NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1
|
ORGANIZATION
AND DESCRIPTION OF BUSINESS
|
Propell Technologies Group, Inc.
(formerly known as Propell Corporation) (the “Company”), is a Delaware corporation originally formed on January 29,
2008 as CA Photo Acquisition Corp. On April 10, 2008 Crystal Magic, Inc. (“CMI”), a Florida Corporation, merged with
an acquisition subsidiary of Propell’s, and the Company issued an aggregate of 180,000 shares to the former shareholders
of CMI. On May 6, 2008, the Company acquired both Mountain Capital, LLC (doing business as Arrow Media Solutions) (“AMS”)
and Auleron 2005, LLC (doing business as Auleron Technologies) (“AUL”) and made each a wholly owned subsidiary and
issued a total of 41,897 shares of the Company’s common stock to the members of Mountain Capital, LLC and a total of 2,722
shares of the Company’s common stock to the members of AUL. In 2010 AUL and AMS were dissolved and the operations of CMI
were discontinued. On February 4, 2013, the Company entered into a Share Exchange Agreement with Novas Energy (USA), Inc. (“Novas”)
whereby the Company exchanged 100,000,000 shares of its common stock for 100,000,000 shares of common stock in Novas. After the
consummation of the share exchange, Novas became a wholly owned subsidiary of the Company. As a result of the share exchange the
shareholders of Novas obtained the majority of the outstanding shares of the Company. As such, the exchange is accounted for as
a reverse merger or recapitalization of the Company and Novas was considered the acquirer for accounting purposes.
|
b)
|
Description of the business
|
The Company, through its
wholly owned subsidiary, Novas, and majority owned subsidiary, NENA, is an innovative technology and services company whose aim
is to improve oil production by introducing modern and innovative technologies. Novas has a unique Plasma-Pulse Treatment (“PPT”)
technology, patented in the USA, which is a new Enhanced Oil Recovery methodology and process that has been developed to be environmentally
friendly, mobile, time efficient and cost effective.
On October 22, 2015, Novas Energy
USA, Inc. (“Novas”), a wholly owned subsidiary of Propell Technologies Group, Inc. (the “Company”), entered
into an operating agreement with Technovita Technologies USA, Inc. (the “Joint Venture Agreement”) through a newly
formed Delaware limited liability company, Novas Energy North America, LLC (“NENA”), whereby Novas agreed to contribute
$1,200,000 ($600,000 delivered on the effective date (October 22, 2015) of the Joint Venture Agreement, $300,000 on November 1,
2015 and $300,000 on the two month anniversary of the Effective Date) to the capital of NENA for 60% of the membership interests
of NENA and Technovita agreed to contribute an aggregate of $800,000 to the capital of NENA for 40% of the membership interests
of NENA. In terms of a side agreement entered into on November 18, 2015, the revenue and expenses incurred by Technovita prior
to entering into the operating agreement, have been included in the joint venture and consolidated into the Company’s results
effective September 1, 2015.
Subject to certain exceptions
and pursuant to the terms of a sublicense agreement (the “Novas Sublicense Agreement”) that was entered into between
Novas, NENA and Novas Energy Group Inc. (the “Licensor”), the licensor of Plasma Pulse Technology currently used by
Novas and Technovita, NENA is the exclusive licensor of PPT for the treatment of vertical wells in the United States. Subject
to certain exceptions and pursuant to the terms of Sublicense Agreements (the “Technovita Sublicense Agreement”) that
was entered into between Technovita, NENA and Licensor, NENA is the exclusive licensor of PPT for the treatment of vertical wells
in Canada. Notwithstanding the foregoing, both Novas and Technovita will retain the right to deploy the PPT Technology on vertical
wells owned by Novas or Technovita in the United States or Canada, respectively. If either Novas or Technovita terminates the Sublicense
Agreement with NENA and Licensor, the non- terminating party will receive 100% of the terminating member’s membership interest
in NENA.
The business and affairs of NENA
are to be managed by or under the direction of the Board of Directors, consisting of five (5) members, three (3) of whom shall
be appointed by Novas and two (2) of whom shall be appointed by Technovita. Board approval is required to: (i) incur any indebtedness,
pledge or grant liens on any assets or guarantee, assume, endorse or otherwise become responsible for the obligations of any other
person, except to the extent approved or authorized in NENA’s budget; (ii) make any loan, advance or capital contribution
in any person, except to the extent approved or authorized in the budget; (iii) transfer any equipment necessary in the deployment
of the Vertical Technology to any third party; (iv) enter into or effect any transaction or series of related transactions involving
the sale of NENA or the sale, lease, license, exchange or other disposition (including by merger, consolidation, sale of assets
or similar business transaction) by NENA of any assets in excess of $300,000; (v) appoint or remove NENA’s auditors or make
any changes in the accounting methods or policies of NENA (other than as required by GAAP); (vi) enter into or effect any transaction
or series of related transactions involving the purchase, lease, license, exchange or other acquisition (including by merger, consolidation,
acquisition of stock or acquisition of assets) by NENA of any assets and/or equity interests of any person and/ or assets in excess
of $300,000; or (v) enter into or effect any commercial transaction or series of related commercial transactions involving anticipated
liabilities or revenues of NENA in excess of $500,000 or that materially vary from NENA’s existing strategy or business plan.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES
|
The accompanying unaudited condensed
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)
for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited
condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial
statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting
only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The
results of operations and cash flows for the three months ended March 31, 2016 may not necessarily be indicative of results that
may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this quarterly report on
Form 10-Q should be read in conjunction with our audited financial statements included in our annual report on Form 10-K as of
and for the year ended December 31, 2015 as filed with the Securities and Exchange Commission (the “SEC”).
Significant accounting policies
are described in Note 2 to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of December
31, 2015.
The preparation of unaudited
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are
evaluated on an ongoing basis, that affect the amounts reported in the unaudited consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to: the estimated useful lives
for plant and equipment, the fair value of warrants and stock options granted for services or compensation, estimates of the probability
and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due
to continuing operating losses, those related to revenue recognition and the allowance for doubtful accounts.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the unaudited consolidated financial statements, which management considered
in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from our estimates.
All amounts referred to in the
notes to the unaudited consolidated financial statements are in United States Dollars ($) unless stated otherwise.
|
b)
|
Principles of Consolidation
|
The unaudited consolidated financial
statements include the financial statements of the Company and its subsidiary in which it has a majority voting interest. All significant
inter-company accounts and transactions have been eliminated in the unaudited consolidated financial statements. The entities included
in these unaudited consolidated financial statements are as follows:
Propell Technologies Group, Inc.
– Parent Company
Novas Energy USA Inc. (wholly
owned)
Novas Energy North America, LLC
(60% owned)
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
The preparation of unaudited
condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions,
which are evaluated on an ongoing basis, that affect the amounts reported in the consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to: the estimated useful lives
for plant and equipment, the fair value of warrants and stock options granted for services or compensation, estimates of the probability
and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due
to continuing operating losses, those related to revenue recognition and the allowance for doubtful accounts.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ
significantly from our estimates.
Certain conditions may exist
as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such
assessment inherently involves an exercise of judgment.
If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case
the guarantee would be disclosed.
|
e)
|
Fair Value of Financial Instruments
|
The Company adopted the guidance
of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair
value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:
Level 1-Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted
quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities
in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by
observable market data.
