ITEM 1. BUSINESS
This Report contains summaries of the material terms of various agreements executed in connection with the transactions described herein. The summaries of these agreements are subject to, and are qualified in their entirety by reference to, these agreements, all of which are incorporated herein by reference.
Historical Development
HK Battery Technology, Inc. (“HK Battery,” the “Company,” we,” “us,” or “our”) was incorporated as Nano Holdings International, Inc., in Delaware on April 16, 2004. Prior to the Merger (as defined below), our business was to sell party and drinking supplies, including gelatin shot mixes, shot glasses, flavored sugar and salts, and various other drinking containers and paraphernalia.
Name Changes and Capital Increase
On November 3, 2008, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware, which (i) changed our name from Nano Holdings International, Inc., to Nevada Gold Holdings, Inc., and (ii) increased our authorized capital stock from 75,000,000 shares of common stock, par value $0.001, to 300,000,000 shares of common stock, par value $0.001, and 10,000,000 shares of preferred stock, par value $0.001.
On August 7, 2013, we filed another Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to (i) change our corporate name to HK Battery Technology Inc., and (ii) increase our authorized capitalization from 300,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share, to 1,200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. We mailed a definitive information statement on Schedule 14C to our stockholders on August 7, 2013, and in accordance with the regulations under the Securities Exchange Act of 1934, as amended, the Charter Amendment did not become effective until at least 20 days after that mailing date.
As used in this Report, unless otherwise stated or the context clearly indicates otherwise, the term “Nano Holdings” refers to us before giving effect to the Merger (defined below), the term “NGE” refers to Nevada Gold Enterprises, Inc., a Nevada corporation formed on October 7, 2008, before giving effect to the Merger, the term “NGHI” refers to Nevada Gold Holdings, Inc., after giving effect to the Merger, and the terms “Company,” “we,” “us,” and “our” refer to HK Battery Technology, Inc. (formerly Nevada Gold Holdings, Inc.), and its wholly owned subsidiary, NGE, after giving effect to the Merger.
Stock Splits
Our Board of Directors authorized a 30.30303-for-1 forward split of our common stock, par value $0.001 per share (“Common Stock”), in the form of a stock dividend, which was paid on November 21, 2008, to holders of record on November 19, 2008. Our Board of Directors authorized a 2-for-1 forward split of our Common Stock, in the form of a stock dividend, which was paid on May 12, 2009, to holders of record on May 8, 2009. Our Board of Directors and our stockholders authorized a one-for-fifteen reverse split of our Common Stock, which was effected on September 15, 2010. All share and per share numbers in this Report relating to the Common Stock have been adjusted to give effect to these stock splits, unless otherwise stated.
On July 21, 2014, our Board of Directors and stockholders holding a majority of the Company’s outstanding shares of common stock (the “Majority Stockholders”), respectively, approved an amendment to the Company’s Certificate of Incorporation to effect a 1-for-100 Reverse Stock Split at any time within the sixty (60) day period after July 21, 2014. The board determined the split ratio based upon a review of the capital structure of the Company, including current market share price, general market conditions and the potential benefits from the reverse split. The Company filed a charter amendment for the reverse stock split with the Delaware Secretary of State, with a future effective date and time of 5:00 p.m. Eastern Time on September 5, 2014.
Merger
On December 31, 2008, pursuant to a Merger Agreement entered into on the same date, Nevada Gold Acquisition Corp., a Nevada corporation formed on December 18, 2008, and a wholly owned subsidiary of Nano Holdings (“Acquisition Sub”), merged with and into NGE, with NGE being the surviving corporation (the “Merger”).
NGE held rights to explore for gold on a property located in Austin, Nevada, known as the Tempo Mineral Prospect pursuant to a lease with Gold Standard Royalty Corporation (“Gold Standard”), a subsidiary of Golden Predator Mines Inc. that covered 206 contiguous unpatented lode claims, totaling 2,920 acres. As a result of the Merger, NGE became a wholly owned subsidiary of NGHI.
Pursuant to the Merger, we ceased operating as a distributor of party and drinking supplies and acquired the business of NGE to engage in the exploration and eventual development of gold mines, and we have continued NGE’s existing business operations as a publicly traded company under the name Nevada Gold Holdings, Inc. See “Split-Off Agreement” below.
At the closing of the Merger, each of the 200 shares of NGE’s common stock issued and outstanding immediately prior to the closing of the Merger was converted into 4,658,263 shares of our Common Stock. As a result, an aggregate of 2,626,263 shares of our Common Stock were issued to the holders of NGE’s common stock. NGE did not have any stock options or warrants to purchase shares of its capital stock outstanding at the time of the Merger.
The Merger was treated as a recapitalization of the Company for financial accounting purposes. NGE is considered the acquirer for accounting purposes, and the historical financial statements of Nano Holdings before the Merger were replaced with the historical financial statements of NGE before the Merger in all subsequent filings with the Securities and Exchange Commission (the “SEC”).
The parties took all actions necessary to ensure that the Merger was treated as a tax-free exchange under Section 368(a) of the Internal Revenue Code of 1986, as amended.
Split-Off Agreement
Upon the closing of the Merger, under the terms of a Split-Off Agreement, the Company transferred all of its pre-Merger operating assets and liabilities to its wholly owned subsidiary, Sunshine Group, Inc., a Delaware corporation (“Sunshine”) formed on December 18, 2008, including, without limitation, the Company’s equity interests in Sunshine Group, LLC, a Florida limited liability company (“Sunshine LLC”). Thereafter, pursuant to the Split-Off Agreement, we transferred all of the outstanding shares of capital stock of Sunshine to Marion R. “Butch” Barnes, William D. Blanchard and Robert Barnes, pre-Merger stockholders of Nano Holdings (the “Split-Off”), in consideration of and in exchange for (i) the surrender and cancellation of an aggregate of 6,666,667 shares of our Common Stock held by those stockholders and (ii) certain representations, covenants and indemnities.
Accounting Treatment; Change of Control
The Merger was accounted for as a “reverse merger,” and NGE was deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that are reflected in our financial statements prior to the Merger are those of NGE and have been recorded at the historical cost basis of NGE, and our consolidated financial statements after completion of the Merger include the assets and liabilities of NGE, historical operations of NGE and operations of NGHI and its subsidiary from the closing date of the Merger. As a result of the issuance of the shares of Common Stock pursuant to the Merger, a change in control of the Company occurred as of the date of consummation of the Merger. Except as described in this Report, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our Board of Directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company.
Private Placements
On December 31, 2008, NGHI closed a private placement (the “Bridge PPO”) of (a) 55,200 shares of Common Stock, at a purchase price of $1.30 per share, and (b) $150,000 principal amount of its 10% Secured Convertible Promissory Note (the “2008 Bridge Note”), at a purchase price of par, for aggregate gross proceeds of $253,500, before deducting expenses related to the offerings. Upon the closing of the Merger, the purchaser of the 2008 Bridge Note also received 20,000 shares of Common Stock under the terms of the 2008 Bridge Note. (The 2008 Bridge Note has subsequently been repaid.)
On March 9, 2009, NGHI held a second closing of the Bridge PPO for 20,000 shares of Common Stock, at a purchase price of $2.06 per share.
As an inducement to certain investors to purchase Common Stock in the Bridge PPO, the principal former NGE stockholder (David Mathewson, who was then our Chief Executive Officer, President and sole director) agreed to transfer to those investors in private transactions an aggregate of 214,000 shares of the Company Common Stock that he received in the Merger.
On June 24, 2009, we closed a private placement (the “2009 PPO”) of 133,333 units of our securities, at a purchase price of $3.75 per unit, each unit consisting of one share of Common Stock and a warrant to purchase one share of Common Stock for a period of five years, at an exercise price of $7.50 per share, for gross proceeds of $500,000.
On September 18, 2009, we held a second closing of the 2009 PPO for 68,667 of the same units on the same terms, for gross proceeds of $250,000.
On December 10, 2009, we borrowed $100,000 under a bridge loan note (the “2009 Bridge Note”) from a private institution. This note was converted into Common Stock on June 4, 2010. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - 2009 Bridge Note” for more information.
On February 5, 2010, we entered into a financing arrangement with JMJ Financial (the “Investor”), pursuant to which the Investor would lend us up to $3,200,000. We issued convertible promissory notes to the Investor in an aggregate principal amount of $3,200,000 (the “2010 JMJ Notes”). We received $200,000 from the Investor on February 5, 2010. On May 6, 2010, we repaid $200,000 from existing cash resources to the Investor as payment in full and complete satisfaction all of the Company’s obligations pursuant to the financing agreement, and the financing arrangement was cancelled. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - 2010 JMJ Notes” for more information.
