Nevada under the name Loreto Corporation. The Company pursued its original business plan to create, market, and sell greeting cards to wholesalers and retail customers in shopping malls in its own planned retail shops. However, in 2008, the Company decided to redirect its business focus and strategy toward identifying and pursuing business opportunities in the mining sector in South America, more specifically, in Peru. Recently, the Company changed its focus again and is now looking for quality investment opportunities, not necessarily in the mining sector or in South America. The Company is in the development stage in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic No. 915, “Accounting and Reporting by Development Stage Enterprises”.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements of Loreto Resources Corporation 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, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented 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 consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year, 2010, as reported in Form 10-K, have been omitted.

NOTE 3. GOING CONCERN

During the six months ended June 30, 2011, Loreto has not generated any revenue and therefore has been unable to generate cash flows sufficient to support its operations and has been dependent on debt and equity financing. In addition to negative cash flow from operations, Loreto has experienced recurring net losses, and has an accumulated deficit of approximately $3.9 million as of June 30, 2011.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if Loreto is unable to continue as a going concern.

LORETO RESOURCES CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

June 30, 2011

(Unaudited)

NOTE 4. PROMISSORY NOTES

On November 2, 2010 and on November 17, 2010, the Company completed closings of a private placement offering of its convertible promissory notes (the “2010 Notes”), totaling approximately $150,000 in principal, to eight stockholders and one unaffiliated third party. The 2010 Notes bore interest of 10%, and would have matured on December 31, 2011. Both the principal and accrued interest would have been deemed mandatorily converted on March 15, 2011 at the price paid by investors in that offering, expressed as a percentage of the face amount of debt securities.

On March 15, 2011, the Company completed closings of a private placement offering of its convertible promissory notes, totaling approximately $90,000 in principal, to eight stockholders and one unaffiliated third party. As of March 1, 2011, the Company deemed the notes from the 2010 offering, along with accrued but unpaid interest, to have been converted, on a mandatory basis, into new notes on the same terms as the subsequent notes. The subsequent notes bear interest of 10%, mature on March 31, 2012, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing by the Company, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which the Company sells at least $1,000,000 of its securities.

As of June 30, 2011, the Company owed principal and accrued interest related to third parties and to a related party of $224,705 and $27,954, respectively.

The company evaluated the conversion options under FASB ASC 815-40 for derivative treatment and determined that the conversion options are required to be accounted for as a derivative upon the aforementioned closing of the next private placement offering. As the closing had not occurred as of the period ended June 30, 2011, and as per FASB ASC Topic 470-20, the derivative instrument nor the beneficial conversion feature need not be accounted for as of June 30, 2011.

NOTE 5. RELATED PARTY TRANSACTIONS

On February 24, 2011, a related party advanced the Company $10,615. This cash advance was non-interest bearing, and was paid back on March 15, 2011.

On March 15, 2011, the Company borrowed approximately $10,000 from a related party. As of June 30, 2011, the Company owed principal and accrued interest of $10,282.

NOTE 6. SUBSEQUENT EVENTS

Eagleford Letter of Intent

On August 8, 2011, the Company entered into a letter of intent with Eagleford Energy Inc. (“Eagleford”), a publicly held Ontario corporation, whose common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “EFRDF,” which is primarily engaged in the development, acquisition and production of oil and gas interests located in Alberta, Canada and Texas, U.S.A. The letter of intent relates to a potential farm-in by the Company of an up to 50% working interest in Eagleford’s net working interests in the Matthews and Murphy oil and gas leases in Zavala County, Texas.

Under the terms of the letter of intent, the Company has committed to provide Eagleford with US$250,000 in bridge financing in the form of a secured convertible note. Upon the execution of definitive agreements for the farm-in and funding of the Phase I amount, the unpaid principal of the bridge note will be applied against the Phase I amount required to be paid by the Company, and the bridge note will be cancelled. Otherwise, the note will become due 90 days after the Company notifies Eagleford of its intent not to proceed with the farm-in. Interest on the unpaid principal of and interest on the Bridge Note will accrue at the rate of 10% per annum only after the maturity date and will be payable on demand.

The Company has the right at any time after the maturity date of the note to convert the unpaid principal and accrued interest into common stock of Eagleford at a conversion price per share equal to the 30-day volume weighted average price of Eagleford common stock as of the date of conversion, less 20%.

