SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X .QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
.TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 000-52636
HK Battery Technology Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
800 E. Colorado Blvd., Suite 888
(Address of principal executive offices)
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X . No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
. (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes X . No .
As of August 19, 2015, there were 428,669 shares of the registrants common stock, par value $0.001 per share, outstanding.
HK BATTERY TECHNOLOGY INC.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Condensed Consolidated Financial Statements (Unaudited)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
PART II - OTHER INFORMATION
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (SEC), and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on April 7, 2015. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
TABLE OF CONTENTS
Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014
Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2015 and 2014 (unaudited)
Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2015 and 2014 (unaudited)
Notes to the Condensed Consolidated Financial Statements (unaudited)
HK Battery Technology, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Notes receivable - related party
Accrued interest receivable - related party
Total current assets
LIABILITIES AND STOCKHOLDERS' DEFICIT
Note payable to related party (ACI)
Accounts payable Others
Advance from related party (ACI)
Accrued expenses and other liabilities
Total current liabilities
Preferred stock, $.001 par value; 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2015 and December 31, 2014
Common stock, $.001 par value; 1,200,000,000 shares authorized, 429,475 shares issued and outstanding as of June 30, 2015 and December 31, 2014
Additional paid-in capital
Total stockholders' deficit
Total liabilities and stockholders' deficit
The accompanying notes are integral part of these unaudited condensed consolidated financial statements.
HK Battery Technology, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended
For the six months ended
General and administrative
Total operating expenses
Loss from operations
Interest income (expense)
Total interest expense
Loss before income taxes
Provision for income taxes
Net loss per share of common stock:
Weighted average number of shares outstanding
The accompanying notes are integral part of these unaudited condensed consolidated financial statements.
HK Battery Technology, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 2015
For the six months ended June 30, 2014
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Accrued interest receivable related party
Accrued interest related party
Advance from ACI related party
Account payable Other
Account receivable Delta
Accounts receivable Delta net off
Net cash (used in) operating activities
Investment in Lianyungan
Notes receivable related parties
Net cash (used) in investing activities
Proceeds from notes payable
Net cash provided by financing activities
Net change in cash
Cash at the beginning of year
Cash at the end of year
The accompanying notes are integral part of these unaudited condensed consolidated financial statements.
HK Battery Technology Inc.
Notes to the Condensed Consolidated Financial Statements
For the six month period ended June 30, 2015
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Nature of Business and Trade Name
HK Battery Technology Inc. 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 was previously engaged in the acquisition, exploration and development of gold mining claims in Nevada. In February 2013, the Company withdrew from the gold exploration business to explore opportunities in the battery technology field. Effective August 7, 2013, the Company changed its name to HK Battery Technology Inc.
Presentation of Interim Information
The condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) and should be read in conjunction with the audited financial statements for the year ended December 31, 2014. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2015, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2014 condensed consolidated balance sheet data from audited financial statements, but do not include all disclosures required by GAAP. Interim results are subject to seasonal variations and the results of operations for the six months ended June 30, 2015 and 2014 are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
The preparation of consolidated financial statements using accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements estimates or assumptions could have a material impact on the Companys financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying condensed 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. We calculated the loss per share as $1.63 as of June 30, 2015. No Diluted EPS has been calculated for the reported period.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception to-date information on the statements of operations, cash flows and stockholders equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company adopted ASU 2014-10 during the quarter ended September 30, 2014, thereby no longer presenting or disclosing any information previously required by Topic 915.
NOTE 2 GOING CONCERN
The Company sustained operating losses during the first two quarters of and incurred negative cash flows of $697,906 from operations in 2015. The Companys 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 condensed 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 Companys ability to do so. The condensed 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 Companys 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 Companys stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Companys failure to do so could have a material 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 is $22,052 and $19,052 as of June 30, 2015 and June 30, 2014, respectively.
NOTE 4 NOTES PAYABLE
On January 31, 2015, the Company entered into a Demand Promissory Note with ACI, borrowing the amount of $50,000 (the January Note together with the March Note, June Note, July Note and August Note, September Note, October Note, November Note and December Note, collectively, the Notes) in order to cover the Companys operating expense. The January 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 and administrative expenses of the Company as the Company does not currently generate any revenues.
