Document_and_Entity_Informatio
Document and Entity Information (USD $) | 9 Months Ended | |
Feb. 28, 2015 | 4-May-15 | |
Document and Entity Information: | ||
Entity Registrant Name | ABAKAN, INC | |
Document Type | 10-Q | |
Document Period End Date | 28-Feb-15 | |
Amendment Flag | FALSE | |
Entity Central Index Key | 1400000 | |
Current Fiscal Year End Date | -26 | |
Entity Common Stock, Shares Outstanding | 79,501,088 | |
Entity Public Float | $0 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2015 | |
Document Fiscal Period Focus | Q3 |
ABAKAN_INC_CONSOLIDATED_BALANC
ABAKAN, INC. CONSOLIDATED BALANCE SHEETS FEBRUARY 28TH 2015 AND MAY 31ST 2014 (USD $) | Feb. 28, 2015 | 31-May-14 |
Assets, Current | ||
Cash and Cash Equivalents, at Carrying Value | $271,377 | $31,111 |
Accounts Receivable, Net, Current | 139,797 | 119,122 |
Inventory, Net | 34,560 | |
Prepaid Expense, Current | 57,723 | 185,770 |
Assets, Current | 503,457 | 336,003 |
Assets, Noncurrent | ||
Deferred finance fees, net | 11,638 | 14,070 |
Property, Plant and Equipment, Net (Note 4) | 5,271,465 | 5,539,549 |
Patents and licenses, net (Note 5) | 6,114,378 | 6,106,686 |
Assignment agreement Mesocoat (Note 6) | 141,450 | 171,055 |
Investment - Powdermet (Note 7) | 2,267,392 | 2,151,817 |
Goodwill | 364,384 | 364,384 |
Assets | 14,674,164 | 14,683,564 |
Liabilities, Current | ||
Accounts Payable, Current | 1,035,376 | 1,552,402 |
Accounts Payable related parties (Note 11) | 231,383 | 675,041 |
Capital Lease Obligations, Current | 31,825 | 31,465 |
Loans Payable, net of discounts of $171,615 and $456,164 Current (Note 8) | 5,148,515 | 4,820,816 |
Loan payable - related parties (Note 11) | 359,468 | 224,799 |
Accrued interest -loans payable (Note 8) | 642,519 | 306,160 |
Accrued interest -related parties (Note 11) | 20,961 | 480 |
Deferred Revenue and Credits, Current | 150,038 | |
Accrued Liabilities, Current | 929,625 | 652,212 |
Liabilities, Current | 8,549,710 | 8,263,375 |
Liabilities, Noncurrent | ||
Loans Payable, net of discounts of $444,881 and $601,940 (Note 8), Noncurrent | 921,103 | 1,056,106 |
Capital Lease Obligations, Noncurrent | 48,625 | 54,040 |
Liabilities | 9,519,438 | 9,373,521 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest (Note 9) | ||
Common Stock, Value, Issued | 7,952 | 6,840 |
Additional Paid in Capital, Common Stock | 29,096,649 | 24,530,074 |
Subscription receivable | -28,000 | |
Contributed Capital | 5,050 | 5,050 |
Accumulated Deficit during the development stage | -24,046,944 | -19,502,097 |
Accumulated Other Comprehensive Income (Loss), Net of Tax | 766 | |
Stockholders' Equity Attributable to Noncontrolling Interest | 91,253 | 298,176 |
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest | 5,154,726 | 5,310,043 |
Liabilities and Equity | $14,674,164 | $14,683,564 |
Statement_of_Financial_Positio
Statement of Financial Position - Parenthetical Abakan, Inc. February 28, 2015 and May 31, 2014 (USD $) | Feb. 28, 2015 | 31-May-14 |
Condensed Consolidated Balance Sheets Parenthetical | ||
Preferred Stock, Par Value | $0.00 | $0.00 |
Preferred Stock, Shares Authorized | 50,000,000 | 50,000,000 |
Common Stock, Par Value | $0.00 | $0.00 |
Common Stock, Shares Authorized | 2,500,000,000 | 2,500,000,000 |
Common Stock, Shares Issued | 79,501,088 | 68,364,815 |
Common Stock, Shares Outstanding | 79,501,088 | 68,364,815 |
Common Stock, Value, Outstanding | $7,952 | $6,840 |
ABAKAN_INC_CONSOLIDATED_STATEM
ABAKAN, INC, CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED FEBRUARY 28, 2015 AND 2014 (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Revenues | ||||
Sales Revenue, Goods, Net | $55,090 | $69,120 | $210,329 | $206,507 |
Contract and Grants | 189,022 | 94,400 | 511,949 | 229,428 |
Other Revenue, Net | 51,169 | 51,169 | 10,094 | |
Revenues | 295,281 | 163,520 | 773,447 | 446,029 |
Cost of Revenue | ||||
Cost of Revenue | 211,282 | 77,824 | 423,390 | 264,996 |
Gross Profit | 83,999 | 85,696 | 350,057 | 181,033 |
Operating Expenses | ||||
General and Administrative Expense | 202,341 | 210,582 | 724,501 | 589,692 |
Professional Fees | 432,801 | 99,275 | 788,649 | 558,810 |
Professional fees - related parties | 10,910 | 15,000 | 40,910 | 48,028 |
Consulting | 208,438 | 280,008 | 611,472 | 799,475 |
Consulting - related parties | 72,185 | 61,500 | 200,185 | 180,500 |
Payroll and benefits expense | 195,456 | 230,890 | 473,841 | 1,070,926 |