On May 24, 2010, we borrowed $50,000 under a convertible bridge loan note from a private institution; in August 2010, we entered into three additional convertible bridge loan notes with an aggregate principal amount of $125,000 with three private investors; and on October 1, 2010, we entered into an additional convertible bridge loan note with a principal balance of $25,000 with a private investor (the “2010 Bridge Notes”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - 2010 Bridge Notes” for more information.
On October 29, 2010, November 16, 2010, and November 19, 2010 we held closings of a private placement offering (the “2010 PPO”) for a total of 38,833,356 units of our securities, at an offering price of $0.10 per unit, each unit consisting of one share of Common Stock and a warrant to purchase one share of Common Stock for a period of five years, at an exercise price of $0.10 per share. Of the $3,883,337 gross proceeds, $3,450,000 consisted of cash consideration, $313,337 came from the automatic conversion of principal and interest on all the convertible notes, and $120,000 represented the discharge of certain accounts payable. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - 2010 PPO” for more information.
Far East Golden Resources Investment Limited, a Hong Kong limited liability company (“Far East Golden Resources”), and a wholly owned subsidiary of Hybrid Kinetic Group Limited, an exempt company incorporated in Bermuda with limited liability, purchased 30,000,000 of the units in the 2010 PPO. We agreed with Far East Golden Resources to increase the size of our Board of Directors to seven members, and Far East Golden Resources is entitled to nominate four candidates to the Board. Immediately following the initial closing of the 2010 PPO, Far East Golden Resources beneficially owned 86.1% of the Company’s outstanding Common Stock (calculated as set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), based on its holding 30,000,000 shares of Common Stock and warrants (that are currently exercisable) to purchase 30,000,000 shares of Common Stock, and based on 37,851,862 shares of Common Stock then outstanding. By the conclusion of the 2010 PPO, additional shares of Common Stock were outstanding, and Far East Golden Resources’ beneficial ownership had declined to approximately 82.3%. As of April 6, 2015, Far East Golden Resources beneficially owned approximately 25.6% of our common stock. See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Termination of Tempo Lease
In January, 2013, our Board of Directors determined that the Company should cease its gold exploration activities and to refocus our business objectives on to seeking, investigating and, if such investigation warrants, engaging in a business combination with a private entity whose business presents an opportunity for our stockholders. Accordingly, we did not pay to Gold Standard an advance minimum royalty payment of approximately $150,000 that was due by January 15, 2013, and in February 15, 2013, Gold Standard terminated our lease of the 266 contiguous unpatented lode claims on the Tempo Mineral Prospect.
Our Business Plan
We are no longer engaged in the business of exploring for gold. We currently hold no mineral exploration or mining rights and do not intend to acquire any.
We intend to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our stockholders. Our objectives discussed below are extremely general and are not intended to restrict discretion of our Board of Directors to search for and enter into potential business opportunities or to reject any such opportunities.
We have no particular business combination in mind and have not entered into any negotiations regarding such a combination. Neither our officers nor any of our affiliates has engaged in any negotiations with any representative of any company regarding the possibility of an acquisition or combination between our company and such other company. We have not yet entered into any agreement, nor do we have any commitment or understanding to enter into or become engaged in a transaction.
We will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. Further, we may acquire or combine with a venture that is in its preliminary or development stage, one that is already in operation or one that is in a more mature stage of its corporate existence. Accordingly, business opportunities may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities difficult and complex.
We believe that there are numerous firms seeking the perceived benefits of a publicly registered corporation. These benefits are commonly thought to include the following:
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the ability to use registered securities to acquire assets or businesses;
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increased visibility in the marketplace;
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greater ease of borrowing from financial institutions;
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improved stock trading efficiency;
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greater stockholder liquidity;
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greater ease in subsequently raising capital;
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ability to compensate key employees through stock options and other equity awards;
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enhanced corporate image; and
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a presence in the United States capital markets.
We have not conducted market research and are not aware of statistical data to support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity.
Target companies potentially interested in a business combination with us may include the following:
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a company for which a primary purpose of becoming public is the use of its securities for the acquisition of other assets or businesses;
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a company that is unable to find an underwriter of its securities or is unable to find an underwriter of securities on terms acceptable to it;
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a company that desires to become public with less dilution of its common stock than would occur upon an traditional underwritten public offering;
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a company that believes that it will be able to obtain investment capital on more favorable terms after it has become public;
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a foreign company that may wish an initial entry into the United States securities markets;
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a special situation company, such as a company seeking a public market to satisfy redemption requirements under a qualified employee stock option plan; or
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a company seeking one or more of the other mentioned perceived benefits of becoming a public company.
The analysis of new business opportunities will be undertaken by or under the supervision of our executive officers and directors, none of whom is a business analyst. Therefore, it is anticipated that outside consultants or advisors may be utilized to assist us in the search for and analysis of qualified target companies.
A decision to participate or not in a specific business opportunity will be made based upon our analysis of the quality of the prospective business opportunity’s management and personnel, its assets, the anticipated acceptability of products or marketing concepts, the merit of a proposed business plan and numerous other factors that are difficult, if not impossible, to analyze using any objective criteria. We have unrestricted flexibility in seeking, analyzing and participating in potential business opportunities.
In our efforts to analyze potential acquisition targets, we will consider the following kinds of factors:
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potential for growth, indicated by new technology, anticipated market expansion or new products;
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competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;
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strength and diversity of management, either in place or scheduled for recruitment;
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capital requirements and anticipated availability of required funds, to be provided by us or from operations, through the sale of additional securities, through bank loans or other commercial borrowing arrangements, through joint ventures or similar arrangements or from other sources;
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the cost of participation by us as compared to the perceived tangible and intangible values and potentials;
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the extent to which the business opportunity can be advanced;
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the accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
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other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data.
Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to our limited capital available for investigation, we may not discover or adequately evaluate adverse facts about the opportunity to be acquired.
In implementing a structure for a particular business acquisition, we may become a party to a merger, consolidation, reorganization, joint venture, licensing agreement or other arrangement with another entity. We also may acquire stock or assets of an existing business. On the consummation of a transaction it is probable that the present management and stockholders of the company will no longer be in control of the company. In addition, some or all of our officers and directors, as part of the terms of the acquisition transaction, likely will be required to resign and be replaced by one or more new officers and directors without a vote of our stockholders.
It is anticipated that any securities issued in any such reorganization would be issued in reliance upon exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of a transaction, we may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. The issuance of substantial additional securities and their potential sale into any trading market which may develop in our securities may have a depressive effect on that market a.
While the actual terms of a transaction to which we may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event and thereby structure the acquisition as a “tax-free” reorganization under Sections 351 or 368 of the Internal Revenue Code of 1986, as amended.
With respect to any merger or acquisition, negotiations with target company management are expected to focus on the percentage of our company that the target company stockholders would acquire in exchange for all of their shareholdings in the target company. Depending upon, among other things, the target company’s assets and liabilities, our existing stockholders will in all likelihood hold a substantially lesser percentage ownership interest in our company following any merger or acquisition. The percentage ownership of our existing stockholders may be subject to significant reduction in the event we acquire a target company with substantial assets. Any merger or acquisition effected by us can be expected to have a significant dilutive effect on the percentage of shares held by our stockholders at such time.
We will participate in a business opportunity only after the negotiation and execution of appropriate agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require certain representations and warranties of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by the parties prior to and after such closing, will outline the manner of bearing costs, including costs associated with our attorneys and accountants, and will include miscellaneous other terms.
We are presently subject to the reporting requirements included of the Exchange Act. Included in these requirements is our duty to file with the Securities and Exchange Commission (“SEC”) as part of a Current Report on Form 8-K after consummation of a merger or acquisition audited financial statements of the business acquired and pro forma financial information. If such audited financial statements and pro forma financial information are not available at closing, or within time parameters necessary to insure our compliance with the requirements of the Exchange Act, or if the audited financial statements provided do not conform to the representations made by the target company, the closing documents may provide that the proposed transaction will be voidable at the discretion of our present management.
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in our loss of the related costs incurred.
We do not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination.
We intend to continue to comply with the reporting requirements of the Exchange Act for so long as we are subject to those requirements.
Competition
We expect to encounter substantial competition in our efforts to identify and consummate a transaction with a business opportunity. The primary competition will be from other companies organized and funded for similar purposes, small venture capital partnerships and corporations, small business investment companies and wealthy individuals, all of which may have substantially greater financial and other resources than we do. In view of our limited financial resources and limited management availability, we may be at a competitive disadvantage compared to our competitors.
Compliance with Government Regulation
Since the Tempo lease is now terminated, we may have some residual obligations for re-contouring and re-vegetation of disturbed surface areas or other remediation work on that property. It is not possible to estimate the potential costs of such work, if any, at this time. Except as discussed above and under Part I, Item 2, “Legal Proceedings,” below, we are currently not subject to any material governmental regulations.
Employees
We currently have seven full-time employees. In the future, if we acquire or initiate a new business, we may hire additional personnel as needed.
