ABAKAN, INC.
UNAUDITED PROFORMA COMBINED INFORMATION
For the nine months ended February 28, 2011 and for the year ended May 31, 2010
TABLE OF CONTENTS
Page
Basis of presentation F-2
Unaudited pro forma condensed balance sheets
for the nine months ended February 28, 2011 F-3
Unaudited pro forma condensed statements of operations
for the year ended May 31, 2010 F-5
Unaudited pro forma condensed statements of operations
for the nine months ended February 28, 2011 F-6
Notes to pro forma combined balance sheets and statements of operation F-7
F-1
Basis of presentation
The following unaudited pro forma financial information of Abakan, Inc. (“Company,” “us,” “our,” and “we”) is based on the historical financial statements of the Company. The combined balance sheet and statement of operations of the Company for the nine months ended February 28, 2011, have been prepared as if the acquisition of fifty-one percent (51%) of MesoCoat, Inc. (“MesoCoat”) had occurred on June 1, 2010, the first day of the fiscal year of the registrant.
Such unaudited pro forma financial information should be read in conjunction with the historical financial statements of the Company for the years ended May 31, 2010 and 2009, including the notes thereto, which were filed as part of the Company’s Form 10-K, filed with the Securities and Exchange Commission on December 21, 2010. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations of the Company that would have occurred if the consolidation of MesoCoat had been completed on the dates indicated, nor does it purport to represent the Company’s results of operations as of any future date or for any future period. The pro forma combined balance sheet and statement of operations of the Company only include the consolidation of MesoCoat. In addition, the pro forma combined financial statements are based upon fair value of the assets and liabilities consolidated from MesoCoat. Management believes all material adjustments necessary to reflect the effect of the consolidation have been made to the unaudited pro forma financial information.
F-2
ABAKAN, INC. (Formerly known as Waste to Energy Group, Inc.) (A DEVELOPMENT STAGE ENTERPRISE) UNAUDITED PROFORMA CONDENSED BALANCE SHEETS For the nine months ended February 28, 2011 |
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| Proforma | ||||
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| Combined | |||||
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| Proforma |
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| Adjusted | |||||
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| Combined |
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| Abakan, Inc. | |||||
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| Non- |
| Abakan, Inc. |
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| Mesocoat, Inc | |||||
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| Consolidation Entries - Mesocoat |
| controlling |
| and |
| Consolidation Entries - Powdermet |
| and | ||||||
ASSETS |
| Abakan, Inc. |
| Mesocoat, Inc. |
| Ref | Debit | Ref | Credit |
| Interest |
| Mesocoat, Inc |
| Ref | Debit | Ref | Credit |
| Powdermet |
|
| (unaudited) |
| (unaudited) |
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| (unaudited) |
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| (unaudited) |
Current Assets |
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Cash and cash equivalents |
| $ 3,662 |
| $ 801,250 |
| b | 1,540,000 |
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| c | 1,540,000 | a | 1,540,000 |
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| $ 2,344,912 |
| Q | 1,200,000 | P | 1,200,000 |
| $ 2,344,912 |
Accounts receivable |
| - |
| 87,988 |
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| 87,988 |
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| 87,988 |
Note receivable - related party |
| 4,500 |
| - |
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| 4,500 |
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| 4,500 |
Prepaid expenses |
| 1,246 |
| 2,500 |
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| 3,746 |
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| 3,746 |
Prepaid expenses - related party |
| - |
| - |
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| �� | - |
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| - |
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Total Current Assets |
| 9,408 |
| 891,738 |
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| 2,441,146 |
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| 2,441,146 |
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Non-Current Assets |
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Computer equipment, net |
| 2,020 |
| - |
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| 2,020 |
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| 2,020 |
Website, net |
| 875 |
| - |
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| 875 |
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| 875 |
Property and Equipment |
| - |
| 793,953 |
