ABAKAN INC.
2665 S. Bayshore Drive, Suite 450
Miami, Florida 33133
December 27, 2011
Dietrich A. King
Staff Attorney
Division of Corporation Finance
100 F Street, N.E.
United States Securities and Exchange Commission
Washington, D.C. 20549-4631
Re: Abakan Inc.
Amendment 2 to Current Report on Form 8-K
Filed November 14, 2011
Amendment 1 to Annual Report on Form 10-K for the Fiscal Year Ended May 31, 2011
Filed November 14, 2011
Amendment 1 to Quarterly Report on Form 10-Q for the Quarter Ended August 31, 2011
Filed November 14, 2011
Current Report on Form 8-K
Filed March 25, 2011
File No. 0-52784
Dear Mr. King:
Thank you for your comments dated November 28, 2011 to Abakan Inc.’s submissions on Form 8-K/A-2, Form 10-K/A, and Form 10-Q/A each of which was filed on November 14, 2011 and on Form 8-K filed on March 25, 2011.
We have electronically filed an amended copy of our annual report on Form 10-K/A-2 for the year ended May 31, 2011 to include a revised auditor’s report and certain material agreements. In addition we have included a redlined copy of the filing as part of this correspondence for your reference.
Please direct copies of all responses and any additional comments to us at the following address:
Robert H. Miller
Chief Executive Officer
Abakan Inc.
2665 S. Bayshore Drive, Suite 450
Miami, Florida 33133
Telephone: (786)206-5368
Facsimile: (786) 347-7706
The following are our detailed responses to your comments.
Form 8-K Filed March 25, 2011
Item 1.01 – Entry into Definitive Agreement, page 2
1. We note your response to comment 15 from our letter dated October 17, 2011 and request that you provide the previously requested information as soon as practicable.
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Response:
Thank you for your comment. We do intend to provide the previously requested information as soon as is practicable.
Form 10-K/A for the Year Ended May 31, 2011
Report of Independent Registered Public Accounting Firm, page F-2
2. We note your response to comment 19 from our letter dated October 17, 2011 and do not see where the requested revision has been made. Your current auditor refers to a predecessor auditor that audited your financial statements for the period from June 27, 2006 (inception) through May 31, 2010. While this reference to a predecessor auditor that audited a portion of the cumulative data is permitted, your current auditor’s report must still render an opinion on the entire period from June 27, 2006 (inception) through May 31, 2011. The opinion paragraph makes no reference to this period. Please make arrangements with your auditors to have them revise their report. Please file it in an amended Form 10-K.
Response:
We have obtained a revised audit report from our independent registered public accounting firm and included same in our amended Form 10-K/A-2.
Note 7 – Investment in non-controlling interest, page F-19
3. We note your response to comment 21 from our letter dated October 17, 2011. Since MesoCoat was a material equity method investment as of May 31, 2011, please include audited financial statements for MesoCoat for the year ended May 31, 2011 in your next Form 10-K as well as audited financial statements for Powdermet for each period presented.
Response:
We will include audited financial statements for both MesoCoat and Powdermet as appropriate in our next Form 10-K for the period ended May 31, 2012.
Form 10-Q/A for the Period Ended August 3, 2011
Statements of Operations, page 6
4. The line item titled net profit (loss) appears to actually represent net profit (loss) attributable to Abakan. In addition, the loss before provision of income taxes line item appears to actually represent loss attributable to Abakan before income taxes. If true, please revise the titles used for these line items in future filings. In addition, it does not appear that any of the line items presented actually represent net income (loss). Please ensure that you include a net income (loss) line item in future filings. Please ensure that your statements of cash flows are also revised to begin with net income (loss) rather than net profit (loss) attributable to Abakan. Finally, please present comprehensive income (loss), comprehensive income (loss) attributable to non-controlling interest and comprehensive income (loss) attributable to Abakan in your future filings. Please show us what your revisions will look like.
