UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2015.
Commission File Number: 333-187134
Perpetual Industries Inc.
(Exact name of registrant as specified in its charter)
| |
Nevada
| 71-103-2898
|
(State or other jurisdiction of incorporation or organization)
| (I.R.S. Employer Identification No.)
|
| |
#110, 5-8720 Macleod Trail South, Calgary, Alberta, Canada
| T2H 0M4
|
(Address of principal executive offices)
| (Zip Code)
|
403-214-4321
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[ x ] Yes [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ x ] Yes [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated filer
[ ] Accelerated filer
[ ] Non-accelerated filer
[ x ] Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]Yes [ x ] No
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date.
34,266,000 common shares issued and outstanding as of April 30, 2015
1
FORWARD LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE EXCHANGE ACT, AND ARE MADE IN RELIANCE UPON THE PROTECTIONS PROVIDED BY SUCH ACTS FOR FORWARD-LOOKING STATEMENTS. IN THIS QUARTERLY REPORT, THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE", "MAY", "WILL", "WOULD", "COULD", "SHOULD", "EXPECTS", "INTENDS", "PLAN", "ESTIMATES", "PREDICTS", "PROJECTS", "SEEKS", "POTENTIAL", "LIKELY", "CONTINUE", AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS QUARTERLY REPORT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN THIS QUARTERLY REPORT, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. READERS ARE CAUTIONED TO CONSIDER THE SPECIFIC RISK FACTORS DESCRIBED IN THIS QUARTERLY REPORT AND NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY REPORT. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ARE MADE ONLY AS OF THE DATE OF THIS QUARTERLY REPORT, AND WE DO NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY UPDATE OR CORRECT ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT SUBSEQUENTLY OCCUR OR OF WHICH WE, AFTER THE DATE OF THIS QUARTERLY REPORT, BECOME AWARE. YOU SHOULD READ THIS DOCUMENT AND THE DOCUMENTS THAT WE INCORPORATE BY REFERENCE INTO THIS QUARTERLY REPORT COMPLETELY AND WITH THE UNDERSTANDING THAT OUR ACTUAL FUTURE RESULTS MAY BE MATERIALLY DIFFERENT FROM WHAT WE EXPECT. WE MAY NOT UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN IF OUR SITUATION CHANGES IN THE FUTURE. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US ARE EXPRESSLY QUALIFIED BY THESE CAUTIONARY STATEMENTS.
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Perpetual Industries Inc.
Contents
Balance Sheets as of April 30, 2015 (end of Q3 15, unaudited) and July 31, 2014 (YE 14)
Statements of Operations for the Nine Months and Three Months Ended April 30, 2015 and 2014 (Q1-Q3 15 & 14, and Q3 15 & 14, unaudited)
Statements of Cash Flows for the Nine Months Ended April 30, 2015 and 2014 (Q1-Q3 15 & 14, unaudited)
Notes to Financial Statements (unaudited)
2
Perpetual Industries Inc.
Balance Sheets
| | |
| April 30, 2015 (end of Q3 15, unaudited)
| July 31, 2014
(YE 14)
|
Assets
| | |
Current Assets
| | |
Cash
| $ 8,839
| $ 32,117
|
Accounts Receivable
| 535
| 535
|
Total current assets
| 9,374
| 32,652
|
Equipment, Net of Accumulated Depreciation
| 3,308
| 3,406
|
Total assets
| $12,682
| $ 36,058
|
Liabilities and Stockholders' Equity (Deficit)
| | |
Current Liabilities
| | |
Accounts payable (including related party balances of approximately $60,186 and $150,000 at April 30, 2015 and July 31, 2014 respectively)
| $ 84,548
| $ 151,653
|
Accrued expenses (including related party balances of approximately $94,356 and $1,113,000 at April 30, 2015 and July 31, 2014 respectively)
| $288,502
| $1,330,140
|
Convertible notes payable and accrued interest (including related party balances of approximately $1,464,325 and $0 at April 30, 2015 and July 31, 2014 respectively)
| $1,950,502
| -
|
| | |
Other current liabilities
| 62,797
| 64,016
|
Total current liabilities
| 2,386,349
| 1,545,809
|
Long Term Liabilities
| -
| 110,000
|
Total liabilities
| 2,386,349
| 1,655,809
|
Stockholders' Equity (Deficit)
| | |
Common stock, $.001 par value, 100,000,000 shares authorized, 34,266,000 and 33,122,000 shares issued and outstanding at April 30, 2015 and July 31, 2014 respectively
| | |
| |
34,266
| 33,123
|
Capital in excess of par value
| 6,260,468
| 5,045,258
|
Prepaid stock services
| (90,000)
| -
|
Deficit accumulated during development stage
| (8,578,401)
| (6,698,132)
|
Total stockholders' equity (deficit)
| (2,373,667)
| (1,619,751)
|
Total liabilities and stockholders' equity (deficit)
|
$12,682
|
$ 36,058
|
The accompanying notes are an integral part of the financial statements.