Subsidiaries
NGE is our only subsidiary. The Company owns 100% of the stock of NGE.
Research and Development Expenditures
We are not currently conducting any research and development activities.
Patents/Trademarks/Licenses/Franchises/Concessions/Royalty Agreements or Labor Contracts
We do not own any patents or trademarks. Also, we are not a party to any license or franchise agreements, concessions, or labor contracts.
ITEM 1A.
ITEM 1A. RISK FACTORS
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information under this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Executive Offices
Our business office is located at 800 E. Colorado Blvd., Suite 888, Pasadena, California 91101, in the offices of Far East Golden Resources. It contains office furniture and equipment sufficient to administer our current business. Office services and office space are provided without charge by the primary stockholder of the Company. Such costs are immaterial to the financial statements and accordingly, have not been reflected therein.
We do not own or lease any other real property or any plants, mines or other physical properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time we may be involved in claims arising in connection with our business.
As of the date of this Report, except as described below, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.
CFIUS Matter
As previously reported, on March 30, 2012, we received a notice from the Committee on Foreign Investment in the United States (“CFIUS”) that an agency notice had been submitted to CFIUS on March 28, 2012 (the “Notice”) pursuant to Section 721 of the Defense Production Act of 1950, as amended, with regard to the acquisition in October 2010 by Far East Golden Resources, in a private placement offering of shares equal to approximately 88.4% (at the time) of the outstanding common stock of Nevada Gold (the “Transaction”); and on April 26, 2012, we received another notice from CFIUS that CFIUS was undertaking an investigation of that transaction.
On May 30, 2012, we received a notification from CFIUS (the “Notice”) proposing that Hybrid Kinetic Group Limited, a limited liability company incorporated in Bermuda (“Hybrid Kinetic”) (the ultimate controlling entity of Far East Golden Resources) and the U.S. Department of Defense (“DoD”) enter into a National Security Agreement as a measure to mitigate asserted risks to the national security of the United States determined to exist by CFIUS due to the fact that our Tempo property is in proximity to U.S. Naval Air Station Fallon, which agreement would have required, among other things, that Hybrid Kinetic and Nevada Gold take actions to sell, break or abandon all leases and claims at or near our Tempo mine site (the “Tempo Leases and Claims”) through the disavowal, transfer, or sale of all interests in the Tempo Leases and Claims.
On June 11, 2012, Hybrid Kinetic, Far East Golden Resources and Nevada Gold (collectively, the “Companies”) submitted to CFIUS a request to withdraw the Notice, in which Hybrid Kinetic and Far East Golden Resources agreed to undertake certain actions to divest their interests in Nevada Gold, in lieu of a disposition or abandonment by Nevada Gold of the Tempo Leases and Claims. CFIUS, by letter dated June 11, 2012, granted the request for withdrawal, based upon the representations and commitments made by the Companies in the withdrawal request and subject to the terms and conditions imposed by CFIUS in an Order dated June 11, 2012.
Specifically, among other things, Hybrid Kinetic and its subsidiaries agreed, within 90 days from June 11, 2012, to divest all their interests in Nevada Gold. The Companies will notify the U.S. Department of Defense and the U.S. Department of the Treasury (the “USG Agencies”) of any proposed divestment no less than 10 calendar days in advance of effecting such divestment. The parties may proceed to complete the transfer after the 10 calendar day period expires if: (a) the USG Agencies do not object to the proposed transferee during the 10 calendar day advance notice period; (b) the proposed transferee is a U.S. citizen who is not a dual citizen or is an entity that is wholly owned by U.S. citizens who are not dual citizens; and (c) the proposed transferee has no prior direct or indirect contractual, financial, employment, familial, or other relationship with Hybrid Kinetic or persons that own or are employed by Hybrid Kinetic. In all other circumstances, Hybrid Kinetic will not complete the transfer until the USG Agencies inform Hybrid Kinetic in writing that the USG Agencies have no objection to the proposed transfer. Further, no personnel, employee or agent of Hybrid Kinetic may access the property conveyed by the Tempo Leases and Claims or any other leases or claims in which Hybrid Kinetic has acquired any direct or indirect interest as a result of the Transaction or through Nevada Gold (collectively, the “Nevada Gold Leases and Claims”) without prior approval by the USG Agencies. In addition, Hybrid Kinetic, including contractors and business representatives acting on its behalf, will not obtain, through any means, any ownership interest or control over Nevada Gold, including any representation on our Board of Directors, or any Nevada Gold Leases and Claims. Until confirmation of the divestment, the USG Agencies will have access to the property conveyed by the Nevada Gold Leases and Claims.
The Order is enforceable, through injunctive or other judicial relief, and failure to comply with the Order may result in the imposition of civil or criminal penalties.
Hybrid Kinetic has submitted to CFIUS a proposed purchaser of Far East Golden Resources’s interests in Nevada Gold, and CFIUS is still reviewing the qualifications of the purchaser. We expect to have a final decision from CFIUS soon. Hybrid Kinetic has informed us that it intends to comply with the terms of the Order in a timely fashion; however, there can be no assurance that it will do so in a manner acceptable to the USG Agencies or at all.
On Nov. 6, 2012, Hybrid Kinetic received a notice from CFIUS that in order to give Hybrid Kinetic additional time to comply with the divestment requirement, CFIUS granted an extension of the time frame within which Hybrid Kinetic must divest all interest in Nevada Gold, as specified in the Order, to Tuesday, November 20, 2012. This modification does not affect any other provision of the Order or the application of any provision thereof.
On March 13, 2013, Hybrid Kinetic received a notice from CFIUS that CFIUS does not object to Hybrid Kinetic’s transfer of all its interest in Nevada Gold to an unrelated third party. This unrelated third party is conducting due diligence on the purchase of the shares currently owned by Hybrid Kinetic. Further, immediately upon completing the divestment, the parties are required to provide CFIUS copies of the documents effectuating the divestment and a signed statement by a Hybrid Kinetic officer certifying that Hybrid Kinetic has divested all of its interest in Nevada Gold.
We believe that the termination of the Tempo lease in February 2013 renders CFIUS’ concerns moot, and we have asked them to rescind the Order.
On May 31, 2013, Hybrid Kinetic, Far East Golden Resources and Nevada Gold (collectively, the “Companies”) submitted to CFIUS a request to amend the June 11, 2012 Order, in which Hybrid Kinetic and Far East Golden Resources agreed to undertake certain actions to dispose of or abandon all Nevada Gold Leases and Claims, in lieu of a divestiture of their interests in Nevada Gold. CFIUS, by letter dated June 7, 2013, granted the request for withdrawal, based upon the representations and commitments made by the Companies in the withdrawal request and subject to the terms and conditions imposed by CFIUS in an Order dated June 7, 2013.
Specifically, among other things, Hybrid Kinetic and its subsidiaries agreed, within 30 days from June 7, 2012, to sell, terminate or abandon all Nevada Gold Lease and Claims. In the event the Companies seek to transfer or sell any of the Nevada Gold Leases or Claims, they will notify the U.S. Department of Defense of any proposed transfer or sale no less than 10 calendar days in advance of such proposed transfer or sale.
The Order is enforceable, through injunctive or other judicial relief, and failure to comply with the Order may result in the imposition of civil or criminal penalties.
We believe that the termination of the Tempo lease in February 2013 renders CFIUS’ concerns moot, and we have notified CFIUS as well as the US Department of Defense of the termination of the Tempo lease.
ITEM 4.
ITEM 4. Mine Safety Disclosures.
The Company is not currently the operator of any mine.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Since May 8, 2007, our Common Stock is quoted on the OTC Bulletin Board (the “OTCBB”) under the symbol “HKBT”.
The following table sets forth the high and low closing bid prices for our Common Stock for the fiscal quarters indicated as reported on the OTCBB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Our Common Stock is very thinly traded, and therefore pricing of our Common Stock on the OTCBB does not necessarily represent its fair market value.
Holders
As of April 6, 2015, there were 429,475 shares of our Common Stock issued and outstanding held by 27 stockholders of record.
Dividends
We have never declared any cash dividends with respect to our Common Stock. Future payment of dividends is within the discretion of our board of directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our Common Stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our Common Stock.
Restrictions on the Use of Rule 144 by Security Holders of Shell Companies or Former Shell Companies
Rule 144(i) under the Securities Act prohibits reliance on the exemption from registration provided by Rule 144 for resale of securities issued by any shell company (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an exception to this prohibition, however, if the following conditions are met:
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
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at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
As a result, our existing stockholders will not be able to sell the shares pursuant to Rule 144 without registration one year after we have completed our initial business combination, if any, assuming we meet the four conditions of a former shell company stated above at such time.