Response:
We will prepare our future filings to ensure that the comments produced hereto are addressed in our presentations follow the following format or as is appropriate in the given period:
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ABAKAN INC. | |||||||
(Formerly known as Waste to Energy Group, Inc.) | |||||||
(A DEVELOPMENT STAGE ENTERPRISE) | |||||||
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS | |||||||
Cumulative | |||||||
amounts from | |||||||
development stage | |||||||
activities | |||||||
For the three months ended | June 27, 2006 | ||||||
August 31, | (Inception) to | ||||||
2011 |
| 2010 | August 31, 2011 | ||||
Revenues | |||||||
Commercial | $ | 6,177 | $ | - | $ | 6,177 | |
Contract and grants | 298,114 | - | 298,114 | ||||
Other income | 44,097 | - | 45,693 | ||||
348,388 | - | 349,984 | |||||
Cost of Revenues | 303,332 | - | 303,332 | ||||
Gross income | 45,056 | - | 46,652 | ||||
Expenses | |||||||
General and administrative | |||||||
General and administrative | 106,205 | 29,458 | 376,171 | ||||
Professional fees | 74,761 | 58,891 | 397,819 | ||||
Professional fees - related parties | 15,000 | 15,000 | 120,000 | ||||
Consulting | 225,372 | 105,045 | 1,001,218 | ||||
Consulting - related parties | 76,577 | 116,600 | 1,009,977 | ||||
Payroll and benefits expense | 137,607 | 24,557 | 394,476 | ||||
Depreciation and amortization | 82,059 | 1,378 | 111,285 | ||||
Impairment of asset | - | - | 180,000 | ||||
Stock expense on note conversion | - | - | 337,660 | ||||
Stock options expense | 338,517 | 169,024 | 1,616,269 | ||||
Total expenses | 1,056,098 | 519,953 | 5,544,875 | ||||
Loss from operations | (1,011,042) | (519,953) | (5,498,223) | ||||
Other (expense) income | |||||||
Interest expense: | |||||||
Interest - loans | (35,580) | (4,006) | (88,208) | ||||
Interest - related parties | - | - | (5,442) | ||||
Liquidated damages | - | - | (250,000) | ||||
Amortization of discount on debt | (123,535) | - | (261,025) | ||||
Total interest expense | (159,115) | (4,006) | (604,675) | ||||
Interest income | 147 | 861 | 4,276 | ||||
Loss on debt settlement | - | - | (5,257) | ||||
Gain on debt settlement | - | - | 200,709 | ||||
Unrealized gain on MesoCoat acquisition | 1,764,345 | - | 1,764,345 | ||||
Equity in Powdermet income | 46,049 | - | 117,705 | ||||
Equity in MesoCoat loss | (44,408) | (122,015) | (586,020) | ||||
Total Other (expense) income | 1,607,018 | (125,160) | 891,083 | ||||
Net income (loss) before noncontrolling interest | 595,977 | (645,113) | (4,607,139) | ||||
Noncontrolling interest in MesoCoat Loss | 53,892 | - | 53,892 | ||||
Net income/ (loss) attributable to Abakan Inc. | 649,868 | (645,113) | (4,553,248) | ||||
Provision for income taxes | - | - | - | ||||
Net income/ (loss) | $ | 649,868 | $ | (645,113) | $ | (4,553,248) | |
Net income/ (loss) per share - basic | $ | $ 0.01 | $ | (0.01) | |||
Net income/ (loss) per share - diluted | $ | $ 0.01 | $ | (0.01) | $ | ||
Weighted average number of common | |||||||
shares outstanding - basic | 59,330,468 | 55,115,000 | |||||
Weighted average number of common | |||||||
shares outstanding - diluted | 67,485,701 | 55,115,000 |
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ABAKAN INC. | |||||||||
(Formerly known as Waste to Energy Group, Inc.) | |||||||||
(A DEVELOPMENT STAGE ENTERPRISE) | |||||||||
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | |||||||||
Cumulative | |||||||||
amounts from | |||||||||
development stage | |||||||||
activities | |||||||||
For the three months ended | June 27, 2006 | ||||||||
August 31, | (Inception) to | ||||||||
2011 | 2010 | August 31, 2011 | |||||||
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES | |||||||||
Net income/ (loss) from development stage activities | $ | 595,977 | $ | (645,113) | $ | (4,607,139) | |||
Adjustments to reconcile net income/ (loss) to net | |||||||||
cash provided by (used in) development stage activities: | |||||||||