3
Perpetual Industries Inc.
Statements of Operations (unaudited)
| | | | | | | |
| | Nine Months
Ended April 30,
| | Three Months
Ended April 30,
|
| 2015
(Q1-Q3 15)
| 2014
(Q1-Q3 14)
| | 2015
(Q3 15)
| 2014
(Q3 14)
|
Revenues
| $
27,533
| $
157,211
| | $
27,553
| $
-
|
Operating Expenses
| | | | | |
Related party expenses
| (357,789)
| (254,452)
| | (80,220)
| (86,258)
|
Other operating expenses
| (767,147)
| (243,456)
| | (89,802)
| (56,830)
|
Total operating expenses
| (1,124,936)
| (497,908)
| | (170,022)
| (143,088)
|
Operating loss
| (1,097,383)
| (340,697)
| | (142,469)
| (143,088)
|
Other Income (Expense)
| | | | | |
Interest income, related party
| 5,186
| 10,721
| | 10,775
| (5,177)
|
Interest expense, related party
| (65,288)
| (38,290)
| | (17,192)
| (13,445)
|
Interest expense, non-related party
| (38,642)
| (2,627)
| | (22,173)
| (1,445)
|
Stock option issuance expense
| (678,303)
| -
| | -
| -
|
Warrant issuance expense
| -
| (184,408)
| | -
| -
|
Other
| (5,839)
| 2,896
| | (5,176)
| (3,572)
|
Net Loss
| (1,880,269)
| (552,405)
| | (176,235)
| (166,727)
|
Basic and Diluted Loss Per Share
| $
(0.06)
| $
(0.02)
| | $
(0.01)
| $
(0.01)
|
| | | | | |
Basic and Diluted Weighted Average Common Shares Outstanding
| 33,977,104
| 32,470,000
| | 34,266,000
| 32,470,000
|
The accompanying notes are an integral part of the financial statements.
4
Perpetual Industries Inc.
Statements of Cash Flows
(unaudited)
| | |
| Nine months ended April 30,
|
| 2015
(Q1-Q3 15)
| 2014
(Q1-Q3 14)
|
Cash flows from operating activities
| | |
Net Loss
| $ (1,880,269)
| $ (552, 405)
|
Adjustments to reconcile net loss to net cash (used) provided in operating activities:
| | |
Depreciation
| 100
| 1,332
|
Issuance of stock options
| 678,303
| 15,000
|
Issuance of warrants
| -
| 184,408
|
Amortization of common stock issued for services
| 109,500
| -
|
Expenses incurred related to issuance of convertible notes payable
| 687,079
| -
|
Increase (Decrease) in:
| | |
Accounts payable
| 84,177
| 19,764
|
Accrued expenses
| 71,502
| 149,291
|
Deferred revenue
Prepaid Expenses
| -
-
| (23,775)
|
Other liabilities
| (1,220)
| (3,377)
|
Net cash flows provided (used) in operating activities
| (250,828)
| (209,762)
|
| | |
Cash flows provided by financing activities
| | |
Proceeds from notes payable
Proceeds from increases to common stock payable
Proceeds from exercise of warrants
| -
227,550
| 100,000
100,800
|
| | |
Net cash flows provided by financing activities
| 227,550
| 200,800
|
| | |
Net change in cash
| (23,278)
| (8,962)
|
Cash, beginning of period
| 32,117
| 30,348
|
Cash, end of period
| $ 8,839
| $ 21,386
|
| | |
Supplemental Disclosures of Cash Flow Information
The Company has not paid any income taxes or interest since its inception. See the accompanying notes.
Non-cash Investing and Financing Activities
The Company issued shares of common stock for prepaid services as follows:
| | | |
| Nine months ended April 30, 2015
| 284,000 shares
| $199,500
|
| Nine months ended April 30, 2014
| -
| -
|
The Company issued common stock to retire debenture principal and interest, as follows:
| | | |
| Nine months ended April 30, 2015
| 370,000 shares
| $111,000
|
| Nine months ended April 30, 2014
| -
| -
|
The Company issued convertible notes payable to relieve accounts payable and accrued expenses, as follows:
| | | |
| Nine months ended April 30, 2015
| | $1,863,537
|
| Nine months ended April 30, 2014
| | -
|
The accompanying notes are an integral part of the financial statements
5
Perpetual Industries Inc.