Level 3-Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
The carrying amounts reported
in the balance sheets for cash, accounts receivable, prepaid expenses, deposits, accounts payable, accrued liabilities, notes payable,
and convertible notes payable approximate fair value due to the relatively short period to maturity for these instruments. The
recorded derivative liabilities during the year ended December 31, 2014 was noted as subject to level III fair value measurements.
The Company did not identify any other assets or liabilities that are required to be presented on the balance sheets at fair value
in accordance with the accounting guidance.
ASC 825-10 “
Financial
Instruments
” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value
(fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding
instruments.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
f)
|
Risks and Uncertainties
|
The Company's operations will
be subject to significant risk and uncertainties including financial, operational, regulatory and other risks associated, including
the potential risk of business failure. The recent global economic crisis has caused a general tightening in the credit markets,
lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed
income markets. These conditions not only limit the Company’s access to capital, but also make it difficult for its customers,
vendors and the Company to accurately forecast and plan future business activities.
The Company’s operations
are carried out in the USA, Mexico and Canada. Accordingly, the Company’s business, financial condition and results of operations
may be influenced by the political, economic and legal environment in the USA, Mexico and Canada and by the general state of those
economies. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, and rates and methods of taxation, among other things.
|
g)
|
Recent Accounting Pronouncements
|
In January 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in
U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the
accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements
for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing
deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal
years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means
of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is
effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under
the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating
the impact of adopting this guidance.
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-02, which amends the guidance in
U.S. GAAP on accounting for operating leases, a lessee will be required to recognize assets and liabilities for operating leases
with lease terms of more than 12 months on the balance sheet. The new standard is effective for fiscal years and interim periods
beginning after December 15, 2018., and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment
to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted.
The Company is currently evaluating the impact of adopting this guidance.
In March 2016, the Financial
Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) “ASU 2016 – 09 Improvements to Employee
Share-Based Payment Accounting” which is intended to improve the accounting for employee share-based payments. The ASU simplifies
several aspects of the accounting for share-based payment award transactions, including; the income tax consequences, classification
of awards as either equity or liabilities, and the classification on the statement of cash flows. The new standard is effective
for fiscal years and interim periods beginning after December 15, 2016., and upon adoption, an entity should apply the amendments
by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance
is effective. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
In April 2016, the Financial
Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) “ASU 2016 – 10 Revenue from Contract
with Customers: identifying Performance Obligations and Licensing”. The amendments in this Update clarify the two following
aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an
entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property
(which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over
time). The amendments in this Update are intended to reduce the degree of judgement necessary to comply with Topic 606. This guidance
has no effective date as yet. The Company is currently evaluating the impact of adopting this guidance.
Any new accounting standards,
not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the financial statements upon adoption.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
No segmental information is required
as the Company currently only has one segment of business, the Plasma Pulse Technology for the petroleum industry.
Revenues to date are insignificant.
|
i)
|
Cash and Cash Equivalents
|
The Company considers all highly
liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At March 31,
2016 and December 31, 2015, respectively, the Company had no cash equivalents.
The Company minimizes credit
risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times
may exceed federally insured limits. At March 31, 2016, the Company had cash balances of $10,503,563, which exceeded the federally
insured limits by $9,920,316. At December 31, 2015, the Company had cash balances of $11,700,143, which exceeded the federally
insured limits by $10,877,045.
|
j)
|
Accounts Receivable and Allowance for Doubtful Accounts
|
Accounts receivable are reported
at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue
is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number
of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral
part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state
of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates.
Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense. Receivables deemed
uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries
of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no recoveries
during the period ended March 31, 2016.
The Company had no inventory
as of March 31, 2016 or December 31, 2015.
Plant and equipment is stated
at cost, less accumulated depreciation. Plant and equipment with costs greater than $1,000 are capitalized and depreciated. Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets
are as follows:
Description
|
|
Estimated Useful Life
|
Office equipment and furniture
|
|
2 to 5 years
|
Leasehold improvements and fixtures
|
|
Lesser of estimated useful life or life of lease
|
Plant and equipment
|
|
2 to 3 years
|
Plasma pulse tools
|
|
5 years
|
The cost of repairs and maintenance
is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are included in income in the year of disposition.
All of our intangible assets
are subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or
circumstances that may warrant revised estimates of useful lives that indicates the asset may be impaired. Where intangibles are
deemed to be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible
and its book value.
License agreements acquired by
the Company are reported at acquisition value less accumulated amortization and impairments.
Amortization is reported in
the income statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is
indefinite. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life
of the license agreement is five years which is the expected period for which we expect to derive a benefit from the underlying
license agreements.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
Assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company records revenue when
all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the service is completed without further
obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.
|
p)
|
Share-Based Payment Arrangements
|
Generally, all forms of share-based
payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation
awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair
value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded
in operating expenses in the consolidated statement of operations.
Income taxes are 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 bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available
evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes
as interest expense or penalties expense. As of March 31, 2016, there have been no interest or penalties incurred on income taxes.
Basic net loss per share is computed
on the basis of the weighted average number of common shares outstanding during the period.
Diluted net loss per share is
computed on the basis of the weighted average number of common shares and common share equivalents outstanding. Dilutive securities
having an anti-dilutive effect on diluted net loss per share are excluded from the calculation. See note 12 below.
Dilution is computed by applying
the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common shares
at the average market price during the period.
Dilution is computed by applying
the if-converted method for convertible preferred shares. Under this method, convertible preferred stock is assumed to be converted
at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine
income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common shares
outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
Any common shares issued as a
result of the issue of stock options and warrants would come from newly issued common shares from our remaining authorized shares.
Comprehensive income is defined
as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions
resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented
includes net loss.
Parties are considered to be
related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company, or own in aggregate, on a fully diluted basis 5% or more of the Company’s
stock. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded
at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related
party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.
Certain reclassifications have
been made to the prior year financial statement numbers to conform to the current presentation of the financial statements.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Prepaid expenses consisted of the following as of March
31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
33,290
|
|
|
$
|
28,180
|
|
Expenses in excess of billings
|
|
|
8,856
|
|
|
|
155,606
|
|
Prepaid professional fees
|
|
|
29,774
|
|
|
|
42,404
|
|
Other
|
|
|
375
|
|
|
|
820
|
|
|
|
$
|
72,295
|
|
|
$
|
227,010
|
|
Plant and Equipment consisted of the following as of
March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Capital work in progress
|
|
$
|
577,703
|
|
|
$
|
453,228
|
|
Plasma pulse tool
|
|
|
310,374
|
|
|
|
310,374
|
|
Furniture and equipment
|
|
|
31,577
|
|
|
|
27,667
|
|
Field equipment
|
|
|
19,627
|
|
|
|
19,627
|
|
Computer equipment
|
|
|
4,176
|
|
|
|
3,887
|
|
Computer software
|
|
|
5.954
|
|
|
|
-
|
|
Total cost
|
|
|
949,411
|
|
|
|
814,783
|
|
Less: accumulated depreciation
|
|
|
(130,798
|
)
|
|
|
(124,245
|
)
|
Property and equipment, net
|
|
$
|
818,613
|
|
|
$
|
690,538
|
|
Depreciation expense was $16,588 and $14,933
for the three months ended March 31, 2016 and 2015, respectively.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Licenses
Novas licenses the “Plasma-Pulse
Technology” (“the Technology”) from Novas Energy Group Limited, the Licensor, pursuant to the terms of an exclusive
perpetual royalty bearing license it entered into in January 2013, which was amended on March, 2014. The amended license agreement
provides Novas with the exclusive right to develop, use, market and commercialize the Technology for itself and/or third parties,
sublicense and provide services to third parties related to the Technology in the United States and Mexico including all of its
states, districts, territories, possessions and protectorates. The amended license agreement also provides Novas with the right
to design and have manufactured the apparatus and to make modifications and improvements to the Technology provided that the Licensor
is provided a non-exclusive license to any such improvements and modifications and any patent rights of Novas related to the Technology.
