KRFG 10-Q
King Resources, Inc. (KRFG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the Quarterly Period ended
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Commission file number:
(Exact name of registrant as specified in its charter)
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(IRS Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
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| (Registrant’s telephone number, including area code) |
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| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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. ☒ ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of November 9, 2022, was .
TABLE OF CONTENTS
| i |
INTRODUCTORY COMMENT
We are not a Hong Kong operating company but a Delaware holding company with operations conducted through our wholly owned subsidiaries based in Hong Kong and the British Virgin Islands. Our investors hold shares of common stock in King Resources, Inc., the Delaware holding company. This structure presents unique risks as our investors may never directly hold equity interests in our Hong Kong operating subsidiary and will be dependent upon contributions from our subsidiaries to finance our cash flow needs. Our ability to obtain contributions from our subsidiaries are significantly affected by regulations promulgated by Hong Kong and the People’s Republic of China (“the PRC”) authorities. Any change in the interpretation of existing rules and regulations or the promulgation of new rules and regulations may materially affect our operations and or the value of our securities, including causing the value of our securities to significantly decline or become worthless. For a detailed description of the risks facing the Company associated with our structure, please refer to “Risk Factors – Risk Factors Relating to Doing Business in Hong Kong and China.” set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 24, 2022 (the “Annual Report”).
We currently operate in Hong Kong, and we intend to expand distribution of our products into China and other Asia markets as opportunities permit. While we have no current intention of expanding our physical presence or operations into China, we expect to become directly subject to all PRC laws with all risks described herein relating to the PRC to increase if we develop such physical presence or establish operations in China.
King Resources, Inc. and its Hong Kong and British Virgin Islands subsidiaries are not required to obtain permission from the Chinese authorities including the China Securities Regulatory Commission, or CSRC, or Cybersecurity Administration Committee, or CAC, to operate or to issue securities to foreign investors. In making this determination, we relied on the legal opinion of Ravenscroft & Schmierer, a copy of which is attached as Exhibit 5 to the Company’s Amendment No. 2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on April 21, 2022 (the “Form 10”). However, in light of the recent statements and regulatory actions by the PRC government, such as those related to the extension of China’s oversight and control into Hong Kong, the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. If our subsidiary or the holding company were required to obtain approvals in the future, or we erroneously conclude that approvals were not required, or were denied permission from Chinese authorities to list on U.S. exchanges, our operations may materially change, our ability to offer or continue to offer securities to our investors or to continue listing on a U.S. exchange may be adversely affected, and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the CSRC, if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company’s securities to continue to trade on the Over-the-Counter Bulletin Board, which may cause the value of our securities to significantly decline or become worthless.
There may be prominent risks associated with our operations being in Hong Kong and China. For example, as a U.S.-listed Hong Kong public company, we may face heightened scrutiny, criticism and negative publicity, which could result in a material change in our operations and the value of our common stock. It could also significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Additionally, changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and the Data Security Law, and recent statements and regulatory actions by the PRC government such as those related to the use of variable interest entities, data security and anti-monopoly concerns, may target the Company's corporate structure and impact our ability to conduct business in Hong Kong and China, accept foreign investments, or list on an U.S. or other foreign exchange. For a detailed description of the risks facing the Company and the offering associated with our operations in Hong Kong and future operations in China, please refer to “Risk Factors – Risk Factors Relating to Doing Business in Hong Kong and China.” set forth in the Annual Report.
| ii |
The recent joint statement by the U.S. Securities and Exchange Commission (“SEC”) and Public Company Accounting Oversight Board (“PCAOB”), and the Holding Foreign Companies Accountable Act (“HFCAA”) all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. Trading in our securities may be prohibited under the HFCAA if the PCAOB determines that it cannot inspect or investigate completely our auditor, and that as a result an exchange may determine to delist our securities. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act which would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two thus reducing the time before our securities may be prohibited from trading or being delisted. On December 2, 2021, the SEC adopted rules to implement the HFCAA. Pursuant to the HFCAA, the PCAOB issued its report notifying the Commission that it is unable to inspect or investigate completely accounting firms headquartered in mainland China or Hong Kong due to positions taken by authorities in mainland China and Hong Kong. Our auditor is based in Kuala Lumpur, Malaysia and is subject to PCAOB’s inspection. It is not subject to the determinations announced by the PCAOB on December 16, 2021. However, in the event the Malaysian authorities subsequently take a position disallowing the PCAOB to inspect our auditor, then we would need to change our auditor to avoid having our securities delisted. Furthermore, due to the recent developments in connection with the implementation of the HFCAA, we cannot assure you whether the SEC or other regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. The requirement in the HFCAA that the PCAOB be permitted to inspect the issuer’s public accounting firm within two or three years, may result in the delisting of our securities from applicable trading markets in the U.S, in the future if the PCAOB is unable to inspect our accounting firm at such future time. Please see “Risk Factors – The Holding Foreign Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer's public accounting firm within three years. This three-year period will be shortened to two years if the Accelerating Holding Foreign Companies Accountable Act is enacted. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, they may suspend or de-register our registration with the SEC and delist our securities from applicable trading market within the US.” set forth in the Annual Report.
In addition to the foregoing risks, we face various legal and operational risks and uncertainties arising from doing business in Hong Kong and China as summarized below and in “Risk Factors – Risks Factors Relating to Doing Business in Hong Kong and China.” set forth in the Annual Report.
