Luckwel Pharmaceuticals Inc. - Quarter Report: 2018 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended December 31, 2018

For the transition period from _________ to _________

Commission File Number: 333-187874

LUCKWEL PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

100 S. Saunders Road, Suite 150, Lake Forest, IL 60045

(Address of principal executive offices) (Zip Code)

(847) 574 6288

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 every Interactive Data File required to be submitted 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 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

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.

The number of shares of common stock, par value $0.01 outstanding as of February 14, 2019 was 143,376,000.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Our condensed consolidated financial statements included in this Form 10-Q are as follows:

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities and Exchange Commission 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 December 31, 2018 are not necessarily indicative of the results that can be expected for the full year.

LUCKWEL PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

See accompanying notes to condensed consolidated financial statements.

LUCKWEL PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)

See accompanying notes to condensed consolidated financial statements.

LUCKWEL PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

See accompanying notes to condensed consolidated financial statements.

LUCKWEL PHARMACEUTICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Stated in US Dollars)

See accompanying notes to condensed consolidated financial statements

LUCKWEL PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Organization and Basis of Presentation

The accompanying condensed consolidated unaudited interim financial statements of Luckwel Pharmaceuticals Inc. (the “Company”, “we” or “our” and formerly known as “Luckycom Pharmaceuticals Inc.” and “Luckycom Inc.”) 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 of the Company contained in the Company’s Form 10-K filed with the SEC on July 16, 2018.

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 the interim periods are not necessarily indicative of the results to be expected for the full year.

Organization and Description of Business

The Company plans to acquire, develop, manufacture and market pharmaceutical medication.

Luckycom Limited, a wholly-owned subsidiary of the Company, was incorporated in Hong Kong as Goldsans Capital (Hong Kong) Limited (“Goldsans”) on November 8, 2011. Goldsans name was changed to Wudor Capital Hong Kong Limited on May 22, 2012 and subsequently to Luckycom Limited on June 28, 2013.

On December 13, 2017, the Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee executed a Sold Note and Instrument of Transfer on behalf of Luckwel Pharmaceuticals Inc., pursuant to which the Company would sell to Ms. Lijian Li, Mr. Kingrich Lee’s sister, 10,000 shares of stock of the Company’s wholly-owned Hong Kong subsidiary, Luckycom Limited at a purchase price of HKD 1 (approximately $0.13) per share aggregating to HKD 10,000 (approximately $1,281). On the same date, the transaction was consummated with the payment of stamp duty to the Hong Kong tax department.

On April 11, 2018, Luckwel Pharmaceuticals Inc. filed a Certificate of Amendment to the Articles of Incorporation to change its name from Luckycom Pharmaceuticals Inc. to Luckwel Pharmaceuticals Inc. and to increase the number of its authorized shares of common stock from 100,000,000 to 200,000,000 with an effective date of April 13, 2018. It then amended and restated its by-laws to reflect the new corporate name.

Recent Accounting Pronouncements

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. Public business entities should apply the amendments in ASU 2018-02 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company determines there is no material impact of adopting ASU 2018-02 on its condensed consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, Income Tax (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This update adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Act was signed into law. The Company determines there is no material impact of adopting ASU 2018-05 on its condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): “Improvements to Nonemployee Share-Based Payment Accounting.” The amendment simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718, Compensation—Stock Compensation to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including any interim period, for reporting periods for which financial statements have not been issued, but no earlier than an entity’s adoption date of ASC Topic 606. The Company is currently evaluating the impact of adopting ASU 2018-07 on its condensed consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.

Note 2 – Going Concern

The Company has no source of revenues and need additional cash resources to maintain the operations. The Company has $42,917 in cash and a working capital deficit of $811,559, has incurred losses since inception of $2,711,077, and have not yet received any revenue from sales of products or services. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing. The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses, including professional fee and fees charged by regulators, although he is under no obligation to do so.

The Company intends to meet the cash requirements for the next 12 months from the issuance date of the condensed consolidated financial statements through a combination of debt and equity financing by way of private placements, friends, family and business associates. The Company currently did not have any arrangements in place to complete any private placement financings and there is no assurance that the Company will be successful in completing any such financings on terms that will be acceptable to it. The Company anticipates that Mr. Kingrich Lee, the Chief Executive Office, will spearhead the financing efforts.