Depreciation and amortization | 82,059 | 1,378 | 111,285 | ||||||
Amortization of discount on debt | 123,535 | - | 261,025 | ||||||
Amortization of deferred financing fees | 292 | - | 292 | ||||||
Stock options expense | 338,517 | 169,024 | 1,616,269 | ||||||
Stock expense from note conversion | - | - | 337,660 | ||||||
Stock issued for services | 76,000 | - | 597,401 | ||||||
Equity in investee loss | 44,408 | 122,015 | 514,365 | ||||||
Equity in investee income | (46,049) | - | (46,049) | ||||||
Unrealized gain on MesoCoat acquisition | (1,764,345) | - | (1,764,345) | ||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable | 44,839 | - | 44,839 | ||||||
Notes receivable - related parties | - | 4,000 | (4,500) | ||||||
Prepaid expenses | 10,023 | 12,098 | (20,330) | ||||||
Prepaid expenses - related parties | 1,485 | - | 14,152 | ||||||
Accounts payable | 45,793 | 15,692 | 386,279 | ||||||
Accounts payable - related parties | 37,554 | 30,917 | 199,499 | ||||||
Accrued interest - related parties | - | - | 2,664 | ||||||
Accrued interest - loans payable | 35,525 | 4,006 | 89,968 | ||||||
Accrued liabilities | 39,865 | - | 112,293 | ||||||
Waste to Energy Group Inc. | - | - | 180,000 | ||||||
Total adjustments | (930,500) | 359,130 | 2,632,766 | ||||||
NET CASH PROVIDED BY/ (USED IN) DEVELOPMENT STAGE ACTIVITIES | (334,524) | (285,983) | (1,974,374) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Purchase of property, plant, equipment and website | (288,993) | (917) | (322,849) | ||||||
MesoCoat - minority interest, net of cash assumed in business combination | 307,650 | - | (3,142,380) | ||||||
Powdermet - minority interest | - | - | (1,650,000) | ||||||
Capitalized patents and licenses | (2,195) | - | (102,195) | ||||||
Waste to Energy Group Inc. | - | - | (180,000) | ||||||
NET CASH USED IN INVESTING ACTIVITIES | 16,462 | (917) | (5,397,424) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Proceeds from sale of common stock | 245,465 | - | 4,421,606 | ||||||
Proceeds from loans payable | 846,665 | 460,769 | 3,618,467 | ||||||
Proceeds from loans payable - related parties | - | - | 79,680 | ||||||
Payments on loans payable - related parties | - | - | 21,063 | ||||||
Repayments of capital leases | (3,387) | - | (3,387) | ||||||
Proceeds from capital contributed | - | - | 5,050 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,088,744 | 460,769 | 8,142,480 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 770,682 | 173,869 | 770,682 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | - | 40,564 | - | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 770,682 | $ | 214,433 | $ | 770,682 |
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Note 10- Earnings- Per- Share Calculation, page 23
5. We note your response to comment 24 from our letter dated October 17, 2011. In future filings, please also disclose separately by type of security the number of shares excluded in each period presented from the computation of diluted EPS because their inclusion would be anti-dilutive. Similarly, revise your future Forms 10-K.
Response:
We will prepare our future filings, including our future Forms 10-K, to disclose separately by type of security the number of shares excluded in each period presented from the computation of diluted EPS.
In connection with Abakan’s response to these comments, we confirm the following:
· Abakan is responsible for the adequacy and accuracy of the disclosure in its filing;
· staff comments or changes to disclosure in respect to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
· Abakan may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We do hope that the information provided above is responsive to your comments. Should you have any additional comments or questions regarding Abakan’s filing please contact us.
/s/ Robert H. Miller
Robert H. Miller
Chief Executive Officer
Attachment
Form 10-K/A -2 May 31, 2011 - redline
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