| · | There are significant risks associated with our operations being based in Hong Kong. Adverse changes in economic and political policies of the Hong Kong and PRC government could have a material and adverse effect on overall economic growth in China and Hong Kong, which could materially and adversely affect our business. Please see “Risk Factors – We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in Hong Kong currently, and in the future, in China, and the profitability of such business.” and “Substantial uncertainties and restrictions with respect to the political, legal and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in Hong Kong and the PRC, and accordingly on the results of our operations and financial condition.” set forth in the Annual Report. | |
| · | We are a holding company with operations conducted through our wholly owned subsidiary based in Hong Kong. This structure presents unique risks as our investors may never directly hold equity interests in our Hong Kong subsidiary and will be dependent upon contributions from our subsidiary to finance our cash flow needs. Any limitation on the ability of our subsidiary to make payments to us could have a material adverse effect on our ability to conduct business. We do not anticipate paying dividends in the foreseeable future; you should not buy our stock if you expect dividends. Please see “Risk Factors – Because our holding company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other cash payments is limited.” set forth in the Annual Report. |
| iii |
| · | There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. We rely on dividends from our Hong Kong subsidiary for our cash and financing requirements, such as the funds necessary to service any debt we may incur. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders. Please see “Risk Factors – Our Hong Kong subsidiary may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity requirements, conduct business and pay dividends to holders of our common stock.”; “Risk Factors - PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to our Hong Kong subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand business.”; “Risk Factors - Because our holding company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other payments is limited.” and “Transfers of Cash to and from our Subsidiaries.” set forth in the Annual Report. | |
| · | PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our operating subsidiaries in Hong Kong. Substantial uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations. Please see “Risk Factors – PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to our Hong Kong subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand business.” set forth in the Annual Report. | |
| · | In light of China’s extension of its authority into Hong Kong, we are subject to risks arising from the legal system in Hong Kong and China, including risks and uncertainties regarding the enforcement of laws and that rules and regulations in Hong Kong and China can change quickly with little or no advance notice. There is also a risk that the Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in Hong Kong or PRC based issuers, which could result in a material change in our operations and/or the value of our securities. We are currently not required to obtain approval from Chinese authorities (including the CSRC and the CAC) to operate or to list on U.S. exchanges. However, to the extent that the Chinese government exerts more control over offerings conducted overseas and/or foreign investment in Hong Kong-based issuers over time and if our subsidiary or the holding company were required to obtain approvals in the future, or we erroneously conclude that approvals were not required, or were denied permission from Chinese authorities to list on U.S. exchanges, our operations may materially change, our ability to offer or continue to offer securities to our investors or to continue listing on a U.S. exchange may be significantly limited or completely hindered, and the value of our common stock (including those we are registering for sale now or in the future) may significantly decline or become worthless, which would materially affect the interest of the investors. To the extent that we expand our operations into China, all of the foregoing risks will become more prominent and directly applicable to us, and significantly adverse policies from the PRC may force us to divest of such Chinese operations or face other risks of forfeiture. Please see “Risk Factors – We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in Hong Kong currently, and in the future, in China, and the profitability of such business.”, “Substantial uncertainties and restrictions with respect to the political, legal and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in Hong Kong and the PRC, and accordingly on the results of our operations and financial condition.” and “The PRC government has significant oversight and discretion over the conduct of a Hong Kong company’s business operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, and may intervene with or influence our operations, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless, as the government deems appropriate to further regulatory, political and societal goals.” set forth in the Annual Report. |
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| · | Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment. | |
| · | We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection, especially if we expand operations or physical presence into China. We may be liable for improper use or appropriation of personal information provided by our customers. Please see “Risk Factors – The PRC government has significant oversight and discretion over the conduct of a Hong Kong company’s business operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, and may intervene with or influence our operations, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless, as the government deems appropriate to further regulatory, political and societal goals.” set forth in the Annual Report. | |
| · | Under the Enterprise Income Tax Law of the PRC (“EIT Law”), we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders. Please see “Risk Factors – Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.” set forth in the Annual Report. | |
| · | Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident Shareholders to personal liability, may limit our ability to acquire Hong Kong and PRC companies or to inject capital into our Hong Kong subsidiary, may limit the ability of our Hong Kong subsidiaries to distribute profits to us or may otherwise materially and adversely affect us. | |
| · | You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of shares of our common stock. Please see “Risk Factors – Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.” set forth in the Annual Report. | |
| · | We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies. Please see “Risk Factors – We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.” set forth in the Annual Report. | |
| · | We are organized under the laws of the State of Delaware as a holding company that conducts its business through a number of subsidiaries organized under the laws of foreign jurisdictions such as Hong Kong and the British Virgin Islands. This may have an adverse impact on the ability of U.S. investors to enforce a judgment obtained in U.S. Courts against these entities, bring actions in Hong Kong against us or our management or to effect service of process on the officers and directors managing the foreign subsidiaries. Please see “Risk Factors – Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in Hong Kong based upon U.S. laws, including the federal securities laws or other foreign laws against us or our management. set forth in the Annual Report. | |
| · | U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China. | |
| · | There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. Please see “Risk Factors – Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.” set forth in the Annual Report. |
References in this registration statement to the “Company,” “KRFG,” “we,” “us” and “our” refer to King Resources, Inc., a Delaware company and all of its subsidiaries on a consolidated basis. Where reference to a specific entity is required, the name of such specific entity will be referenced.
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Transfers of Cash to and from Our Subsidiaries
King Resources, Inc. is a Delaware holding company with no operations of its own. We conduct our operations in Hong Kong primarily through our operating subsidiary in Hong Kong, and most of our cash is maintained in Hong Kong Dollars. We may rely on dividends to be paid by our Hong Kong or British Virgin Islands subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders. If our Hong Kong subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. To date, our subsidiaries have not made any transfers, dividends or distributions to King Resources, Inc. and King Resources, Inc. has not made any transfers, dividends or distributions to its subsidiaries.
King Resources, Inc. is permitted under Delaware laws to provide funding to our subsidiaries in Hong Kong and the British Virgin Islands through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Our Hong Kong subsidiary, Powertech Corporation Limited (“Powertech Corp”), and British Virgin Islands subsidiary, Powertech Management Limited, are also permitted under the laws of Hong Kong and the British Virgin Islands to provide funding to King Resources, Inc. through dividend distributions without restrictions on the amount of the funds. As of the date of this report, there has been no dividends or distributions among the parent company or the subsidiaries nor do we expect such dividends or distributions to occur in the foreseeable future among the parent company and its subsidiaries.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Currently, the treasury function of King Resources, Inc. and its subsidiaries is centralized and operated by the finance department of Powertech Corporation Limited located in Hong Kong under the management of its chief financial officer. In order to provide a process and guidance on collecting, accounting for, and safeguarding all cash and cash equivalents of King Resources, Inc. and its subsidiaries, we have established a cash management policy that includes procedures on receiving funds, depositing funds, and proper documentation and recording of cash.
Subject to the Delaware General Corporation Law and our bylaws, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further Delaware statutory restriction on the amount of funds which may be distributed by us by dividend.
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from King Resources, Inc. to our Hong Kong subsidiary or from our Hong Kong subsidiary to King Resources, Inc. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of Hong Kong dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S. investors.
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There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders. Please see “Risk Factors – Our Hong Kong subsidiary may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity requirements, conduct business and pay dividends to holders of our common stock.”; “Risk Factors – PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to our Hong Kong subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand business.”; “Risk Factors – Because our holding company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other payments is limited.” set forth in the Annual Report.
Current PRC regulations permit PRC subsidiaries to pay dividends to Hong Kong subsidiaries only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As of the date of this report, we do not have any PRC subsidiaries.
The PRC government also imposes controls on the conversion of Renminbi (“RMB”) into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency to finance our cash requirements, service debt or make dividend or other distributions to our shareholders. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%.
In order for us to pay dividends to our shareholders, we will rely on payments made from our Hong Kong subsidiary to King Resources, Inc. If in the future we have PRC subsidiaries, certain payments from such PRC subsidiaries to our Hong Kong subsidiary will be subject to PRC taxes, including business taxes and Value-added tax. As of the date of this report, we do not have any PRC subsidiaries and our Hong Kong subsidiary has not made any transfers, dividends or distributions nor do we expect to make such transfer, dividends or distributions in the foreseeable future.
Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by a PRC subsidiary to its immediate holding company. As of the date of this report, we do not have a PRC subsidiary. In the event that we acquire or form a PRC subsidiary in the future and such PRC subsidiary desires to declare and pay dividends to our Hong Kong subsidiary, our Hong Kong subsidiary will be required to apply for the tax resident certificate from the relevant Hong Kong tax authority. In such event, we plan to inform the investors through SEC filings, such as a current report on Form 8-K, prior to such actions. See “Risk Factors – Risk Factors Relating to Doing Business in Hong Kong and China.” set forth in the Annual Report.