Notes to Financial Statements
Nine Months and Three Months Ended April 30, 2015 and 2014
(Q1-Q3 15 & 14, and Q3 15 & 14, unaudited)
Note 1- Basis of Presentation and Background Information
Interim Period Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the Securities and Exchange Commission's instructions. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for such interim period. The results reported in these interim financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and note disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited interim financial statements should be read in conjunction with the Company's audited financial statements for the year ended July 31, 2014.
Nature of Operations
Perpetual Industries Inc. (the Company) was incorporated under the laws of Nevada in January 2005. The Company coordinates research and development activities aimed at bringing new technology to market. At present, the Company's feature technology is the internationally patented XYO mechanical balancing system (XYO). On January 26, 2005, the Company acquired a license for the worldwide, exclusive right to manufacture or have manufactured, sell, and use the products incorporating XYO, and to sublicense these rights to third parties.
The Company has not commenced its principal operations, and its present condition is characterized by significant expenditures on obtaining the rights to XYO, on preliminary sublicensing and marketing efforts, and on coordinating the development of products that contain XYO. The accompanying financial statements do not reflect the Company's planned principal operations, in which the focus is intended to continue to shift more heavily onto the sublicensing, manufacturing, and marketing of XYO, and to diversification into other technologies.
The Company's corporate office is located in Calgary, Alberta.
Note 2 Going Concern
As shown in the accompanying financial statements, the Company has negative working capital of $2,376,975 as of April 30, 2015 (Q1-Q3 15), and an accumulated deficit, i.e. an overall loss since inception. While the Companys current principal business activities are to coordinate the research and development of products that feature the XYO mechanical balancing system and to market these products, there can be no assurance that the Company will be able to successfully develop or operate a business using this concept. Our lack of meaningful operating revenues, negative working capital, license expirations, cash used in operations, and having an accumulated deficit to date, raise substantial doubt about our ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Companys continuation as a going concern is dependent upon its ability to carry out its planned principal operations and maintain a certain level of profitability. The Company intends to finance its future activities and working capital needs primarily from the sale of debt and equity securities and ongoing sub-licensing efforts.
6
Note 3 - Summary of Significant Accounting Policies
Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average common shares and potentially dilutive common share equivalents. The effects of potential common stock equivalents are not included in computations when their effect is anti-dilutive.
Because of the net losses for all periods presented, the basic and diluted weighted average shares outstanding are the same since including the additional shares would have an anti-dilutive effect on the loss per share calculations. Common stock warrants and options to purchase 17,766,500 and 16,257,500 shares of common stock for the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14) and 17,766,500 and 16,257,500 shares of common stock for the three months ended April 30, 2015 and 2014 (Q3 15 & 14), respectively, were not included in the computation of diluted weighted average common shares outstanding. Additionally, $1,950,502 of convertible debt and accrued interest can potentially convert into 6,501,677 shares of common stock as of April 30, 2015 (end of Q3 15).
Note 3b - Impact of Recently Issued Accounting Standards
Other than as disclosed in previous financial statements, we do not believe that any accounting pronouncements recently issued by the FASB, the AICPA, and the SEC, would if adopted have a material effect on our present or future financial statements.
Note 4 Non-Derivative Warrants
The Company has 12,966,500 warrants currently outstanding and exercisable with exercise prices between $0.50-$0.60 per share. All warrants will expire by August 15, 2015.
Note 5- Convertible Notes and Related Parties Transactions
In the nine months ended April 30, 2015 (Q1-Q3 15), the Board authorized the Companys Chairman, President and CEO, to enter the Company into various convertible notes for the purposes of (1) retiring existing debts and (2) taking on new debts for services rendered. The conversion basis is set at $0.30 per share, up to an aggregate total of 8,000,000 shares, hence a total potential value of $2,400,000. The notes do not specify any repayment term, have an interest rate of 8%, and do not involve any collateral; accordingly they are considered short-term liabilities.
In connection with the issuance of these convertible notes the Company recognized approximately $687,000 in non-cash expenses during the nine months ended April 30, 2015 (Q1/Q2/Q3 15), related to management services, royalty and license fees, accrued interest, and various marketing, engineering and administrative services.