On June 28, 2015 (Effective Date), the Company entered into a Debt Offset Agreement with Delta Advanced Technology Corporation, a Nevada corporation (DATC), and American Compass, Inc., a California corporation (ACI), to offset certain debt. As of the Effective Date, DATC is indebted to the Company in the amount of $3,750,000.00 (the DATC Debt). As of the Effective Date, the Company is indebted to ACI in the amount of $3,750,000.00 (the Company Debt). As of the Effective Date, ACI is indebted to DATC in the amount of $3,750,000.00 (the ACI Debt). Pursuant to the Debt Offset Agreement, (i) ACI assumeed the DATC Debt to the Company; (ii) the Company unconditionally and irrevocably released DATC of all liabilities and obligations to the Company; (iii) DATC unconditionally and irrevocably released ACI of all liabilities and obligations to DATC; and (iv) ACI and HKBT acknowledged and agreed to offset the Company Debt against the DATC Debt assumed by ACI, leaving a balance due from ACI to the Company in the amount of $0 (the Remaining Balance).
As of June 30, 2015, the balance of the Notes to ACI was $0. The total accrued interest was $0 and $88,325 for the quarters ended June 30, 2015, and 2014, respectively.
NOTE 5 STOCKHOLDERS DEFICIT
On October 29, 2010 the Company consummated a private placement offering (the offering) whereby the Company issued 37,751,986 units at $0.10 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 Companys trade payables. Each unit consists of one share of the Companys common stock and one warrant to purchase one share of the Companys common stock at $.10 per share, exercisable for a period of five years from the date of closing. The company has not issue any stock or warrants through for the third quarter ended September 30, 2014
On August 7, 2013, the Company approved an increase in 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.
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 July 21, 2014, the Board of Directors and stockholders holding a majority of the Companys outstanding shares of its common stock, respectively, approved an amendment and restatement of the Companys 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 Companys Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on August 8, 2014. On the Effective Date, the Companys 42,865,074 outstanding shares of common stock were reduced to approximately 429,475 outstanding shares of common stock.
As of June 30, 2014, the Company had 429,475 shares of common stock and zero shares of preferred stock issued and outstanding, respectively.
NOTE 6 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 $29,280.67 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:
Total annual Lease commitments
NOTE 7 RELATED PARTY TRANSACTIONS
Hybrid Kinetic Group Ltd. is the parent of the Companys 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 ACI.
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 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.
NOTE 8 PREPAYMENT TO LYG RELATED PARTY
On March 23, 2015, the Company entered into a Securities Purchase Agreement (the SPA) with Apollo Acquisition Corporation, a Cayman Islands Exempted Company (Apollo). The SPA contemplated that the Company would sell to Apollo ten million (10,000,000) shares of its common stock (the Shares) in exchange for a twenty (20) year exclusive license to certain inventions, technology, patents and other intellectual property rights regarding the production of materials for use in lithium batteries throughout the Peoples Republic of China (the License). The terms of the License were memorialized in a Technology License Agreement (the License Agreement), which was executed by the Company and Apollo concurrently with the SPA. The transactions contemplated within the SPA have not closed and the parties have mutually agreed to cancel the SPA and License Agreement, pursuant to a Termination Agreement, dated as of June 26, 2015.
On March 23, 2015, the Company entered a joint venture agreement (the JV Agreement) with Jiangsu New Head Line Development Group Co. Ltd., a company established and existing under the laws of the Peoples Republic of China. The JV Agreement provided that the company LianYunGang HK Battery Technology Co. LTD (the JV Entity) would be established for the purpose of building manufacturing plants in China to produce advanced materials and parts for new energy vehicles. Effective, as of June 24, 2015, the Company has assigned and transferred its sixty-two and one-half percent (62.5%) equity interest in the JV Entity to Delta Advanced Technology Corporation in exchange for Three Million Seven Hundred Fifty Thousand United States Dollars ($3,750,000.00).