Depreciation, Nonproduction | 237,976 | 191,859 | 641,637 | 583,924 |
Research and Development Expense | 115,424 | 203,623 | 456,589 | 1,033,571 |
Stock expense on note conversion | 76,500 | |||
Stock options expense | 262,341 | 352,816 | 786,717 | 972,481 |
Operating Expenses | 1,737,872 | 1,645,553 | 4,801,001 | 5,837,407 |
Operating Income (Loss) | -1,653,873 | -1,559,857 | -4,450,944 | -5,656,374 |
Interest and Debt Expense | ||||
Interest Expense loans | -138,709 | -79,359 | -400,063 | -178,639 |
Interest Expense related parties | -15,504 | -21,980 | -1,113 | |
Amortization of discount on debt | -137,364 | |||
Interest and Debt Expense | -154,213 | -79,359 | -422,043 | -317,116 |
Interest Income, Net | 2 | 7 | 6 | 14 |
Gain (Loss) on Disposition of Assets | -510 | -2,651 | -510 | |
Gain (Loss) on Sale of assets | -34,139 | -34,139 | ||
Equity in Powdermet income/ (loss) | 110,561 | -73,047 | 115,575 | -295,617 |
Investment Income, Nonoperating | -77,789 | -152,909 | -34,252 | -613,229 |
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest | -1,731,662 | -1,712,766 | -4,794,196 | -6,269,603 |
Noncontrolling interest in MesoCoat Loss | 84,030 | 341,231 | 249,349 | 1,335,624 |
Net Income (Loss) Attributable to Abakan Inc | -1,647,632 | -1,371,535 | -4,544,847 | -4,933,979 |
Net Income (Loss) Attributable to Parent | ($1,647,632) | ($1,371,535) | ($4,544,847) | ($4,933,979) |
Earnings Per Share | ||||
Earnings Per Share, Basic | ($0.02) | ($0.02) | ($0.06) | ($0.08) |
Earnings Per Share, Diluted | ($0.02) | ($0.02) | ($0.06) | ($0.08) |
Weighted Average Number of Shares Outstanding, Basic | 79,501,088 | 64,481,144 | 73,212,202 | 64,365,475 |
Weighted Average Number of Shares Outstanding, Diluted | 79,501,088 | 64,481,144 | 73,212,202 | 64,365,475 |
ABAKAN_INC_CONSOLIDATED_STATEM1
ABAKAN INC CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED FEBRUARY 28, 2015 AND 2014 (USD $) | 9 Months Ended | |
Feb. 28, 2015 | Feb. 28, 2014 | |
Net Cash Provided by (Used in) Operating Activities | ||
Net Cash Provided by (Used in) Operating Activities | ($3,196,522) | ($1,656,379) |
Net Cash Provided by (Used in) Investing Activities | ||
Payments to Acquire Property, Plant, and Equipment | -380,260 | -517,519 |
Proceeds from sale of capital assets | 18,000 | |
Capitalized patents and licenses | -22,458 | -31,581 |
Net Cash Provided by (Used in) Investing Activities | -384,718 | -549,100 |
Net Cash Provided by (Used in) Financing Activities | ||
Proceeds from Issuance of Common Stock | 3,535,798 | 76,244 |
Proceeds from (Repayments of) Notes Payable | 325,496 | 1,940,565 |
Proceeds from (Repayments of) Related Party Debt | 63,499 | |
Proceeds from (Repayments of) Long-term Debt and Capital Securities | -5,055 | -4,717 |
Proceeds from Issuance or Sale of Equity | 28,000 | 20,000 |
Net Cash Provided by (Used in) Financing Activities | 3,820,740 | 2,032,092 |
Proceeds from (Payments for) Other Financing Activities | 766 | |
Cash and Cash Equivalents, Period Increase (Decrease) | 240,266 | -173,387 |
Cash Beginning Period | 31,111 | 233,040 |
Cash End Period | $271,377 | $59,653 |
1_Summary_of_Significant_Accou
1. Summary of Significant Accounting Policies | 9 Months Ended | ||
Feb. 28, 2015 | |||
Notes | |||
1. Summary of Significant Accounting Policies | |||
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||
Basis of Presentation | |||
In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of Abakan’s financial position as of February 28, 2015, and the results of its operations and cash flows for the nine months ended February 28, 2015, have been made. Operating results for the nine months ended February 28, 2015, are not necessarily indicative of the results for the year. | |||
These condensed consolidated financial statements should be read in conjunction with the financial statements and notes for the year ended May 31, 2014, contained in Abakan’s Form 10-K. | |||
Consolidation Policy | |||
The accompanying February 28, 2015, financial statements include Abakan’s accounts and the accounts of its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Abakan’s ownership of its subsidiaries as of February 28, 2015, is as follows: | |||
Name of Subsidiary Percentage of Ownership | |||
AMP SEZC (Cayman) 100.00% | |||
AMP Distributors (Florida) 100.00% | |||
MesoCoat, Inc. 88.08% | |||