Recent Sales of Unregistered Securities
Except as previously disclosed in Current Reports on Form 8-K and Quarterly Reports on Form 10-Q that we have filed, we have not sold any of our equity securities during the period covered by this Report that were not registered under the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth, as of December 31, 2014, information with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance:
Equity Compensation Plan Information
Plan category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column(a))
(c)
Equity compensation plans approved by security holders
-
n/a
-
Equity compensation plans not approved by security holders
-
n/a
-
Total
The Company has no outstanding awards as of April 6, 2015.
On December 30, 2008, the Board of Directors of the Company adopted the 2008 Equity Incentive Plan (the “2008 Plan”) which provided for incentive award grants of up to 4,000,000 shares of our Common Stock. As a result of the 2010 1-for-15 reverse stock split, the number of shares of common stock reserved under the 2008 Plan were reduced to 266,667. Prior to the reverse split, we had granted non-qualified stock options to purchase an aggregate of 1,250,000 shares of our common stock under the 2008 Plan at a weighted-average exercise price of $0.1334 per share. As a result of the reverse stock split, such options were adjusted so that they are exercisable, in the aggregate, for 83,333 shares of our common stock at a weighted-average exercise price of $2.001 per share.
On September 16, 2010, we amended our 2008 Plan to increase the total number of shares of Common Stock that may be granted pursuant to awards under such 2008 Plan from 266,667 to 3,000,000, and to add a provision for automatic annual increases based on increases in our capitalization (the “Evergreen Clause”). (On September 10, 2010, the amendment to the 2008 Plan was approved by the written consent of stockholders holding a majority of the outstanding shares of our common stock.)
Under the Evergreen Clause, unless otherwise determined by the Board, at the beginning of each fiscal year beginning with the 2011 fiscal year, the number of Shares available for issuance under the 2008 Plan (the "Floating Maximum") will be increased on the first day of each fiscal year, in an amount equal to the lesser of (i) the difference between 5% of the number of Diluted Shares (as defined below) on the last day of the immediately preceding fiscal year and the maximum aggregate number of Shares subject to the 2008 Plan on the last day of the immediately preceding fiscal year, or (ii) such other number of Shares as is determined by the Board. As used herein, "Diluted Shares" means the outstanding Shares, together with all Shares issuable upon conversion of convertible debt and equity securities (including interest accrued thereon), and all Shares issuable upon exercise of options warrants or other rights (excluding options issued under the 2008 Plan) having an exercise price equal to or less than the fair market value at the time of measurement. The maximum number of shares of common stock that may be issued under the 2008 Plan pursuant to the Evergreen Clause is the lesser of (A) the Floating Maximum, and (B) 150,000 Shares.
Additional information regarding the 2008 Plan is contained in our definitive Proxy Statement filed with the SEC on August 10, 2010.
If an incentive award granted under the 2008 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2008 Plan.
In addition, the number of shares of Common Stock subject to the 2008 Plan, any number of shares subject to any numerical limit in the 2008 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding Common Stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.
Administration
The compensation committee of the Board, or the Board in the absence of such a committee, will administer the 2008 Plan. Subject to the terms of the 2008 Plan, the compensation committee has complete authority and discretion to determine the awards under the 2008 Plan.
Grants
The 2008 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation rights, as described below:
·
Options granted under the 2008 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of Common Stock covered by an option cannot be less than the fair market value of the Common Stock on the date of grant unless agreed to otherwise at the time of the grant.
·
Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units.
·
The compensation committee may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable, and other terms and conditions.
·
The 2008 Plan authorizes the granting of stock awards. The compensation committee will establish the number of shares of Common Stock to be awarded and the terms applicable to each award, including performance restrictions.
·
Stock appreciation rights (“SARs”) entitle the participant to receive a distribution in an amount not to exceed the number of shares of Common Stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of Common Stock on the date of exercise of the SAR and the market price of a share of Common Stock on the date of grant of the SAR.
Duration, Amendment, and Termination
The Board has the power to amend, suspend or terminate the 2008 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year. Unless sooner terminated, the 2008 Plan will terminate ten years after it was adopted.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information required by this Item
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report.
The following discussion and analysis of the Company’s financial condition and results of operations is based on the preparation of our financial statements in accordance with U.S. generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.
Going Concern
In the course of its development activities, the Company has sustained losses and expects such losses to continue through at least the end of 2015. The Company expects to finance its operations primarily through one or more future financings. However, there exists substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months, because the Company will be required to obtain additional capital in the future to continue its operations and there is no assurance that it will be able to obtain such capital, through equity or debt financing, or any combination thereof, or on satisfactory terms or at all. Our independent auditors have included an explanatory paragraph in their report on our consolidated financial statements included in this report that raises substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. We have generated no operating revenues since our inception. We had an accumulated deficit of $8,714,914 as of December 31, 2014. Our continuation as a going concern is dependent upon future events, including our ability to raise additional capital and to generate positive cash flows. Our audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which implies we will continue to meet our obligations and continue our operations for the next twelve months. Realization values may be substantially different from carrying values as shown, and our consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities that might be necessary as a result of the going concern uncertainty.
Overview
Historically, we were engaged in the business of exploring for gold. During the fiscal year ended December 31, 2013, we engaged in limited oil and gas activities, had minimal operations, and generated no revenues. In January 2013, our management determined to discontinue our gold exploration activities and to focus on attempting to acquire other assets or business operations that would maximize stockholder value. No specific assets or businesses have been definitively identified and there is no certainty that any such assets or business will be identified or any transactions will be consummated. See Part I, Item 1, “Business-Our Business Plan,” and Part I, Item 1A, “Risk Factors,” for additional information and risks associated with our proposed business plan.
We expect that we will need to raise funds in order to effectuate our business plan. We may seek additional investors to purchase our stock to provide us with working capital to fund our operations. Thereafter, we will seek to establish or acquire businesses or assets with additional funds raised either via the issuance of shares or debt. There can be no assurance that additional capital will be available to us at all or on acceptable terms. We may seek to raise the required capital by other means. We may have to issue debt or equity or enter into a strategic arrangement with a third party. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds will have a severe negative impact on our ability to remain a viable company. In pursuing the foregoing goals, we may seek to expand or change the composition of the Board or make changes to our current capital structure, including issuing additional shares or debt and adopting a stock option plan.
We do not expect to generate any revenues over the next twelve months. Our principal business objective for the next twelve months will be to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our stockholders.
During the next 12 months we anticipate incurring costs related to filing of Exchange Act reports, and possible costs relating to consummating an acquisition or combination. We believe we will be able to meet these costs through use of funds in our treasury and additional amounts, as necessary, to be loaned by or invested in us by our stockholders, management or other investors. We have no specific plans, understandings or agreements with respect to the raising of such funds, and we may seek to raise the required capital by the issuance of equity or debt securities or by other means. Since we have no such arrangements or plans currently in effect, our inability to raise funds for the consummation of an acquisition may have a severe negative impact on our ability to become a viable company.
We intend to contract out certain technical and administrative functions on an as-needed basis in order to conduct our operating activities. Our management team will select and hire these contractors and manage and evaluate their work performance.
Results of Operations
Year Ended December 31, 2014, compared to Year Ended December 31, 2013
Revenues and Other Income
During the twelve month period ended December 31, 2014, the Company remained in the exploration stage and we did not realize any revenues from operations. Similarly, we did not realize any revenues from operations during the period from inception through December 31, 2014.
Expenses
General and administrative expenses totaled $1,245,432, in the year ended December 31, 2014, a decrease of $90,153 from the $1,335,585 of general and administrative expenses incurred in the year ended December 31, 2013. During the year ended December 31, 2014, the Company also recognized interest expense of $81,955.
Net Losses
As a result of the foregoing, the Company incurred a net loss of $1,320,879, or $3.08 per share, in the year ended December 31, 2014, compared to a net loss of $1,372,884, or $3.20 per share, for the year ended December 31, 2013.
2010 Bridge Notes
On May 24, 2010, we borrowed $50,000 under a convertible bridge loan note from a private institution; in August 2010, we entered into three additional convertible bridge loan notes with an aggregate principal amount of $125,000 with three private investors; and on October 1, 2010, we entered into an additional convertible bridge loan note with a principal balance of $25,000 with a private investor. These 2010 Bridge Notes bore interest at a rate of 10.0% per annum, and were due in full one year from the issue date. The 2010 Bridge Notes were mandatorily convertible upon the closing of any securities or other financing resulting in gross cash proceeds to the Company in excess of $500,000 (a “Contingent Event”). In the event a Contingent Event was consummated, all outstanding principal and interest amounts of the Bridge Notes would automatically convert into the Company’s securities being sold in such financing at a conversion price equal to the purchase price paid by investors in such financing. A Contingent Event occurred by virtue of the 2010 PPO described below, and all principal of and accrued interest on the 2010 Bridge notes automatically converted into shares of Common stock and warrants to purchase Common Stock as described below.