If the Company does not have sufficient working capital to pay its operating costs for the next 12 months, it will require additional funds to pay its legal, accounting and other fees associated with our Company and its filing obligations under United States federal securities laws, as well as to pay its other accounts payable generated in the ordinary course of our business. Once these costs are accounted for, it will focus on the following activities:

Any failure to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company may have to push back the dates of such activities.

The condensed consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses and further losses are anticipated as a result of the development of business which raises substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the issuance date of the condensed consolidated financial statements. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing necessary to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of the Company’s common stock.

Note 3 – Related Party Transactions

The Company’s sole officer and director, and a shareholder, Mr. Kingrich Lee, loaned an aggregate of $139,929 in cash and made $132,536 payment on behalf of the Company during the three months ended December 31, 2018. During the comparable period of 2017, Mr. Kingrich Lee made payments amounting to $24,365 on behalf of the Company. Mr. Kingrich Lee loaned an aggregate of $404,883 in cash and made payments aggregating $281,019 on behalf of the Company during the nine months ended December 31, 2018. During the comparable period of 2017, he made aggregate payments of $62,105 on behalf of the Company.

Accordingly, Mr. Kingrich Lee is owed an aggregate amount of $767,659 and $81,757 as of December 31, 2018 and March 31, 2018, respectively.

The amounts are unsecured, non-interest bearing and due on demand.

On May 3, 2018, the Company entered into an Intellectual Property Sale and Purchase Agreement (the “Agreement”) with Luckwel Asia Limited (the “Seller”, formerly known as Essential Choice Ventures Ltd), an entity under common control of Mr. Kingrich Lee to purchase from the Seller the intellectual property rights to five drugs, comprising three generic medicines used to treat hypertension and high cholesterol and two advanced drug candidates - KL008 for treatment of hypertension and KL009 for treatment of high cholesterol in various stages of being developed and manufactured (the “Transaction”).Pursuant to the terms of the Agreement, the Company would pay the Seller on closing (i) US$40,000 and (ii) issue an aggregate 125,000,000 restricted shares of its common stock, par value $0.01. The Transaction closed on May 3, 2018. The Company recorded the carrying value of the intellectual property as nil in the Seller’s record, $40,000 as capital distribution to the Seller and recorded the par value of the common stock as additional paid-in capital, which was due to the Transaction being regarded as an equity transaction because both parties were under common control.

Note 4 – Capital Stock

As of December 31, 2018, the Company had 143,376,000 shares of common stock issued and outstanding. During the nine months ended December 31, 2018, the Company issued in aggregate of 125,000,000 restricted shares of its common stock to Luckwel Asia Limited.

Note 5 – Subsequent Event

The Company has evaluated subsequent events through the issuance of the condensed consolidated financial statements and no subsequent event is identified.

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

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

As reflected in the accompanying financial statements, we have no source of revenue and need additional cash resources to maintain our operations. We have $42,917 in cash and a working capital deficit of $811,559, have incurred losses since inception of $2,711,077, and have not yet received any revenue from sales of products or services. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital or obtain necessary debt financing. We are presently dependent on our controlling shareholder to provide us funding for our daily operation and expenses, including professional fee and fees charged by regulators, although he is under no obligation to do so.

We intend to meet our cash requirements for the next 12 months from the issuance date of this report through a combination of debt and equity financing by way of private placements, friends, family and business associates. We currently do not have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us. We anticipate that Mr. Kingrich Lee, our Chief Executive Office, will spearhead our financing efforts.

If we do not have sufficient working capital to pay our operating costs for the next 12 months, we will require additional funds to pay our legal, accounting and other fees associated with our Company and our filing obligations under United States federal securities laws, as well as to pay our other accounts payable generated in the ordinary course of our business. Once these costs are accounted for, we will focus on the following activities:

Any failure to raise money will have the effect of delaying the timeframes in our business plan as set forth above, and we may have to push back the dates of such activities.

Results of Operations

The Three Months and Nine Months Ended December 31, 2018 and 2017

Operating Revenue

We recorded no consolidated revenue and consolidated net loss for the three-month and nine-month periods ended December 31, 2018 and the same for the corresponding periods in 2017 as we are a shell company without any operations to generate revenue. We do not anticipate receiving further revenue for so long as we have no operations.