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical facts, included in this Form 10-Q including, without limitation, statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s market projections, financial position, business strategy and the plans and objectives of management for future operations, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Form 10-K for the year ended March 31, 2022 filed with the SEC on June 24, 2022.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
KING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND MARCH 31, 2022
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| September 30, 2022 | March 31, 2022 | |||||||
| (Audited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Deferred financing cost, net | ||||||||
| Deposits, prepayments and other receivables | ||||||||
| Amount due from related parties | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Intangible assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payables | $ | $ | ||||||
| Accrued liabilities and other payables | ||||||||
| Accrued consulting and service fees | ||||||||
| Amounts due to related parties | ||||||||
| Lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liability: | ||||||||
| Lease liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred Stock, par value $, shares authorized, shares undesignated as of September 30, 2022 and March 31, 2022 | ||||||||
| Preferred Stock, Series C, par value $, shares designated, shares issued and outstanding as of September 30, 2022 and March 31, 2022, respectively | ||||||||
| Common stock, par value $, shares authorized, and shares issued and outstanding as of September 30, 2022 and March 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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KING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Three Months ended September 30, | Six Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Government subsidy | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Loss on impairment of inventories | ( | ) | ( | ) | ||||||||||||
| Total other expense, net | ( | ) | ( | ) | ||||||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income: | ||||||||||||||||
| – Foreign currency adjustment gain | ||||||||||||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share – Basic and Diluted* | ||||||||||||||||
| – Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| – Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average outstanding shares | ||||||||||||||||
| – Basic | ||||||||||||||||
| – Diluted | ||||||||||||||||
*Less than $0.01
See accompanying notes to unaudited condensed consolidated financial statements.
| 2 |
KING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”))
| Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Non-cash lease expenses | ||||||||
| Amortization of deferred financing cost | ||||||||
| Share issued for services rendered | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Deposit, prepayments and other receivables | ( | ) | ||||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Accrued consulting and service fees | ||||||||
| Accounts payables | ||||||||
| Right-of-use assets and lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activity: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in financing activity | ( | ) | ||||||
| Cash flows from financing activity: | ||||||||
| Advances from related parties | ||||||||
| Net cash provided by financing activity | ||||||||
| Foreign currency translation adjustment | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 3 |
KING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Preferred stock Series C | Common stock | Additional paid-in | Accumulated other comprehensive income | Accumulated | Total stockholders’ | |||||||||||||||||||||||||||
| No. of Shares | Amount | No. of Shares | Amount | capital | (loss) | losses | deficit | |||||||||||||||||||||||||
| Balance as of April 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss for the period | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | – | $ | – | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Net loss for the period | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance as of April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ||||||||||||||||||||||||||||||
| Commitment shares issued for private placement | – | |||||||||||||||||||||||||||||||
| Net loss for the period | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Share issued for services rendered | – | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Cancellation of shares | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ||||||||||||||||||||||||||||||
| Net loss for the period | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
KING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE –1 DESCRIPTION OF BUSINESS AND ORGANIZATION
King Resources, Inc. (the “Company”) was incorporated in the State of Delaware on September 8, 1995 under the name of ARXA International Energy, Inc. On June 4, 2001, the Company changed its name to King Resources, Inc. Currently, the Company through its subsidiaries, is engaged primarily in the development of smart power supply solutions and products in Hong Kong.
The Company is currently preparing to launch own brand products on online store and acting as distributor to sell several brands in Hong Kong.
Description of subsidiaries
| Name | Place of incorporation and kind of legal entity | Principal activities and place of operation |
Particulars of registered/paid up share capital | Effective interest held |
||||||
The Company and its subsidiaries are hereinafter referred to as the “Company”.
NOTE – 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying unaudited condensed consolidated financial statements and notes.
| · | Basis of presentation |
These accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
| 5 |
| · | Use of estimates and assumptions |
In preparing these unaudited condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the periods reported. Actual results may differ from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted. Significant estimates in the period include the valuation and useful lives of intangible assets and deferred tax valuation allowance.
| · | Basis of consolidation |
The unaudited condensed consolidated financial statements include the accounts of KRFG and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
| · | Segment reporting |
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in unaudited condensed consolidated financial statements. For the three and six months ended September 30, 2022 and 2021, the Company operates in one reportable operating segment in Hong Kong.
| · | Cash and cash equivalents |
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
| · | Accounts receivables |
Accounts receivables are recorded at the
invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of
service. Credit is extended based on evaluation of a customer's financial condition, the customer credit-worthiness and their
payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due
balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of fiscal year, the
Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions
to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for
any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due
or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including
seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit
exposure related to its customers. During the three and six months ended September 30, 2022 and 2021, there was
| · | Inventories |
Inventories are stated at the lower of cost
or market value (net realizable value), cost being determined on a first-in-first-out method. Costs include material costs. The
Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. During the
three and six months ended September 30, 2022 and 2021, the Company recorded an impairment loss for obsolete
inventories of $
| 6 |
| · | Intangible assets |
Intangible assets consist of trademarks and trade
names. The intangible assets are stated at the purchase cost and are amortized based on their economic benefits expected to be realized
and assessed for impairment annually. There was
| · | Property and equipment |
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| Expected useful lives | ||
| Office equipment | ||
| Furniture and fixtures | ||
| Computer equipment |
Expenditures for repair and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
| · | Website development costs |
The Company accounts for its website development costs in accordance with ASC 350-50, Website Development Costs. These costs, if any, are included in intangible assets in the accompanying unaudited condensed consolidated financial statements. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated useful life of five years.
| · | Impairment of long-lived assets |
In accordance with the provisions of ASC Topic
360, Impairment or Disposal of Long-Lived Assets, all long-lived assets such as property and equipment owned and held by the Company
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted
cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been
| · | Revenue recognition |
The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) using the full retrospective transition method. The Company's adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its unaudited condensed consolidated financial statements.
Under ASU 2014-09, the Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
| 7 |
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| · | identify the contract with a customer; |
| · | identify the performance obligations in the contract; |
| · | determine the transaction price; |
| · | allocate the transaction price to performance obligations in the contract; and |
| · | recognize revenue as the performance obligation is satisfied. |
The Company’s services revenue is derived from performing the research and development and technology development for the customers under fixed-price contracts. On fixed-price contracts that are expected not more than one year in duration, revenue is recognized pursuant to the proportional performance method based upon the proportion of actual costs incurred to the total estimated costs for the contract. The Company receives periodic progress payments.
Costs incurred in connection with the research and development, are included in cost of revenue. Product development costs charged to billable projects are recorded as cost of revenue, which consist primarily of costs associated with personnel, supplies and materials.
The Company’s trading revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product to a customer.
| · | Government subsidy |
A government subsidy is not recognized until there
is reasonable assurance that: (a) the enterprise will comply with the conditions attached to the grant; and (b) the grant will be received.
When the Company receives government subsidies but the conditions attached to the grants have not been fulfilled, such government subsidies
are deferred and recorded under other payables and accrued expenses, and other long-term liability. The classification of short-term or
long-term liabilities is depended on the management’s expectation of when the conditions attached to the grant can be fulfilled.
For the three months ended September 30, 2022 and 2021, the Company received government subsidies of $
| · | Income taxes |
The Company adopted the ASC 740 Income tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the unaudited condensed consolidated financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the unaudited condensed consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
| 8 |
| · | Uncertain tax positions |
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the ASC 740 provisions of Section 740-10-25 for the three and six months ended September 30, 2022 and 2021.
| · | Net loss per share |
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
| · | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited condensed consolidated statement of operations.
The reporting currency of the Company is United States Dollar ("US$") and the accompanying unaudited condensed consolidated financial statements have been expressed in US$. In addition, the Company is operating in Hong Kong and maintains its books and record in its local currency, Hong Kong Dollars (“HKD”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholder’s equity.