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| 793,953 |
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| 793,953 |
Patents and licenses. Net |
| - |
| 134,909 |
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| 134,909 |
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| 134,909 |
Investment deposit on Powdermet investment |
| 500,000 |
| - |
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| 500,000 |
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| P | 500,000 |
| - |
Investment deposit on Mesocoat investment |
| 1,260,000 |
| - |
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| a | 1,260,000 |
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| - |
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| - |
Investment in Minority Interest - Mesocoat |
| 876,951 |
| - |
| I | 343,474 | A2 | 3,048,731 |
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| a | 2,800,000 | S | 1,871,284 |
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| R | 2,628,021 | Z | 1,716,371 |
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| W | 12,060 |
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| (0) |
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| (0) |
Investment in Minority Interest - Powdermet |
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| - |
| P | 1,200,000 |
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| P | 500,000 |
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| 1,700,000 |
Financing fees, net |
| - |
| 4,192 |
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| 4,192 |
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| 4,192 |
Goodwill |
| - |
| - |
| A2 | 5,977,905 |
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| 5,977,905 |
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| 5,977,905 |
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| 2,639,846 |
| 933,054 |
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| 7,413,853 |
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| 8,613,853 |
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Total Assets |
| $ 2,649,254 |
| $ 1,824,792 |
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| $ 9,854,999 |
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| $ 11,054,999 |
F-3
ABAKAN, INC. (Formerly known as Waste to Energy Group, Inc.) (A DEVELOPMENT STAGE ENTERPRISE) UNAUDITED PROFORMA CONDENSED BALANCE SHEETS For the nine months ended February 28, 2011 |
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| Proforma | |||||
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| Combined | |||||
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| Proforma |
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| Adjusted | |||||
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| Combined |
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| Abakan, Inc., | |||||
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| Non- |
| Abakan, Inc. |
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| Mesocoat, Inc | ||||||
LIABILITIES AND |
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| Consolidation Entries - Mesocoat |
| controlling |
| and |
| Consolidation Entries - Powdermet |
| and | ||||||
STOCKHOLDERS' EQUITY |
| Abakan, Inc. |
| Mesocoat, Inc. |
| Ref | Debit | Ref | Credit |
| Interest |
| Mesocoat, Inc |
| Ref | Debit | Ref | Credit |
| Powdermet |
|
| (unaudited) |
| (unaudited) |
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| (unaudited) |
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| (unaudited) |
CURRENT LIABILITIES |
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Accounts payable and accruals | $ 204,710 |
| $ 256,001 |
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| 460,711 |
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| 460,711 | |
Accounts payable - related parties | 174,540 |
| - |
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| 174,540 |
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| 174,540 | |
Current portion - capital lease obligation |
| - |
| 12,262 |
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| 12,262 |
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| 12,262 |
Loans Payable |
| 153,697 |
| 323,147 |
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| c | 1,540,000 |
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| 2,016,844 |
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| Q | 1,200,000 |
| 3,216,844 |
Accrued interest - loans payable | 22,639 |
| - |
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| 22,639 |
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| 22,639 | |
Loan payable- related party |
| 75,760 |
| - |
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| 75,760 |
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|
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| 75,760 |
Accrued interest - related party | 811 |
| - |
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| 811 |
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| 811 | |
Accrued Liabilities |
| 391,304 |
| 32,405 |