The license is limited to the United States and Mexico. It also provides that Novas will pay the Licensor royalties equal to seven
and a half percent (7.5%) of Net Service Sales (as defined in the license agreement) and Non-Royalty Sublicensing Consideration
(as defined in the license agreement) and provides for a minimum royalty payment of $500,000 per year from United States operations
and $500,000 per year from Mexican operations. The royalty provision was amended by the Novas Sublicense Agreement that provides
that NENA pays the 7.5% royalty fee and that such 7.5% fee is the exclusive consideration to the Licensor for use of the Technology
in the United States so long as the Novas Sublicense Agreement is in effect. Revenue derived from operations in one territory can
be used to satisfy obligations for minimum royalty payments in the other territory. All royalty payments made by Novas as well
as sublicensing revenue paid by Novas to the Licensor are credited towards the minimum royalty payment. If the minimum royalty
is not timely paid, the Licensor has the right to terminate the license with respect to a particular territory and if the minimum
royalty payment for both territories is not paid, to terminate the license agreement. Novas was obligated to pay an initial license
fee of $200,000 to the licensor on June 30, 2015. This license fee was waived on March 29, 2016. The Licensor is responsible for
the cost of filing prosecuting and maintaining the patents and Novas is responsible for costs of obtaining marketing approvals.
The Licensor has the right to terminate the license agreement upon Novas’ breach or default. If the Licensor dissolves, becomes
insolvent or engages in or is the subject of any other bankruptcy proceeding then the technology and patent rights in the United
States shall become our property.
Subject to certain exceptions
and pursuant to the terms of the Novas Sublicense Agreement that was entered into on October 22, 2015, between Novas, NENA and
the Licensor of the Plasma Pulse Technology currently used by Novas and Technovita, NENA will be the exclusive provider of the
Vertical Technology (as defined in the Joint Venture Agreement entered into on October 22, 2015) to third parties in the United
States. Subject to certain exceptions and pursuant to the terms of Sublicense Agreements (the “Technovita Sublicense Agreement”)
that was entered into between Technovita, NENA and Licensor, NENA is the exclusive provider of the Vertical Technology to third
parties in Canada. Notwithstanding the foregoing, both Novas and Technovita will retain the right to deploy the Vertical Technology
on wells owned by Novas or Technovita in the United States or Canada, respectively. If either Novas or Technovita terminates the
Sublicense Agreement with NENA and Licensor, the non- terminating party will receive 100% of the terminating member’s membership
interest in NENA.
Intangibles consisted of the following as of March
31, 2016 and December 31, 2015, respectively:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
Website development
|
|
|
8,000
|
|
|
|
8,000
|
|
Total cost
|
|
|
358,000
|
|
|
|
358,000
|
|
Less: accumulated amortization
|
|
|
(148,000
|
)
|
|
|
(130,500
|
)
|
Intangibles, net
|
|
$
|
210,000
|
|
|
$
|
227,500
|
|
Amortization expense was $17,500
for the three months ended March 31, 2016 and 2015.
The minimum commitments due
under the license agreement for the next five years are summarized as follows:
|
|
Amount
|
|
|
|
|
|
|
2016
|
|
$
|
500,000
|
|
2017
|
|
|
500,000
|
|
2018
|
|
|
500,000
|
|
2019
|
|
|
500,000
|
|
2020
|
|
|
500,000
|
|
|
|
$
|
2,500,000
|
|
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
6
|
ACCOUNTS
PAYABLE - RELATED PARTY
|
Accounts payable to related parties includes the
following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Technovita Technologies Corp.
|
|
$
|
100,413
|
|
|
$
|
1,000
|
|
Energy Conservation Management
|
|
|
758
|
|
|
|
-
|
|
|
|
$
|
101,171
|
|
|
$
|
1,000
|
|
Technovita Technologies Corp.,
is the 40% shareholder in the NENA joint venture which the Company entered into. This payable represents expenses paid on behalf
of the joint venture by Technovita.
Energy Conservation Corp is
a third party contractor associated with the joint venture.
|
7
|
ACCRUED LIABILITIES
AND OTHER PAYABLES
|
Accrued liabilities consisted
of the following as of March 31, 2016 and December 31, 2015, respectively:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Payroll liabilities
|
|
$
|
39,797
|
|
|
$
|
38,063
|
|
Severance accrual
|
|
|
-
|
|
|
|
31,109
|
|
Accrued Royalties
|
|
|
16,753
|
|
|
|
14,653
|
|
License fees payable
|
|
|
-
|
|
|
|
200,000
|
|
Other
|
|
|
5,223
|
|
|
|
7,122
|
|
|
|
$
|
61,773
|
|
|
$
|
290,947
|
|
The license fee payable to Novas
BVI for the rights to use the plasma pulse technology in Mexico was waived on March 29, 2016.
Notes payable consisted of the following as of March
31, 2016 and December 31, 2015, respectively:
Description
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
|
|
|
|
|
|
|
|
|
|
|
|
|
Owl Holdings
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
Total Short term notes payable
|
|
|
|
|
|
|
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
Owl Holdings
The note payable advanced by
Owl Holdings to the Company has no interest rate and is repayable on demand.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The Company has authorized 500,000,000
common shares with a par value of $0.001 each, and issued and has outstanding 268,558,931 shares of common stock as of March 31,
2016.
The Company has 10,000,000 authorized
preferred shares with a par value of $0.001 each with 5,000,000 preferred shares designated as Series A-1 Convertible Preferred
Stock (“Series A-1 Shares”), 500,000 preferred shares designated as Series B Preferred Stock and on February 19, 2015,
the Company amended its articles of incorporation, designating the remaining 4,500,000 preferred shares as Series C Preferred
Stock.
|
i)
|
Series A-1 Convertible
Preferred Stock
|
The Company
has designated 5,000,000 preferred shares as Series A-1 Convertible Preferred Stock (“Series A-1 Shares”), with 3,137,500
Series A-1 Shares issued and outstanding which are convertible into 31,375,000 shares of common stock.
The rights,
privileges and preferences of the Series A-1 Shares are summarized as follows;
Conversion
Each Series A-1 Share has the
following conversion rights:
|
(a)
|
Each share of the Series A-1Shares is convertible into ten shares of Common Stock.
|
|
(b)
|
There shall be no adjustment made to the conversion ratio of the Series A-1 Shares for any stock split, stock dividend, combination, reclassification or other similar event.
|
Company Redemption
The Series A-1 Shares are non-redeemable
by the Company.
Voting Rights
Each holder of Series A-1 Shares
is entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number
of votes equal to the number of shares of Common Stock into which such holder’s shares of Series A-1 Shares could then be
converted.