Translation of amounts from HKD into US$ has been made at the following exchange rates for the period ended September 30, 2022 and 2021:
September 30, 2022 |
September 30, 2021 |
|||||||
| Period-end HKD:US$ exchange rate | ||||||||
| Annualized average HKD:US$ exchange rate | ||||||||
| · | Comprehensive income |
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying unaudited condensed consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
| 9 |
| · | Leases |
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use assets may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASC Topic 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.
The Company made the policy election to not separate lease and non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.
| · | Related parties |
The Company follows the ASC 850-10, Related Party for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The unaudited condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of unaudited condensed consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
| · | Commitments and contingencies |
The Company follows the ASC 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
| 10 |
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s unaudited condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
| · | Fair value of financial instruments |
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, approximate their fair values because of the short maturity of these instruments.
| · | Recent accounting pronouncements |
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
| 11 |
NOTE – 3 GOING CONCERN UNCERTAINTIES
The accompanying unaudited condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company incurred recurring losses from prior
years and suffered from an accumulated deficit of $
The continuation of the Company as a going concern in the next twelve months is dependent upon the continued financial support from its stockholders. The Company is currently pursuing additional financing for its operations. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.
These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
NOTE – 4 DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES
Deposits, prepayments and other receivables consisted of the following:
| Schedule of deposits, prepayments and other receivables | September 30, | March 31, | ||||||
| 2022 | 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepayment for goods | ||||||||
| Rental and utilities deposit | ||||||||
| Other receivables | ||||||||
| Deposits, prepayments and other receivables | $ | $ | ||||||
Prepaid expenses represents the administrative and operational expenses that are prepaid for the next twelve months.
Prepayment for goods represents the payment for production and delivery of goods in advance. The prepayment will be charged to inventories when the goods are received from the vendor.
NOTE – 5 DEFERRED FINANCING COST, NET
Deferred financing cost, net is as follows:
| September 30, 2022 | March 31, 2022 | |||||||
| Deferred financing cost | ||||||||
| Less: amortization | ( | ) | ||||||
| Deferred financing cost, net | $ | $ | ||||||
On June 24, 2022, the Company issued 525,000,000 shares of its common stock as Commitment Shares to Williamsburg Venture Holdings, LLC (the “Investor”), under an Equity Purchase Agreement dated June 21, 2022 (the “Agreement”), in consideration for the Investor’s execution and delivery of, and performance under the Agreement, which was deferred to be amortized over the financing period.
| 12 |
NOTE – 6 PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| September 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Office equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computer equipment | ||||||||
| Foreign translation difference | ( | ) | ( | ) | ||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: foreign translation difference | ||||||||
| $ | $ | |||||||
Depreciation expense for the three months ended
September 30, 2022 and 2021 were $
Depreciation expense for the six months ended
September 30, 2022 and 2021 were $
NOTE – 7 INTANGIBLE ASSETS, NET
As of September 30, 2022 and March 31, 2022, intangible assets consisted of the following:
| Useful life | September 30, 2022 | March 31, 2022 | ||||||||
| At cost: | ||||||||||
| Website development cost | $ | $ | ||||||||
| Trademarks | ||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Foreign translation adjustment | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
Amortization of intangible assets for the three
months ended September 30, 2022 and 2021 were $
Amortization of intangible assets for the six
months ended September 30, 2022 and 2021 were $
As of September 30, 2022, the estimated amortization expense for intangible assets for each of the succeeding five years and thereafter is as follows:
| Year ending September 30: | Amount | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
| 13 |
NOTE – 8 AMOUNTS DUE TO RELATED PARTIES
The amounts represented temporary advances for
working capital purpose. The amounts are from the Company’s shareholders and their controlling companies, which were unsecured,
interest-free with no fixed term of repayment. The related parties balance was $
NOTE –9 LEASE
As of September 30, 2022, the Company entered
into an operating lease with a lease term of
Right of use assets and lease liability – right of use are as follows:
September 30, 2022 | March 31, 2022 | |||||||
| Right-of-use assets | $ | $ | ||||||
The lease liability – right of use is as follows:
| September 30, 2022 | March 31, 2022 | |||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total | $ | $ | ||||||
The weighted average discount rate for the operating
lease is
As of September 30, 2022, the operating lease
payment of $
NOTE – 10 STOCKHOLDERS’ DEFICIT
The Company is authorized to issue two classes of capital stock, up to 6,085,000,000 shares.
The Company is authorized to issue shares of preferred stock, with a par value of $. The Company has one class of Preferred Stock designated with shares authorized as Series C Preferred Stock, with a par value of $ per share.
The Company is authorized to issue shares of common stock, with a par value of $.
Series C Preferred Stock
The Company has designated shares of Series C Preferred Stock. Each one share of Series C Convertible Preferred Stock converts into 100 shares of common stock of the Company at the election of the holder, subject to equitable adjustments.
As of September 30, 2022 and March 31, 2022, the Company had shares of Series C Preferred Stock issued and outstanding.
| 14 |
Common Stock
On June 24, 2022, the Company issued shares of its common stock as Commitment Shares to Williamsburg Venture Holdings, LLC (the “Investor”), under an Equity Purchase Agreement dated June 21, 2022 (the “Agreement”), in consideration for the Investor’s execution and delivery of, and performance under the Agreement, which was deferred to be amortized over the financing period.
On August 12, 2022, the Company issued shares of its common stock to settle the accrued consulting and service fee to consultants who have provided services to the Company.
On September 30, 2022, the Company cancelled shares of its common stock due to an error noted from previous transfer agent’s record.
As of September 30, 2022 and March 31, 2022, the Company had a total of shares and shares of common stock issued and outstanding, respectively.
The following table sets forth the computation of basic and diluted net loss per share for the six months ended September 30, 2022 and 2021:
| Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding: | ||||||||
| – Basic | ||||||||
| – Diluted | ||||||||
| Net loss per share:* | ||||||||
| – Basic | $ | ( | ) | $ | ( | ) | ||
| – Diluted | $ | ( | ) | $ | ( | ) | ||
| ____________________ |
* Less than $0.01
For the six months ended September 30, 2022 and 2021, diluted weighted-average common shares outstanding is equal to basic weighted-average common shares, due to the Company’s net loss position. Hence, no common stock equivalents were included in the computation of diluted net loss per share since such inclusion would have been antidilutive.
| 15 |
NOTE – 12 INCOME TAX EXPENSE
For the six months ended September 30, 2022 and 2021, the local (“United States of America”) and foreign components of income (loss) before income taxes were comprised of the following:
| Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Tax jurisdiction from: | ||||||||
| - Local | $ | ( | ) | $ | ||||
| - Foreign, including | ||||||||
| British Virgin Islands | ( | ) | ||||||
| Hong Kong | ( | ) | ( | ) | ||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
The provision for income taxes consisted of the following:
Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Current tax: | ||||||||
| - Local | $ | $ | ||||||
| - Foreign | ||||||||
| Deferred tax | ||||||||
| - Local | ||||||||
| - Foreign | ||||||||
| Income tax expense | $ | $ | ||||||
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company mainly operates in Hong Kong that is subject to taxes in the jurisdictions in which they operate, as follows:
United States of America
KRFG is registered in the State of Delaware and is subject to tax laws of the United States of America. The U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were not material to its results of operations for the periods presented. The Company has provided for a full valuation allowance against the deferred tax assets as the tax losses may not be able to carry forward after a change in substantial ownership of the Company.