The note will be secured by (a) a first priority security interest in all of the tangible and intangible assets of Eagleford now owned or hereafter acquired; and (b) either (i) a pledge by certain shareholders of Eagleford of, or (ii) an irrevocable treasury direction by Eagleford to its transfer agent to issue, a number of shares of Eagleford common stock equal to (x) $500,000 divided by (y) the 30-day volume weighted average price of Eagleford common stock as of the date of the note, less 20%.

The other terms of the letter of intent are not binding.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties including those related to changes in economic conditions, new business opportunities and general financial and business conditions, actual results may differ materially from those expressed or implied by the forward-looking statements.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of its public disclosure practices.

Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and accompanying notes included our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission.

OVERVIEW AND RECENT DEVELOPMENTS

Loreto Resources Corporation is an exploration stage, growth-oriented resource company recently focused on the acquisition, development and production of significant base and precious metals deposits.

During the year ended December 31, 2009, we entered into a number of letters of intent relating to the acquisition of various mining properties in Peru and other South American countries. We were seeking, at that time, development and production-stage zinc, copper, gold and silver mining assets. For commercial reasons, we decided not to pursue any of the acquisitions proposed in those letters.

We recently changed our focus and are now primarily seeking quality assets and investment opportunities. During the quarter ended September 30, 2010, we closed our office in Lima, Peru.

On January 15, 20101, our Board of Directors declared an additional 2 for 1 forward stock split in the form of a dividend. The record date for the stock dividend was January 25, 2010, the payment date was January 28, 2010 and the “Ex” date was January 29, 2010.

We have begun identifying and investigating investment opportunities, but we have not yet finalized decisions to pursue any particular project.

Effective May 5, 2010, we entered into a written agreement with Luis Saenz (the “Termination Agreement”) pursuant to which Mr. Saenz’s employment agreement with us dated July 21, 2008 (the “Employment Agreement”) was terminated. Pursuant to the terms of the Termination Agreement, Mr. Saenz released us from any and all obligations to him relating to the Employment Agreement, including, but not limited to, any and all rights and claims to compensation, bonuses and expense reimbursements. Mr. Saenz also agreed to terminate his option agreement with us dated July 21, 2008 and has relinquished all rights originally granted under that agreement. Mr. Saenz will remain as our President and Chief Executive Officer and a director.

1. As further discussed in our Form 8-K filed with the Securities and Exchange Commission on January 28, 2010.

Additionally, during the 2010 fiscal year, we reached settlements with all of our creditors in connection with outstanding bills relating to our former proposed mining operations, and we terminated option agreements that we had in place with a number of consultants. We also reached a settlement agreement with Gottbetter & Partners, LLP, our legal counsel (“G&P”), whereby G&P agreed to forego payment of $49,580.49 in legal fees due for the 2009 fiscal year in exchange for and upon receipt of 198,322 restricted shares of our common stock (valued at $0.25 per share).

During the three and six month periods ended June 30, 2011, we did not generate any revenue. Because we have been unable to generate cash flows sufficient to support our operations, we have been dependent on debt financing from certain of our existing stockholders. In addition to negative cash flow from operations, we have experienced recurring net losses, and have an accumulated deficit of approximately $3.9 million. These factors raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Eagleford Letter of Intent

On August 8, 2011, we entered into a letter of intent with Eagleford Energy Inc. (“Eagleford”), a publicly held Ontario corporation, whose common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “EFRDF,” which is primarily engaged in the development, acquisition and production of oil and gas interests located in Alberta, Canada and Texas, U.S.A. The letter of intent relates to a potential farm-in by us of an up to 50% working interest in Eagleford’s net working interests in the Matthews and Murphy oil and gas leases in Zavala County, Texas.

Under the terms of the letter of intent, we have committed to provide Eagleford with US$250,000 in bridge financing in the form of a secured convertible note. Upon the execution of definitive agreements for the farm-in and funding of the Phase I amount, the unpaid principal of the bridge note will be applied against the Phase I amount required to be paid by us, and the bridge note will be cancelled. Otherwise, the note will become due 90 days after we notify Eagleford of our intent not to proceed with the farm-in. Interest on the unpaid principal of and interest on the Bridge Note will accrue at the rate of 10% per annum only after the maturity date and will be payable on demand.

We have the right at any time after the maturity date of the note to convert the unpaid principal and accrued interest into common stock of Eagleford at a conversion price per share equal to the 30-day volume weighted average price of Eagleford common stock as of the date of conversion, less 20%.

The other terms of the letter of intent are not binding.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2011 and Three Months Ended June 30, 2010

We are still in our exploration stage and have generated no revenues to date.