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| 423,709 |
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|
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| 423,709 |
Total Current Liabilities |
| 1,023,461 |
| 623,815 |
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| 3,187,276 |
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| 4,387,276 |
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LONG TERM LIABILITIES |
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Long term debt, net of discount | - |
| 69,024 |
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| 69,024 |
|
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|
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| 69,024 | |
Capital lease obligation, net of current portion |
| - |
| 12,986 |
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| 12,986 |
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| 12,986 |
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Total Long Term Liabilities |
| - |
| 82,010 |
|
|
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|
|
|
| 82,010 |
|
|
|
|
|
| 82,010 |
TOTAL LIABILITIES |
| 1,023,461 |
| 705,825 |
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| 3,269,286 |
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| 4,469,286 |
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STOCKHOLDERS' EQUITY |
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Abakan Shareholders' Equity |
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Preferred Stock, $0.0001 par value |
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| |
Common stock, par value $0.0001 | 5,833 |
| 2,293 |
| S | 3,155 | b | 862 |
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| 5,833 |
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| 5,833 | |
Paid in capital |
| 6,336,001 |
| 1,520,469 |
| S | 4,319,607 | b | 2,799,138 |
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| 6,336,001 |
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| 6,336,001 |
Subscription receivable |
| (1,750) |
| - |
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| (1,750) |
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| (1,750) |
Subscription payable |
| - |
| 1,260,000 |
| b | 1,260,000 |
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|
|
| - |
|
|
|
|
|
| - |
Contributed Capital |
| 5,050 |
| - |
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| 5,050 |
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| 5,050 |
Accumulated deficit during the development stage |
| (4,719,342) |
| (1,663,797) |
| W | 12,060 | S | 653,578 |
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| R | 343,474 |
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| I | 2,628,021 |
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| Y | 495,007 |
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| (2,275,117) |
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| (2,275,117) |
Total Abakan Stockholders' Equity | 1,625,792 |
| 1,118,965 |
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| 4,070,017 |
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| 4,070,017 | |
Noncontrolling interest in affiliate | - |
| - |
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| - |
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| - | |
Noncontrolling interest in Mesocoat - 06.01.10 |
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| Z | 1,716,371 | A2 | 2,929,173 |
| (1,212,802) |
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Noncontrolling interest in Mesocoat - 02.28.11 |
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| Y | 495,007 | S | 1,797,900 |
| (1,302,893) |
| 2,515,695 |
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| 2,515,695 |
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| - |
Total Stockholders' Equity |
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| 6,585,713 |
|
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|
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| 6,585,713 |
Total Liabilities and Stockholders' Equity |
| $ 2,649,254 |
| $ 1,824,792 |
|
| $ 22,635,600 |
| $ 22,635,600 |
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| $ 9,854,999 |
|
| $ 2,900,000 |
| $2,900,000 |
| $ 11,054,999 |
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Abakan shares issued and outstanding |
| 58,335,000 |
| 229,334 |
|
|
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|
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| 58,335,000 |
|
|
|
|
|
| 58,335,000 |
F-4
Exhibit 99.5
ABAKAN, INC. (Formerly known as Waste to Energy Group, Inc.) (A DEVELOPMENT STAGE ENTERPRISE) UNAUDITED PROFORMA CONDENSED STATEMENTS OF OPERATIONS For the nine months ended February 28, 2011 |
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| Proforma | ||||||
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| Non- |
| Adjusted |
|
|
|
|
| Consolidation Entries |
| controlling |
| Combined | |||
| Abakan Inc. |
| MesoCoat, Inc. |
| Ref | Debit | Ref | Credit |
| Interest |
| Abakan Inc. |
| (unaudited) |
| (unaudited) |
