HK GRAPHENE TECHNOLOGY CORP - FORM 10-K

Attached files

Attached files

HK GRAPHENE TECHNOLOGY CORP Reports

Also read

file	filename
EXCEL - IDEA: XBRL DOCUMENT - HK GRAPHENE TECHNOLOGY CORP	Financial_Report.xls
EX-21.1 - EXHIBIT 21.1 - HK GRAPHENE TECHNOLOGY CORP	v338077_ex21-1.htm
EX-31.1 - EXHIBIT 31.1 - HK GRAPHENE TECHNOLOGY CORP	v338077_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - HK GRAPHENE TECHNOLOGY CORP	v338077_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:

December 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number:

333-140148

HK INTERNATIONAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		20-5308449
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

800 E. Colorado Blvd., Suite 888 Pasadena, CA		91101
(Address of principal executive offices)		(Postal Code)

Registrant’s telephone number:

(626) 683-9120

Securities registered under Section 12(b) of the Act:

None

Securities registered under Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes x No ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See the definitions of the “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ¨

Accelerated Filer ¨

Non-Accelerated Filer ¨

(Do not check if a smaller reporting company)

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

On June 30, 2012, there were 70,298,322 shares of the registrant's common stock, par value $0.001, issued and outstanding. Of these, 40,680,000 shares were held by non-affiliates of the registrant. The market value on June 30, 2012 of those shares held by non-affiliates was $10,170,000, based on the price of $0.25 per share (split-adjusted) for the registrant’s common stock which was sold in a private placement that closed initially on September 9, 2008. Shares of common stock held by each officer and director have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of officer or affiliate status is not necessarily a conclusive determination for other purposes.

As of March 31, 2013, there were 127,703,396 shares of the registrant’s common stock, par value $0.001, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Not Applicable.

TABLE OF CONTENTS

Item Number and Caption		Page
Forward-Looking Statements		3

PART I		4

1.	Business	4
1A.	Risk Factors	5
1B.	Unresolved Staff Comments	5
2.	Properties	5
3.	Legal Proceedings	5
4.	Mine Safety Disclosures	5

PART II		6

5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
6.	Selected Financial Data	9
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
7A.	Quantitative and Qualitative Disclosures About Market Risk	10
8.	Financial Statements and Supplementary Data	10
9	Changes in an Disagreements With Accountants on Accounting and Financial Disclosure	10
9A.	Controls And Procedures	11
9B.	Other Information	12

PART III		12

10.	Directors, Executive Officers, and Corporate Governance	12
11.	Executive Compensation	14
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	15
13.	Certain Relationships and Related Transactions, and Director Independence	17
14.	Principal Accountant Fees and Services	18

PART IV		F-1

15.	Exhibits and Financial Statement Schedules	F-1

FORWARD-LOOKING STATEMENTS

Except for historical information, this report contains forward-looking statements. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the sections “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should carefully review the risks described in this Annual Report and in other documents we file from time to time with the Securities and Exchange Commission (“SEC”). You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

All references in this Form 10-K to “HK International Group,” “Loreto,” “Loreto Resources,” the “Company,” “we,” “us” or “our” are to HK International Group, Inc. f/k/a Loreto Resources Corporation, and its wholly owned subsidiary.

PART I

ITEM 1.

BUSINESS

History and General Development of Our Business

We were incorporated in the State of Nevada on June 28, 2006 under the name Loreto Corporation. The Company was formed to design, print, market and sell greeting cards, wrapping paper, stationery products and collectibles in retail locations throughout Mexico (the “Legacy Business”).

During the latter part of 2007, we discontinued our Legacy Business and, in mid-2008, we decided to redirect our business focus and strategy towards identifying and pursuing business opportunities in the mining sector in South America. In connection with this change of business focus, on July 3, 2008, we changed our name to Loreto Resources Corporation.

During the year ended December 31, 2009, we entered into a number of letters of intent relating to the acquisition of various mining properties in Peru and other South American countries. We were seeking, at that time, development and production-stage zinc, copper, gold and silver mining assets. For commercial reasons, we decided not to pursue any of the acquisitions proposed in those letters.

In mid-2010, we changed our focus to primarily seeking quality assets and investment opportunities. During the quarter ended September 30, 2010, we closed our office in Lima, Peru.

On August 8, 2011, we entered into a letter of intent with Eagleford Energy Inc. (“Eagleford”), a publicly held Ontario corporation, relating to a potential farm-in by us of an up to 50% working interest in Eagleford’s net working interests in the Matthews and Murphy oil and gas leases in Zavala County, Texas. On October 18, 2011, we terminated that letter of intent.

On March 8, 2013, holders of 72,123,396 shares of our common stock, $0.001 par value per share (“Common Stock”) (representing approximately 56.5% of our common equity at that time), consented to a proposed 1:100 reverse split of our Common Stock (the “Reverse Stock Split”), as previously authorized by our board of directors (“Board”). The Reverse Stock Split will be effective upon approval by FINRA.

As of March 11, 2013, we sold 1,300 shares of our Series A convertible preferred stock, $0.001 par value per share (“Series A Preferred Stock”), to Commonwealth Investments, LLC, a California limited liability company (“Commonwealth”). These shares of Series A Preferred Stock are convertible into an aggregate of 12,770,339,600 shares of Common Stock, representing approximately 99.0% of our common equity on an as-converted basis; provided, however, that, until the Reverse Stock Split is effective, we will not have a sufficient number of authorized shares available to convert all of the shares of Series A Preferred Stock to Common Stock. As a result of this transaction, there was a change of control of the Company. Commonwealth has advised us that it plans to appoint new members to our Board in the near future, and to make other changes to our management and operations.

On March 22, 2013, we changed our name to HK International Group, Inc., and increased our number of authorized shares from 310,000,000 shares consisting of (i) 300,000,000 shares of Common Stock, and (ii) 10,000,000 shares of preferred stock, par value $0.001 per share (“Preferred Stock”), 1,300 shares of which have been designated as Series A Preferred Stock, to 3,000,000,000 shares, consisting of (i) 2,000,000,000 shares of Common Stock, and (ii) 1,000,000,000 shares of Preferred Stock, 1,300 shares of which have previously been designated as Series A Preferred Stock (“Share Increase”).

Going forward, our plan is to acquire other assets or business operations that will maximize shareholder value. However, no specific assets or businesses have been definitively identified and there is no certainty that any such assets or business will be identified or any transactions will be consummated.

Research and Development

We have not spent any amounts on research and development activities during either of the last two fiscal years.

Employees

As of the date of this report, we did not have any full time employees.

ITEM 1A.

RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information under this item.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

We did not own or rent any properties during the last two fiscal years. As of March 19, 2013, our executive offices are located at 800 East Colorado Boulevard, Suite 888, Pasadena, CA 91101 and cover an area of approximately 8,142 square feet. The use of these offices is supplied to us on a rent free basis by an affiliated party.

ITEM 3.

LEGAL PROCEEDINGS

No legal or governmental proceedings are presently pending or, to our knowledge, threatened, to which we are a party.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is currently listed on the OTC Bulletin Board under the symbol “LRTC.OB”.