2010 PPO
On October 29, 2010, November 16, 2010, and November 19, 2010 we held closings of the 2010 PPO for a total of 38,833,356 units of our securities, at an offering price of $0.10 per unit, each unit consisting of one share of Common Stock and a warrant to purchase one share of Common Stock for a period of five years, at an exercise price of $0.10 per share. Of the $3,883,337 gross proceeds, $3,450,000 consisted of cash consideration, $313,337 came from the automatic conversion of principal of and interest on the convertible notes, and $120,000 represented the discharge of certain accounts payable. We applied the net proceeds of the 2010 PPO to explore for gold at our property in northern Nevada and to determine if it contains gold deposits that can be mined at a profit and for general working capital purposes.
We agreed, pursuant to a Registration Rights Agreement, to use our commercially reasonable efforts to file a registration statement under the Securities Act, covering the shares of Common Stock included in the Units and the shares of Common Stock issuable upon exercise of the warrants included in the Units, within 75 days after the final closing of the Offering and to have such registration statement declared effective within 180 days of such final closing date. We would be required to keep the registration statement effective until the earlier of one year from the date the registration statement is declared effective or until all of the registrable securities may be sold under Rule 144 during any 90 day period. The investors in the 2010 PPO have waived the requirement for us to file this registration statement for the time being.
We have also granted certain “piggyback” registration rights covering the shares of Common Stock included in the Units and the shares of Common Stock issuable upon exercise of the warrants included in the Units.
We entered into agreements to pay placement agents and/or finders (collectively, “Finders”) cash fees of up to 10% of the purchase price of each Unit sold in the Offering to investors introduced to us by the relevant Finder (the “Introduced Investors”), and to issue each such Finder five-year warrants (the “Finder Warrants”) exercisable at $0.10 per share to purchase a number of shares of Common Stock equal to up to 10% of the shares of Common Stock included in the Units sold in the Offering to the Introduced Investors. As a result of the sales of the Units in the 2010 PPO, we have paid and/or become obligated to pay an aggregate of approximately $35,100 of fees to Finders and have issued and/or become obligated to issue Finder Warrants to purchase an aggregate of 351,000 shares of Common Stock.
Loans to and from Related Parties
On January 26, 2011, the Company made a loan of $200,000 to Hybrid Kinetic Motors Corporation, a related party; on February 24, 2011, the Company made a loan of $400,000 to American Compass Inc. (“ACI”), a related party; and on March 24, 2011, the Company made an additional loan of $400,000 to ACI. On various dates from April to June 2010, the Company made additional loans to ACI. in the amount of $800,000.00, bringing the total notes loans to this party to $1,600,000. Each of these loans was originally payable on December 31, 2011, and is currently due on demand. Each of these loans is unsecured and bears interest at 3% per annum. $480,000 was repaid by ACI during 2011, and the balance of its loan was repaid in full with interest in 2012. As of December 31, 2012, the total principal of these notes receivable plus accrued interest was $207,052. Subsequent to December 31, 2012, no additional principal amount of the loans was repaid by Hybrid Kinetic. Each of the borrowers is a wholly owned subsidiary of Hybrid Kinetic Group Ltd., which is also the parent of our controlling stockholder, Far East Golden Resources. Hybrid Kinetic Group Ltd. guaranteed each of the loans. We expect that all of these loans will be repaid to the Company by Hybrid Kinetic by the end of 2013.
The Company received a loan of $784,316.35 from ACI at the end of 2012. This is a non-interest bearing loan guaranteed by HK Group Ltd. The full amount is still outstanding at the date of this Report.
The Company converted the old payables to ACI with the amount of $775,000 to a new Note at the end of 2012. In 2013, the Company borrowed additional amounts from ACI at a 3% per year interest rate. As of December 31, 2013, the balance of the Note to ACI was $2,195,000. The Notes are unsecured with an interest rate of 3%. The total accrued interest was $88,325 and $51,625 for the quarter ended June 30, 2014 and the year ended December 31, 2013, respectively. The Notes are payable on demand and there is no maturity date. American Compass Inc. and HK Battery Inc. are related parties because they are both controlled by the same shareholder.
On March 25, 2014, the Company entered into a Demand Promissory Note with American Compass, Inc., borrowing the amount of $360,000 (the “Note”) in order to cover the Company’s operating expenses. The Note provides for interest of three percent (3%) per annum and is due upon demand from American Compass Inc. The Company used the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On June 25, 2014, the Company entered into a Demand Promissory Note with American Compass, Inc., borrowing the amount of $230,000 (the “Additional Note”) in order to cover the Company’s operating expenses. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from American Compass Inc. The Company used the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
Liquidity and Capital Resources
On December 31, 2014, we had $84,663 of cash and cash equivalents on hand, compared to $48,528 at December 31, 2013.
We may be unable to secure additional financing on terms acceptable to us, or at all, at times when we need such financing. Our inability to raise additional funds on a timely basis could prevent us from achieving our business objectives and could have a negative impact on our business, financial condition, results of operations and the value of our securities.
If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders will be reduced and the securities that we may issue in the future may have rights, preferences or privileges senior to those of the current holders of our Common Stock. Such securities may also be issued at a discount to the market price of our Common Stock, resulting in possible further dilution to the book value per share of Common Stock. If we raise additional funds by issuing debt, we could be subject to debt covenants that could place limitations on our operations and financial flexibility.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Our audited financial statements as of, and for the years ended, December 31, 2014 and 2013, are included beginning on page immediately following the signature page to this Report. See Item 15 for a list of the financial statements included herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company previously reported the information required by this Item 9 in its Form 8-K filed on August 15, 2013, its Form 8-K filed on January 24, 2014, its Form 8-K filed on February 3, 2014, its Form 8-K filed on February 19, 2014 and its Form 8-K/A filed on February 27, 2014.
The Company notes that its previous auditor, Sam Kan & Company, has been denied the privilege of appearing or practicing before the Securities and Exchange Commission, and accordingly the Company’s current independent registered public accountant Anton & Chia, LLP has reaudited the Company’s financial statements for the year ended December 31, 2012. Please see their reports at and.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer (our principal executive and principal 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 December 31, 2014 (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective to ensure that the information relating to us, including our consolidated subsidiaries, required to be disclosed by us in the reports filed or submitted by us under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.
We are a small organization with limited personnel during 2014. We were unable to implement an effective system of disclosure controls and procedures as of the Evaluation Date. We expect to create a system of disclosure controls and procedures in 2015 as we expand our business. Nevertheless, management believes that this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, an issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by its board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles (GAAP). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Management has conducted, with the participation of our principal executive officer and principal financial officer, an assessment, including testing of the effectiveness, of our internal control over financial reporting as of December 31, 2014 (the “Evaluation Date”). In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth in Internal Control over Financial Reporting - Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). 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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weakness: We were unable to implement a system of segregation of duties necessary to establish an effective system of internal controls as of the Evaluation Date. Accordingly, we concluded that our internal control over financial reporting was not effective as of the Evaluation Date.
We are a small organization with limited personnel. To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this Report have been prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows as of the dates and for the periods presented.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, as smaller reporting companies are exempt from this requirement.
Attestation Report of Our Registered Public Accounting Firm
This Annual Report on Form 10-K (“Annual Report”) does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. We are a non-accelerated filer; therefore, management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2014, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Executive Officers and Directors
Below are the names and certain information regarding the Company’s current executive officers and directors:
Name
Age
Title
Date First Appointed
Yung Yeung
Chairman of the Board
November 29, 2010
Jianguo (Jason) Xu
Director and Chief Executive Officer
July 1, 2011
Chunhua Huang
Director
November 29, 2010
Jimmy Wang
Chief Financial Officer
January 25, 2011
Jun Yan
Secretary
February 24, 2015
Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors.
The principal occupation and business experience during the past five years for our current officer and director is as follows:
Yung Yeung, Chairman of the Board, has been Chairman of the Board of Hybrid Kinetic Group Limited since 1998. Dr. Yeung is a well-known, highly successful automotive industrialist and pioneering international financier. He serves as a director of the John Hopkins University Center - Nanjing University Centre for Chinese and American Studies. Dr. Yeung was the chairman, chief executive officer and president of Brilliance China Automotive Holdings Limited from 1992 to 2002 and also the chairman and president of Shenyang Jinbei Passenger Vehicle Manufacture Co., Ltd. from 1992 to 2002. Dr. Yeung holds a Ph.D. Degree in Economics from China’s Southwest University of Finance & Economics.
Jianguo (Jason) Xu, Director and Chief Executive Officer, was appointed on July 1, 2011. Mr. Xu has been Vice President of Global Sourcing at Hybrid Kinetic Group since April 2010. Prior to joining Hybrid Kinetic, from January 2007 until March 2010, Mr. Xu was Engineering Manager of Magna Closures Group, an operating division of Magna International, and, from March 2001 through December 2006, he was Magna’s Senior Design Engineer. Magna International designs, develops and manufactures automotive systems, assemblies, modules and components, and engineers and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks in North America, Europe, Asia, South America and Africa. Mr. Xu holds a Bachelor Degree in Engineering from Huazhong University in China and a Master Degree of Science in Engineering from Shanghai Jiaotong University in China.