7
The following table details the Convertible Notes Payable and Accrued Interest.
| | | |
Holders Relationship to Company
| Nature of Services
| Convertible Payable as of April 30, 2015
| Convertible Interest as of
April 30, 2015
|
| | | |
(1) Chairman, President and CEO
| Management services to Sep 30 14
| $ 328,960
| $ 15,351
|
(1) General Manager of Operations
| Services to Sep 30 14
| 72,251
| 3,372
|
| Subtotal, Executive Officers (as defined in Rule 501(f) of Securities Act Regulation D)
| 401,211
| 18,723
|
| | | |
(1) Licensor of XYO Technology
| Royalty and license fees accrued as at Sep 30 14 including accrued interest
| 997,826
| 46,565
|
All others: consultants and/or independent contractors
| Various marketing, engineering and administrative services
| 464,500
| 21,677
|
| Subtotal, Non-Executive Officers
| 1,462,326
| 68,242
|
| | | |
| Total
| $ 1,863,537
| $ 86,965
|
(1)
Included as related parties on the balance sheet.
Related Party Expenses Line of Statement of Operations
| | | | | |
| Nine months ended
April 30,
2015
(Q1-Q3 15)
| Nine months ended
April 30,
2014
(Q1-Q3 14)
| Three Months Ended
April 30,
2015
(Q3 15)
| Three Months Ended
April 30,
2014
(Q3 14)
|
Management and Other Expenses:
| | | | |
Management services
| $207,380
| $116,307
| $28,876
| $39,364
|
Travel-related reimbursement
| 2,892
| 451
| 732
| |
Multi-media marketing, advertising and website services
| 3,907
| | 526
| |
| | | | |
Royalties and License Fees Pertaining to Exclusive Rights, excluding interest which appears under Other Income (Expense)
| 118,250
| 111,250
| 40,750
| 38,750
|
| | | | | |
Variable Interest Entity outlined in Note 4:
| | | | | |
Marketing services
| -
| 2,402
| -
| | |
Rent
| 25,360
| 25,243
| 9,336
| 8,144
| |
Offset for legal fees paid on VIEs behalf
| -
| (1,201)
| -
| | |
| | | | | |
Total Related Party Expenses
| $357,789
| $
254,452
| $80,220
| $86,258
| |
The above terms and amounts are not necessarily indicative of the terms and amounts that would have been incurred had comparable transactions been entered into with independent parties.
8
Note 6 Debenture with Non-Affiliated Shareholder
On October 1, 2013, the Company entered into an unsecured debenture under which it borrowed $100,000 from a non-affiliated shareholder at an annual non-compounding interest rate of 12%. Repayments were to be applied first to payment of principal and secondly to payment of interest. No maturity date was specified. During the nine months ended April 30, 2015 (Q1/Q2 15), this debenture was retired in full, with interest, via conversion of the $111,000 total to 370,000 shares of the Company at a fixed conversion rate of $0.30 per share. Accordingly, as of July 31, 2014, this amount was classified on the balance sheet as a long-term liability.
Note 7 Marketing Engagements with Non-Affiliated Shareholders
During the nine months ended April 30, 2015, the Company was provided publicity services from a non-affiliated entity that was paid partly via issuance of 30,000 shares of common stock in the Company at a value of $0.30 per share. The stock issuance was booked as prepaid stock services to be applied against monthly fees of $1,500 per month commencing October 1, 2014. There was $0 and $0 due to this entity at April 30, 2015 (end of Q3 15) and July 31, 2014 (YE 14), respectively. Total expenses incurred related to this agreement during the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14), were $21,150 and $0, respectively, and during the three months ended April 30, 2015 and 2014 (Q3 15 & 14), were $0 and $0, respectively.
During the nine months ended April 30, 2015, the Company entered into a twelve-month non-exclusive public relations campaign agreement with a non-affiliated entity for a total value of $220,500 consisting of monthly cash payments of $2,500 and the issuance of 254,000 shares of common stock in the Company at a value of $0.75 per share. $10,500 of the stock issuance was applied toward initial setup fees, and the remainder was set up as prepaid stock services to be applied against monthly fees of $15,000 per month, which commenced November 1, 2014. There was $8,000 and $0 due to this entity at April 30, 2015 (end of Q3 15) and July 31, 2014 (YE 14), respectively. Total expenses incurred related to this agreement during the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14), were $110,500 and $0, respectively, and during the three months ended April 30, 2015 and 2014 (Q3 15 & 14), were $50,000 and $0, respectively.
During the periods presented, the Company entered into a twelve-month service agreement consisting of a total of $45,000 cash and 500,000 shares of common stock in the Company. Shares will be issued in increments of 125,000 shares every 90 days beginning on June 16th, 2015. There was $2,500 and $0 due to this entity at April 30, 2015 (end of Q3 15) and July 31, 2014 (YE 14), respectively. Total services provided from this entity to the Company during the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14), were $3,750 and $0, respectively, and during the three months ended April 30, 2015 and 2014 (Q3 15 & 14), were $3,750 and $0, respectively.