For the period from January 1, 2011 through December 31, 2012, the table sets forth the high and low closing bid prices based upon information obtained from inter-dealer quotations on the OTC Bulletin Board without retail markup, markdown, or commission and may not necessarily represent actual transactions. Although our Common Stock was approved for listing on the OTC Bulletin Board on May 2, 2007, there has been minimal trading to date:

Fiscal Year Ended December 31, 2012 Quarter Ended	High Bid		Low Bid
March 31, 2012	$	0.0131	$	0.0131

June 30, 2012	$	0.0131	$	0.01

September 30, 2012	$	0.01	$	0.01

December 31, 2012	$	0.001	$	0.001

Fiscal Year Ended December 31, 2011 Quarter Ended	High Bid		Low Bid
March 31, 2011	$	0.044	$	0.04

June 30, 2011	$	0.045	$	0.01

September 30, 2011	$	0.0121	$	0.01

December 31, 2011	$	0.75	$	0.0121

Because our Common Stock is thinly traded, bid information on our Common Stock does not necessarily represent its fair market value.

Holders

As of March 31, 2013, we had 127,703,396 shares of our Common Stock issued and outstanding held by 20 shareholders of record.

Dividends

We have never declared any cash dividends with respect to our Common Stock. Future payment of dividends is within the discretion of our Board and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our Common Stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our Common Stock.

Securities Authorized For Issuance Under Equity Compensation Plans

On July 3, 2008, our Board and stockholders adopted the 2008 Equity Incentive Plan (the “2008 Plan”) which reserves a total of 16,000,000shares of Common Stock for issuance under the 2008 Plan. If an incentive award granted under the 2008 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2008 Plan. As of December 31, 2012, we have not issued any shares and there are no outstanding grants under the 2008 Plan.

The following table sets forth information about the Company’s equity compensation plans as of December 31, 2012:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders		0		-		16,000,000
Equity compensation plans not approved by security holders		0		-		-
Total		0		-		16,000,000

Recent Sales of Unregistered Securities

On November 2, 2010 and on November 17, 2010, we completed closings of a private placement offering (the “November 2010 Offering”) of our convertible notes (the “November 2010 Notes”), totaling approximately $150,000 in principal, to eight stockholders and one unaffiliated third party. The November 2010 Notes bore interest of 10%, and would have matured on December 31, 2011. Both the principal and accrued interest were deemed mandatorily converted on March 15, 2011 at the price paid by investors in the March 2011 Offering (described below), expressed as a percentage of the face amount of debt securities.

On March 15, 2011, we completed closings of a private placement offering (the “March 2011 Offering”) of our convertible promissory notes (the “March 2011 Notes”), totaling approximately $90,000 in principal, to eight stockholders and one unaffiliated third party. As of March 1, 2011, we deemed the notes from the November 2010 Offering, along with accrued but unpaid interest, to have been converted, on a mandatory basis, into new notes on the same terms as the subsequent notes. The March 2011 Notes bore interest of 10%, and, if they had not been amended (as described below), were due to mature on March 31, 2012, and both the principal and accrued interest would have be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing by the Company, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which we sold at least $1,000,000 of our securities.

On October 10, 2011, we closed a private placement offering (the “October 2011 Offering”) of our convertible promissory notes (the “October 2011 Notes”). In the October 2011 Offering, we sold $52,500 in principal amount of the October 2011 Notes to an existing investor. The October 2011 Notes bore interest of 10%, and, if they had not been converted (as described below), were due to mature on April 9, 2013, and both the principal and accrued interest would have been mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing by the Company, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which we sold at least $1,000,000 of our securities.

On March 31, 2012, the November 2010 Notes and the March 2011 Notes were amended, and the maturity dates were extended to September 30, 2013. In addition, the mandatory conversion terms for the aforementioned notes were amended to require conversion only if the minimum $1,000,000 financing closes concurrent with the closing of a related merger or other acquisition transaction.

On February 1, 2012, we closed a private placement offering (the “February 2012 Offering”) of our convertible promissory notes (the “February 2012 Notes”). In the February 2012 Offering, we sold $50,000 in principal amount of the February 2012 Notes to one existing investor. The February 2012 Notes bore interest of 10%, and, if they had not been converted (as described below), were due to mature on July 31, 2013, and both the principal and accrued interest would have been automatically converted at the initial closing of our next private placement in which we sold at least $1,000,000 of our securities, so long as such offering closed concurrent with the closing of a related merger or other acquisition transaction.

On July 25, 2012, we closed a private placement offering (the “July 2012 Offering”) of our convertible promissory notes (the “July 2012 Notes”). In the July 2012 Offering, we sold $70,000 in principal amount of the July 2012 Notes to one existing investor. The July 2012 Notes bore interest of 10%, and, if they had not been converted (as described below), were due to mature on January 24, 2014, and both the principal and accrued interest would have been automatically converted at the initial closing of our next private placement in which we sold at least $1,000,000 of our securities, so long as such offering closed concurrent with the closing of a related merger or other acquisition transaction.

On March 8, 2013, we entered into Promissory Note Conversion Agreements (the “Conversion Agreements”) with each of the holders (the “Noteholders”) of all of our outstanding convertible promissory notes (collectively, the “Notes”), pursuant to which, among other things, an aggregate of $430,538 of principal and accrued and unpaid interest due under the Notes, representing all of our outstanding indebtedness for money borrowed at March 8, 2013, was converted into a total of 57,405,074 shares of our Common Stock, at a conversion rate of $0.0075 per share (the “Debt Conversion Transaction”).

On March 11, 2013, we closed a private placement offering of our Series A Preferred Stock, in which we sold 1,300 shares of our Series A Preferred Stock to Commonwealth for an aggregate purchase price of $130,000. The shares of Series A Preferred Stock are currently convertible into an aggregate of 12,770,339,600 shares of our Common Stock, at a rate of $0.0000102826655692955 per share.

All of the offerings discussed above were conducted pursuant to the exemption from the registration requirements of the federal securities laws provided by Regulation D and Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and Section 4(2) of the Securities Act. All of the securities were offered and sold only to “accredited investors,” as that term is defined by Rule 501 of Regulation D, and/or to persons who were neither resident in, nor citizens of, the United States. No commissions were paid in connection with any of these offerings.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6.

SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

The following discussion and analysis of our financial condition and results of operations are based on the preparation of our financial statements in accordance with U.S. generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.

Results of Operations

Fiscal year Ended December 31, 2012 and 2011

We are still in our development stage and have generated no revenues to date.

We incurred operating expenses of $145,946 and $234,267 for the years ended December 31, 2012 and 2011, respectively. These expenses consisted of general operating expenses incurred in connection with the day to day operation of our business and the preparation and filing of our periodic reports.

Our net losses for years ended December 31, 2012 and 2011 were $179,447 and $211,751, respectively.

We have generated no revenues and our net operating loss from inception through December 31, 2012 was $4,188,119.

Liquidity and Capital Resources

Our cash and cash equivalents balance as of December 31, 2012 was $4,965.

As discussed above, during the past two years we have had a number of small private offerings of our convertible promissory notes.

In the March 2011 Offering, we raised $90,000, in the October 2011 Offering we raised $52,500, and in the February 2012 Offering we raised an additional $50,000.