Jimmy Wang, Chief Financial Officer, is the Chief Financial Officer of American Compass, Inc., where he has served, initially as Chief Accounting Officer, since 2003. Prior to joining American Compass, Inc., he served as an accounting manager for Planned Parenthood of the Greater Miami Valley from 2000 to 2003. He is a graduate of the City University of New York, where he majored in both Accounting & Information Systems and Economics.
Chunhua Huang, Director, is Vice Chairman of the Board of Hybrid Kinetic Group Limited, since August 2010. Dr. Huang started his investment banking career as a China equity analyst at James Capel (Asia) (now HSBC Securities) from 1994 to 1996. He was a senior member of the top-ranked China research team of Credit Lyonnais Securities Asia (CLSA) between 1996 and 2000. Dr. Huang joined Brilliance China Automotive Holdings Limited to serve as Chief Financial Officer of Far Eastern Golden Resources between August 2000 and May 2004 and as Deputy Chairman between November 2002 and August 2007. From May 2007 to April 2009, Dr. Huang returned to the brokerage industry to join BNP Paribas as Director of China Equity Research and a China Equity Strategist. He holds a Bachelor of Economics Degree from Wuhan University in China, and an MBA and PhD in Marketing from the University of Strathclyde in Scotland.
Jun Yan, Secretary, holds a Bachelor’s and Master’s Degree from Troy University. Mr. Yan is currently a Financial Analyst and assistant to the Board of Directors of American Compass Inc.
Involvement in Certain Legal Proceedings
There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of ours during the past five years.
Board Committees
Our Board of Directors has not established an audit committee, a compensation committee, a nominating committee or any other committee. The full Board of Directors currently performs these functions.
Stockholder Recommendations of Nominees to the our Board of Directors
Currently, we do not have a policy with regard to procedures by which security holders may recommend nominees to our Board of Directors.
Code of Ethics
The Company currently has not adopted a written code of ethics.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2014, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2014, and the representations made by the reporting persons to us, we believe that no person who, at any time during such fiscal year, was a director, officer or beneficial owner of more than 10% of the Company’s common stock failed to comply with all Section 16(a) filing requirements during such fiscal years.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the total compensation paid or accrued by us during the last two fiscal years ended December 31, 2014, to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2014; (ii) all individuals that served as our principal financial officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2014; and (iii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2014, that received annual compensation during the fiscal year ended December 31, 2014, in excess of $100,000.
Summary Compensation Table
Name and Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Compensation
($)
Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
Jianguo Xu
-
-
-
-
-
-
-
-
CEO (1)
-
-
-
-
-
-
-
-
Jimmy Wang
-
-
-
-
-
-
-
-
CFO (2)
-
-
-
-
-
-
-
-
(1)
Jianguo Xu has served as CEO since July 1, 2011.
(2)
Jimmy Wang has served as CFO since January 25, 2011.
On November 5, 2009, our Board of Directors granted under our 2008 Plan to David Rector, in connection with his appointment as our Chief Executive Officer, President, Secretary and director, incentive stock options to purchase 1,000,000 pre-split (66,667 post-split) shares of Common Stock at a purchase price of $0.135 pre-split per share ($2.10 post-split) (the closing bid price quoted on the OTCBB on the date of grant), vesting 100% on December 31, 2010, and expiring November 4, 2014.
On November 16, 2009, our Board of Directors granted under our 2008 Plan to John N. Braca, in connection with his appointment as our director, non-qualified stock options to purchase 250,000 pre-split (16,667 post-split) shares of Common Stock at a purchase price of $0.127 pre-split per share ($1.95 post-split) (the closing bid price quoted on the OTCBB on the date of grant), vesting 100% on December 31, 2010, and expiring November 15, 2014.
Outstanding Equity Awards at Fiscal Year-End
There were no equity awards held by the Company’s Named Executive Officers at December 31, 2014.
Except as described above under “Summary Compensation Table,” we have not issued any stock options, nor have we maintained any stock option or other incentive plans other than our 2008 Plan. (See “Item 5, Market for Common Equity and Related Stockholder Matters - Securities Authorized for Issuance under Equity Compensation Plans” above.) We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.
Employment Agreements with Executive Officers
We have no employment agreements with any of our executive officers at this time.
Director Compensation
Directors are elected by the vote of a majority in interest of the holders of voting stock and hold office until the expiration of the term for which they are elected and until successors are qualified and elected.
A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action.
Effective November 18, 2010, we paid to each non-executive director of the Company a director’s fee of $5,000 for each full fiscal quarter during which he or she serves as a director, prorated for any period of service less than a full fiscal quarter. Prior to that time, directors did not receive compensation for their services. Effective January 1, 2012, the director fee has been reduced from $5,000 to $2,500 quarterly.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of April 6, 2015, by:
·
each person or entity known by us to be the beneficial owner of more than 5% of our common stock;
·
each of our directors;
·
each of our executive officers; and
·
all of our directors and executive officers as a group.
Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse.
Unless otherwise noted, the address of each person below id c/o HK Battery Technology, Inc., 800 E. Colorado Blvd., Suite 888, Pasadena, California 91101.
Name and Address of Beneficial Owner
Title of Class
Amount and
Nature of
Beneficial
Ownership (1)
Percent of
Class (2)
Yung Yeung
Common Stock
0 (3)
-
Jianguo (Jason) Xu
Common Stock
-
Jimmy Wang
Common Stock
-
Jun Yan
Common Stock
-
AlAll directors and executive officers as a group (4 persons)
Common Stock
-
Far East Golden Resources
800 E. Colorado Blvd.,
Suite 888,
Pasadena, California 91101
Common Stock
725,932 (4)(5)
91.6%
(1)
Beneficial ownership is determined in accordance with the rules of the SEC. For this purpose, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares (a) the power to vote, or to direct the voting of, such security and/or (b) the power to dispose, or to direct the disposition of, such security. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of April 6, 2015, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.
(2)
Percentages based upon 792,441 shares of common stock, which include 429,475 shares of common stock outstanding as of April 6, 2015, plus warrants to purchase 362,966 shares that are currently exercisable; percentages are rounded to the nearest 0.1%.
(3)
See Note 4 below. Under the rules of the SEC, Mr. Yeung may be deemed to beneficially own the shares of common stock beneficially owned by Hybrid Kinetic Group Limited. Mr. Yeung disclaims beneficial ownership of those shares except to the extent of his pecuniary interest therein.
(4)
Includes warrants to purchase 300,000 shares that are currently exercisable. Far East Golden Resources is the direct beneficial owner of these shares and is a wholly owned subsidiary of Hybrid Kinetic Group Limited. Sun East LLC, a California limited liability company, owns 26% of the issued share capital of Hybrid Kinetic Group Limited and may be deemed to be a controlling person thereof and beneficial owner of these shares. Sun East LLC is owned (i) 35% by our director, Yung Yeung, who is Chairman, Chief Executive Officer and director of Hybrid Kinetic Group Limited and (ii) 65% by Manwai Ma and Jimmy Wang, as co-trustees for certain trusts established for the benefit of the children of Mr. Yeung.
(5)
Includes a warrant to purchase up to an aggregate of 62,966 shares that are currently exercisable.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth above under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Loans to and from Related Parties” is incorporated herein by reference.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors.”
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed to us by our principal accountant for services rendered during the fiscal years ended December 31, 2014 and 2013, are set forth in the table below:
Fee Category
Fiscal year ended
December 31, 2014
Fiscal year ended
December 31, 2013
Audit fees (1)
$
5,500
$
8,750
Audit-related fees (2)
$
-
$
-
Tax fees (3)
$
-
$
-
All other fees (4)
$
-
$
-
Total fees
$
5,500
$
8,750
(1)
Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.
(2)
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.”
(3)
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4)
All other fees consist of fees billed for all other services.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements of the Company are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page.