MesoCoat’s ownership of its subsidiaries as of February 28, 2015, is as follows: | |||
Name of Subsidiary Percentage of Ownership | |||
MesoCoat Technologies (Canada) 100.00% | |||
MesoCoat Coating Services, Inc. (Nevada) 100.00% | |||
PT MesoCoat Indonesia 100.00% | |||
Non-Controlling Interest | |||
Non-controlling interest represents the minority members’ proportionate share of the equity of MesoCoat, Inc. Abakan’s controlling interest in MesoCoat requires that its operations be included in the consolidated financial statements. The equity interest of MesoCoat that is not owned by Abakan is shown as non-controlling interest in the consolidated financial statements. | |||
Accounts Receivable | |||
Accounts receivable are stated at face value, less an allowance for doubtful accounts. Abakan provides an allowance for doubtful accounts based on management's periodic review of accounts, including the delinquency of account balances. Accounts are considered delinquent when payments have not been received within the agreed upon terms, and are written off when management determines that collection is not probable. As of February 28, 2015, management has determined that no allowance for doubtful accounts is required. | |||
Revenue Recognition – Rental Revenue | |||
Operating leases arise from leasing of the Company’s equipment to a customer in Canada. The initial lease term is 24 months. The Company recognizes revenue ratably over the lease term. Amounts received in excess of the leasing revenue recognized are reported as a deferred rental revenue liability on the balance sheet. Depreciation expense for assets subject to operating leases is provided on a straight-line method. Depreciation expense relating to equipment was $77,747 and none for the nine months ended February 28, 2015 and 2014, respectively. | |||
Operating Leases - Lessor | |||
The cost of equipment leased is included in property, plant and equipment on the balance sheet. Depreciation expense for assets subject to operating leases is provided on the straight-line method. Depreciation expense relating to the equipment was $77,747 and none for the nine months ended February 28, 2015 and 2014, respectively. | |||
Investment in operating leases is as follows at February 28, 2015 and May 31, 2014: | |||
28-Feb-15 | 31-May-14 | ||
Equipment, at cost | 1,681,200 | - | |
Accumulated depreciation | -77,747 | - | |
Net book value | 1,603,453 | - | |
Foreign Currency Translation | |||
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment are translated to U.S. dollars at exchange rates in effect at the balance sheet date with the resulting translation adjustments recorded directly to a separate component of shareholders' equity. Income and expense accounts are translated at average exchange rates during the year. Where the U.S. dollar is the functional currency, translation adjustments are recorded in income. | |||
Subsequent Events | |||
In accordance with ASC 855-10 “Subsequent Events”, Abakan has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued (Note 11). | |||
2_Going_Concern
2. Going Concern | 9 Months Ended |
Feb. 28, 2015 | |
Notes | |
2. Going Concern | |
2. GOING CONCERN | |
The accompanying financial statements have been prepared assuming that Abakan will continue as a going concern. Abakan had net losses for the period of June 27, 2006 (inception) to the period ended February 28, 2015, of $24,046,944 and a working capital deficit of $8,046,253. These conditions raise substantial doubt about Abakan’s ability to continue as a going concern. Abakan’s continuation as a going concern is dependent on its ability to develop additional sources of capital, and/or achieve profitable operations and positive cash flows. Management’s plan is to aggressively pursue its present business plan. Since inception we have funded our operations through the issuance of common stock, debt financing, and related party loans and advances, and we will seek additional debt or equity financing as required. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. | |
3_Investment_in_Noncontrolling
3. Investment in Non-controlling Interest | 9 Months Ended | |||||
Feb. 28, 2015 | ||||||
Notes | ||||||
3. Investment in Non-controlling Interest | ||||||
3. INVESTMENT IN NON-CONTROLLING INTEREST | ||||||
Powdermet, Inc. | ||||||