We utilized the proceeds of these offerings for working capital and general corporate purposes.

On March 8, 2013, an aggregate of $430,538 of principal and accrued and unpaid interest due under the Notes, representing all of our outstanding indebtedness for money borrowed at March 8, 2013, was converted into a total of 57,405,074 shares of our Common Stock.

On March 11, 2013, we sold 1,300 shares of our Series A Preferred Stock for an aggregate purchase price of $130,000. We used the net proceeds from the sale of the Series A Preferred Stock to pay outstanding obligations to advisors, service providers and vendors, and to pay any outstanding tax liabilities. In addition, the purchaser of the Series A Preferred Stock paid $37,500 of our legal fees incurred in connection with the transaction.

Working Capital Needs

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. At our current level of operation, we do not have sufficient cash to meet our expenses for the next twelve months. We expect that we will need to obtain additional capital in order to meet our current working capital needs, execute our business plan, build our operations and become profitable. In order to obtain capital, we may need to sell additional shares of our Common Stock or debt securities, or borrow funds from private lenders or banking institutions. We have not made any decisions with respect to any such financing. There can be no assurance that we will be successful in obtaining additional funding in amounts or on terms acceptable to us, if at all. If we are unable to raise additional funding as necessary, we may have to suspend our operations temporarily or cease operations entirely.

Our auditors have included an explanatory paragraph in their report on our consolidated financial statements relating to the uncertainty of our business as a going concern, due to our limited operating history, our lack of historical profitability, and our limited funds. We believe that we will be able to raise the required funds for operations and to achieve our business plan.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Our audited financial statements are included beginning immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL IDSCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act of 1934 (the “Exchange Act”) is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our senior management, consisting of Luis Saenz, our President and Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our President and Interim Chief Financial Officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were not effective because of the identification of what might be deemed a material weakness in our internal control over financial reporting which is identified below.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this evaluation, our sole officer concluded that, during the period covered by this annual report, our internal controls over financial reporting were not operating effectively. Management did not identify any material weaknesses in our internal control over financial reporting as of December 31, 2012; however, it has identified the following deficiencies that, when aggregated, may possibly be viewed as a material weakness in our internal control over financial reporting as of that date:

We do not have an audit committee. We are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.

We did not maintain proper segregation of duties for the preparation of our financial statements. We currently only have one officer overseeing all transactions. This has resulted in several deficiencies including the lack of control over preparation of financial statements, and proper application of accounting policies.

Attestation Report of Our Registered Public Accounting Firm

This Annual Report on Form 10-K (“Annual Report”) does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the year ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Officers’ Certifications

Appearing as exhibits to this Annual Report are “Certifications” of our President and Interim Chief Financial Officer. The Certifications are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the Annual Report contains information concerning the Controls Evaluation referred to in the Section 302 Certification. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Executive Officers and Directors

Below are the names and certain information regarding our executive officers and directors as of December 31, 2012:

(1)

On February 11, 2013, Mr. Zive resigned as our interim Chief Executive Officer and a member of our Board. As a result of Mr. Zive’s resignation, he has relinquished his title of “principal executive officer” for SEC reporting purposes.

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified.

Currently, directors are not compensated for their services, although their expenses in attending meetings may be reimbursed. Officers are elected by the Board and serve until their successors are appointed by the Board. Biographical resumes of each officer and director are set forth below.

Certain biographical information of our directors and officers:

Luis F. Saenz. Mr. Saenz was most recently employed at Standard Bank ("Standard") with Standard's investment banking unit, Standard Americas, Inc. Mr. Saenz joined Standard in New York in 1997 and relocated to Peru in 1998 to establish Standard's Peru representative office. While in Peru, he led Standard's mining and metals origination effort in the Latin America region. He recently returned to New York to head Standard's mining and metals team in the Americas. He previously worked for Pechiney World Trade in the base metals trading area before joining Merrill Lynch as Vice-President for Commodities in Latin America. Mr. Saenz graduated from Franklin and Marshall College in 1991 with a Bachelor of Arts degree in economics and international affairs.

Mr. Saenz is also currently the Chief Executive Officer of Li3 Energy, Inc. (OTCBB:LIEG), an early stage, U.S. public company currently pursuing a business strategy in the lithium brine mining and energy sector in the Americas. Accordingly, Mr. Saenz is only able to devote a portion of his time to our activities. This may make it more difficult for our management to respond quickly and completely to challenges and opportunities that we may encounter, may limit our ability to timely consummate strategic transactions and may have an adverse effect on our results of operations.

Mr. Saenz brings to our Board a wealth of experience derived from his services in various businesses. He has demonstrated strong acumen and ability to exercise sound judgment and has a reputation for integrity, honesty and adherence to ethical standards.

Adam Zive. Mr. Zive has since 2009 been the President and Chief Executive Officer of Dorian Financial Limited (Barbados), a private company owned by Mr. Zive. From 2008 until 2009 he was the head of Africa oil and gas research for Renaissance Capital, and from 2006 to 2008 the head of oil and gas research for Desjardins Securities.

Involvement in Certain Legal Proceedings.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of ours during the past five years.

Board Committees

The Company currently has not established any committees of the Board. Our Board may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations. Our sole director performs all functions that would otherwise be performed by committees. Given the present size of our Board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our Board and allocate responsibilities accordingly.

Shareholder Communications

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.

Code of Ethics

We have adopted a written code of ethics (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. To request a copy of the Code of Ethics, please make written request to our Secretary at 800 E. Colorado Blvd., Suite 888 Pasadena, CA 91101, tel. (626) 683-9120.

Compliance with Section 16(a) of the Exchange Act

Our Common Stock is not registered pursuant to Section 12 of the Exchange Act. Accordingly, our officers, directors and principal shareholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.

ITEM 11.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the total compensation paid or accrued by us during the last two fiscal years ended December 31, 2012 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2012; (ii) all individuals that served as our principal financial officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2011; and (iii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2012 that received annual compensation during the fiscal year ended December 31, 2012 in excess of $100,000.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compen- sation ($)		Change in Pension Value and Non-qualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Adam Zive, Interim Chief Executive Officer (1)	2012		0		0		0		0		0		0		0		0
	2011		0		0		0		0		0		0		0		0
Luis F. Saenz, President and Interim Chief Financial Officer (2)	2012		0		0		0		0		0		0		0		0
	2011		0		0		0		0		0		0		0		0

(1)

Adam Zive was appointed Interim Chief Executive Officer of the Company on August 25, 2011. On February 11, 2013, Mr. Zive resigned as our interim Chief Executive Officer and a member of our Board. As a result of Mr. Zive’s resignation, he has relinquished his title of “principal executive officer” for SEC reporting purposes.

(2)

Luiz Saenz resigned as Chief Executive Officer on August 25, 2011. Mr. Saenz remains as our President, Interim Chief Financial officer and sole director.

Employment Agreements and Arrangements

We do not have formal employment agreements with any members of management.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding stock options held by our Named Executive Officers at December 31, 2012.