We incurred general and administrative expenses of $40,314 and $622,263 for the three months ended June 30, 2011 and 2010, respectively. These expenses consisted of legal and other professional fees and operating costs incurred in connection with the day to day operation of our business and the preparation and filing of our periodic reports.

Our net loss for the three months ended June 30, 2011 and 2010 was $(46,549) and $(606,259), respectively.

We have generated no revenues and our net operating loss from inception through June 30, 2011 was $(3,888,557).

The change from the 2010 to the 2011 three-month periods reflect our decreased costs incurred as a result of the winding down of our planned South American mining exploration business in fiscal 2010.

Six Months Ended June 30, 2011 and Six Months Ended June 30, 2010

We incurred general and administrative expenses of $80,501 and $889,814 for the six months ended June 30, 2011 and 2010, respectively. These expenses consisted of legal and other professional fees and operating costs incurred in connection with the day to day operation of our business and the preparation and filing of our periodic reports.

Our net loss for six months ended June 30, 2011 and 2010 was $(91,636) and $(874,318), respectively.

The decreases from the 2010 to the 2011 six-month periods reflect our decrease in costs as a result of our winding down of our planned South American mining exploration business.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents balance at June 30, 2011 was $1,986 as compared to $8,235 at December 31, 2010.

On November 17, 2010, we completed the second and final closing of a private placement offering (the “2010 Offering”) of our 10% Convertible Promissory Notes (the “2010 Notes”). We sold an aggregate principal amount of $149,960 of the 2010 Notes in the 2010 Offering. The 2010 Notes were to be automatically converted at the initial closing of our next private placement, together with accrued interest, into those securities offered in that next private placement.

On March 15, 2011, we closed a private placement offering (the “2011 Offering”) of our 10% convertible promissory notes (the “2011 Notes”). In the 2011 Offering, we sold $90,000 in principal amount of the 2011 Notes. As of March 1, 2011, we deemed the 2010 Notes, along with accrued but unpaid interest, to have been converted, on a mandatory basis, into new notes on the same terms as the 2011 Notes.

The 2011 Notes bear interest of 10%, mature on March 31, 2012, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in our next securities offering or other financing, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in our next securities offering or other financing, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which we sell at least $1,000,000 of our securities.

We presently do not have any available credit, bank financing or other external sources of liquidity other than the remaining net proceeds from the 2011 Offering. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We believe that, at our current level of operation, we do not have sufficient cash to meet our expenses for the next six months. Additionally, we do not currently have the US$250,000 we have agreed to lend Eagleford under the Eagleford letter of intent. We will need to obtain additional capital in order to fund the Eagleford note, maintain our public company regulatory requirements and execute our business plan, build our operations and become profitable. In order to obtain capital, we will need to sell additional shares of our Common Stock or debt securities, or borrow funds from private lenders or banking institutions. We have not made any decisions with respect to any such financing. There can be no assurance that we will be successful in obtaining additional funding in amounts or on terms acceptable to us, if at all. If we are unable to raise additional funding as necessary, we may have to suspend our operations temporarily or cease operations entirely.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 of 1934 (the “Exchange Act”) is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

The management of Loreto Resources Corporation is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our senior management, consisting of Luis F. Saenz, our Chief Executive Officer and Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and interim chief financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were not effective because of the identification of what might be deemed a material weakness in our internal control over financial reporting which is identified below.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this evaluation, our sole officer concluded that, during the period covered by this quarterly report, our internal controls over financial reporting were not operating effectively. Management did not identify any material weaknesses in our internal control over financial reporting as of June 30, 2011; however, it has identified the following deficiencies that, when aggregated, may possibly be viewed as a material weakness in our internal control over financial reporting as of that date:

We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.

We did not maintain proper segregation of duties for the preparation of our financial statements. We currently only have one officer overseeing all transactions. This has resulted in several deficiencies including the lack of control over preparation of financial statements, and proper application of accounting policies:

Management believes that the material weaknesses set forth the two items 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.

Management's Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures once we have the financial resources to do so:

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who 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.

Management believes that the appointment of one or more outside Directors, who shall be appointed to a fully functioning audit committee, would remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

Changes in Internal Controls over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

ITEM 6. EXHIBITS

The following exhibits are included with this quarterly report.

Exhibit
Number		Description

31.1/31.2		Certification of Principal Executive Officer and Interim Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1/32.2		Certification of Chief Executive Officer and Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Loreto Resources Corporation

Date: August 15, 2011	By	/s/Luis F. Saenz
		Luis F. Saenz, President, Principal Executive Officer and Interim Principal Financial Officer

Attached files

HK GRAPHENE TECHNOLOGY CORP Reports

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