Exhibits
The following Exhibits are being filed with this Annual Report on Form 10-K:
Exhibit
Number
Description
2.1
Agreement and Plan of Merger and Reorganization, dated as of December 31, 2008, by and among Nevada Gold Holdings, Inc., Nevada Gold Acquisition Corp. and Nevada Gold Enterprises, Inc. (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
2.2
Certificate of Merger (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
3.1
Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Form SB-2 Registration Statement filed with the SEC on August 1, 2006)
3.2
Certificate of Amendment to Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 6, 2008)
3.3
Certificate of Amendment to Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 21, 2010)
3.4
Certificate of Amendment to Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K filed with the Commission on April 15, 2014)
3.5
Bylaws of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Form SB-2 Registration Statement filed with the Commission on August 1, 2006)
10.1
Form of Subscription Agreement by and between Nevada Gold Holdings, Inc., and the investors party thereto (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.2
Form of Addendum to Subscription Agreement by and between Nevada Gold Holdings, Inc., and the investors party thereto (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.3
Lock-Up Agreement, dated as of December 31, 2008, between Nevada Gold Holdings, Inc., and David Mathewson (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.4
Split-Off Agreement, dated as of December 31, 2008, by and among Nevada Gold Holdings, Inc., Sunshine Group, Inc., and Marion R. “Butch” Barnes, William D. Blanchard and Robert Barnes (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.5
General Release Agreement, dated as of December 31, 2008, by and among Nevada Gold Holdings, Inc., Sunshine Group, Inc., and Marion R. “Butch” Barnes, William D. Blanchard and Robert Barnes (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.6
Form of Agreement and Release between David Mathewson and the subscribers thereto (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.7
Tempo Mineral Lease dated May 18, 2007, by and between Gold Standard Royalty (Nevada) Inc., successor in interest to Bertha C. Johnson, Trustee of the Lyle F. Campbell Trust, as Lessor, and NGE, as successor to KM Exploration LTD., as successor to Gold Run, Inc. (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.8
Amendment to Tempo Mineral Lease dated January 6, 2009, between Gold Standard Royalty (Nevada) Inc., successor in interest to Bertha C. Johnson, Trustee of the Lyle F. Campbell Trust, as Lessor, and NGE, as successor to KM Exploration LTD., as successor to Gold Run, Inc. (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.9
Form of Securities Purchase Agreement dated December 31, 2008, between Nevada Gold Holdings, Inc., and the Buyers party thereto (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
Exhibit
Number
Description
10.10
Form of 10% Secured Convertible Promissory Note (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.11
Form of Security Agreement dated December 31, 2008, among Nevada Gold Holdings, Inc., Nevada Gold Enterprises, Inc., and the Buyers party thereto (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.12
Nevada Gold Holdings, Inc., 2008 Equity Incentive Plan (incorporated by reference to identically numbered exhibit to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.13
Form of amended Subscription Agreement between Nevada Gold Holdings, Inc., and the investors party thereto ( incorporated by reference to Exhibit 10.13 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2008)
10.14
Employment Agreement dated as of January 1, 2009, between Nevada Gold Holdings, Inc., and David Mathewson (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on March 24, 2009)
10.15
Letter agreement dated November 5, 2009, between Nevada Gold Holdings, Inc., and David Mathewson re resignation and termination of Employment Agreement (incorporated by reference to Exhibit 10.15 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2009)
10.16
Form of Subscription Agreement in connection with the Company’s private placement offering of units of securities, each unit consisting of one share of the Company’s Common Stock and a warrant to purchase one share of Common Stock (incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.17
Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.18
Form of Subscription Agreement in connection with the Company’s private placement offering of units of securities, each unit consisting of one share of the Company’s Common Stock and a warrant to purchase one share of Common Stock (incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)
10.19
Form of Amendment to Subscription Agreement (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)
10.20
Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)
10.21
Amendment to Tempo Mineral Lease dated January 6, 2009, between Gold Standard Royalty (Nevada) Inc., successor in interest to Bertha C. Johnson, Trustee of the Lyle F. Campbell Trust, as Lessor, and NGE, as successor to KM Exploration LTD., as successor to Gold Run, Inc. (incorporated by reference to Exhibit 10.8 to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2009)
10.22
Securities Purchase Agreement, dated as of May 14, 2010, among the Registrant and the Buyers party thereto(incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010)
10.23
10% Secured Convertible Promissory Note dated May 14, 2010 (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010)
10.24
Security Agreement dated as of May 14, 2010, by and among the Registrant, Nevada Gold Enterprises, Inc., and the Buyer party thereto (incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010)
10.25
Amendment No. 1 to 2008 Equity Incentive Plan of Nevada Gold Holdings, Inc. (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 21, 2010)
10.26
Form of Subscription Agreement between the Company and each subscriber in the 2010 PPO (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on November 8, 2010)
10.27
Form of Warrant included in the Units sold in the 2010 PPO (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on November 8, 2010)
10.28
Form of Registration Rights Agreement between the Company and the subscribers in the 2010 PPO (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on November 8, 2010)
10.29
Securities Purchase Agreement, dated as of February 17, 2015 between the Company and Billion Energy Holdings Limited (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on February 20, 2015)
10.30
Securities Purchase Agreement, dated as of March 23, 2015 between the Company and Apollo Acquisition Corporation (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2015)
Exhibit
Number
Description
10.31
Joint Venture Agreement, dated as of March 23, 2015 between the Company and Jiangsu New Head Line Development Group Co. Ltd. (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2015)
31.1
Certification of Principal Executive Officer pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
31.2
Certification of 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
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
*
Filed herewith

Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.
§
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
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Yung Yeung
Chairman of the Board
April 7, 2015
Yung Yeung
/s/ Jianguo Xu
Director and Chief Executive Officer
April 7, 2015
Jianguo Xu
/s/ Jimmy Wang
Chief Financial Officer
April 7, 2015
Jimmy Wang
/s/ Chunhua Huang
Director
April 7, 2015
Chunhua Huang
FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the years ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2014 and 2013
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders’ of
HK Battery Technology, Inc.
We have audited the accompanying consolidated balance sheets of HK Battery Technology, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related statement of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that we considered appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HK Battery Technology, Inc. as of December 31, 2014 and 2013, and the results of their operations and their cash flows for years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has experienced recurring operating losses and negative cash flow since inception and has financed its working capital requirements through issuance of notes payable, common stock, and advances from related parties. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also described in Note 3 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Anton & Chia, LLP
Newport Beach, California
April 7, 2015
The accompanying notes are an integral part of the consolidated financial statements.
HK BATTERY TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the years ended December 31, 2014 and 2013
The accompanying notes are an integral part of the consolidated financial statements.
*100 to 1 reverse stock split was retroactively presented.
HK BATTERY TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
HK BATTERY TECHNOLOGY, INC.
Notes to the Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Nature of Business and Trade Name
HK Battery Technology Inc., a development stage company, was incorporated under the laws of the State of Delaware on April 16, 2004. Nevada Gold Enterprises, Inc., a Nevada corporation, was incorporated under the laws of the State of Nevada on October 2, 2008. On December 31, 2008, Nevada Gold Acquisition Corp., a Nevada corporation formed on December 18, 2008, and a wholly owned subsidiary of Nevada Gold Holdings, Inc., merged with and into Nevada Gold Enterprises, Inc. Nevada Gold Enterprises, Inc. was the surviving corporation in the Merger. As a result of the Merger, Nevada Gold Enterprises, Inc., became a wholly-owned subsidiary of Nevada Gold Holdings, Inc. The Merger was treated as a reverse merger and recapitalization for financial accounting purposes. As a result of the merger, the Company recorded an aggregate stock issuance of 2,626,263 shares of common stock with a net value of $(180,978). The negative recapitalization net value recognized was the result of the Company restating the equity structure of the legal subsidiary using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent issued in the reverse acquisition. Nevada Gold Enterprises, Inc. was considered the acquirer for accounting purposes, and Nevada Gold Holdings, Inc. was considered the surviving company for legal purposes. Accordingly, the accompanying financial statements present the historical financial statements of Nevada Gold Enterprises, Inc., as the historical financial statements of Nevada Gold Holdings, Inc., i.e. a reverse merger. The Company is engaged in the acquisition, exploration and development of gold mining claims in Nevada. On August 7, 2013, the Company was approved to change its name to HK Battery Technology Inc.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of consolidated financial statements in accounting principles generally accepted in the United States of America requires the use of management’s estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year end and the reported amount of revenues and expenses during the year. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Nevada Gold Enterprises, Inc. All significant intercompany transactions have been eliminated.
Loss Per Share
Basic loss per share is computed by dividing net loss available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted loss per share, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted loss per share excludes all dilutive potential shares if their effect is anti-dilutive. For the year ended December 31, 2014 and 2013, fully diluted loss per share excludes the dilutive effect of 43,844,054 common stock equivalents from options and warrants, because their inclusion would be anti-dilutive.
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their perspective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.
As a result of the implementation of certain provisions of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax position, as defined, ASC 740 seeks to reduce the diversity in practice associated with certain aspect of the recognition and measurement related to accounting for income taxes. We adopted the provisions of ASC 740 as of October 2, 2008, and have analyzed filing positions in each of the federal and state jurisdictions where we are required to file income tax returns, as well as open tax years in these jurisdictions. We have identified the U.S. federal and Delaware as our “major” tax jurisdictions and generally, we remain subject to Internal Revenue Service examination of our 2007 through 2014 U.S. federal income tax returns. However, we have certain tax attribute carryforwards which will remain subject to review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which such attributes are utilized.
We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes. We have no interest or penalties as of December 31, 2014 and 2013.