On June 6, 2015, the Company entered into a six month Financial Advisory agreement and upon executing the agreement, issued 1,000,000 restricted shares of common stock.
9
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED APRIL 30, 2015 AND 2014 (Q1-Q3 15 & 14, UNAUDITED)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this Quarterly Report, including our financial statements and related notes set forth in Item 1. This discussion and analysis contains forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.
Overview
Perpetual Industries Inc., or the Company is a Nevada corporation formed on January 25, 2005 with a principal business address at #110, 5 - 8720 Macleod Trail South, Calgary, Alberta, Canada T2H 0M4. Telephone: 403-214-4321.
Business
We are an emerging growth company that coordinates the research and development of new and innovative energy efficient products. Our key technology is a mechanical patented balancing device called XYO. We design, prototype, test, and manufacture or have manufactured products containing XYO technology, and sub-license XYO technology to third parties. XYO technology is used for balancing rotating parts in machines so that they produce less vibration, resulting in a machine that operates in a more energy efficient manner.
XYO is a patented technology that we have licensed from ETI Technologies Inc. on an exclusive worldwide basis. The term of the License Agreement is from January 27, 2005 to the end of the life of the last existing XYO patent defined in the agreement, which is currently projected to be March 7, 2023. The License Agreement was modified by an Amendment and Waiver of Default effective July 31, 2010, in which ETI waived any rights to terminate the Agreement in the event of non-payment by Perpetual.
Future patent applications regarding the XYO technology will be pursued in order to extend the patent protection component of this agreement and extend the term of the original agreement if possible. The territory of the Agreement is worldwide, and we have the right to manufacture or have manufactured, sell, and use, the products incorporating XYO (that is, XYO balancers and machines that use them), as well as to sub-license these rights to third parties.
Revenue
We obtain revenue in several ways: agent fees, application evaluation and development projects, licensing, royalties from licensees, and the sale of our own products, and also from sub-letting part of our commercial office space. This year, we have continued to execute, or prepare to execute, the following types of activities:
·
design, production and sale of XYO branded balancers
·
design, production and sale of XYO branded products optimized around XYO balancers
·
prototype evaluation projects and commercialization of XYO implementations through other parties on a sub-license and royalty fee basis
The process of revenue generation involves market research and interaction with potential customer companies to understand their industries and the specific vibration-related technical issues involved with the machines they manufacture. With interested customers, we enter into a prototype evaluation contract in which we provide baseline testing, XYO balancer design, fabrication and installation, comparative testing, and a feasibility report. If results are acceptable, we may attempt to negotiate a sub-licensing and royalty agreement with the customer. The wide range of our prototyping experience has equipped us to begin the process of designing and manufacturing XYO balancers ourselves, and supplying them to customers instead of the customers handling the manufacturing themselves.
10
For the nine months ended April 30, 2015 (Q1-Q3 15), we had negligible revenue although we continued to develop and market our technology in additional industries.
| | | |
| | Nine Months Ended
April 30, 2015 (Q1-Q3 15)
| Nine Months Ended
April 30, 2014 (Q1-Q3 14)
|
| Revenue
| $27,553
| $157,211
|
For the three months ended April 30, 2015 (Q3 15), we had negligible revenue although we continued to develop and market our technology in additional industries.
| | | |
| | Three Months Ended
April 30, 2015 (Q3 15)
| Three Months Ended
April 30, 2014 (Q314)
|
| Revenue
| $27,553
| $0
|
During the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14), one and three customers, respectively, accounted for $27,553 and $157,211 (all of the total revenue in the period). There were no amounts due from these customers at April 30, 2015 (end of Q3 15) and July 31, 2014 (YE 14).
We have no agreements with these customers, who purchase from us on a purchase order type basis only, except that the customer in the nine and three months ended April 30, 2015 is a sub-tenant, the revenue from whom reflects the final three months of six prepaid months.