|
|
|
|
|
|
|
| (unaudited) |
REVENUES |
|
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|
Commercial | $ - |
| $ 41,226 |
|
|
|
|
|
|
|
| $ 41,226 |
Contract and grants | - |
| 1,278,550 |
|
|
|
|
|
|
|
| 1,278,550 |
Other income | - |
| 22,317 |
|
|
|
|
|
|
|
| 22,317 |
Total Revenues | - |
| 1,342,094 |
|
|
|
|
|
|
|
| 1,342,094 |
COST OF REVENUES | - |
| 1,548,736 |
|
|
|
|
|
|
|
| 1,548,736 |
GROSS PROFIT | - |
| (206,642) |
|
|
|
|
|
|
|
| (206,642) |
|
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EXPENSES |
|
|
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|
|
|
|
|
|
General and Administrative | 146,015 |
| 311,797 |
|
|
|
|
|
|
|
| 457,812 |
Professional Fees | 143,839 |
| - |
|
|
|
|
|
|
|
| 143,839 |
Professional Fees - Related party | 45,000 |
| - |
|
|
|
|
|
|
|
| 45,000 |
Consulting | 559,974 |
| 137,376 |
|
|
|
|
|
|
|
| 697,350 |
Consulting - Related party | 265,700 |
| - |
|
|
|
|
|
|
|
| 265,700 |
Payroll and benefits expense | 133,444 |
| 269,855 |
|
|
|
|
|
|
|
| 403,299 |
Depreciation | 4,150 |
| 26,907 |
|
|
|
|
|
|
|
| 31,057 |
Amortization of Note Discount | - |
| 40,044 |
|
|
|
|
|
|
|
| 40,044 |
Stock Expense on note Conversion | 60,733 |
| - |
|
|
|
|
|
|
|
| 60,733 |
Stock options Expense | 746,177 |
| - |
|
|
|
|
|
|
|
| 746,177 |
Total expenses | 2,105,030 |
| 785,979 |
|
|
|
|
|
|
|
| 2,891,009 |
Loss from operations | (2,105,030) |
| (992,621) |
|
|
|
|
|
|
|
| (3,097,651) |
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest - Loans | 14,497 |
| 17,598 |
|
|
|
|
|
|
|
| 32,095 |
Interest - Related Party | 811 |
| - |
|
|
|
|
|
|
|
| 811 |
Liquidated damages | 250,000 |
| - |
|
|
|
|
|
|
|
| 250,000 |
Total interest expense | 265,307 |
| 17,598 |
|
|
|
|
|
|
|
| 282,905 |
Interest Income | 2,125 |
| - |
|
|
|
|
|
|
|
| 2,125 |
Gain on revaluation of MesoCoat Inv. | - |
| - |
|
|
| R | 2,628,021 |
|
|
| 2,628,021 |
Loss on debt settlement | (1,583) |
| - |
|
|
|
|
|
|
|
| (1,583) |
Equity in MesoCoat loss | (331,414) |
| - |
| W | 12,060 | I | 343,474 |
|
|
| 0 |
Loss before provision for income taxes | (2,701,210) |
| (1,010,219) |
|
|
|
|
|
|
|
| (751,994) |
Provision for income taxes | - |
| - |
|
|
|
|
|
|
|
| - |
Net Loss | $ (2,701,210) |
| $ (1,010,219) |
|
|
|
|
|
|
|
| (751,994) |
Less minority interest in affiliate's losses | - |
| - |
|
|
|
|
| Y | 495,007 |
| 495,007 |
Net Loss attributable to Abakan | $ (2,701,210) |
| $ (1,010,219) |
|
|
|
|
|
|
|
| $ (256,987) |
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|
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|
|
|
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|
|
NET LOSS PER SHARE - BASIC AND DILUTED | $ (0.05) |
| $ (4.41) |
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|
|
|
|
|
|
| * |
WEIGHTED AVERAGE NUMBER OF |
|
|
|
|
|
|
|
|
|
|
|
|
COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 56,546,209 |
| 229,334 |
|
|
|
|
|
|
|
| 56,546,209 |
* = less than $(.01) per share
F-5
ABAKAN, INC. (Formerly known as Waste to Energy Group, Inc.) (A DEVELOPMENT STAGE ENTERPRISE) UNAUDITED PROFORMA CONDENSED STATEMENTS OF OPERATIONS For the year ended May 31, 2010 |
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| Proforma | ||||
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| Non- |
| Adjusted |
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| Consolidation Entries |
| controlling |
| Combined | |||
| Abakan Inc. |
| MesoCoat, Inc. |
| Ref | Debit | Ref | Credit |
| Interest |
| Abakan Inc. |
| (audited) |
| (audited) |
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| (unaudited) |
REVENUES |
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|
Commercial | $ - |
| $ 5,543 |
|
|
|
|
|
|
|
| $ 5,543 |
Contract and grants | - |
| 596,999 |
|
|
|
|
|
|
|
| 596,999 |
Other income | - |
| 5,414 |
|
|
|
|
|
|
|
| 5,414 |
Total Revenues | - |
| 607,956 |
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|
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|
|
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| 607,956 |
COST OF REVENUES | - |
| 677,008 |
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|
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|
|
|
| 677,008 |
GROSS PROFIT | - |
| (69,052) |
|
|
|
|
|
|
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| (69,052) |
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EXPENSES |
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|
|
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General and Administrative | 74,529 |
| 149,694 |
|
|
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|
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| 224,223 |
Professional Fees | 85,393 |
| - |
|
|
|
|
|
|
|
| 85,393 |
Professional Fees - Related party | 35,000 |
| - |
|
|
|
|
|
|
|
| 35,000 |
Consulting | 166,799 |
| - |
|
|
|
|
|
|
|
| 166,799 |
Consulting - Related party | 512,000 |
| - |
|
|
|
|
|
|
|
| 512,000 |
Payroll and benefits expense | 66,261 |
| 266,342 |
|
|
|
|
|
|
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| 332,603 |
Depreciation | 9,821 |