	Option awards
Name and Principal Position	Number of securities underlying unexercised options exercisable (#)		Number of securities underlying unexercised options unexercisable (#)		Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)		Option plan exercise price ($)		Option expiration date
(a)	(b)		(c)		(d)		(e)		(f)
Adam Zive, Interim Chief Executive Officer and Director		0		0		0		-		-
Luis F. Saenz, President, Interim Chief Financial Officer and Director		0		0		0		-		-

There were no stock awards to executive officers during the year ended December 31, 2012, and there are no stock awards outstanding as of December 31, 2012.

Compensation of Directors

None of our directors receives any compensation for serving as such, for serving on committees (if any) of the Board or for special assignments. During the fiscal year ended December 31, 2012 there were no arrangements between us and our directors that resulted in our making payments to any of our directors for any services provided to us by them as directors.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial ownership of our Common Stock known by us as of March 31, 2013 by:

each person or entity known by us to be the beneficial owner of more than 5% of our common stock;

each of our directors;

each of our executive officers; and

all of our directors and executive officers as a group.

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse.

NAME OF OWNER	TITLE OF CLASS	NUMBER OF SHARES OWNED (1)			PERCENTAGE OF COMMON STOCK (2)

Luis F. Saenz	Common Stock		400,000			*

All Officers and Directors As a Group (1 person)	Common Stock		400,000			*

Commonwealth Investments, LLC	Series A Preferred Stock (3)		12,770,339,600	(3)		99.0	%(3)

*Less than 1%.

(1)

Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 31, 2013 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

(2)

Percentage based upon 127,703,396 shares of common stock outstanding as of March 31, 2013.

(3)

Commonwealth holds 1,300 shares of our Series A Preferred Stock, which are convertible into an aggregate of 12,770,339,600 shares of our Common Stock, representing approximately 99.0% of our common equity on an as-converted basis; provided, however, that, until the Reverse Stock Split is effective, we will not have a sufficient number of authorized shares available to convert all of the shares of Series A Preferred Stock to Common Stock. Following the Share Increase, which became effective on March 22, 2013, we have only 1,872,296,604 shares of Common Stock available to be issued upon conversion of shares of Series A Preferred Stock, currently representing 93.6% of our common equity on an as-converted basis. Jimmy Wang is the Manager of Commonwealth and has sole voting and investment power over the shares owned thereby. Mr. Wang disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein.

Securities Authorized for Issuance Under Equity Compensation Plans

On July 3, 2008, our Board and stockholders adopted the 2008 Plan which reserves a total of 16,000,000 shares of Common Stock for issuance under the 2008 Plan. If an incentive award granted under the 2008 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2008 Plan. As of the date hereof, we have not issued any shares under the 2008 Plan and we do not have any outstanding options or other awards under the 2008 Plan.

We have not issued any stock options or maintained any stock option or other incentive plans other than our 2008 Plan (See “Item 5. Market for Common Equity and Related Stockholder Matters – Securities Authorized for Issuance Under Equity Compensation Plans” above.) We have no other plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

The following table sets forth information about the Company’s equity compensation plans as of December 31, 2012:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders		0		-		16,000,000
Equity compensation plans not approved by security holders		0		-		-
Total		0		-		16,000,000

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On March 8, 2013, we entered into Conversion Agreements with each of our Noteholders, pursuant to which, among other things, an aggregate of $430,538 of principal and accrued and unpaid interest due under the Notes, representing all of our outstanding indebtedness for money borrowed at March 8, 2013, was converted into a total of 57,405,074 shares of our Common Stock, at a conversion rate of $0.0075 per share. An aggregate of $162,168.33 of principal and accrued and unpaid interest due under the Notes was due to Andrew Meade, who, at that time, beneficially owned more than 5% of our Common Stock. As a result the Debt Conversion Transaction, Mr. Meade, and his affiliate, received an aggregate of 6,051,046 shares of our Common Stock.

Since January 1, 2012, we have had no other transactions with related persons, promoters or certain control persons.

Director Independence

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board be “independent” and, as a result, we are not at this time required to (and we do not) have our Board comprised of a majority of “Independent Directors.”

Our Board has considered the independence of its directors in reference to the definition of “independent director” established by the Nasdaq Marketplace Rule 5605(a)(2). In doing so, the Board has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors. After such review, the Board has determined that neither of our current directors qualifies as independent under the requirements of the Nasdaq listing standards.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees.

The aggregate fees billed to us by our principal accountant for services rendered during the fiscal years ended December 31, 2012 and 2011 are set forth in the table below:

Fee Category	Fiscal year ended December 31, 2012		Fiscal year ended December 31, 2011
Audit fees (1)	$	14,500	$	18,345
Audit-related fees (2)		-		-
Tax fees (3)		-		-
All other fees (4)		-		-
Total fees	$	14,500	$	18,345

(1)

Audit fees consists of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.

(2)

Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.”

(3)

Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.

(4)

All other fees consist of fees billed for all other services.

Audit Committee’s Pre-Approval Practice.

We do not have an audit committee. Our Board performs the function of an audit committee. Section 10A(i) of the Securities Exchange Act of 1934, as amended, prohibits our auditors from performing audit services for us as well as any services not considered to be audit services unless such services are pre-approved by our audit committee or, in cases where no such committee exists, by our Board (in lieu of an audit committee) or unless the services meet certain de minimis standards.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules

The consolidated financial statements of Loreto Resources Corporation are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.

Exhibits

The following Exhibits are being filed with this Annual Report on Form 10-K:

Exhibit No.	SEC Report Reference Number	Description

3.1	3.1	Amended and Restated Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on July 3, 2008 (1)
3.2	3.2	By-Laws of Registrant (2)
3.3	3.1	Certificate of Amendment to Amended and Restated Articles of Incorporation as filed with the Nevada Secretary of State on March 22, 2013 (8)
4.1	3.3	Form of 2010 10% Convertible Promissory Note (3)
4.2	3.4	Form of 2011 10% Convertible Promissory Note (3)
4.3	3.5	Form of 2012 10% Convertible Promissory Note (6)
4.4	4.1	Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, filed with the Secretary of State of the State of Nevada on March 8, 2013 (7)
10.1	10.4	2008 Equity Incentive Plan (4)
10.2	10.7	Form of Subscription Agreement between the Registrant and each subscriber in the 2011 10% convertible notes private placement offering (3)
10.3	10.6	Form of Subscription Agreement between the Registrant and each subscriber in the 2011 10% convertible notes private placement offering (3)
10.4	10.8	Form of Subscription Agreement between the Registrant and each subscriber in the 2012 10% convertible notes private placement offering (6)
10.5	10.1	Form of Promissory Note Conversion Agreement between the Company and each of the holders of the Company’s outstanding promissory notes (7)
10.6	10.2	Series A Preferred Stock Purchase Agreement between the Company and Commonwealth Investments, LLC, dated March 8, 2013 (7)
14.1	14	Code of Ethics (5)
21.1	*	List of Subsidiaries
31.1	*	Certification of Principal Executive and Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification of Principal Executive and Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS	*	XBRL Instance Document***
101.SCH	*	XBRL Taxonomy Extension Schema Document***
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document***
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase Document***
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document***
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document***

(1)

Filed with the SEC on July 10, 2008 as an exhibit, numbered as indicated above, to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

(2)

Filed with the SEC on January 23, 2007 as an exhibit, numbered as indicated above, to the Registrant’s registration statement (SEC File No. 333-140148) on Form SB-2, which exhibit is incorporated herein by reference.