For the six months ended September 30, 2022 and 2021, there were no operating income in the U.S. tax regime.
BVI
Under the current BVI law, the Company is not subject to tax on income.
| 16 |
Hong Kong
The Company’s subsidiary operating in Hong Kong is subject to the Hong Kong Profits Tax at the two-tiered profits tax rates from 8.25% to 16.5% on the estimated assessable profits arising in Hong Kong during the current period after deducting a tax concession for the tax year. The reconciliation of income tax rate to the effective income tax rate for the six months ended September 30, 2022 and 2021 is as follows:
| Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Income (Loss) before income taxes | $ | ( |
) | $ | ( |
) | ||
| Statutory income tax rate | ||||||||
| Income tax expense at statutory rate | ( |
) | ( |
) | ||||
| Tax effect of non-deductible items | ||||||||
| Tax effect of non-taxable items | ( |
) | ||||||
| Net operating income (loss) | ( |
) | ( |
) | ||||
| Valuation allowance | ||||||||
| Income tax expense (benefit) | $ | $ | ||||||
The following table sets forth the significant components of the deferred tax assets and liabilities of the Company as of September 30, 2022 and March 31, 2022:
| September 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward, from | ||||||||
| US tax regime | $ | $ | ||||||
| Hong Kong tax regime | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
As of September 30, 2022, the operations in the
United States of America incurred $
As of September 30, 2022, the operations in Hong
Kong incurred $
The Company filed income tax returns in the United States federal tax jurisdiction and the Delaware state tax jurisdiction. Since the Company is in a loss carryforward position, it is generally subject to examination by federal and state tax authority for all tax years in which a loss carryforward is available.
| 17 |
NOTE – 13 RELATED PARTY TRANSACTIONS
From time to time, the Company’s related companies and director advanced working capital funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and had no fixed terms of repayment.
Apart from the transactions and balances detailed elsewhere in these accompanying unaudited condensed consolidated financial statements, the Company has no other significant or material related party transactions during the periods presented.
NOTE – 14 COMMITMENTS AND CONTINGENCIES
As of September 30, 2022, the Company is committed to the below contractual arrangement.
On June 21, 2022, the Company entered into an
Equity Purchase Agreement with Williamsburg Venture Holdings, LLC (“Investor”), a Nevada limited liability company, pursuant
to which the Investor has committed to invest up to Twenty Million Dollars ($
NOTE – 15 SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before unaudited condensed consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2022, up through the date the Company issued the unaudited condensed consolidated financial statements. The Company had no material recognizable subsequent events since September 30, 2022.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Cautionary Note Concerning Forward-Looking Statements” on page ii.
Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “$” refer to the legal currency of the United States. Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Our Mission
Our mission is to create value for our shareholders through innovative solutions and products with Healthcare, Lifestyles, and Mobility elements.
Overview
We were incorporated in the state of Delaware on September 8, 1995, under the name ARXA International Energy, Inc. On June 4, 2001, we changed our name to King Resources, Inc., our current name.
On April 2, 2018, a change of control occurred with respect to the Company. On October 18, 2018, Brian Kistler, the then sole director and executive resigned from his position as the Chairman of the Board, and Junrong Yin was appointed to fill the vacancy caused by his resignation. On May 3, 2021, Mr. Kistler resigned from his positions as CEO with the Company and appointed Caren Currier to fill the vacancies caused by his resignation.
On October 25, 2021, Caren Currier entered into a Stock Purchase Agreement with Dr. Lee Ying Chiu Herbert (“Dr. Lee”) pursuant to which Ms. Currier agreed to sell to Dr. Lee all 30 million shares of Series C Preferred Stock of the Company held by her for aggregate consideration of Four Hundred Ten Thousand Dollars ($410,000). This transaction was consummated on November 10, 2021. In connection with the acquisition, Ms. Currier resigned from all her positions with the Company and the following persons were appointed to serve in the positions set forth next to their names:
| Name | Position | |
| FU Wah | Chief Executive Officer, Secretary, Director | |
| LAU Ping Kee | Chief Financial Officer, Director |
Acquisition of Powertech
On December 15, 2021, we acquired 50,000 shares of Powertech Management Limited, a limited liability company organized under the laws of the British Virgin Islands (“Powertech”), representing all of its issued and outstanding securities, from its shareholders Silver Bloom Properties Limited and FU Wah in exchange for 2,835,820,896 shares of our Common Stock (“Share Exchange”). In connection with the acquisition, each of Silver Bloom Properties Limited and FU Wah received 2,126,865,672 and 708,955,224 shares of our Common Stock, respectively. Powertech operates its smart power supply business through its wholly owned subsidiary Powertech Corporation Limited, a limited liability company organized under the laws of Hong Kong. The Company relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s securities to the shareholders of Powertech.
Prior to the Share Exchange, the Company was considered as a shell company due to its nominal assets and limited operation. The transaction was treated as a recapitalization of the Company.
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The Share Exchange between the Company and Powertech on December 15, 2021 is deemed a merger of entities under common control for which FU Wah is the common director and shareholder of both the Company and Powertech. Under the guidance in ASC 805 for transactions between entities under common control, the assets, liabilities and results of operations, are recognized at their carrying amounts on the date of the Share Exchange, which required the retrospective combination of the Company and Powertech for all periods presented.
Recent developments of the Company
On June 27, 2022, the board of directors of King Resources, Inc., a Delaware corporation, and certain stockholders holding a majority of the voting rights of our common stock approved by written consent in lieu of a special meeting the taking of all steps necessary to effect the following corporate actions:
| 1. | Amend the Company’s Certificate of Incorporation filed with the Delaware Secretary of State (the “Certificate of Incorporation”) to change the Company’s name to OneSolution Technology Inc.; | |
| 2 | Amend the Company’s Certificate of Incorporation to increase the authorized capital stock from 6,085,000,000, consisting of 6,000,000,000 shares of common stock, par value $0.001, and 85,000,000 shares of preferred stock, to 36,100,000,000 consisting of 36,000,000,000 shares of common stock, par value $0.001, and 100,000,000 shares of preferred stock, par value $0.001; | |
| 3. | Elect not to be governed by Section 203 of the Delaware General Corporation Law; and | |
| 4. | Adopt the Amended and Restated Certificate of Incorporation for the purpose of consolidating the amendments to the Company’s Certificate of Incorporation and to conform the par values of the preferred stock. |
We expect that such corporate actions to become effective on occurrence of the the later of: (i) the date on which the Corporate Actions are approved by the Financial Industry Regulatory Authority; or (ii) no earlier than August 22, 2022. As of the date of this report, the Corporate Actions have not been approved by the Financial Industry Regulatory Authority.
On August 8, 2022, the Company filed a registration statement on Form S-8, which authorized the issuance of the Company’s common stock as the compensation for the consultants who have provided services for the Company. On August 12, 2022, 151,515,152 shares of the Company’s common stock have been issued to the consultants.
On August 30, 2022, the Company appointed the following individuals to serve as independent directors of the Company:
| Name | Age | Office(s) | ||
| Wong Kan Tat Frederick | 58 | Independent Director | ||
| Lo Mei Fan Pauline | 51 | Independent Director |
None of the foregoing persons has a direct family relationship with any of the Corporation’s directors or executive officers, or any person nominated or chosen by the Corporation to become a director or executive officer.