| 28,105 |
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|
|
|
| 37,926 |
Amortization of Note Discount | - |
| 53,584 |
|
|
|
|
|
|
|
| 53,584 |
Stock Expense on note Conversion | 142,370 |
| - |
|
|
|
|
|
|
|
| 142,370 |
Stock options Expense | 313,313 |
| - |
|
|
|
|
|
|
|
| 313,313 |
|
|
|
|
|
|
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|
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|
|
Total expenses | 1,405,484 |
| 497,725 |
|
|
|
|
|
|
|
| 1,903,209 |
Loss from operations | (1,405,484) |
| (566,777) |
|
|
|
|
|
|
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| (1,972,261) |
Interest Expense |
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|
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Interest - Loans | 8,893 |
| 22,578 |
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| 31,471 |
Interest - Related Party | 2,038 |
| - |
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| 2,038 |
Liquidated damages | - |
| - |
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|
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| - |
Total interest expense | 10,931 |
| 22,578 |
|
|
|
|
|
|
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| 33,509 |
Interest Income | 1,382 |
| - |
|
|
|
|
|
|
|
| 1,382 |
Gain on revaluation of MesoCoat Inv. | - |
| - |
|
|
|
|
|
|
|
| - |
Loss on debt settlement | - |
| - |
|
|
|
|
|
|
|
| - |
Equity in MesoCoat loss | (191,665) |
| - |
|
|
|
|
|
| 191,665 |
| - |
Loss before provision for income taxes | (1,606,698) |
| (589,355) |
|
|
|
|
|
|
|
| (2,004,388) |
Provision for income taxes | - |
| - |
|
|
|
|
|
|
|
| - |
Net Loss | (1,606,698) |
| (589,355) |
|
|
|
|
|
|
|
| (2,004,388) |
Less minority interest in affiliate's losses | - |
| - |
|
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|
|
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| 288,784 |
| 288,784 |
Net Loss attributable to Abakan | $ (1,606,698) |
| $ (589,355) |
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| $ (1,715,604) |
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NET LOSS PER SHARE - BASIC AND DILUTED | $ (0.03) |
| $ (2.57) |
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| $ (0.03) |
WEIGHTED AVERAGE NUMBER OF |
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COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 52,393,630 |
| 229,334 |
|
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|
|
|
|
|
| 52,393,630 |
|
F-6
Notes to Proforma combined Balance Sheets and Statements of Operations:
Share Purchase – Investment Agreement
On December 11, 2009 we entered into an Investment Agreement (“Agreement”) with MesoCoat and Powdermet Inc., MesoCoat’s then majority shareholder. Pursuant to the Agreement, we subscribed to a fully diluted thirty four percent (34%) equity interest inMesoCoat’s common stock in exchange for $1,400,000 and a series of options to acquire up to one hundred percent (100%) ofMesoCoat’s common stock on the satisfaction of certain conditions. The closing of the Agreement also entitled us to appoint two directors toMesoCoat’s five person board of directors.
The initial option entitled us to subscribe to an additional seventeen percent (17%) equity interest inMesoCoat’s common stock in exchange for two million eight hundred thousand dollars ($2,800,000) within twelve (12) months of the closing date of the Agreement. Exercise of the initial option would increase our holdings to a fully diluted fifty one percent (51%) of our common stock and entitle us to offer an independent director to serve as one of the five appointed toMesoCoat’s board of directors. Further, the exercise of the initial option would cause the Shareholders Agreement, executed concurrently with the Agreement, to become effective. The Shareholders Agreement governs the actions ofMesoCoat’s shareholders in certain aspects of corporate action and creates an obligation for existing shareholders and any new shareholders to be bound in like manner. The second option entitles us to subscribe to an additional twenty four percent (24%) equity interest inMesoCoat’s common stock in exchange for sixteen million dollars ($16,000,000) within twelve (12) months of the exercise of the initial option. Exercise of the second option would increase our holdings to a fully diluted seventy five percent (75%) ofMesoCoat’s common stock and entitle us to appoint a fourth director toMesoCoat’s five person board of directors. The third option entitles outside shareholders ofMesoCoat’s common stock, for a period of twelve (12) months after the exercise of the second option, to cause us to pay an aggregate amount of fourteen million six hundred thousand dollars ($14,600,000) payable in shares of our common stock or a combination of cash and stock, as provided in the Agreement, in exchange for all remaining shares ofMesoCoat’s common stock, on a fully diluted basis, not then held by us. As of the year ended, May 31, 2010, we made the initial investment of $1,400,030 less offering costs of $35,040 for a thirty – four (34) percentage ownership of MesoCoat.