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This report contains forward-looking statements. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Managements Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words believe, expects, anticipates, intends, estimates, projects, target, goal, plans, objective, should, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties including those related to changes in economic conditions, new business opportunities and general financial and business conditions, actual results may differ materially from those expressed or implied by the forward-looking statements.
Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of its public disclosure practices.
Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and accompanying notes included our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC.
Unless the context otherwise requires, the terms the Company, we, us and our refer to HK Battery Technology Inc. (formerly Nevada Gold Holdings, Inc.)
OVERVIEW AND RECENT DEVELOPMENTS
During the fiscal year ended December 31, 2013, we engaged in limited oil and gas activities, had minimal operations, and generated no revenues. We did not pay to the Tempo property lessor, Gold Standard Royalty Corporation, an Advance Minimum Royalty Payment of approximately $150,000 that was due by January 15, 2013, and as of February 15, 2013, Gold Standard Royalty Corporation terminated our lease of the 206 contiguous unpatented lode claims on the Tempo Mineral Prospect. As a result, the Company does not hold any mineral lease or property, and our Board has determined that we will not in the future hold any mineral lease or property. Management, along with the Board of Directors, determined it was in the best interest of the Company and its stockholders to explore opportunities in the battery technology field. Current members of management and of the Board of Directors have experience in this field.
The Company at this time intends to seek a merger, combination or other business transaction with a company that develops and/or manufactures battery packs with advanced technologies, and believe that the change of our name will facilitate such efforts. However, the Company has not yet entered into any agreement, nor does it have any commitment to enter into or become engaged in such a transaction with any party.
Our Board of Directors may at any time determine to redirect the Companys efforts to find a combination or acquisition target to another business or industry. We may 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. See Part I, Item 1, BusinessOur Business Plan, and Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC, for additional information and risks associated with our proposed business plan.
Our Board of Directors, by written consent on May 31, 2013, approved, and stockholders holding 30,000,000 shares (approximately 68.4%) of our outstanding shares of common stock on that date, consented in writing to, an amendment to our certificate of incorporation (the Charter Amendment) 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. The Charter Amendment was filed with the Delaware Secretary of State on August 7, 2013.
We expect that we will need to raise funds in order to effectuate a 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.
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 Companys 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 $9,412,820 as of June 30, 2015. 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.
Results of Operations
For the Six Months Ended June 30, 2015 and 2014
Revenues and Other Income
During the six month period ended June 30, 2015, the Company did not realize any revenues from operations. Similarly, we have not realized any revenues from operations during the period from inception through June 30, 2015.
Operating expenses, consisting entirely of general and administrative expenses, totaled $646,791 and $599,952 for the six month periods ended June 30, 2015 and 2014, respectively. The increase in operating expenses was primarily due to the expansion of our business and fees paid for our annual report audit service.
As a result of the foregoing, the Company incurred a net loss of $697,906 or ($1.63) per share, for the six month period ended June 30, 2015, compared to a net loss of $633,639, or ($0.01) per share (on a pre-reverse stock split basis), for the six month period ended June 30, 2014.
Liquidity and Capital Resources
As of June 30, 2015, we have $1,503,079 of cash on hand.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide disclosure under this Item 3.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our principal executive officer and our 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 June 30, 2015 (the Evaluation Date). Based on this evaluation, such officers 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 principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
We are a small organization with limited personnel. We were unable to implement an effective system of disclosure controls and procedures as of the Evaluation Date. 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.
With the participation of our principal executive officer and our principal financial officer, we evaluated any change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There has been no such change in our internal control over financial reporting identified in connection with that evaluation.
PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time we may be involved in claims arising in connection with our business. There can be no assurance as to the ultimate outcome of any such claim. The amount of reasonably possible losses in connection with any actions that may be brought against us could be material to our consolidated financial condition, operating results and/or cash flows.
As of the date of this Report, 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.
ITEM 1A. RISK FACTORS.
There have been no material changes in our Risk Factors as previously disclosed in our Form 10-K for fiscal year 2014.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Other than as previously reported in our Current Reports on Form 8-K, we have not sold any of our equity securities during the period covered by this Report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. MINE SAFETY DISCLOSURES.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS
The following exhibits are included with this quarterly report.