Expenses
Our expenses for the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14), are shown in the table below. Advertising and Marketing rose by approximately $400,584, primarily as a result of there being more product design and commercialization planning activities, funded mainly by means of convertible notes. Travel expenses increased by approximately $16,859 as a result of changing patterns of travel. Management fees increased temporarily by approximately $106,584 as a result of substantial investment in key personnel during Q1 15, which was funded by means of convertible notes, as discussed separately below. A significant amount of new engineering in regards to potentially patentable intellectual property, and the manufacturing thereof, is represented by the new Engineering line item in the table reflecting work done in the first quarter, which is distinct from the commercialization design work that has historically been grouped into Advertising and Marketing. License and Royalty fees varied only slightly, the difference being due to the variable annual amounts payable under the agreement with patent holder ETI. Professional fees decreased by $34,770 due to reduced auditing fees and normalized transfer agency fees.
| | | |
| | Nine Months Ended
April 30, 2015 (Q1-Q3 15)
| Nine Months Ended
April 30, 2014 (Q1- Q3 14)
|
| Advertising and Marketing
| $469,394
| $ 68,810
|
| Travel
| 39,227
| 22,368
|
| Management Fees
Engineering
| 222,891
148,107
| 116,307
-
|
| License and Royalty Fees
| 118,250
| 111,250
|
| Professional Fees
| 69,464
| 104,234
|
| Other
| 57,303
| 74,939
|
| Total Expenses
| $1,124,936
| $ 497,908
|
Our expenses for the three months ended April 30, 2015 and 2014 (Q3 15 & 14), are shown in the table below. Advertising and Marketing rose by approximately $55,603, primarily as a result of increased publicity activities, funded mainly by means of stock issued in Q1 15. Travel expenses increased slightly by $1,300 as patterns of travel remained relatively the same. Management fees remained steady except for foreign exchange fluctuations. License and Royalty fees varied only slightly, the difference being due to the variable annual amounts payable under the agreement with patent holder ETI. Professional fees decreased by approximately $24,110 due to reduced auditing fees and normalized transfer agency fees.
11
| | | |
| | Three Months Ended
April 30, 2015 (Q3 15)
| Three Months Ended
April 30, 2014 (Q3 14)
|
| Advertising and Marketing
| $57,720
| $ 2,117
|
| Travel
| 7,471
| 6,117
|
| Management Fees
Engineering
| 41,291
300
| 39,364
|
| License and Royalty Fees
| 40,750
| 38,750
|
| Professional Fees
| 10,922
| 35,032
|
| Other
| 11,567
| 21,708
|
| Total Expenses
| $170,022
| $ 143,088
|
For the upcoming year, we plan to keep operating expenses around the same level as for the three months ended April 30, 2015 (Q3 15).
Notes regarding management fees:
During the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14), the Company paid certain entities owned by members of management for management services rendered. The Company has not made payments against management fees that have been accruing in recent months. On September 30, 2014, all amounts owing to the president and the presidents entity were combined into a convertible note in his personal name, and all amounts owing to the general manager of operations entity were combined into a convertible note in his personal name. As of April 30, 2015 (end of Q315), the Company had not paid the president's entity for approximately 16 months of management fees, approximately $223,000, plus an earlier accrued $151,000 that also became part of the convertible note; the Company had not paid the general manager of operations' entity for approximately 17 months of management fees, approximately $89,000; and the Company had not paid the chief operating officer of operations' entity for approximately 2 months of management fees, approximately $6,758.
Notes regarding warrants, stock options and convertible notes:
Warrants were re-issued without derivative features during the nine months ended April 30, 2015 (Q1-Q3 14), and as a result we report a Warrant Issuance Expense of $184,408.
Stock options were issued during the nine months ended April 30, 2015 (Q1-Q3 15), and as a result we report a Stock Option Issuance Expense of $687,079.
Convertible notes were issued during the nine months ended April 30, 2015 (Q1-Q3 15) in relation to non-cash expenses of $687,079 including convertible interest.
The impact of warrants, stock options and convertible notes is discussed further under the heading Net Loss, below.
Income and Operation Taxes
The Company has not filed U.S. or Canadian income tax returns since its inception, as it has incurred continual losses since that time. The Company has not recognized any tax benefits for the periods presented, as it is more likely than not that the tax benefits will not be realized.
Net Loss
We incurred net losses for the nine months ended April 30, 2015 and 2014 (Q1-Q315 & 14), amounting to $1,880,269 and $552,405, respectively, and for the three months ended April 30, 2015 and 2014 (Q3 15 & 14), amounting to $176,235 and $166,727, respectively.
12
Notes regarding impact of warrants, stock options and convertible notes on Net Loss:
Warrant Issuance Expense, Stock Option Issuance Expense and Convertible Notes are non-cash expenses that have a significant effect on the Net Loss figure. Under Generally Accepted Accounting Principles regarding the valuation of different types of share purchase warrants and stock options and convertible notes, we are required to record these non-cash expenses on our financial statements. Without these three expense categories, the net loss for the nine months ended April 30, 2015 and 2014 (Q1-Q3 15 & 14) would have been $514,887 and $367,997 respectively.