Dividends
Until such time that any dividend
is paid to the holders of Common Stock, the holders of Series A-1 Shares shall be entitled to a dividend in an amount per share
equal to that which such holders would have been entitled to receive had they converted all of the shares of Series A-1 Shares
into Common Stock immediately prior to the payment of such dividend
Liquidation Preference
Each share of Series A-1 Shares
is entitled to a liquidation preference of $0.08 per share
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY
(continued)
|
|
b)
|
Preferred Stock (continued)
|
|
i)
|
Series
A-1 Convertible Preferred Stock
|
No Circumvention
The approval of the holders
of at least 2/3 (66.6%) of the outstanding shares of the Series A-1 Shares, voting together separately as a class, is required
for:
|
(a)
|
the
merger, sale of all, or substantially all of the assets or intellectual property, recapitalization, or reorganization of the Company;
|
|
(b)
|
the authorization or issuance of any equity security having any right, preference or priority superior to or on a parity with the Series A-1 Shares;
|
|
(c)
|
the redemption, repurchase or acquisition of any of the Company’s equity securities or the payment of any dividends or distributions thereon;
|
|
(d)
|
any amendment or repeal of the Company’s Articles of Incorporation or Bylaws that would have an adverse effect on the rights, preferences or privileges of the Series A-1 Shares; and
|
|
(e)
|
the making of any loan or advance to any person except in the ordinary course of business.
|
|
ii)
|
Series B Convertible Preferred Stock
|
The Company has designated 500,000
preferred shares as Series B Convertible Preferred Stock (“Series B Shares”), with 40,000 Series B Shares issued and
outstanding which are convertible into 4,000,000 shares of common stock.
The rights, privileges and preferences of the Series
B Shares are summarized as follows:
Conversion
The holders of the Series B Preferred Shares shall
have conversion rights as follows:
|
(a)
|
Each share of the Series B Shares is convertible at any time prior to the issuance of a redemption notice by the Company into such number of shares of Common Stock by dividing the Stated value ($10) of the Series B Shares by $0.10 and is subject to adjustment for dividends or distributions made in common stock, the issue of securities convertible into common stock, stock splits, reverse stock splits, or reclassifications of common stock. No adjustments will be made to the conversion rights or conversion price for any reorganization other than to be entitled to receive the same benefits as if the shares were converted immediately prior to such reorganization. No conversion will take place if the holder of the Series B Shares will beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after conversion. As of the date hereof, each Series B Share converts into 100 shares of common stock.
|
|
(b)
|
The conversion right of the holders of Series B Shares are exercised by the surrender of the certificates representing shares to be converted to the Company, accompanied by written notice electing conversion.
|
|
(c)
|
No fractional shares of Common Stock or script will be issued upon conversion of Series B Shares. The Company will pay a cash adjustment in respect to such fractional interest based upon the fair value of a share of Common Stock, as determined in good faith by the Company’s Board of Directors.
|
|
(d)
|
All shares of Common Stock issued upon conversion of Series B Shares will upon issuance be validly issued, fully paid and non-assessable. All certificates representing Series B Shares surrendered for conversion shall be appropriately canceled on the books of the Company and the shares so converted represented by such certificates shall be restored to the status of authorized but unissued shares of preferred stock of the Company.
|
Company Redemption
The Company has the right, at
any time after the date the Series B Shares have been issued, to redeem all or a portion of any Holder's Series B Shares at a price
per Series B Share equal to the issue price per Series B Share multiplied by 120%
Voting Rights
Each holder of Series B Shares
is entitled to vote on all matters submitted to a vote of the stockholders of the Company and is entitled to votes equal to the
number of shares of Common Stock into which Series B Shares could be converted, and the holders of shares of Series B Shares and
Common Stock shall vote together as a single class on all matters submitted to the stockholders of the Company.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Preferred
Stock (continued)
|
|
ii)
|
Series
B Convertible Preferred Stock
|
Dividends
|
(a)
|
The holders of the Series B Shares are entitled to receive cumulative dividends at the rate of eight percent per annum of the issue price per share, accrued daily and payable annually in arrears on December 31st of each year (“Dividend
Date”). Such dividends accrue on any given share from the day of original issuance of such share. Such dividends are cumulative, whether or not declared by the Board of Directors, but are non-compounding.
|
|
(b)
|
Any dividend payable on a dividend payment date may be paid, at the option of the Company, either (i) in cash or (ii) in shares of common stock at an issue price of $0.10 per common share.
|
|
(c)
|
Nothing contained herein is deemed to establish or require any payment or other charges in excess of the maximum permitted by applicable law.
|
|
(d)
|
In the event that pursuant to applicable law or contract the Company is prohibited or restricted from paying in cash the full dividends to which the holders of the Series B Shares are entitled, the cash amount available pursuant to applicable law or contract will be distributed among the holders of the Series B Shares ratably in proportion to the full amounts to which they would otherwise be entitled and any remaining amount due to holders of the Series B Shares will be payable in cash.
|
Liquidation Preference
In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B Shares are entitled to receive,
prior and in preference to any distribution of any assets of the Company to the holders of any other preferred stock of the Company
and subordinate to any distribution to the Series A-1 Shares, and prior and in preference to any distribution of any assets of
the Company to the holders of the Common Stock, the amount of 120% of the issue price per share. In addition, the Series B holder
has agreed to vote to subordinate the series B Preferred stock liquidation preferences to the Series C Preferred stock preferences.
No Circumvention
The Company may not amend its
certificate of incorporation, or participate in any reorganization, sale or transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance
of any of the terms to be observed or performed by the Company.
We have undeclared dividends
on the Series B Preferred stock amounting to $100,504 as of March 31, 2016. If the dividends are paid in stock, the beneficial
conversion feature of these undeclared dividends will be recorded upon the declaration of these dividends. The computation of loss
per common share for the three months ended March 31, 2016 takes into account these undeclared dividends.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Preferred
Stock (continued)
|
|
iii)
|
Series
C Convertible Preferred Stock
|
The Company has designated 4,500,000
preferred shares as Series C Convertible Preferred Stock (“Series C Shares”), with 4,500,000 Series C Shares issued
and outstanding which are convertible into 120,000,000 shares of common stock (a conversion price of $0.12291665 per share).
The Company had entered into
an Investors’ Rights Agreement with Ervington (the “Investors’ Rights Agreement”). The Investors’
Rights’ Agreement provides that the Holders (as defined in the Investors’ Rights Agreement) of a majority of the outstanding
Registerable Securities (defined therein as the shares of common stock and Series A-1 Convertible Preferred Stock (“Series
A-1 Preferred Stock”) issued pursuant to the Secondary Stock Purchase Agreement (as defined below), the shares of Series
C Preferred Stock issued pursuant to the Purchase Agreement and any common stock issued as dividends thereon or in exchange for
such) are entitled to demand registration rights under certain circumstances and piggyback registration rights. In addition, the
Investors’ Rights Agreement provides that Ervington (or its assignee) has the right to designate a person to be appointed
as the Company’s Chief Executive Officer, a board observer right if a representative of Ervington or its affiliate is not
a member of our board of directors and certain consultation rights if a representative of Ervington or its affiliate is not a member
of our board of directors so long as it holds a majority of the Registerable Securities and at least 36,000,000 shares of our common
stock on an “as converted” basis. Ervington and its affiliates also have a right of first refusal to acquire their
pro rata share of any New Securities (as defined in the Investors’ Rights Agreement) which we propose to issue and sell.