(3)

Filed with the SEC on April 12, 2011 as an exhibit, numbered as indicated above, to the Registrant’s annual report on Form 10-K, which exhibit is incorporated herein by reference.

(4)

Filed with the SEC on April 14, 2009 as an exhibit, numbered as indicated above, to the Registrant’s annual report on Form 10-K, which exhibit is incorporated herein by reference.

(5)

Filed with the SEC on March 31, 2008 as an exhibit, numbered as indicated above, to the Registrant’s annual report on Form 10-KSB, which exhibit is incorporated herein by reference.

(6)

Filed with the SEC on April 16, 2012 as an exhibit, numbered as indicated above, to the Registrant’s annual report on Form 10-K, which exhibit is incorporated herein by reference.

(7)

Filed with the SEC on March 14, 2013 as an exhibit, numbered as indicated above, to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

(8)

Filed with the SEC on March 25, 2013 as an exhibit, numbered as indicated above, to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

____________________

* Filed herewith.

** This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

*** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

In reviewing the agreements included as exhibits and incorporated by reference to this Annual Report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

•

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

•

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report and our other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HK INTERNATIONAL GROUP INC.

Dated: April 8, 2013	By:	/s/ Luis F. Saenz
		Luis F. Saenz
		President, Interim Chief Executive Officer and Director

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE

/s/ Luis F. Saenz	President, Interim Chief Financial Officer and Director	April 8, 2013
Luis F. Saenz

PART IV – FINANCIAL INFORMATION

ITEM 15. FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets as of December 31, 2012 and 2011	F-3

Consolidated Statements of Operations for the years ended December 31, 2012 and 2011 and for the period from June 28, 2006 (inception) through December 31, 2012	F-4

Consolidated Statements of Changes in Stockholders’ Deficit for the period from June 28, 2006 (inception) through December 31, 2012	F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011 and for the period from June 28, 2006 (inception) through December 31, 2012	F-6

Notes to Consolidated Financial Statements	F-7 – F-16

F-1

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Board of Directors of

HK International Group, Inc

(A Development Stage Company)

Pasadena, California

We have audited the accompanying consolidated balance sheets of HK International Group, Inc, and its subsidiary (formerly known as Loreto Resources Corporation) (a development stage company) (collectively, “the Company”), as of December 31, 2012 and 2011 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the two years then ended and the period from June 28, 2006 (inception) through December 31, 2012. The financial statements for the period from June 28, 2006 (inception) through December 31, 2007 were audited by other auditors whose report expressed an unqualified opinion on those financial statements. The financial statements for the period from June 28, 2006 (inception) through December 31, 2007 include no revenue and a net loss of $44,395. Our opinion on the statements of operations, stockholder’ equity, and cash flows for the period from June 28, 2006 (inception) through December 31, 2012, in so far as it relates to amounts for prior periods through December 31,2007 is based solely on the report of the other auditor. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2012 and 2011 and the consolidated results of their operations and their cash flows for the two years then ended and the period from June 28, 2006 (inception) through December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP
MALONEBAILEY, LLP
www.malone-bailey.com
Houston, Texas

April 5, 2013

F-2

HK INTERNATIONAL GROUP, INC.

(Formerly Loreto Resources Corporation)

(A Development Stage Company)

Consolidated Balance Sheets

	As of December 31,			As of December 31,
	2012			2011
ASSETS
Current Assets
Cash	$	4,965		$	4,136
Prepaid expenses		-			41,920
Due from related party		6,329			10,712
Total Current Assets		11,294			56,768

Non-Current Assets
Deposits		3,000			9,228

TOTAL ASSETS	$	14,294		$	65,996

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	$	120,791		$	103,990
Insurance financing		-			42,019
Convertible notes and interest payable		423,482			270,519
Total Current Liabilities		544,273			416,528

Total Liabilities		544,273			416,528

Stockholders' Deficit:
Common stock, $.001 par value, 300,000,000 shares authorized; 70,298,322 shares issued and outstanding as of December 31, 2012 and December 31, 2011		70,298			70,298
Additional paid-in capital		3,587,842			3,587,842
Deficit accumulated during development stage		(4,188,119	)		(4,008,672	)
Total Stockholders' Deficit		(529,979	)		(350,532	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	14,294		$	65,996

The accompanying notes are an integral part of these consolidated financial statements.

F-3

HK INTERNATIONAL GROUP, INC.

(Formerly Loreto Resources Corporation)

(A Development Stage Company)

Consolidated Statements of Operations

							June 28, 2006
	Year End			Year End			(Inception)
	Ended			Ended			through
	December 31,			December 31,			December 31,
	2012			2011			2012

Operating expenses
General and administrative expenses	$	145,946		$	234,267		$	4,220,504

Loss from operations		(145,946	)		(234,267	)		(4,220,504	)

Other income (expense):

Interest income		5			9			10,058
Interest expense		(33,506	)		(25,222	)		(63,199	)
Gain on forgiveness of debt		-			47,729			85,526

Total other income (expense)		(33,501	)		22,516			32,385

Net loss	$	(179,447	)	$	(211,751	)	$	(4,188,119	)

Loss per share - basic and diluted	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding - basic and diluted	$	70,298,322		$	70,298,322

The accompanying notes are an integral part of these consolidated financial statements.

F-4

HK INTERNATIONAL GROUP, INC.

(Formerly Loreto Resources Corporation)

(A Development Stage Company)

Consolidated Statements of Stockholders’ Deficit

										Deficit
										Accumulated
				Common			Additional			During
	Common			Stock			Paid-in			Development
	Stock			Amount			Capital			Stage			Total
Balance, June 28, 2006		-		$	-		$	-		$	-		$	-
Stock issued for cash on October 3, 2006		40,000,000			40,000			(30,000	)		-			10,000
Net loss, 2006		-			-			-			(877	)		(877	)
Balance, December 31, 2006		40,000,000			40,000			(30,000	)		(877	)		9,123
Stock issued for cash on February 23, 2007		36,000,000			36,000			(18,000	)		-			18,000
Stock issued for services on July 2, 2007		24,000,000			24,000			(19,500	)		-			4,500
Net loss, 2007		-			-			-			(43,518	)		(43,518	)
Balance, December 31, 2007		100,000,000			100,000			(67,500	)		(44,395	)		(11,895
Stock issued for cash		2,000,000			2,000			48,000			-			50,000
Debt forgiveness from related party		-			-			13,200			-			13,200
Restricted stock cancelled on July 18, 2008		(40,000,000	)		(40,000	)		40,000			-			-
Stock based-compensation on July 21, 2008		-			-			181,612			-			181,612
Stock issued for cash, net of offering costs		8,100,000			8,100			1,972,213			-			1,980,313
Net loss, 2008		-			-			-			(699,020	)		(699,020	)
Balance, December 31, 2008		70,100,000			70,100			2,187,525			(743,415	)		1,514,210
Stock-based compensation		-			-			549,720			-			549,720
Net loss, 2009		-			-			-			(2,045,633	)		(2,045,633	)
Balance, December 31, 2009		70,100,000			70,100			2,737,245			(2,789,048	)		18,297
Stock-based compensation		-			-			640,826			-			640,826
Related party forgiveness of accounts payable		-			-			160,389			-			160,389
Stock issued for settlement of accounts payable		198,322			198			49,382			-			49,580
Net loss, 2010		-			-			-			(1,007,873	)		(1,007,873	)
Balance, December 31, 2010		70,298,322			70,298			3,587,842			(3,796,921	)		(138,781	)
Net loss, 2011		-			-			-			(211,751	)		(211,751	)
Balance, December 31, 2011		70,298,322			70,298			3,587,842			(4,008,672	)		(350,532	)
Net loss, 2012		-			-			-			(179,447	)		(179,447	)
Balance, December 31, 2012		70,298,322		$	70,298		$	3,587,842		$	(4,188,119	)	$	(529,979	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

HK INTERNATIONAL GROUP, INC.

