Notes to the Unaudited Consolidated Financial Statements
(A Development Stage Company)
For the three month ended March 31, 2013 and 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Nature of Business and Trade Name
Nevada Gold Holdings, Inc. (the Company), a development stage company, was incorporated under the laws of the State of Delaware on April 16, 2004. Nevada Gold Enterprises, Inc., a Nevada corporation, was incorporated under the laws of the State of Nevada on October 2, 2008. On December 31, 2008, Nevada Gold Acquisition Corp., a Nevada corporation formed on December 18, 2008, and a wholly owned subsidiary of Nevada Gold Holdings, Inc., merged with and into Nevada Gold Enterprises, Inc. Nevada Gold Enterprises, Inc. was the surviving corporation in the Merger. As a result of the Merger, Nevada Gold Enterprises, Inc., became a wholly-owned subsidiary of Nevada Gold Holdings, Inc. The Merger was treated as a reverse merger and recapitalization for financial accounting purposes. As a result of the merger, the Company recorded an aggregate stock issuance of 2,626,263 shares of common stock with a net value of $(180,978). The negative recapitalization net value recognized was the result of the Company restating the equity structure of the legal subsidiary using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent issued in the reverse acquisition. Nevada Gold Enterprises, Inc. was considered the acquirer for accounting purposes, and Nevada Gold Holdings, Inc. is considered the surviving company for legal purposes. Accordingly, the accompanying financial statements present the historical financial statements of Nevada Gold Enterprises, Inc., as the historical financial statements of Nevada Gold Holdings, Inc., i.e. a reverse merger. The Company had been engaged in the acquisition, exploration and development of gold mining claims in Nevada.
As of February 15, 2013, the Company is no longer engaged in the business of exploring for gold, holds no mineral exploration or mining rights and does not intend to acquire any. See Note 6 below. The Company intends to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for the Companys shareholders. The Companys objectives are extremely general and are not intended to restrict discretion of its Board of Directors to search for and enter into potential business opportunities or to reject any such opportunities.
Basis of Presentation
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Companys system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.
Use of Estimates
The preparation of consolidated financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements estimates or assumptions could have a material impact on the Companys financial condition and results of operations during the period in which such changes occurred.
Actual results could differ from those estimates. The Companys consolidated financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Nevada Gold Holdings, Inc. and its wholly owned subsidiary Nevada Gold Enterprises, Inc. All significant intercompany transactions have been eliminated.
The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial positions, results of operations, and cash flows at March 31, 2013, and for all periods presented herein, have been made.
8
NEVADA GOLD HOLDINGS, INC.
Notes to the Unaudited Consolidated Financial Statements
(A Development Stage Company)
For the three month ended March 31, 2013 and 2012
Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Companys December 31, 2012 audited consolidated financial statements. The results of operations for the periods ended March 31, 2013 and 2012 are not necessarily indicative of the operating results for the full years.
Earnings Per Share
Basic earnings (loss) per share are computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the three months ended March 31, 2013 and 2012, fully diluted earnings per share excludes the dilutive effect of 43,844,054 common stock equivalents from options and warrants, because their inclusion would be anti-dilutive.
The following is a reconciliation of basic earnings per share for 2013 and 2012:
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Three months ended
March 31, 2013,
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Historical net loss per share:
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2013
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2012
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Net income (loss)
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$
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(313,998)
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$
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(563,809)
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Shares used in computing basic per share amounts (weighted average)
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Net income (loss) per share:
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43,844,054
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43,844,054
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Basic
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$
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(0.01)
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$
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(0.01)
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NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
During the next year, the Companys foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Companys stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Companys failure to do so could have a material and adverse effect upon it and its shareholders.
9
NEVADA GOLD HOLDINGS, INC.
Notes to the Unaudited Consolidated Financial Statements
(A Development Stage Company)
For the three month ended March 31, 2013 and 2012
NOTE 3 NOTES RECEIVABLE RELATED PARTIES
On January 26, 2011, the Company made a loan of $200,000 to Hybrid Kinetic Motors Corporation, a related party. The loan is unsecured and due on demand with 3% interest per annum. As of March 31, 2013, total notes receivable plus accrued interest were $208,552.