The Company also entered into
a Stockholders Agreement (the “Stockholders Agreement”) providing that until a Change of Control Transaction (as defined
in the Stockholders Agreement), each person a party thereto shall vote all of such person’s shares of our common stock in
favor of the designees appointed by Ervington and two additional directors appointed by two of the Selling Stockholders and Ervington
agreed to vote its shares in favor of the two designees appointed by the two Selling Stockholders provided that the certain Selling
Stockholders continue to own a certain threshold number of shares of our common stock or preferred stock convertible into our common
stock. In addition, the Selling Stockholders granted Ervington certain drag along rights in the event of a Change of Control Transaction
(as defined in the Stockholders Agreement) and Ervington and its affiliates were granted certain rights of first refusal.
In accordance with the terms
of the Series C Preferred Stock Certificate of Designations (the “Series C Certificate of Designations”), Ervington
appointed Ivan Persiyanov to serve as a director, holding two votes and Maria Damianou was appointed to serve as a director during
July 2015, holding one vote.
The terms attached to the Series
C Preferred Stock (“Series C Share”) are summarized below:
Conversion
Subject to adjustment for stock
splits, stock dividends, reorganizations and recapitalizations and similar transactions, each Series C Share is currently convertible
at the option of the holder into 26.67 shares of common stock.
Company Redemption
The Series C Shares are not
subject to redemption by the Company.
Voting Rights
Generally, holders of Series
C Shares will, on an as-converted basis, vote together with the common stock as a single class.
Upon the issuance of at least
1,500,000 shares of Series C Preferred Stock the holders of the Series C Preferred Stock, as a class, are entitled to elect either
two directors holding one vote or one director holding two votes. Upon the issuance of an aggregate of 4,500,000 shares of Series
C Preferred Stock, the holders of the Series C Preferred Stock are entitled to elect either three directors holding one vote each,
one director holding three votes or two directors with one director holding two votes and another director holding one vote.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY (continued)
|
|
b)
|
Preferred
Stock (continued)
|
|
iii)
|
Series
C Convertible Preferred Stock (continued)
|
Dividends
The Series C Shares accrue dividends
at the rate per annum equal to 4% of the stated price (which initially is $3.277777778) payable annually in arrears on December
31 of each year in preference and priority to any payment of any dividend on our common stock, or any other class of preferred
stock.
Liquidation Preference
In the event of our liquidation,
dissolution or winding up and other liquidation events (as defined in the Series C Certificate of Designations), holders of Series
C Shares are entitled to receive from proceeds remaining after distribution to our creditors and prior to the distribution to holders
of common stock or any other class of preferred stock
the (x) stated value (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) held by such holder and (y) all accrued but
unpaid dividends
on such shares.
Anti-Dilution
The Series C Shares are entitled to certain weighted
average anti-dilution protection as specified in the Series C Certificate of Designations.
No Circumvention
The approval by holders of a
majority of the Series C Shares, voting separately as a class, will be required for the following:
|
(i)
|
merger, sale of substantially all of our assets or our recapitalization, reorganization, liquidation, dissolution or winding up;
|
|
(ii)
|
redemption or acquisition of shares of our common stock other than in limited circumstances;
|
|
(iii)
|
declaration or payment of a dividend or distribution with respect to our capital stock;
|
|
(iv)
|
making any loan or advance;
|
|
(v)
|
amending the Company’s Certificate of Incorporation or Bylaws;
|
|
(vi)
|
authorizing or creating any new class or series of equity security;
|
|
(vii)
|
increasing the number of authorized shares for issuance under any existing stock or option plan;
|
|
(viii)
|
materially changing the nature of the business
|
|
(ix)
|
incurring any indebtedness;
|
|
(x)
|
engaging in or making investments not authorized by our board of directors;
|
|
(xi)
|
acquiring or divesting a material amount of assets;
|
|
(xii)
|
selling, assigning, licensing, pledging or encumbering our material technology or intellectual property;
|
|
(xiii)
|
entering into any corporate strategic relationship involving payment, contribution or assignment by the Company or to the Company of any assets.
|
The Company has undeclared dividends
on the Series C Preferred stock amounting to $516,301 as of March 31, 2016. The computation of loss per common share for the three
months ended March 31, 2016 takes into account these undeclared dividends.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY
(continued)
|
The Company’s Board of Directors approved the
Company’s 2008 Stock Option Plan (the “Stock Plan”) for the issuance of up to 5,000,000 shares of common stock
to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights,
restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of
the Company and its subsidiaries. A total of 2,100,000 shares are available for grant. The exercise price of stock options under
the Stock Plan is determined by the Board of Directors, and may be equal to or greater than the fair market value of the Company’s
common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and generally
expire ten years after the grant date.
At March 31, 2016 and December 31, 2015, there were
380,950 Plan options issued and outstanding, under the Stock Option Plan.
The vesting provisions for these
stock options are determined by the board of directors at the time of grant, there are no unvested options outstanding as of March
31, 2016.
No plan options were issued during the three months
ended March 31, 2016.
In the event of the employees’ termination,
the Company will cease to recognize compensation expense.
|
ii)
|
Non-Plan
Stock Options
|
On January 1, 2016, the Company
granted, to its newly appointed Chief Executive Officer, 3,000,000 common stock, non-plan options (that are not covered by the
Company’s Stock Option Plan), with an exercise price of $0.09 per share. These options vest as to 1,000,000 on the first
anniversary of the grant date; 1,000,000 on the second anniversary of the grant date and a further 1,000,000 on the third anniversary
of the grant date.
On March 1, 2016, the Company
granted, to its newly appointed Chief Operating Officer, 1,000,000 common stock, non-plan options (that are not covered by the
Company’s Stock Option Plan), with an exercise price of $0.08 per share. These options vest as to 333,334 on the first anniversary
of the grant date; 333,333 on the second anniversary of the grant date and a further 333,333 on the third anniversary of the grant
date.
In the event of the employees’ termination,
the Company will cease to recognize compensation expense.
The Company expenses the value
of stock options on a straight line basis over the life of the options. The fair value of the options granted is determined using
the Black-Scholes option-pricing model.
The following weighted average
assumptions were used for the three months ended March 31, 2016:
|
|
Three months
ended
March 31,
2016
|
|
|
|
|
|
Stock price
|
|
$
|
0.07 – 0.24
|
|
Risk-free interest rate
|
|
|
1.31% to 1.73
|
%
|
Expected life of options
|
|
|
5 Years
|
|
Expected volatility of the underlying stock
|
|
|
106.1% to 113.2
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
As noted above, the fair value
of stock options is determined by using the Black-Scholes option-pricing model. For all options granted since inception, the Company
has generally used option terms of between 1 to 10 years. The volatility of the common stock is estimated using the Company’s
historical data. The risk-free interest rate used in the Black-Scholes option-pricing model is determined by reference
to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the options granted. An expected
dividend yield of zero is used in the option valuation model, because the Company does not expect to pay any cash dividends in
the foreseeable future. As of March 31, 2016, the Company does not anticipate any awards will be forfeited in the calculation of
compensation expense due to the limited number of employees that receive stock option grants.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY (continued)
|
|
c)
|
Stock
Options (continued)
|
A summary of all of our
option activity during the period January 1, 2015 to March 31, 2016 is as follows:
|
|
Shares
Underlying
Options
|
|
|
Exercise
price per
share
|
|
|
Weighted
average
exercise
price
|
|
Outstanding January 1, 2015
|
|
|
380,950
|
|
|
$
|
0.51 to 13.50
|
|
|
$
|
0.90
|
|
Granted – plan options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted – non plan options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2015
|
|
|
380,950
|
|
|
$
|
0.51 to 13.50
|
|
|
$
|
0.90
|
|
Granted – plan options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted – non plan options
|
|
|
4,000,000
|
|
|
$
|
0.08 to 0.09
|
|
|
|
0.09
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding March 31, 2016
|
|
|
4,380,950
|
|
|
|
0.08 to 13.50
|
|
|
|
0.16
|
|
Stock options outstanding as
of March 31, 2016 and December 31, 2015 as disclosed in the above table, have an intrinsic value of $0 and $0, respectively.