(Formerly Loreto Resources Corporation)

(A Development Stage Company)

Consolidated Statements of Cash Flows

							June 28, 2006
	Year			Year			(Inception)
	Ended			Ended			through
	December 31,			December 31,			December 31,
	2012			2011			2012
Cash Flows from Operating Activities
Net loss	$	(179,447	)	$	(211,751	)	$	(4,188,119	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option expense		-			-			1,372,158
Common stock issued for services		-			-			4,500
Gain on forgiveness of debt		-			(47,729	)		(85,526	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		41,920			46,205			131,617
Accounts payable and accrued liabilities		(11,414	)		86,078			179,953
Accounts payable-related party		-			-			160,389
Interest accrued on notes payable		32,963			23,469			58,473
Interest accrued on notes payable-related party		-			-			268
Due from related party		4,383			-			(6,329	)
Deposits		6,228			-			6,228
Net cash used in operating activities		(105,367	)		(103,728	)		(2,366,388	)

Cash Flows from Financing Activities
Loan from stockholder		-			-			13,200
Issuance of common stock, net of offering costs		-			-			2,058,313
Repayment of insurance financing		(13,804	)		(42,881	)		(112,630	)
Proceeds from convertible notes payable		120,000			142,510			395,927
Proceeds from notes payable-related party		-			-			16,543
Net cash provided by financing activities		106,196			99,629			2,371,353

Net Increase (Decrease) in Cash		829			(4,099	)		4,965

Cash at Beginning of Period		4,136			8,235			-
Cash at End of Period	$	4,965		$	4,136		$	4,965

Supplemental Cash Flow Information
Cash paid for interest	$	543		$	787		$	2,605
Cash paid for income taxes	$	-		$	-		$	-
Non-Cash Financing Activities
Debt forgiveness	$	-		$	-		$	173,589
Insurance financing	$	28,215		$	51,111		$	123,467
Stock issued for settlement of accounts payable	$	-		$	-		$	49,580

The accompanying notes are an integral part of these consolidated financial statement

F-6

HK INTERNATIONAL GROUP, INC.

(Formerly Loreto Resources Corporation)(A Development Stage Company)

Notes to Consolidated Financial Statements

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Loreto Resources Corporation (the “Company”) was incorporated on June 28, 2006 in the state of Nevada under the name Loreto Corporation. The Company pursued its original business plan to create, market, and sell greeting cards to wholesalers and retail customers in shopping malls in its own planned retail shops. However, in 2008, the Company decided to redirect its business focus and strategy toward identifying and pursuing business opportunities in the mining sector in South America, more specifically, in Peru. The Company is in the development stage in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC”) Topic No. 915, Accounting and Reporting by Development Stage Enterprises.”

The Company changed its name to HK International Group, Inc. See Note 11.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements as of December 31, 2012 and 2011 and for the years then ended have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP 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. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 100% owned subsidiary, Loreto Resources Corporation-Peru, until it was dissolved on March 31, 2011, after elimination of all significant inter-company accounts and transactions.

Cash Equivalents

The Company considers all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents.

Mineral Exploration and Development Costs

All exploration expenditures are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized. If no minable ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned. Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on a unit of production basis over proven and probable reserves.

F-7

Income Taxes

In accordance with ASC Topic 740 “Accounting for Income Taxes,” the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

Basic Earnings per Share

Basic and diluted earnings or loss per share (“EPS”) amounts in the financial statements are computed in accordance with ASC Topic 260 – 10 “Earnings per Share,” which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income/loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Weighted average number of shares used to calculate basic and diluted loss per share is considered the same as the effect of dilutive shares is anti-dilutive.

Fair Value of Financial Instruments

The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange. As of December 31, 2012 and 2011, the carrying value of the assets and liabilities approximated fair value due to the short-term nature and maturity of these instruments.

Stock Split

On February 2, 2009 and January 15, 2010, the Company implemented 2-for-1 stock splits. The par value of the common stock was not affected by the stock splits. Upon effectiveness of the stock splits, each stockholder received two shares of common stock for every share of common stock owned as of February 2, 2009 and again on January 25, 2010, the stock splits’ record dates. The stock split does not affect the amount of common stock authorized for issuance. All share and per share information has been retroactively adjusted to reflect the reverse stock split in the consolidated financial statements and in the notes to consolidated financial statements for all periods presented, to reflect the stock split as if it occurred on the first day of the first period presented.

Stock-based Compensation

The Company determines the fair value of stock option awards granted to employees in accordance with FASB ASC Topic 718 – 10 and to non-employees in accordance with FASB ASC Topic 505 – 50.

F-8

Recent Accounting Pronouncements

The Company does not expect that the adoption of recently issued accounting pronouncements will have a material impact on its consolidated financial position, results of operations, or cash flows.

NOTE 3. GOING CONCERN

During 2012, Loreto has not generated any revenue and therefore has been unable to generate cash flows sufficient to support its operations and has been dependent on debt and equity financing. In addition to negative cash flow from operations, Loreto has experienced recurring net losses, and has an accumulated deficit of $4,188,119 as of December 31, 2012.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if Loreto is unable to continue as a going concern. Going forward, the Company’s plan is to acquire other assets or business operations that will maximize shareholder value. However, no specific assets or businesses have been definitively identified and there is no certainty that any such assets or business will be identified or any transactions will be consummated.

NOTE 4. FORGIVENESS OF DEBT

On December 15, 2011, the Company entered into a note cancellation agreement with a former director. As per the agreement, the former director agreed to cancel the convertible promissory notes originally dated November 2, 2010 and March 1, 2011, in the amounts of $16,586 and $9,952, respectively, along with the related accrued but unpaid interest. These notes were released without further obligation of the Company, and a gain of $29,175 was recorded.

On December 15, 2011, the Company entered into a note cancellation agreement with a stockholder. As per the agreement, the stockholder agreed to cancel the convertible promissory notes originally dated November 17, 2010 and March 1, 2011, in the amounts of $10,573 and $6,344, respectively, along with the related accrued but unpaid interest. These notes were released without further obligation of the Company, and a gain of $18,554 was recorded.

No note cancellation agreements were entered into during 2012.