None of the foregoing officers and directors will receive compensation in connection with their service on our Board of Directors or as an executive officer.
The Company adopted an Insider Trading Compliance Program, established an audit committee, a compensation committee and a nomination and governance committee, and adopted charters to govern the governance of such audit, compensation, nomination and governance committees. The audit and compensation committees consist of Mr. Wong Kan Tat Frederick and Ms. Lo Mei Fan Pauline, our independent directors, and Mr. Lau Ping Kee, our Chief Financial Officer and Director. Mr. Lau is the chair of our audit committee and compensation committee. Our nomination and governance committee consists of Mr. Wong Kan Tat Frederick, Ms. Lo Mei Fan Pauline, and Mr. Fu Wah, our Chief Executive Officer, Secretary and Director. Mr. Fu is the chair of our nomination and governance committee.
| 20 |
The Company believes that the above actions are the first step for the Company to establish good corporate governance which could lead to corporate success and growth in the future.
During the three months ended September 30, 2022, the Company recorded a revenue of $2,872 and a net loss of $592,078. The significant drop in revenue was mainly attributable to the global economic downturn. During this period, the Company started the distribution business, however, the material supply and logistic of final products are still impacted by the effect of COVID-19. The pace of implementation of distribution business was hindered and only a few sales were made as a result. The Company has tried its best to overcome the challenges in this tough situation and successfully secured the supply chain subsequent to the quarter ended September 30, 2022. The management expects a sales rebound will occur in the next quarter, together with the seasonal effect brought by Christmas and New Year Holiday, and expand to the oversea market when opportunity permits.
Our Organization Structure
The following corporate organization chart illustrates the current corporate structure of King Resources, Inc., including the jurisdiction of incorporation and ownership interest of each of its subsidiaries:
King Resources, Inc. is a holding company with no operations. It operates solely through its subsidiaries by providing innovative solutions and products with Healthcare, Lifestyles, and Mobility elements.
| 21 |
We have five wholly-owned subsidiaries: (i) OneSolution Holdings Limited (“OSH”), a BVI limited liability company formed in August 2022; (ii) Powertech Management Limited (“Powertech”), a BVI limited liability company formed in December 2021; (iii) Powertech Corporation Limited (“Powertech Corp”), a Hong Kong limited liability company formed in January 2015; (iv) OneSolution Management Limited (“OSM”), a BVI limited liability company formed in August 2022; and (v) OneSolution Innotech Limited (“OSIL”), a Hong Kong limited liability company formed in September 2022, and we have two business focuses:
| · | Powertech Corp focuses on (i) research and development solutions; (ii) sales of own brand smart power supply products, and (iii) development of IoT products across our smart home, smart office and smart fitness ecosystem; | |
| · | OSIL has entered into several partnership agreements with brands selling innovative and lifestyle products. Currently, OSIL acts as the distributor of five brands, namely Aqigo, Brusheva, Qivation, Paudin and Team Cuisine. |
We are currently preparing to launch the Powertech Corp’s own brand smart power supply products on online store, and launching the sales of OSIL’s product with channel partners by the end of 2022. For the six months ended September 30, 2022 and 2021, we reported a net loss of $774,037 and $57,589, respectively. As of September 30, 2022, we had current assets of $740,515 and current liabilities of $2,567,729. As of March 31, 2022, we had current assets of $91,269 and current liabilities of $1,887,152.
Our Business
We currently operate in Hong Kong, and we seek to expand distribution of our products to Asia Pacific (“APAC”), Europe, Middle East and Africa (“EMEA”) and USA markets as opportunities permit. Our products are currently manufactured in China on a purchase order basis. As our distribution increases, we expect to sub-contract our products elsewhere in Asia as pricing and coordination dictate. We have no intention of expanding operations or our physical presence into China currently.
Products and Services
Currently, we are currently preparing to launch the Powertech Corp’s own brand of smart power supply products on an online store. Meanwhile, the newly established subsidiary, OSIL, acts as distributor in Hong Kong and has concluded several partnerships with five brands. We are building up our sales channels for the following brands in retails and online store in Hong Kong and categorized the products into “Healthcare”, “Lifestyle” and “Mobility”:
Healthcare
Aqigo
Aqigo is a Hong Kong brand that offers both home-use and commercial-use air purifiers to consumers. By leveraging the Paco Nanotech, a patented technology co-developed by ASA Innovation & Technology Limited and City University of Hong Kong, which can kill or decompose 99.9% of bacteria & virus, including the COVID-19 virus. Paco Nanotech has obtained the ISO 18184 standard. Aqigo products purify up to 3 times faster than traditional purifiers, which could bring cleaner and fresher air for consumers.
Brusheva
Brusheva offers sonic rechargeable electric toothbrush for users to maintain their teeth’s health. The sonic rechargeable electric toothbrush is available to vibrate at more than 25,000 strokes per minute, with the application of smaller brush head and softer bristles, it allows the users to reach all parts of their mouth easily, including all nooks and crannies, without damaging the gum when they are brushing their teeth. We hope the Brusheva’s toothbrush could improve the oral health for users and bring the users a healthier smile.
| 22 |
Qivation
Qivation offers innovative, safe and convenient to use products which integrate as part of our home living. Qivation applies the Nano Photocatalyst technology approved by Photocatalysis Industry Association of Japan (“PIAJ”) on its products which combined self-antibacterial and purification function together with lighting. The use of TiO2 technology allows Qivation products to initiate an antimicrobial effect for sanitization and air purification. It does not require any solvent, binders or alcohol, and can initiate the purifying process with visible light. This technological breakthrough creates a giant leap in making use of TiO2 sanitization technology.
Other than self-antibacterial and purification function, Qivation adopted the lighting software solutions by WiZ Connected under Signify (formerly known as Philips Lighting) combined with the Nano Photocatalyst technology. The lighting products are adjustable shades of lightness up to 64,000 and up to 16 million colors with preset well-being modes. We hope the Qivation products could reduce domestic health risks and creates a comforting lifestyle setting at home or at office.
Lifestyle
Paudin
Paudin is a kitchen knives brand that offers a wide selection of high-quality cutlery lines to suit all purposes and budgets for users, including chef’s knives, bread knives, steak knives and Japanese knives etc. The sharp, comfortable and durable kitchen knives with a wide collection of designs allow users to enjoy preparing and having their meals.
Team Cuisine
Team Cuisine offers smart kitchen appliances that connect to their application, which allows users to perform precise cooking remotely. Team Cuisine products can help users to cook with convenience and healthy fashion. It has an in-app recipe library as cooking guidance for each of the users. We are authorized to distribute Team Cuisine’s smart kitchen appliances, including smart cooking machine, smart pressure cooker, smart convention oven, smart air fryer etc. in Hong Kong. We hope Team Cuisine’s products could bring users a lifestyle and enjoyable cooking experience with the multi-function appliances.
Mobility
Powertech
The Company’s own brand “Powertech” is self-developing and distributing smart power supply products, including smart power chargers, wireless charging power banks, charging cables and Type C multi hub. These products will be launched both in our online store and local retail stores by the end of 2022. We hope the Powertech’s portable products could bring the users convenient in supporting the use of their mobile devices.