The options outstanding and exercisable at March 31,
2016 are as follows:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
life in years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
life in years
|
|
$
|
13.50
|
|
|
|
3,480
|
|
|
|
3.21
|
|
|
$
|
13.50
|
|
|
|
3,480
|
|
|
$
|
13.50
|
|
|
|
3.21
|
|
$
|
12.50
|
|
|
|
2,000
|
|
|
|
4.53
|
|
|
$
|
12.5
|
|
|
|
2,000
|
|
|
$
|
12.50
|
|
|
|
4.53
|
|
$
|
8.50
|
|
|
|
500
|
|
|
|
5.25
|
|
|
$
|
8.50
|
|
|
|
500
|
|
|
$
|
8.50
|
|
|
|
5.25
|
|
$
|
5.00
|
|
|
|
14,800
|
|
|
|
5.54
|
|
|
$
|
5.00
|
|
|
|
14,800
|
|
|
$
|
5.00
|
|
|
|
5.54
|
|
$
|
0.65
|
|
|
|
36,924
|
|
|
|
7.00
|
|
|
$
|
0.65
|
|
|
|
36,924
|
|
|
$
|
0.65
|
|
|
|
7.00
|
|
$
|
0.63
|
|
|
|
38,096
|
|
|
|
2.25
|
|
|
$
|
0.63
|
|
|
|
38,096
|
|
|
$
|
0.63
|
|
|
|
2.25
|
|
$
|
0.51
|
|
|
|
285,150
|
|
|
|
4.04
|
|
|
$
|
0.51
|
|
|
|
285,150
|
|
|
$
|
0.51
|
|
|
|
4.04
|
|
$
|
0.09
|
|
|
|
3,000,000
|
|
|
|
4.76
|
|
|
$
|
0.09
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
$
|
0.08
|
|
|
|
1,000,000
|
|
|
|
4.92
|
|
|
$
|
0.08
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
4,380,950
|
|
|
|
4.75
|
|
|
$
|
0.16
|
|
|
|
380,950
|
|
|
$
|
0.90
|
|
|
|
4.20
|
|
The weighted-average grant-date
fair values of options granted during the three months ended March 31, 2016 was $277,674 ($0.07 per option). As of March 31, 2016
there were unvested options to purchase 4,000,000 shares of common stock. Total expected unrecognized compensation cost related
to such unvested options is $257,917 which is expected to be recognized over a period of 35 months.
The Company has recorded an
expense of $19,757 and $241,286 for the three months ended March 31, 2016 and 2015 relating to options issued.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
STOCKHOLDERS’ EQUITY
(continued)
|
A summary of all of our warrant activity during the
period January 1, 2015 to March 31, 2016 is as follows:
|
|
Shares
Underlying
Warrants
|
|
|
Exercise
price per
share
|
|
|
Weighted
average
exercise
price
|
|
Outstanding January 1, 2015
|
|
|
6,339,498
|
|
|
$
|
0.15 to 0.30
|
|
|
$
|
0.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2015
|
|
|
6,339,498
|
|
|
$
|
0.15 to 0.30
|
|
|
$
|
0.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding March 31, 2016
|
|
|
6,339,498
|
|
|
$
|
0.15 to 0.30
|
|
|
$
|
0.24
|
|
The warrants outstanding and exercisable at March
31, 2016 are as follows:
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
life in years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
life in years
|
|
$
|
0.30
|
|
|
|
375,000
|
|
|
|
2.58
|
|
|
$
|
0.30
|
|
|
|
375,000
|
|
|
$
|
0.30
|
|
|
|
2.58
|
|
$
|
0.25
|
|
|
|
1,751,667
|
|
|
|
3.24
|
|
|
$
|
0.25
|
|
|
|
1,751,667
|
|
|
$
|
0.25
|
|
|
|
3.24
|
|
$
|
0.15
|
|
|
|
525,500
|
|
|
|
3.24
|
|
|
$
|
0.15
|
|
|
|
525,500
|
|
|
$
|
0.15
|
|
|
|
3.24
|
|
$
|
0.25
|
|
|
|
1,508,333
|
|
|
|
3.34
|
|
|
$
|
0.25
|
|
|
|
1,508,333
|
|
|
$
|
0.25
|
|
|
|
3.34
|
|
$
|
0.15
|
|
|
|
577,499
|
|
|
|
3.35
|
|
|
$
|
0.15
|
|
|
|
577,499
|
|
|
$
|
0.15
|
|
|
|
3.35
|
|
$
|
0.25
|
|
|
|
968,166
|
|
|
|
3.35
|
|
|
$
|
0.25
|
|
|
|
968,166
|
|
|
$
|
0.25
|
|
|
|
3.35
|
|
$
|
0.25
|
|
|
|
633,333
|
|
|
|
3.40
|
|
|
$
|
0.25
|
|
|
|
633,333
|
|
|
$
|
0.25
|
|
|
|
3.40
|
|
|
|
|
|
|
6,339,498
|
|
|
|
3.27
|
|
|
$
|
0.24
|
|
|
|
6,339,498
|
|
|
$
|
0.24
|
|
|
|
3.27
|
|
The warrants outstanding have
an intrinsic value of $0 as of March 31, 2016 and 2015.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
10
|
EQUITY
BASED COMPENSATION
|
Equity based compensation is
made up of the following:
|
|
Three months
ended
March 31, 2016
|
|
|
Three months ended
March 31, 2015
|
|
|
|
|
|
|
|
|
Stock option compensation charge
|
|
$
|
19,757
|
|
|
$
|
-
|
|
Restricted stock award compensation charge
|
|
|
-
|
|
|
|
241,286
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,757
|
|
|
$
|
241,286
|
|
|
11
|
OTHER
(EXPENSE) INCOME
|
Other income includes the $200,000 forgiveness of
the license fee payable to Novas Energy Group Limited, our technology licensor.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Basic loss per share is based
on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares
as determined above plus common stock equivalents, including convertible preferred shares and convertible notes as well as the
incremental shares that would be issued upon the assumed exercise of in-the-money stock options using the treasury stock method.