NOTE 5. CONVERTIBLE PROMISSORY NOTES

On November 2, 2010 and on November 17, 2010, the Company completed closings of a private placement offering of its convertible notes (the “2010 Notes”), totaling approximately $150,000 in principal, to eight stockholders and one unaffiliated third party. The 2010 Notes bore interest of 10%, and would have matured on December 31, 2011. Both the principal and accrued interest are deemed mandatorily converted (see below) on March 15, 2011 at the price paid by investors in that offering, expressed as a percentage of the face amount of debt securities.

F-9

On March 15, 2011, the Company completed closings of a private placement offering of its convertible promissory notes (the “March 2011 Notes”), totaling approximately $90,000 in principal, to eight stockholders and one unaffiliated third party. As of March 1, 2011, the Company deemed the notes from the 2010 offering, along with accrued but unpaid interest, to have been converted, on a mandatory basis, into new notes on the same terms as the subsequent notes. The subsequent notes bear interest of 10%, matured on March 31, 2012, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing by the Company, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which the Company sells at least $1,000,000 of its securities.

On October 10, 2011, the Company closed a private placement offering (the “October 2011 Offering”) of its 10% convertible promissory notes (the “October 2011 Notes”). In the October 2011 Offering, the Company sold $52,500 in principal amount of the October 2011 Notes to an existing investor.

The October 2011 Notes bear interest of 10%, mature on April 9, 2013, and both the principal and accrued interest will be mandatorily converted at a price equal to either (a) the price per share of stock (or unit of stock and other securities) paid by investors in the next securities offering or other financing, if the financing is an issuance of stock (or unit of stock and other securities), or (b) the price paid by investors in the next securities offering or other financing by the Company, expressed as a percentage of the face amount of debt securities, if the financing is an issuance of debt securities (or units of debt securities and other securities) (including debt securities convertible into stock), upon the closing of, and into the securities issued in, the next financing in which the Company sells at least $1,000,000 of its securities.

On March 31, 2012, the 2010 Notes and the March 2011 Notes were amended, and the maturity dates were extended to September 30, 2013. In addition, the mandatory conversion terms for the aforementioned notes were amended to require conversion only if the minimum $1,000,000 financing closes concurrent with the closing of a related merger or other acquisition transaction.

On February 1, 2012, the Company closed a private placement offering (the “February 2012 Offering”) of its 10% convertible promissory notes (the “February 2012 Notes”). In the February 2012 Offering, the Company sold $50,000 in principal amount of the February 2012 Notes to one existing investor. The February 2012 Notes mature on July 31, 2013 and will be automatically converted at the initial closing of the Company’s next private placement in which it sells at least $1,000,000 of its securities, so long as such offering closes concurrent with the closing of a related merger or other acquisition transaction.

On July 25, 2012, the Company closed a private placement offering (the “July 2012 Offering”) of its 10% convertible promissory notes (the “July 2012 Notes”). In the July 2012 Offering, the Company sold $70,000 in principal amount of the July 2012 Notes to one existing investor. The July 2012 Notes mature on January 24, 2014 and will be automatically converted at the initial closing of the Company’s next private placement in which it sells at least $1,000,000 of its securities, so long as such offering closes concurrent with the closing of a related merger or other acquisition transaction.

The Company evaluated the conversion options under FASB ASC Topic 815 – 40 for derivative treatment and determined that the conversion options are required to be accounted for as a derivative upon the aforementioned closing of the next private placement offering. As the closing had not occurred as of the period ended December 31, 2012, and as per FASB ASC Topic 470 – 20, the derivative instrument nor the beneficial conversion feature need not be accounted for as of December 31, 2012.

F-10

As of December 31, 2012 and 2011, the Company owed principal and accrued interest of $423,482 and $270,519, respectively.

NOTE 6. STOCK TRANSACTIONS

On October 3, 2006, the Company issued 40,000,000 common shares to a director for $10,000.

On February 23, 2007, the Company issued 36,000,000 common shares to 36 non-affiliated stockholders for a total of $18,000.

On July 2, 2007, the Company issued 24,000,000 common shares to Magdalena Cruz, then President and CEO, in exchange for her services valued at $4,500.

On February 7, 2008, the Company issued 2,000,000 common shares to Milestone Enhanced Fund Ltd. for $50,000.

On July 18, 2008, 40,000,000 common shares held by Magdalena Cruz, the director in 2008, were cancelled.

On July 18, 2008, January 15, 2009, and January 15, 2010, the Company declared two for one (2-for-1) forward stock splits on each common share. All share and per share amounts have been adjusted retroactively from inception to reflect these splits.

In September 2008, the Company issued 8,100,000 shares through a private placement to various individuals and entities at the price of $0.25 per share. Total proceeds were $1,980,313, net of offering costs of $44,687.

Each forward split entitled each Loreto shareholder of record on the specified dates to receive one additional common share for each one share owned. The stock split did not affect the amount of common stock authorized for issuance.

On November 11, 2010, the Company reached a settlement agreement with its legal counsel, whereby the legal counsel agreed to forego payment of $49,580 in legal fees due for the 2009 fiscal year upon delivery of 198,322 restricted shares of the Company’s common stock. The restricted shares were valued at $0.25 per share.

NOTE 7. OPTIONS AND WARRANTS

The 2008 Equity Incentive Plan

The Company’s 2008 Equity Incentive Plan provided for the grant of incentive stock options to employees of the Company and of an affiliate or subsidiary of the Company and non-statutory stock options, restricted stock, and stock appreciation rights to employees, directors, and consultants of the Company, and of an affiliate or subsidiary of the Company. A maximum of 16,000,000 common shares are available for issuance. As of December 31, 2009, options had been granted under the 2008 Plan exercisable for an aggregate of 6,960,000. No options had been granted during 2012 and 2011. Options granted under the 2008 Plan were generally granted with a strike price equal to market value and a ten-year term. The outstanding options vested over periods ranging from three months to three years.

F-11

Effective July 21, 2008, the President and CEO of the Company was granted an option to purchase 6,200,000 shares of common stock with a fair value of $1,237,539. The options were exercisable at $0.25 per share, expired in ten years, and 1/3 per year for 3 years.

On December 8, 2008, a consultant was granted 120,000 options with a fair value of $20,416. The options were exercisable at $0.25 per share, expired in 10 years, and vested over 3 months.

On January 1, 2009, the Company granted 180,000 options to a consultant with a fair value of $30,546. The options were exercisable at $0.25 per share, vested equally over 3 months, and expired in 10 years.

On March 8, 2009, the Company granted 120,000 options to a consultant with a fair value of $21,224. The options were exercisable at $0.25 per share, vested equally over 3 months, and expired in 10 years.

On April 1, 2009, the Company granted 120,000 options to a consultant with a fair value of $21,108. The options were exercisable at $0.25 per share, vested equally over 2 months, and expired in 10 years.

On June 1, 2009, the Company granted options to purchase (i) 60,000 shares to a consultant with a fair value of $10,754, and (ii) 40,000 shares to a consultant with a fair value of $7,053. The 60,000 options were exercisable at $0.25 per share, vested equally over 3 months and expired in 10 years. The 40,000 options were exercisable at $0.25 per share, vested over 1 month, and expired in 10 years.

On September 8, 2009, the Company granted 120,000 options to a consultant with a fair value of $21,683. The options were exercisable at $0.25 per share, vested equally over 3 months, and expired in 10 years.