NOTE 4 NOTES PAYABLE
In December 2009, a $100,000 note was issued to Theory Capital Corp. with an interest of 10% per annum until paid in full. The note was due on June 4, 2010 but it was not paid and it is now in default. According to Theory Capital Agreement, upon closing of the private placement offering (PPO) on or before the due date, June 4, 2010, the outstanding principal amount of the Note shall automatically, without any action by lender or borrower, be converted into shares of Common Stock, at a price per share (the Conversion Price) equal to the price per share of Common Stock paid by investors in the PPO. Even though the convertible note has not been paid, the agreement required the $100,000 need to be automatically converted to common stock when due on June 4, 2010. Currently the common stocks have not been issued as of December 31, 2011; however, the shareholders have the right to claim the common stocks. The Company reclassified the $100,000 Theory convertible notes from notes payable to equity as of December 31, 2010.
The Company converted the old payables to American Compass Inc. with the amount of $784,316 to a new Note at the end of 2012. There is additional Note from American Compass Inc. for this period. As of March 31 2013, the balance of Note to ACI was $1,218,898. The Note is an unsecured loan with no interest. The note is payable on demand and there is no maturity date. American Compass Inc. and NGHI are related because they both have common major shareholder.
NOTE 5 CAPITAL STOCK
A summary of warrant activity as of March 31, 2013, and changes during the year then ended is presented below:
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Warrants
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Shares
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Outstanding at December 31, 2012
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39,966,653
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Granted
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-
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Exercised
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-
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Forfeited or expired
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Outstanding at March 31, 2013
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39,966,653
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Exercisable at March 31, 2013
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39,966,653
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NOTE 6 TERMINATION OF TEMPO MINERAL LEASE
On February 15, 2013, Gold Standard Royalty terminated the lease on the Tempo Mineral Prospect with the Company. Currently, the Company does not hold any mineral lease. There is no financial impact on the Consolidated Balance Sheet and Consolidated Statements of Operation for the three months ended March 31, 2013.
10
NEVADA GOLD HOLDINGS, INC.
Notes to the Unaudited Consolidated Financial Statements
(A Development Stage Company)
For the three month ended March 31, 2013 and 2012
NOTE 7 INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of March 31, 2013 and 2012:
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2013
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2012
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Deferred tax assets:
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NOL carryover
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$
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1,889,802
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$
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1,837,084
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Valuation allowance
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(1,889,802
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)
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(1,837,084
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)
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Net deferred tax asset
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$
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-
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$
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-
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The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended March 31, 2013 and 2012 due to the following:
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2013
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2012
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Income tax benefit at statutory rate
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$
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(737,023
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)
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$
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(716,463
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)
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Valuation allowance
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737,023
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716,463
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$
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-
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$
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-
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At March 31, 2013, the Company had net operating loss carry forwards of approximately $6 million that may be offset against future taxable income through 2032. No tax benefit has been reported in the March 31, 2013 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations.
NOTE 8 COMMITMENTS AND CONTINGENCIES
The Company is not currently a party to any legal action. The suit brought by Viewpoint Securities LLC was settled in May, 2012. The Company also reached a settlement with a group of minority shareholders in March, 2012.
The Company is in a lease agreement for the office space it is using. Lease term is 69 month starting from May 1, 2011. Rent increases by 2.7% per year. The rents are payable in installments of $29,280.67 per month (from May 1, 2011 to April 30, 2012). The lease will terminate on Jan 31, 2017.
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Annual minimum lease commitment for 5 years:
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12/31/2013
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367,350
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12/31/2014
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377,269
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12/31/2015
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387,455
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12/31/2016
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397,916
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12/31/2017
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33,453
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Total annual Lease commitments
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1,563,444
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11
NEVADA GOLD HOLDINGS, INC.
Notes to the Unaudited Consolidated Financial Statements
(A Development Stage Company)
For the three month ended March 31, 2013 and 2012
NOTE 9 RELATED PARTY TRANSACTIONS
Hybrid Kinetic Group Ltd. is the parent of the Companys controlling stockholder, Far East Golden Resources.
Office services are provided without charge by the primary shareholder of the Company. Such costs are immaterial to the consolidated financial statements and, accordingly, have not been reflected therein.
NOTE 10 SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after March 31, 2013 through the date of this filing in accordance with FASB ASC 855 Subsequent Events. The Company determined that it does not have any subsequent event requiring recording or disclosure.
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Item 2.