Future IoT Technology and Lifestyle Products – The Smart Home Ecosystem
We believe that the smart home ecosystem has become both in concept and reality a part of the common culture around the world. When homeowners or buyers consider renovation or new construction, many of them are considering the possibility of implementing smart home ecosystem devices to their homes due to increasing awareness of the importance of energy efficiency and lifestyle improvement of smart home products. According to International Data Corporation (“IDC”) Worldwide Quarterly Smart Home Device Tracker, in 2021, the global market for smart home device increased by 11.7% from 2020, with more than 895 million devices shipped. The Asia and the Pacific region is the second largest smart home device region in terms of shipment volume. It accounts for 31% of shipment and has a year-on-year growth rate of 10.8%. Our research indicates that more users are looking to purchase higher price smart devices such as smart TV and lighting fixtures in order to save energy and increase controllability and convenience. We believe that as 5G technology becomes more stable and popular throughout the world, more and more smart home appliances will become available in the market. We believe that smart home appliances with IoT and AI technology can improve our users’ living standards and lifestyles dramatically.
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Smart home appliances are generally easily adopted and accessed through mobile phones or tablets via Apps. Users can easily manage multiple smart home appliances in just one device by their fingertip in the App: the status of all the appliances connected such as power levels, power consumed, air pollution, and room humidity will be displayed on their screen. Moreover, users will be able to control and manage every single appliance in large size homes with multiple floors by using the smart home ecosystem without the need access each individual appliance.
We established an IoT Technology and Lifestyle product team during the quarter ended September 30, 2022, and are in the process of developing a series of IoT home automation products. We expect to initially distribute the IoT products in Hong Kong and Southeast Asia and hope to expand to other countries as opportunities permit.
Use of Capital Funds
On June 21, 2022, the Company has entered into an Equity Purchase Agreement with Williamsburg Venture Holdings, LLC (“Investor”), a Nevada venture capital company, pursuant to which the Investor has committed to invest up to Twenty Million Dollars ($20,000,000) in the Company’s common stock over a 36-month period. In light of the Company’s latest strategic plan to tackle the Smart Home segment with products enhanced with Healthcare, Lifestyles, and Mobility elements, the Company will use the proceeds to establish a sustainable smart home ecosystem through in-house development of smart home appliances, target acquisition of smart home sector companies, and establish strategic partnerships with ESG promote companies.
Research and Development
During the quarter ended September 30, 2022, our research and development expenses are mainly incurred for the maintenance cost of our product development team. We expect to allocate our research and development funding towards product innovation of smart home appliances, and the recruitment of product development talents.
Sales and Marketing
We believe the demand for smart home appliances will continue to increase especially as the technological improvements such as AI are integrated into products to enhance user experience. We expect to distribute our current and future power supply and IoT products as follows:
| · | Hong Kong – through our e-commerce channels, and leverage on our networks to distribute to prominent retailers, collaborate distribution channels with sales solution and promotion campaign. | |
| · | APAC – through third party authorized dealers and channel partners. | |
| · | USA/EMEA – through third party authorized distributors (which we expect to be wholesalers that sell to end retailers). |
Recently, we signed an arrangement with local retail chain store to sell our brands. We believe this arrangement will enhance market recognition of our brand. In the near future, we intend to enhance our sales channels in Hong Kong and other regions.
| 24 |
Results of Operations
Comparison of the three months ended September 30, 2022 and 2021
The following table sets forth certain operational data for the periods indicated:
| Three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue, net | $ | 2,872 | $ | 64,332 | ||||
| Cost of revenue | (2,634 | ) | (34,864 | ) | ||||
| Gross profit | 238 | 29,468 | ||||||
| Operating expenses: | ||||||||
| Research and development expenses | (171,545 | ) | (10,090 | ) | ||||
| Sales and marketing expenses | (198,908 | ) | – | |||||
| General and administrative expenses | (193,743 | ) | (24,983 | ) | ||||
| Loss from operation | (563,958 | ) | (5,605 | ) | ||||
| Other expense, net | (28,120 | ) | – | |||||
| Loss before income taxes | (592,078 | ) | (5,605 | ) | ||||
| Income tax expense | – | – | ||||||
| Net loss | $ | (592,078 | ) | $ | (5,605 | ) | ||
Revenue
During the three months ended September 30, 2022, the following customer accounted for 10% or more of our total net revenues:
| Three months ended September 30, 2022 | September 30, 2022 | |||||||||||
| Customer | Revenues | Percentage of revenues | Accounts receivable | |||||||||
| Evangelical Lutheran Church Hong Kong | $ | 2,872 | 100% | $ | 2,889 | |||||||
During the three months September 30, 2021, the following customer accounted for 10% or more of our total net revenues:
| Three months ended September 30, 2021 | September 30, 2021 | |||||||||||
| Customer | Revenues | Percentage of revenues | Accounts receivable | |||||||||
| TLD Optoelectronic Technology Company Limited | $ | 64,332 | 100% | $ | 64,210 | |||||||
Cost of Revenue
Cost of revenue for the three months ended September 30, 2022 and 2021, was $2,634 and $34,864, respectively. The decrease was primarily attributable to the decrease in revenue from our research businesses.
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Gross Profit
We achieved a gross profit of $238 and $29,468 for the three months ended September 30, 2022 and 2021, respectively. The decrease in gross profit was attributable to an decrease in revenue from our research businesses.
Research and Development Expenses (“R&D”)
Research and development expenses was $171,545 and $10,090 for the three months ended September 30, 2022 and 2021, respectively. The increase in expenses was primarily attributable to the increase in R&D expenses associated with our smart chargers, power banks and other products development.
Sales and Marketing Expenses
Sales and marketing expenses was $198,908 and $0 for the three months ended September 30, 2022 and 2021, respectively. The expenses primarily include consulting fees incurred in relation to public relations and promotional expenses.
General and Administrative Expenses (“G&A”)
General and administrative expenses was $193,743 and $24,983 for the three months ended September 30, 2022 and 2021, respectively. These expenses primarily include consulting fees, personnel related expenses, as well as costs incurred on other professional fees incurred in connection with general operations of the Company. The G&A expenses increased by approximately $168,760 in the three months ended September 30, 2022 from $24,983 in the three months ended September 30, 2021. The increase was primarily attributable to the increase in professional fees and salaries.
Other expense, net
Other expense, net was $28,120 and $0 for the three months ended September 30, 2022 and 2021, respectively. The increase was attributable to interest expense on capital funding and loss on impairment of inventories offset by government subsidy.
Income Tax Expense
No income tax expense incurred during the three months ended September 30, 2022 and 2021.