As of July 12, 2011 we executed our initial option for an additional 17% of MesoCoat, represented by approximately 86,156 shares of MesoCoat’s common stock, for the total purchase price of $2,800,000. We paid for this in cash as of this filing.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Abakan, Inc. and MesoCoat, Inc., its majority-owned subsidiary. All material intercompany accounts and transactions between the companies for the periods presented have been eliminated in consolidation.
Accounting Acquirer
|
F-7
We evaluated our investment in MesoCoat in accordance with ASC805,Business Combinations, accordingly to our evaluation of 805-10-55-12, we concluded that the accounting acquirer was the Company for this proforma presentation because after the close of this transaction the shareholders of the Company will hold majority voting power of MesoCoat. So we have eliminated the equity accounts and accumulated deficit of MesoCoat and left the accumulated deficit of the Company in our proforma balance sheet presentation.
Business combination in stages
We evaluated our investment in MesoCoat in accordance with ASC805,Business Combinations, and according to our evaluation of 805-10-25-9 and 10, we have classified this acquisition as a business combination achieved in stages. Accordingly, we have also revalued our previous investment in MesoCoat at our acquisition-date fair value and have recognized resulting gain in our earnings. Our computations are as follows:
Consideration transferred by Abakan |
| $ | 32.50/share |
December 10, 2009 (79,334 shares) |
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| 2,578,355 |
February 28, 2011 (86,156 shares) |
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| 2,800,070 |
Noncontrolling interest fair value (150,000 shares) | 4,875,000 | ||
MesoCoat's total fair value at February 28, 2011 |
| $ | 10,253,425 |
Revalue of original 34% investment at 2.28.2011 |
|
|
Fair value of Abakan's 34% investment in MesoCoat |
| 3,486,165 |
Book value of Abakan's 34% investment in MesoCoat |
| (858,144) |
Gain on revaluation of MesoCoat to fair value | $ | 2,628,021 |
Impairment of goodwill
The Company evaluates the carrying value of goodwill each interim period of each year and between evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company’s evaluation of goodwill completed during the current period resulted in no impairment losses.
Impairment of goodwill - continued
We evaluated for impairment the goodwill component of the acquisition of 51% of MesoCoat a couple of different ways, one way was consideration of the market value of MesoCoat’s stock price per share, the most recent share purchase was in December 10, 2009 for $17.64 per share of common stock, assumingthat the share price is valid and we have not paid a premium for acquiring control in MesoCoat. The following table calculates that market value based upon the share valuation for the existing issued share to be the last outside purchase price, and including our recent share purchase completed:
F-8
Consideration transferred by Abakan |
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December 10, 2009 ($17.64 X 79,334 shares) |
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| $ 1,399,452 |
February 28, 2011 ($32.50 X 86,156 shares) |
|
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| 2,800,070 |
Noncontrolling interest fair value ($17.64 X 150,000 shares) |
| 2,646,000 | ||
MesoCoat's total fair value at February 28, 2011 |
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| $ 6,845,522 |
Based upon the above computations we can support the goodwill valuation as illustrated below:
MesoCoat's acquisition - date fair value (100%) |
| $ 6,845,522 |
MesoCoat's acquisition - date book value (100%) |
| (867,617) |
Fair value in excess of book value - goodwill |
| $ 5,977,905 |
Based upon these analyses of the fair value supporting our goodwill, we feel that no impairment is needed in the current period.
Explanation of Proforma Adjusting Entries
Below we will explain each of the proforma adjusting entries and the basis and amounts for each:
Adjustment “a” As part of the Share Purchase Agreement with MesoCoat we paid $2,800,000 for the additional 17% of MesoCoat. We had previously paid $1,260,000 as an investment deposit, and paid the balance of $1,540,000 in cash.
Investment in MesoCoat $ 2,800,000
Cash (1,540,000)
Investment Deposit in MesoCoat (1,260,000)
Net assets Acquired $ - 0 - .