Operating Expenses

We had operating expenses of $262,811 and $122,806 for the three months ended December 31, 2018 and 2017, respectively, and $642,267 and $388,820 for the nine months ended December 31, 2018 and 2017, respectively.

Our operating expenses for the three months ended December 31, 2018 consisted mainly of professional fees of $108,320, officer compensation of $60,488, travel and entertainment expenses of $47,805, rent of $959, and office operation expenses of $45,240. Operating expenses increased significantly due to increased travel and business development activities. Besides, we also hired consultants about business management which led to the increase of operating expenses.

Our operating expenses for the three months ended December 31, 2017 consisted mainly of professional fees of $48,906, officer compensation of $59,624, travel and entertainment expenses of $8,213, rent of $3,481, and other operation expenses of $2,582.

Our operating expenses for the nine months ended December 31, 2018 consisted mainly of professional fees of $209,735, officer compensation of $206,201, travel and entertainment expenses of $80,502, rent of $2,426, office operations expenses of $142,900, and other operation expenses of $503. Operating expenses increased due to increased travel and businesses development activities. In addition, we have been providing education and housing allowances to Mr. Kingrich Lee, our Chief Executive Officer according to his employment contract since November 2017, which also increased our operating expense.

Our operating expenses for the nine months ended December 31, 2017 consisted mainly of professional fees of $175,177, officer compensation of $155,623, travel expenses of $22,896, rent of $21,677, and other operation expenses of $13,447.

We anticipate our operating expenses will increase sharply as we proceed to implement our business plan described above and become operational.

Net Loss

We incurred a net loss of $262,810 and $126,834 for the three months ended December 31, 2018 and 2017, respectively, and a net loss of $642,262 and $392,656 for the nine months ended December 31, 2018 and 2017, respectively.

Liquidity and Capital Resources

As of December 31, 2018, we had total current assets of $43,486 consisting of $42,917 in cash and $569 in prepaid expenses and other current assets. As of December 31, 2018, we had current liabilities in the amount of $855,045, consisting of other payable and accrued liabilities of $87,386, and $767,659 due to an officer.

The table below sets forth selected cash flow data for the periods presented:

Our negative operating cash flows were mainly a result of operating expenses (See also Result of Operations).

Our positive financing cash flows were a result of proceeds from officer loans.

On May 3, 2018, we entered into an Intellectual Property Sale and Purchase Agreement (the “Agreement”) with Luckwel Asia Limited (the “Seller”, formerly known as Essential Choice Ventures Ltd), an entity under common control of Mr. Kingrich Lee to purchase from the Seller the intellectual property rights to five drugs, comprising three generic medicines used to treat hypertension and high cholesterol and two advanced drug candidates - KL008 for treatment of hypertension and KL009 for treatment of high cholesterol in various stages of being developed and manufactured (the “Transaction”). Pursuant to the terms of the Agreement, the Company would pay the Seller on closing (i) US$40,000 and (ii) issue an aggregate 125,000,000 newly issued restricted shares of its common stock, par value $0.01. The Transaction closed on May 3, 2018. The Company recorded the carrying value of the intellectual property as nil in the Seller’s record, $40,000 as capital distribution the Seller and recorded the par value of the common stock as additional paid-in capital, which was due to the Transaction being regarded as an equity transaction because both parties were under common control.

Despite having $42,917 in cash as of December 31, 2018, we have insufficient cash to operate our business at the current level for the next 12 months from the issuance date of this report and insufficient cash to achieve our business goals. The success of our business plan beyond the next 12 months from the issuance date of this report is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sale of stock or the advancement of loans of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2018, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive and Chief Financial Officer has concluded that as of December 31, 2018, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified below.

Our principal executive and principal financial officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December 31, 2018, our internal controls over financial reporting were not effective. The material weaknesses identified related to (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures; and (iii) a lack of independent directors and an audit committee.

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending March 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting and financial reporting, and (iii) strengthen our financial team by employing more qualified accountant(s) conversant with US GAAP to enhance the quality of our financial reporting function. The remediation efforts set out in (i), (ii) and (iii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2018, there have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

* Filed herewith

**Furnished herewith

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 thereunto duly authorized.