The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on
net loss per share. For the three months ended March 31, 2016 and 2015, all stock options, unvested restricted stock awards, warrants,
convertible preferred stock and convertible notes were excluded from the computation of diluted net loss per share. Dilutive shares
which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because
their affect would have been anti-dilutive are as follows:
|
|
Three months
ended
March 31, 2016
(Shares)
|
|
|
Three months
ended
March 31, 2015
(Shares)
|
|
|
|
|
|
|
|
|
Options to purchase shares of common stock
|
|
|
4,380,950
|
|
|
|
380.950
|
|
Restricted stock awards – unvested
|
|
|
-
|
|
|
|
10,750,000
|
|
Warrants to purchase shares of common stock
|
|
|
6,339,498
|
|
|
|
6,339,498
|
|
Series A-1 convertible preferred shares
|
|
|
31,375,000
|
|
|
|
31,375,000
|
|
Series B convertible preferred shares
|
|
|
4,000,000
|
|
|
|
7,500,000
|
|
Series C convertible preferred shares
|
|
|
120,000,000
|
|
|
|
-
|
|
|
|
|
166,095,448
|
|
|
|
56,345,448
|
|
13
|
RELATED PARTY TRANSACTIONS
|
On January 1, 2016, the “Company
entered into a three-year Employment Agreement with C. Brian Boutte (the “Boutte Employment Agreement”) to serve as
the Company’s Chief Executive Officer. Mr. Boutte will also serve as the Company’s interim Chief Financial Officer.
Under the Boutte Employment Agreement, for his service as the Chief Executive Officer of the Company, Mr. Boutte will receive an
annual base salary of $265,000, a sign on bonus of $60,000 and an annual performance bonus of up to 55% of his base salary, such
bonus payable in cash or equity upon attainment of certain performance indicators established by the Company’s Board of Directors
and Mr. Boutte. In connection with the entry into the Boutte Employment Agreement, Mr. Boutte was granted an option award exercisable
for 3,000,000 shares of the Company’s common stock, which will vest as to 1,000,000 shares on each of the one, two and three-year
anniversary of the commencement of his employment with the Company. In the event of the sale of all of the Company’s assets
or any field acquired by the Company during the employment period which sale occurs after the six-month anniversary of his employment
and before the two-year anniversary of his termination of employment, the Employment Agreement provides that Mr. Boutte will receive
a bonus equal to 3% of net cash proceeds received by the Company from such sale after payment of certain costs and expenses. In
the event that Mr. Boutte’s employment is terminated Without Cause (as defined in the Boutte Employment Agreement), by Mr.
Boutte for Good Reason (as defined below), Disability (as defined in the Boutte Employment Agreement) or upon his death, if any
occur after the one-year anniversary of his employment, Mr. Boutte is entitled to receive a severance payment equal to one year’s
base salary, any bonus earned which remains unpaid at such time and reimbursement of expenses. In the event of a Change of Control
(as defined in the Boutte Employment Agreement), Mr. Boutte will receive a severance payment equal to one year’s base salary,
any bonus earned which remains unpaid at such time and reimbursement of expenses. In addition, if a Change of Control occurs after
the one-year anniversary of the commencement of his employment with the Company, all of Mr. Boutte’s options shall immediately
vest. The Boutte Employment Agreement also includes customary confidentiality obligations and inventions assignments by Mr. Boutte
as well as a non-compete and non-solicitation provision. If his employment is terminated for Cause (as defined below) or by him
Without Good Reason (as defined in the Boutte Employment Agreement), Mr. Boutte is entitled to receive his annual base salary through
the date of termination and any bonus earned but unpaid. For purpose of the Boutte Employment Agreement, “Good Reason”
is defined as (i) any material and substantial breach of the Boutte Employment Agreement by the Company; (ii) a Change in Control
(as defined in the Boutte Employment Agreement) occurs and Mr. Boutte’s employment is terminated at any time within the six
(6) month period on or immediately following the Change in Control; (iii) a reduction in Mr. Boutte’s Annual Base Salary
as in effect at the time in question, or any other failure by the Company to comply with the compensation terms of the Boutte Employment
Agreement; or (iv) the Boutte Employment Agreement is not assumed by a successor to the Company. For purposes of the Boutte Employment
Agreement, “Cause” is defined as (i) acts of embezzlement or misappropriation of funds or fraud; (ii) conviction of
a felony or other crime involving moral turpitude, dishonesty or theft; (iii) a material violation by Mr. Boutte of any provision
of the Boutte Employment Agreement, including willful failure to perform assigned tasks, willful and unauthorized disclosure of
Company material confidential information; (iv) being under the influence of drugs (other than prescription medicine or other medically
related drugs to the extent that they are taken in accordance with their directions) during the performance of Mr. Boutte’s
duties and that performance of his duties is affected; (v) engaging in behavior that would constitute grounds for liability for
harassment (as proscribed by the U.S. Equal Employment Opportunity Commission Guidelines or any other applicable state or local
regulatory body) or other egregious conduct that violates laws governing the workplace; or (vi) willful failure to perform his
assigned tasks, where such failure is attributable to the fault of Mr. Boutte, gross insubordination or dereliction of fiduciary
obligations which, to the extent it is curable by Mr. Boutte, is not cured by Mr. Boutte within thirty (30) days of receiving written
notice of such violation by the Company.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
13
|
RELATED
PARTY TRANSACTIONS (continued)
|
On March 1, 2016, the Company
entered into a three-year Employment Agreement with David S. Ramsey (the “Ramsey Employment Agreement”) to serve as
the Company’s Chief Operating Officer. Under the Ramsey Employment Agreement, for his service as the Chief Operating Officer
of the Company, Mr. Ramsey will receive an annual base salary of $220,000, and an annual performance bonus of up to 40% of his
base salary, such bonus payable in cash or equity upon attainment of certain performance indicators established by the Company’s
Board of Directors. In connection with the entry into the Ramsey Employment Agreement, Mr. Ramsey was granted an option award exercisable
for 1,000,000 shares of the Company’s common stock, which will vest as to 333,334 shares on the one-year anniversary and
333,333 shares on each of the two and three-year anniversary of the commencement of his employment with the Company. In the event
of the sale of all of the Company’s assets or any field acquired by the Company during the employment period which sale occurs
after the six-month anniversary of his employment and before the two-year anniversary of his termination of employment, the Ramsey
Employment Agreement provides that Mr. Ramsey will receive a bonus equal to 2% of net cash proceeds received by the Company from
such sale after payment of certain costs and expenses. In the event that Mr. Ramsey’s employment is terminated Without Cause
(as defined in the Ramsey Employment Agreement), by Mr. Ramsey for Good Reason (as defined below), Disability (as defined in the
Ramsey Employment Agreement) or upon his death, if any occur after the one-year anniversary of his employment, Mr. Ramsey is entitled
to receive a severance payment equal to one year’s base salary, any bonus earned which remains unpaid at such time and reimbursement
of expenses. In the event of a Change of Control (as defined in the Ramsey Employment Agreement), Mr. Ramsey will receive a severance
payment equal to one year’s base salary, any bonus earned which remains unpaid at such time and reimbursement of expenses.