Because of the potential for misinterpretation of the Statements of Operations in this regard, we draw the readers attention alternatively to the Statements of Cash Flows line item Net cash flows (used) provided in operating activities, which removes the effect of non-cash items and shows that operations consumed approximately $250,828 in cash during the nine months ended April 30, 2015 (Q1-Q3 15), versus approximately $209,762 in the nine months ended April 30, 2014 (Q1-Q314).
Going Concern Qualification
Our lack of meaningful operating revenues, negative working capital, cash used in operations, and having an accumulated deficit to date, raise substantial doubt about our ability to continue as a going concern.
Liquidity and Capital Resources
We anticipate that we will incur certain costs irrespective of our operational and business development activities, including bank service fees and those costs associated with SEC requirements associated with remaining public, estimated to be $125,000 annually. We anticipate that we would incur approximately $900,000 in operational expenses during the next 12 months if we continue to implement our business plan at its current level, comprised of expenses related to continuing to conduct and participate in similar events and operational activities at the same rate as currently. As we estimate our total need for funds for operations at our current level, including all expense of staying public and continuing operations at their current level in the next 12 months is within $1,000,000, we accordingly anticipate an average monthly burn rate of approximately $85,000 during the next 12 months to maintain operations at their current levels as well as pay costs associated with going and staying public. We do not believe that our current cash resources plus anticipated revenues during the next 12 months will be sufficient to meet these requirements. We anticipate that funding will be provided by the sale of debt or equity securities, as described herein, as well as operational revenue. Management has made no commitment to provide and is not obligated to provide any additional funding.
A number of transactions have recently been funded through the issuance of stock in the Company:
In October 2013, the Company entered into an unsecured debenture under which it borrowed $100,000 from a non-affiliated shareholder at an annual non-compounding interest rate of 12%. Repayments were to be applied first to payment of principal and secondly to payment of interest. No maturity date was specified. Subsequent to the July 31, 2014 year-end, this debenture was retired in full, with interest, via conversion to 370,000 shares of the Company at a fixed conversion rate of $0.30 per share. Accordingly, as of July 31, 2014, this amount was classified on the balance sheet as a long-term liability.
In October 2014, the Company was provided publicity services from a non-affiliated entity that was paid partly via issuance of 30,000 shares of common stock in the Company at a value of $0.30 per share. The stock issuance was booked as prepaid stock services to be applied against monthly fees of $1,500 per month commencing October 1, 2014.
In October 2014, the Company entered into a twelve month non-exclusive public relations campaign agreement with an non-affiliated entity for a total value of $220,500 consisting of monthly cash payments of $2,500 and the issuance of 254,000 shares of common stock in the Company at a value of $0.75 per share. $10,500 of the stock issuance was applied toward initial setup fees, and the remainder was set up as prepaid stock services to be applied against monthly fees of $15,000 per month commencing November 1, 2014.
13
In the nine months ended April 30, 2015 (Q1-Q3 15), the following significant financing activities were set in motion:
The Companys Board authorized a plan for the potential issuance of non-statutory stock options to independent contractors and consultants as well as to employees, in an aggregate quantity of up to 15% (as of April 30, 2015, 5,139,900 shares) of the issued and outstanding common stock total at the time of any grant. During the nine months ended April 30, 2015, options have been granted to purchase a total of 4,800,000 shares at $0.30 per Share.
The Board authorized the Companys Chairman, President and CEO to enter the Company into various convertible notes for the purposes of (1) retiring existing debts and (2) taking on new debts for services rendered. The conversion basis is set at $0.30 per share, up to an aggregate total of 8,000,000 shares, hence a total potential value of $2,400,000. The notes do not specify any repayment term, have an interest rate of 8%, and do not involve any collateral; accordingly they are considered short-term liabilities.
During the next 12 months, we anticipate engaging in the following activities to support the implementation of our business plan. We may vary our plans depending upon operational conditions and available funding:
| |
Supplemental Actions
| Cost
|
Securing of potential joint venture partners/investors for manufacturing and distribution in various industries, including international travel, marketing, due diligence, etc.
|
$600,000
|
Provision of engineering and marketing support to industry joint ventures
| $1,000,000
|
Management, administration, insurance, and other overhead costs associated with the above
| $600,000
|
Public company governance and compliance costs associated with the above
| $200,000
|
Intellectual property augmentation: acquisition of additional IP, expansion of XYO patents, development of non-XYO patents, and IP enforcement
| $600,000
|
Total
| $3,000,000
|
The primary obstacle to implementing this plan will be the lack of operating capital until we raise or generate additional funding as described above.