Net loss
As a result of the above, we reported net loss of $592,078 for the three months ended September 30, 2022, as compared to $5,605 for the three months ended September 30 ,2021. The increase in net loss was mainly attributable to decrease in research revenue, increase in sales and marketing cost associated with sales channel development, research and development expenses associated with new products development and general and administrative expense.
| 26 |
Comparison of the six months ended September 30, 2022 and 2021
The following table sets forth certain operational data for the periods indicated:
| Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue, net | $ | 162,189 | $ | 64,332 | ||||
| Cost of revenue | (19,120 | ) | (34,864 | ) | ||||
| Gross profit | 143,069 | 29,468 | ||||||
| Operating expenses: | ||||||||
| Research and development expenses | (234,156 | ) | (38,509 | ) | ||||
| Sales and marketing expenses | (347,908 | ) | – | |||||
| General and administrative expenses | (295,397 | ) | (48,548 | ) | ||||
| Loss from operation | (734,392 | ) | (57,589 | ) | ||||
| Other expense, net | (39,645 | ) | – | |||||
| Loss before income taxes | (774,037 | ) | (57,589 | ) | ||||
| Income tax expense | – | – | ||||||
| Net loss | $ | (774,037 | ) | $ | (57,589 | ) | ||
Revenue
During the six months ended September 30, 2022, the following customer accounted for 10% or more of our total net revenues:
| Six months ended September 30, 2022 | September 30, 2022 | |||||||||||
| Customer | Revenues | Percentage of revenues | Accounts receivable | |||||||||
| Mirum Digital Media Ltd. | $ | 159,317 | 98.2% | $ | – | |||||||
During the six months ended September 30, 2021, the following customer accounted for 10% or more of our total net revenues:
| Six months ended September 30, 2021 | September 30, 2021 | |||||||||||
| Customer | Revenues | Percentage of revenues | Accounts receivable | |||||||||
| TLD Optoelectronic Technology Company Limited | $ | 64,332 | 100% | $ | 64,210 | |||||||
Cost of Revenue
Cost of revenue for the six months ended September 30, 2022 and 2021, was $19,120 and $34,864, respectively. The decrease was primarily attributable to the early completion of the research project that led to a reduced research manpower involved in the research project.
Gross Profit
We achieved a gross profit of $143,069 and $29,468 for the six months ended September 30, 2022 and 2021, respectively. The increase in gross profit was attributable to the decrease in cost incurred from our research businesses.
| 27 |
Research and Development Expenses (“R&D”)
Research and development expenses was $234,156 and $38,509 for the six months ended September 30, 2022 and 2021, respectively. The increase in expenses was primarily attributable to the increase in R&D expenses associated with our smart chargers, power banks and IoT products development.
Sales and Marketing Expenses
Sales and marketing expenses was $347,908 and $0 for the six months ended September 30, 2022 and 2021, respectively. The expenses primarily included consulting fees incurred in relation to public relations and promotional expenses.
General and Administrative Expenses (“G&A”)
General and administrative expenses was $295,397 and $48,548 for the six months ended September 30, 2022 and 2021, respectively. These expenses primarily include consulting fees, personnel related expenses, as well as costs incurred on other professional fees incurred in connection with general operations of the Company. The G&A expenses increased by approximately $246,849 in the six months ended September 30, 2022 from $48,548 in the six months ended September 30, 2021. The increase was primarily attributable to the increase in professional fees and salaries.
Other expense, net
Other expense, net was $39,645 and $0 for the six months ended September 30, 2022 and 2021, respectively. The increase was attributable to interest expense on capital funding and loss on impairment of inventories offset by government subsidy.
Income Tax Expense
No income tax expense incurred during the six months ended September 30, 2022 and 2021.
Net loss
As a result of the above, we reported net loss of $774,037 for the six months ended September 30, 2022, as compared to $57,589 for the six months ended September 30 ,2021. The increase in net loss was mainly attributable to sales and marketing cost associated with sales channel development, research and development expenses associated with new products development and general and administrative expense
Liquidity and Capital Resources
The following table summarizes the key components of our cash flows for the six months ended September 30, 2022 and 2021.
| Six months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (74,155 | ) | $ | (118,391 | ) | ||
| Net cash used in investing activities | $ | (2,216 | ) | $ | – | |||
| Net cash provided by financing activities | $ | 100,399 | $ | 94,047 | ||||
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Net Cash Used In Operating Activities
For the six months ended September 30, 2022, net cash used in operating activities was $74,155, which consisted primarily of a net loss of $774,037, an increase in inventories of $800, an increase in accounts receivables of $2,889, an increase in deposits, prepayments and other receivables of $93,674, and a decrease of lease liabilities of $19,065, offset by an increase in accounts payables of $3,715, an increase in accrued liabilities and other payables of $240,969, an increase in accrued consulting and service fee of $300,000, plus non-cash items such as, depreciation of $20,657, amortization of $2,243, non-cash lease expenses of $1,573, amortization of deferred financing cost of $47,153 and share issued for services rendered of $200,000.
For the six months ended September 30, 2021, net cash used in operating activities was $118,391, which consisted primarily of a net loss of $57,589, an increase in accounts receivables of $64,149, a decrease in accrued liabilities and other payables of $1,889, a decrease of lease liabilities of $20,072, offset by a decrease in deposit, prepayment and other receivables of $3,486, plus non-cash items such as, depreciation of $19,084, amortization of $2,136 and non-cash lease expenses of $602.
We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities to finance our operations and future acquisitions.
Net Cash Used In Investing Activities
For the six months ended September 30, 2022, net cash used in investing activity was $2,216, which consisted of addition of property and equipment.
For the six months ended September 30, 2021, no net cash was generated from investing activities.
Net Cash Provided by Financing Activities
For the six months ended September 30, 2022, net cash provided by financing activity was $100,399, which consisted of advances from related parties.
For the six months ended September 30, 2021, net cash provided by financing activity was $94,047, which consisted of advances from related parties.
Going Concern
Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital may include the sale of equity securities, which include common stock sold in private transactions, capital leases and short-term and long-term debts. While we believe that we will obtain external financing and the existing shareholders will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support operations for at least the next 12 months.
Material Cash Requirements
We have not achieved profitability since our inception, and we expect to continue to incur net losses for the foreseeable future. We expect net cash expended in 2023 to be significantly higher than 2022. As of September 30, 2022, we had an accumulated deficit of $7,342,530. Our material cash requirements are highly dependent upon the additional financial support from our major shareholders in the next 12 - 18 months.
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We had the following contractual obligations and commercial commitments as of September 30, 2022:
| Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Amounts due to related parties | 1,828,102 | 1,828,102 | – | – | – | |||||||||||||||
| Accounts payables | 3,715 | 3,715 | – | – | – | |||||||||||||||
| Operating lease liability | 53,174 | 29,606 | 23,568 | – | – | |||||||||||||||
| Other contractual liabilities (1) | 706,306 | 706,306 | – | – | – | |||||||||||||||
| Total obligations | 2,591,297 | 2,567,729 | 23,568 | – | – | |||||||||||||||
(1) Includes all obligations included in “Accrued liabilities and other payables” and “Accrued consulting and service fee” in current liabilities in the “Unaudited Condensed Consolidated Balance Sheet” that are contractually fixed as to timing and amount.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.
Critical Accounting Policies and Estimates
For a detailed description of the Critical Accounting Policies and Estimates of the Company, please refer to Part II, ITEM 7 “MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in our Annual Report Form 10-K for the year ended March 31, 2022 filed with the SEC on June 24, 2022.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of September 30, 2022, and during the period prior to and including the date of this report, were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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Inherent Limitations
Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. legal proceedings.
We are not a party to any legal or administrative proceedings that we believe, individually or in aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. Risk factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
ITEM 3. Defaults upon Senior securities.
None.
ITEM 4. Mine Safety disclosures.
Not applicable.
ITEM 5. other information.
None.
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ITEM 6. Exhibits.
_______________________
| * | Filed herewith |
| (1) | Incorporated by reference to the Exhibits of the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 14, 2022. |
| (2) | Incorporated by reference to the Exhibits of Amendment No. 1 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on March 25, 2022. |
| (3) | Incorporated by reference to the Exhibits of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 24, 2022. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KING RESOURCES, INC. | ||
| By: | /s/ FU Wah | |
| Name: FU Wah | ||
| Title: Chief Executive Officer, Secretary and Director | ||
Date: November 14, 2022
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