In addition, if a Change of Control occurs after the one-year anniversary of the commencement of his employment with the Company,
all of Mr. Ramsey’s options shall immediately vest. The Ramsey Employment Agreement also includes customary confidentiality
obligations and inventions assignments by Mr. Ramsey as well as a non-compete and non-solicitation provision. If his employment
is terminated for Cause (as defined below) or by him Without Good Reason (as defined in the Ramsey Employment Agreement), Mr. Ramsey
is entitled to receive his annual base salary through the date of termination and any bonus earned but unpaid. For purposes of
the Ramsey Employment Agreement, “Good Reason” is defined as (i) any material and substantial breach of the Ramsey
Employment Agreement by the Company; (ii) a Change in Control (as defined in the Ramsey Employment Agreement) occurs and Mr. Ramsey’s
employment is terminated at any time within the six (6) month period on or immediately following the Change in Control; (iii) a
reduction in Mr. Ramsey’s Annual Base Salary as in effect at the time in question, or any other failure by the Company to
comply with the compensation terms of the Employment Agreement; or (iv) the Ramsey Employment Agreement is not assumed by a successor
to the Company. For purposes of the Employment Agreement, “Cause” is defined as (i) acts of embezzlement or misappropriation
of funds or fraud; (ii) conviction of a felony or other crime involving moral turpitude, dishonesty or theft; (iii) a material
violation by Mr. Ramsey of any provision of the Ramsey Employment Agreement, including willful failure to perform assigned tasks,
willful and unauthorized disclosure of Company material confidential information; (iv) being under the influence of drugs (other
than prescription medicine or other medically related drugs to the extent that they are taken in accordance with their directions)
during the performance of Mr. Ramsey’s duties and that performance of his duties is affected; (v) engaging in behavior that
would constitute grounds for liability for harassment (as proscribed by the U.S. Equal Employment Opportunity Commission Guidelines
or any other applicable state or local regulatory body) or other egregious conduct that violates laws governing the workplace;
or (vi) willful failure to perform his assigned tasks, where such failure is attributable to the fault of Mr. Ramsey, gross insubordination
or dereliction of fiduciary obligations which, to the extent it is curable by Mr. Ramsey, is not cured by Mr. Ramsey within thirty
(30) days of receiving written notice of such violation by the Company.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
14
|
COMMITMENTS
AND CONTINGENCIES
|
The Company disposed of its
Crystal Magic, Inc. subsidiary effective December 31, 2013. In terms of the sale agreement entered into by the Company, the purchaser
has been indemnified against all liabilities whether contingent or otherwise, claimed by third parties, this includes claims by
creditors of the Company amounting to $372,090 and claims against long-term liabilities of $848,916. Management does not consider
it likely that these claims will materialize and accordingly no provision has been made for these contingent liabilities.
The Company leases a loft space
in Houston, Texas from a related party in terms of a lease agreement entered into on September 1, 2015 and expiring on May 31,
2016. The lease provides for automatic renewal on a month to month basis unless 60 days’ written notice is given to terminate
the lease, the requisite notice has been given and the lease will terminate on May 31, 2016. The monthly rental is $3,260 per month.
The future minimum lease installments
under this agreement as of March 31, 2016 to May 31, 2016 is $6,520.
The Company is committed to
investing a further $300,000 in NENA, over and above the $900,000 invested in NENA as of March 31, 2016, based on their cash flow
needs.
The Company entered into lease
agreement for approximately 3,733 square feet of office and warehouse space in Houston, the term of the lease is for 39 months
and eighteen days commencing on March 14, 2016 and terminating June 30, 2019. The lease provides for the first full month (April
2016) to be rent free, the fourteenth month to be rent free and the twenty-seventh month to be rent free. Monthly rentals, including
estimated operating costs, for the first 12 months, excluding the free rental month amount to approximately $3,410 per month, escalating
at a rate of 1.7% per annum, after excluding the free rental months.
The future minimum lease installments
under this agreement as of March 31, 2016 to June 30, 2019 is approximately $126,837.
The future minimum operating
lease commitments are as follows:
|
|
Amount
|
|
2016
|
|
$
|
33,796
|
|
2017
|
|
|
37,916
|
|
2018
|
|
|
38,504
|
|
2019
|
|
|
21,162
|
|
|
|
$
|
131,378
|
|
In terms of the license agreement
commitments disclosed in note 5 above, the minimum commitments due under the amended license agreement entered into on January
30, 2013, for the next five years, are summarized as follows:
|
|
Amount
|
|
|
|
|
|
2016
|
|
$
|
5
00,000
|
|
2017
|
|
|
500,000
|
|
2018
|
|
|
500,000
|
|
2019
|
|
|
500,000
|
|
2020
|
|
|
500,000
|
|
|
|
$
|
2,5
00,000
|
|
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
On October 22, 2015, Novas entered
into an operating agreement with Technovita(the “Joint Venture Agreement”) , NENA, whereby Novas agreed to contribute
$1,200,000 ($600,000 to be delivered on the effective date (October 22, 2015) of the Joint Venture Agreement, $300,000 on November
1, 2015 and $300,000 on the two month anniversary of the Effective Date) to the capital of NENA for 60% of the membership interests
of NENA and Technovita agreed to contribute an aggregate of $800,000 to the capital of NENA for 40% of the membership interests
of NENA. In terms of a side agreement entered into on November 18, 2015, the revenue and expenses incurred by Technovita and the
Company prior to entering into the operating agreement, have been included in the joint venture and consolidated into the Company’s
results effective September 1, 2015. To date, Novas contributed $900,000 to the capital of NENA and Technovita contributed $600,000.
Subject to certain exceptions
and pursuant to the terms of a sublicense agreement (the “Novas Sublicense Agreement”) that was entered into between
Novas, NENA and Novas Energy Group Inc. (the “Licensor”), the licensor of Plasma Pulse Technology currently used by
Novas and Technovita, NENA will be the exclusive provider of the Vertical Technology (as defined in the Joint Venture Agreement)
to third parties in the United States. Subject to certain exceptions and pursuant to the terms of Sublicense Agreements (the “Technovita
Sublicense Agreement”) that was entered into between Technovita, NENA and Licensor, NENA is the exclusive provider of the
Vertical Technology to third parties in Canada. Notwithstanding the foregoing, both Novas and Technovita will retain the right
to deploy the Vertical Technology on wells owned by Novas or Technovita in the United States or Canada, respectively. If either
Novas or Technovita terminates the Sublicense Agreement with NENA and Licensor, the non- terminating party will receive 100% of
the terminating member’s membership interest in NENA.
The business and affairs of NENA are to be managed
by or under the direction of the Board of Directors, consisting of five (5) members, three (3) of whom shall be appointed by Novas
and two (2) of whom shall be appointed by Technovita. Board approval is required to: (i) incur any indebtedness, pledge or grant
liens on any assets or guarantee, assume, endorse or otherwise become responsible for the obligations of any other person, except
to the extent approved or authorized in NENA’s budget; (ii) make any loan, advance or capital contribution in any person,
except to the extent approved or authorized in the budget; (iii) transfer any equipment necessary in the deployment of the Vertical
Technology to any third party; (iv) enter into or effect any transaction or series of related transactions involving the sale of
NENA or the sale, lease, license, exchange or other disposition (including by merger, consolidation, sale of assets or similar
business transaction) by NENA of any assets in excess of $300,000; (v) appoint or remove NENA’s auditors or make any changes
in the accounting methods or policies of NENA (other than as required by GAAP); (vi) enter into or effect any transaction or series
of related transactions involving the purchase, lease, license, exchange or other acquisition (including by merger, consolidation,
acquisition of stock or acquisition of assets) by NENA of any assets and/or equity interests of any person and/ or assets in excess
of $300,000; or (v) enter into or effect any commercial transaction or series of related commercial transactions involving anticipated
liabilities or revenues of NENA in excess of $500,000 or that materially vary from NENA’s existing strategy or business plan.
In accordance with ASC 855-10, the Company
has analyzed its operations subsequent to March 31, 2016 to the date these financial statements were issued, and has determined
that it does not have any material subsequent events to disclose in these financial statements.