Adjustment “b” We adjusted for the additional share purchases from MesoCoat by us of approximately 86,156 shares of common stock of MesoCoat., including the following:
Cash $ 1,540,000
Stock issuable 1,260,000
Common Stock (862)
Paid in Capital (2,799,138)
Explanation of Proforma Adjusting entries - continued
Adjustment “c” We adjusted for cash we received to complete this transaction from various investors this is initially in the form of notes payable until converted into shares of our common stock.
Cash received – Abakan $ 1,540,000
Loans Payable – current (1,540,000)
|
F-9
Adjustment “S” To eliminate beginning stockholders’ equity accounts of MesoCoat, along with the book value portion of investment (equal to 51% ownership). Noncontrolling interest of 66% is also recognized.
Common Stock – 06.01.10 (MesoCoat) $ 3,155
Paid in Capital – 06.01.10 (MesoCoat) 4,319,607
Retained Earnings – 06.01.10 (MesoCoat) (653,578)
Investment in MesoCoat – 51% (Abakan) (1,871,284)
Noncontrolling interest in MesoCoat (49%) (1,797,900)
Adjustment “A2” To recognize unamortized excess fair value as of June 1, 2010, to MesoCoat’s assets and liabilities assumed in the combination. Also to allocate the unamortized fair value to the noncontrolling interest. Goodwill is attributable proportionately to controlling and noncontrolling interests.
Goodwill – (Abakan) $ 5,977,562
Investment in Mesocoat-51% (Abakan) (3,048,731)
Noncontrolling Interest in MesoCoat-49% (2,929,173)
Adjustment “I” To eliminate intra-entity loss allocated for 34% interest from 06.01.10 through 02.28.11 in MesoCoat loss.
Equity in MesoCoat loss (Abakan) $ 343,474
Investment in MesoCoat (Abakan) (343,474)
Adjustment “R” To revalue original investment in MesoCoat 34% investment at December 11, 2009 and revalued for exercise of option investment of 17% on May 31, 2011
Investment in MesoCoat $ 2,628,021
Unrealized Gain –
Held investment remeasured (2,628,021)
Adjustment “Z” To eliminate balance of investment in MesoCoat to noncontrolling interest for correct 49% balance.
Noncontrolling Interest – MesoCoat $ 1,716,371
Investment in MesoCoat (1,716,371)
Explanation of Proforma Adjusting entries - continued
Adjustment “Y” To allocate MesoCoat's noncontrolling interest in loss to minority interest (49%)
Noncontrolling Interest – MesoCoat $ 495,007
Minority interest in affiliate's losses (495,007)
Adjustment “W” To correct previous posted loss allocations for 34% of MesoCoat for review adjustments made
Equity in MesoCoat Loss – Abakan (34%) $ 12,060
F-10
Investment in MesoCoat – Abakan (12,060)
Adjustment “Q” To record money being invested in Abakan by investors for the purchase of shares in Powdermet, Inc.
Cash and equivalents $ 1,200,000
Loans Payable (1,200,000)
Adjustment “P” To record Powdermet share purchase agreement completion of purchase agreement with Kennametal
Investment in Powdermet – Abakan $ 1,200,000
Cash and equivalents (1,200,000)
Investment in Powdermet – Abakan 500,000
Investment Deposit – Powdermet (500,000)
Earnings-per-share calculation
Basic earnings per common share for the periods ended February 28, 2011 and May 31, 2010, are calculated by dividing net income by weighted-average common shares outstanding during the period. Diluted earnings per common share for the periods ended February 28, 2011 and May 31, 2010, are calculated by dividing net income by weighted-average common shares outstanding during the period plus dilutive potential common shares, which are determined as follows:
February 28, 2011 | May 31, 2010 | |
Net earnings from operations | $ (256,987) | $ (1,715,604) |
Weighted-average common shares | 56,546,209 | 52,393,630 |
| ||
Warrants | 2,380,000 | 2,300,000 |
Options to purchase common stock | 5,500,000 | 3,150,000 |
Dilutive potential common shares | 64,426,209 | 57,843,630 |
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|
|
Net earnings per share from operations: |
|
|
Basic | $ (0.00) | $ (0.03) |
Diluted | $ (0.00) | $ (0.03) |
Earnings-per-share calculation - continued
Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities. The increasing number of warrants used in the calculation is a result of the increasing market value of the Company’s common stock.In periods where losses are reported the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
F-11