Stock option activity summary is presented in the table below:

	Number of Shares		Weighted- average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2008		6,320,000	$	0.25		8.56	$	—
Granted		640,000		0.25		9.28		—
Exercised		—		—		—		—
Expired / Forfeited		—		—		—		—
Outstanding at December 31, 2009		6,960,000	$	0.25		8.63	$	—
Granted		—		—		—		—
Exercised		—		—		—		—
Expired / Forfeited		6,960,000		0.25		—		—
Outstanding at December 31, 2012 and 2011		—		—		—		—
Exercisable at December 31, 2012 and 2011		—		—		—		—

F-12

As of December 31, 2009, 2,706,667 options were vested or exercisable. During 2009, 640,000 options were granted with a weighted average grant date fair value of $0.25. During 2009, the Company recognized related stock-based compensation expense of $549,720. As of December 31, 2009, there was $640,808 of total unrecognized compensation cost related to non-vested stock options which had been originally expected to be recognized over a weighted-average period of 1.55 years.

The fair value of the options granted during the twelve months ended December 31, 2009 was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Market value of stock on grant date	$	0.25	(1)
Risk-free interest rate		1.87%-3.28	%
Dividend yield		0.00	%
Volatility factor		118.98%-129.45	%
Weighted average expected life		5.5 years	(2)

Expected forfeiture rate		5	%

(1)

The market value of the stock was calculated based on the July 25, 2008 private placement that sold 8,100,000 shares at $0.25 per share.

(2)

Due to a lack of stock option exercise history, the Company used the simplified method under SAB 107 to estimate expected term.

No options were granted during 2012 and 2011. On May 5, 2010, the Company’s Chief Executive Officer’s stock option agreement was terminated. As such, 6,200,000 options were cancelled. During May and June 2010, the remaining stock option agreements were terminated, resulting in the cancellation of 760,000 options. During 2010, the Company recognized stock-based compensation expense of $640,826 related to stock options. The Company did not have stock-based compensation expense in 2012 and 2011.

There are no options or warrants outstanding at December 31, 2012 and 2011.

NOTE 8. RELATED PARTY TRANSACTIONS

Starting in November 2009, Li3 Energy, Inc., a company in which Loreto’s director and former Chief Executive Officer functioned in the same capacity, started utilizing the administrative personnel and office space of Loreto, which had an office located in Lima, Peru. As such, certain net common costs initially paid by Loreto, were allocable to the related party company, as follows as of December 31, 2012 and 2011:

	December 31,
	2012		2011

Administrative salaries	$	-	$	2,380
Utilities and maintenance expenses		6,329		8,332
	$	6,329	$	10,712

The related receivable due from the related party company arising from these common costs, amounting to $6,329, is shown as a due from related party in the consolidated balance sheet as of December 31, 2012. The balance as of December 31, 2011 amounted to $10,712.

F-13

This arrangement ceased on July 31, 2010, and all common cost obligations on a go-forward basis are the responsibility of the related party company.

On November 2, 2010 and on March 15, 2011, the Company completed closings of a private placement offering of its convertible promissory notes, totaling $16,586 and $9,952 in principal, respectively, to a former director. These notes were later cancelled. See Note 5.

NOTE 9. INCOME TAXES

Loreto Resources Corporation files a U.S. Federal income tax return. The Company’s foreign subsidiary files income tax returns in its jurisdictions. The components of the consolidated net operating loss before income tax benefit are as follows:

	2012		2011

U.S.	$	175,337	$	209,817
Non-U.S.		4,110		1,934
Total		179,447		211,751

The components of the Company’s deferred tax assets at December 31, 2012 and 2011 are as follows:

	2012			2011

Deferred tax assets and liabilities:
Loss carry-forwards	$	59,615		$	71,338
Stock-based compensation		-			-
Total deferred tax assets		59,615			71,338
Valuation allowance		(59,615	)		(71,338	)

As of December 31, 2012, net operating loss carry-forwards totaling approximately $2,667,000 for federal income tax purposes, may be carried forward in varying amounts until the time when they begin to expire from 2030 to 2032. These net operating loss carry-forwards are available to reduce future taxable income. However, a change in ownership, as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize its U.S. net operating loss carry-forwards. Additionally, because federal tax laws limit the time during which the net operating loss carry-forwards may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates it may not be able to fully utilize the net operating loss carry-forwards to reduce future income taxes. As the Company has had cumulative losses and there is no assurance of future taxable income, valuation allowances have been recorded to fully offset the deferred tax asset at December 31, 2012 and 2011.

F-14

NOTE 10. GENERAL AND ADMINISTRATIVE EXPENSES

The following table shows the major components of general and administrative expenses during 2012 and 2011:

	2012		2011
Professional fees (accounting, legal and consulting)	$	123,526	$	179,548
Other general and administrative expenses		22,420		54,719
	$	145,946	$	234,267

NOTE 11. SUBSEQUENT EVENTS

Resignation of Officer

On February 11, 2013, Adam Zive resigned as interim Chief Executive Officer and a member of the board of directors of the Company.

Debt Conversion Transaction

On March 8, 2013, the Company entered into Promissory Note Conversion Agreements (the “Conversion Agreements”) with each of the holders (the “Noteholders”) of the Company’s outstanding convertible promissory notes (the “Notes”), to convert an aggregate of $430,538 of principal and accrued and unpaid interest due under the Notes, representing all of the Company’s outstanding indebtedness for money borrowed at March 8, 2013, was converted into a total of 57,405,074 shares (the “Note Conversion Shares”) of the Corporation’s common stock, $0.001 par value per share (“Common Stock”), at a conversion rate of $0.0075 per share (the “Debt Conversion Transaction”).

Series A Preferred Stock Issuance

On March 8, 2013, the Company entered into a Series A Preferred Stock Purchase Agreement (the “Purchase Agreement”) with a California limited liability company (the “Purchaser”), pursuant to which, among other items, on March 11, 2013 (the “Closing Date”), the Company sold to the Purchaser, and the Purchaser purchased from the Company, 1,300 shares of the Company’s Series A Preferred Stock, for an aggregate purchase price of $130,000, which shares of Series A Preferred Stock are currently convertible into an aggregate of 12,770,339,600 shares of the Company’s Common Stock, at a rate of $0.0000102826655692955 per share (the “Series A Transaction”)

On March 19, 2013, the Company changed its name to “HK International Group, Inc.” and increased its number of authorized shares from 310,000,000 shares consisting of (i) 300,000,000 shares of Common Stock, and (ii) 10,000,000 shares of preferred stock, par value $0.001 per share (“Preferred Stock”), 1,300 shares of which have been designated as Series A Preferred Stock, to 3,000,000,000 shares, consisting of (i) 2,000,000,000 shares of Common Stock, and (ii) 1,000,000,000 shares of Preferred Stock, 1,300 shares of which have previously been designated as Series A Preferred Stock (the “Share Increase”).

F-15

Date First Appointed

Luis F. Saenz

President, Interim Chief Financial Officer and Director

July 21, 2008

Adam Zive(1)

Interim Chief Executive Officer and Director

August 25, 2011