We estimate that we will need up to an additional $3,000,000 to support the implementation of our business plan at the level described in the table above. If we do not generate sufficient cash flow from operations in excess of the amount necessary to maintain operations at their current levels as well as pay costs associated with going and staying public as described in the table above, we may have to raise additional capital to finance activities desired to support the implementation of our business plan. Any such financing could be difficult to obtain or only available on unattractive terms and could result in significant dilution of stockholders interests.
Failure to secure any necessary financing in a timely manner and on favorable terms could hinder or delay our desired activities to support the implementation of our business plan. Except as set forth above, we do not have any plans or specific agreements for new sources of funding or any planned material acquisitions.
The fact that we have not commenced our planned principal operations raises substantial doubt about our ability to continue as a going concern. The financial statements do not include adjustments that might result from the outcome of this uncertainty and if we are unable to generate significant revenue or secure financing we may be required to cease or curtail our operations.
14
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Other Critical Accounting Policies and Estimates
Our Financial Statements have been prepared in accordance with U.S. GAAP and fairly present our financial position and results of operations. We believe the following accounting policies are critical to an understanding of our financial statements. The application of these policies requires managements judgment and estimates in areas that are inherently uncertain.
Accounts Receivable
Financial instruments that potentially subject the Company to concentrations of credit risk consist mainly of accounts receivable. Accounts receivable consist of receivables from revenue earned for entering into license agreements and prototype evaluation agreements with potential licensees.
The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysis of the Companys prior collection experience, customer creditworthiness, and current economic trends. Based on managements review of accounts receivable, an allowance for doubtful accounts is not considered necessary at April 30, 2015 and 2014 (end of Q3 15 & 14). The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables.
Warrant and Stock Option Valuation
Fair value is estimated using the Black-Scholes option valuation technique, utilizing Level II inputs. The observable inputs include the exercise price of the warrants and options, the treasury yield curve, the Companys common stock price and the expected volatility, which is based on the average volatilities of five similar public entities. Option-based techniques are highly volatile and sensitive to changes in the Companys trading market price and the trading market price of various peer companies, which historically have high volatility.
Revenue Recognition
The Company recognizes revenue when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, there is a fixed or determinable sales price, and collectability is reasonably assured. Deferred revenue arises from amounts received from potential and actual licensees prior to services being provided and is being amortized to income as it is earned. Certain of these revenues are categorized as noncurrent due to the length of the contract.
New Accounting Pronouncements
Other than as disclosed in previous financial statements, we do not believe that any accounting pronouncements recently issued by the FASB, the AICPA, and the SEC, would if adopted have a material effect on our present or future financial statements.
15
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We designed our disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of April 30, 2015 (end of Q3 15). Based on that evaluation, the chief executive officer and chief financial officer concluded that the Companys disclosure controls and procedures were not effective as of April 30, 2015 as a result of inadequate segregation of duties over authorization, review and recording of transactions, as well as the financial reporting of such transactions. Although financial resources are limited, management continues to evaluate opportunities to mitigate said ineffectiveness.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the nine months ended April 30, 2015 (Q1-Q3 15) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
16
PART IIOTHER INFORMATION
ITEM 2. USE OF PROCEEDS
Not applicable. We will not receive any proceeds from the sale of shares offered by the selling shareholders pursuant to the S-1/A No. 3 Amended Registration Statement made effective January 10, 2014.
ITEM 6. EXHIBITS
See Part I, Item I for Financial Statements. The Exhibits below are filed herewith.
| | |
31
| Rule 13a-14(a)/15d-14(a) Certification Chairman of the Board, CEO, Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer
|
| |
32
| Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Chairman of the Board, CEO, Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer
|
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
|
All other Exhibits called for by Rule 601 of Regulation SK are not applicable to this filing.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Perpetual Industries Inc.
|
Registrant
|
| | |
June 15, 2015
| | /s/ Brent W. Bedford
|
Date
| | Brent W. Bedford, Chairman of the Board, CEO, Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer
|
Exhibit 31
RULE 13A-14(A)/15D-14(A) CERTIFICATION OF BRENT W. BEDFORD
I, Brent W. Bedford, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Perpetual Industries Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report my conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: June 15, 2015
/s/ Brent W. Bedford
Brent W. Bedford
Chairman of the Board, CEO, Principal Executive Officer,
Principal Accounting Officer and Principal Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Perpetual Industries Inc. (the Company) on Form 10-Q for the period ending January 31, 2015 as filed with the Securities and Exchange Commission (the Report), I, Brent W. Bedford, Chairman of the Board, CEO, Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: June 15, 2015
/s/ Brent W. Bedford
Brent W. Bedford
Chairman of the Board, CEO, Principal Executive Officer,
Principal Accounting Officer and Principal Financial Officer
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