NOTE 2 - GOING CONCERN
The Company sustained operating losses during the years ended December 31, 2014 and 2013 and incurred negative cash flows of $1,213,865 from operations in 2014. The company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development. The Company may experience a cash shortfall and be required to raise additional capital.
Through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its stockholders.
NOTE 3 - NOTES RECEIVABLE - RELATED PARTIES
On January 26, 2011, the Company made a loan of $200,000 to Hybrid Kinetic Motors Corporation, a related party. The loan is unsecured and due on demand with 3% interest per annum. The balance of the accrued interest was $19,052 and $13,052 as of December 31, 2014 and 2013, respectively.
NOTE 4 - NOTES PAYABLE - RELATED PARTY
The Company converted the old payables to American Compass Inc. (“ACI”), a related party with the amount of $775,000 to a new note at the end of 2012. In 2013, the Company borrowed additional amounts from ACI at a 3% per year interest rate. As of December 31, 2013, the balance of the Note to ACI was $2,195,000. The Notes are unsecured with an interest rate of 3%.
On March 25, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $360,000 (the “March Note”) in order to cover the Company’s operating expenses. The Note provides for interest of three percent (3%) per annum and is due upon demand from American Compass Inc. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On June 25, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $230,000 (the “June Note”) in order to cover the Company’s operating expenses. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On July 31, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $80,000 (the “July Note”) in order to cover the Company’s operating expenses. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On August 31, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $90,000 (the “August Note”) in order to cover the Company’s operating expenses. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On September 30, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $110,000 (the “September Note”) in order to cover the Company’s operating expenses. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On October 31, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $110,000 (the “October Note”) in order to cover the Company’s operating expense. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On November 30, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $40,000 (the “November Note”) in order to cover the Company’s operating expense. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
On December 31, 2014, the Company entered into a Demand Promissory Note with ACI, a related party borrowing the amount of $230,000 (the “December Note together with the March Note, June Note, July Note and August Note, September Note, October Note, November Note, collectively, the “Notes””) in order to cover the Company’s operating expense. The Additional Note provides for interest of three percent (3%) per annum and is due upon demand from ACI. The Company will use the proceeds of the loan to fund the general and administrative expenses of the Company as the Company does not currently generate any revenues.
As of December 31, 2014, the balance of the Notes to ACI was $3,445,000. The total accrued interest was $133,475 and $51,625 for the year ended December 31, 2014, and 2013, respectively. The Notes are payable on demand and there is no maturity date. American Compass Inc. and HK Battery Inc. are related parties because they are both controlled by the same shareholder.
NOTE 5 - STOCKHOLDER’S DEFICIT
On August 7, 2013, the Company was approved an increase in our authorized capitalization from 300,000,000 shares of common stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per share, to 1,200,000,000 shares of common stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per share.
As of December 31, 2013 and 2012, the Company had 42,865,074 shares of common stock and 0 share of preferred stock issued and outstanding, respectively.
On October 29, 2010 the Company consummated a private placement offering (“the offering”) whereby the Company issued 37,751,986 units at $.10 per unit for total proceeds of $3,883,337. The proceeds consisted of $3,450,000 in cash, conversions of $313,337 in convertible notes payable, and $120,000 as credit on certain of the Company’s trade payables. Each unit consists of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at $.10 per share, exercisable for a period of five years from the date of closing. The Company has not issued any warrants through to the year ended December 31, 2013.
On July 21, 2014, the Board of Directors of HK Battery Technology Inc. (the “Company”) and stockholders holding a majority of the Company’s outstanding shares of its common stock, respectively, approved an amendment and restatement of the Company’s Certificate of Incorporation to effect a 1-for-100 reverse stock split. The reverse stock split became effective on September 5, 2014 (“Effective Date”), after filing of the Company’s Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on August 8, 2014. On the Effective Date, the Company’s 42,865,074 outstanding shares of common stock were reduced to approximately 429,475 outstanding shares of common stock.
As of December 31, 2014, the Company had 429,475 shares of common stock and zero shares of preferred stock issued and outstanding, respectively.
NOTE 6 - TERMINATION OF TEMPO MINERAL LEASE
On February 15, 2013, Gold Standard Royalty terminated the lease on the Tempo Mineral Prospect with the Company. Currently, the Company does not hold any mineral lease. There is no financial impact on the Consolidated Balance Sheet and Consolidated Statements of Operation for the year ended December 31, 2014.
NOTE 7- COMMITMENTS AND CONTINGENCIES
The Company is not currently a party to any legal action.
The Company is in a lease agreement for its office space. Lease term is 69 month starting from May 1, 2011. Rent increases by 2.7% per year. The rents are payable in installments of $29,280 per month (from May 1, 2011 to April 30, 2012). The lease will terminate on Jan 31, 2017.
Annual minimum lease commitment for 5 years:
12/31/2013
367,350
12/31/2014
377,269
12/31/2015
387,455
12/31/2016
397,916
12/31/2017
33,453
Total annual Lease commitments
$1,563,444
NOTE 8 - RELATED PARTY TRANSACTIONS
Hybrid Kinetic Group Ltd. is the parent of the Company’s controlling stockholder, Far East Golden Resources. Hybrid Kinetic Group Ltd. is also the parent of Billion Energy Holdings Limited, a Hong Kong corporation (“BEHL”) and American Compass Inc. (“ACI”)
NOTE 9 - INCOME TAX
Net deferred tax assets consist of the following components as of December 31, 2014 and 2013:
Deferred tax assets:
NOL carryover
$
1,320,879
$
1,372,884
Valuation allowance
(1,320,879)
(1,372,884)
Net deferred tax asset
$
-
$
-
The income tax provision is summarized as follows:
At December 31, 2014, the Company had net operating loss carry forwards of approximately $8.7 million that may be offset against future taxable income through 2032. No tax benefit has been reported in the December 31, 2014 and 2013 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
NOTE 10 - SUBSEQUENT EVENTS
On February 17, 2015, the Company entered into a Business Agent Agreement with BEHL, a related party. Pursuant to the terms of the Business Agent Agreement, the Company was to facilitate the execution of business transactions of BEHL by acting as paying agent for BEHL.
On February 17, 2015, we entered into a Securities Purchase Agreement with Billion Energy Holdings Limited, a Hong Kong related party corporation, for gross proceeds equal to an aggregate of $20,000,000 in exchange for the issuance of 20,000,000 shares of the Company’s common stock, par value of $0.001 per share, at a per share price of $1.00. The closing of the transactions contemplated under the Agreement are expected to occur on or before March 16, 2015, but was extended to May 16, 2015 according to the funding issue of Billion Energy Holdings Limited. $2,000,000 of the aggregate purchase price was received on March 9, 2015 from BEHL.
On February 24, 2015, Jimmy Wang resigned as a member of the Board of Directors of the Company.
On February 24, 2015, Vincent Wang resigned as a member of the Board and as Secretary the Company.
On February 24, 2015, in connection with Mr. Wang’s resignation, the Board designated Jun Yan, to serve and perform the functions of the Secretary of the Company.
On March 9, 2015, the Company received $13,000,000 from BEHL, which pursuant to a payment instruction letter delivered under the Business Agent Agreement was immediately released and remitted to ACI. The $13,000,000 is subject to the terms and conditions of a promissory note entered into by and between ACI and BEHL. The proceeds of the loan will be used by ACI to fund its research and development in new battery technologies.
On March 23, 2015 (the “Effective Date”), HK Battery Technology Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”) with Apollo Acquisition Corporation, a Cayman Islands related party corporation (the “Investor”), for the issuance of Ten Million shares of the Company’s common stock, par value of $0.001 per share (the “Shares”), at a per share price of $1.00. As consideration for the Shares, the Company entered into a Technology License Agreement with the Investor (the “License Agreement”). Under the terms of the License Agreement, the Investor will grant to the Company an irrevocable exclusive right and license to, including the right to sublicense, certain inventions, technology, know-how, patents and other intellectual property rights regarding the production of materials for use in lithium batteries throughout the People’s Republic of China. The License Agreement will commence on the Effective Date and will continue for a term of twenty (20) years. The closing of the transactions contemplated under the Agreement are expected to occur within thirty (30) days of the Effective Date.
On March 23, 2015, the Company, in accordance with the Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment and the Company Law of the People’s Republic of China, entered into a joint venture agreement (the “JV Agreement”) with Jiangsu New Head Line Development Group Co. Ltd., a related party company established and existing under the laws of China, to establish the company LianYunGang HK Battery Technology Co. LTD (“JV Entity”) to build manufacturing plants in China which will produce advanced materials and parts for new energy vehicles. The Company will invest $25,000,000, which represents 62.5% of the registered capital of the JV Entity, of which 15% or $3,750,000 shall be paid within three months after the JV Entity is formed and the remainder will be paid within 2 years of the formation of the JV Entity.