Abakan owns a 24.1% interest in Powdermet. Powdermet owns 11.92% of MesoCoat as of February 28, 2015. Abakan’s 24.1% ownership of Powdermet, results in indirect ownership of the shares of MesoCoat that Powdermet owns. Abakan’s ownership in Powdermet decreased at the beginning of June 2014 from 24.99% to 24.1% as result of Powdermet’s management exercising certain stock options resulting in a higher number of shares outstanding. On May 31, 2014, Powdermet’s ownership of MesoCoat changed from 48.00% to 11.92% and therefore Powdermet has begun to account for its investment using the cost method. | ||||||
On June 13, 2013, Powdermet formed a wholly owned subsidiary, Terves Inc. On June 10, 2014, Powdermet distributed shares to Terves management which reduced ownership to 84.54%. Powdermet’s controlling interest in Terves requires that its operations be included in their consolidated financial statements. The equity interest of Terves that is not owned by Powdermet is shown as non-controlling interest in their consolidated financial statements. | ||||||
We have analyzed our investment in Powdermet accordance of “Investments – Equity Method and Joint Ventures” (ASC 323), and concluded that the 24.1% minority interest gives us significant influence over Powdermet’s business actions, board of directors, and its management, and therefore we account for our investment using the Equity Method. The table below reconciles our investment amount and equity method amounts to the amount on the accompanying balance sheet. | ||||||
Investment balance, May 31, 2014 | $ | 2,151,817 | ||||
Equity in gain for nine months ended February 28, 2015 | 115,575 | |||||
Investment balance, February 28, 2015 | $ | 2,267,392 | ||||
Below is a table with summary consolidated financial results of operations and financial position of Powdermet. | ||||||
Powdermet Inc. & Subsidiary | ||||||
For the nine months ended | For the nine months ended | |||||
28-Feb-15 | 28-Feb-14 | |||||
Equity Percentage | 24.10% | 41% | ||||
Condensed consolidated income statement information: | ||||||
Total revenues | $ | 2,842,112 | $ | 1,593,405 | ||
Total cost of revenues | 1,074,922 | 482,462 | ||||
Gross margin | 1,767,190 | 1,110,943 | ||||
Total expenses | -995,989 | -1,401,889 | ||||
Other income/ (expense) | 28,862 | -853,525 | ||||
Non-controlling interest in Terves | -48,476 | - | ||||
Provision for income tax benefit | -272,022 | 423,455 | ||||
Net profit/ (loss) attributed to Powdermet Inc. | $ | 479,565 | $ | -721,016 | ||
Abakan’s equity in net profit/(loss): | $ | 115,575 | $ | -295,617 | ||
Condensed consolidated balance sheet information: | 28-Feb-15 | 31-May-14 | ||||
Total current assets | $ | 2,310,907 | $ | 624,299 | ||
Total non-current assets | 3,178,227 | 2,884,479 | ||||
Total assets | $ | 5,489,134 | $ | 3,508,778 | ||
Total current liabilities | $ | 1,028,772 | $ | 422,849 | ||
Total non-current liabilities | 1,824,389 | 925,521 | ||||
Total equity | 2,635,973 | 2,156,408 | ||||
Total liabilities and equity | $ | 5,489,134 | $ | 3,504,778 | ||
4_Loans_Payable
4. Loans Payable | 9 Months Ended | |||
Feb. 28, 2015 | ||||
Notes | ||||
4. Loans Payable | ||||
4. LOANS PAYABLE | ||||
As of February 28, 2015 and May 31, 2014, the loans payable balance comprised of: | ||||
Description | 28-Feb-15 | 31-May-14 | ||
Convertible demand note to an unrelated entity bearing 5% interest per annum which matured on September 15, 2014. | 1,500,000 | $ | 1,500,000 | |
Convertible demand note to an unrelated entity bearing 5% interest per annum which matured on September 15, 2014. | 200,000 | 200,000 | ||
Convertible demand note to an unrelated entity bearing 5% interest per annum which matured on July 14, 2014. | 500,000 | 500,000 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 70,000 | 70,000 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 3,850 | 3,850 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 50,000 | 50,000 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 19,350 | 19,350 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 20,000 | 20,000 | ||
Uncollateralized demand note to a related entity bearing 8% interest per annum | - | 65,000 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 15,000 | 15,000 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 43,600 | 43,600 | ||
Uncollateralized demand note to a related entity bearing 8% interest per annum | 26,685 | 26,685 | ||
Uncollateralized demand note to a related entity bearing 8% interest per annum | 80,994 | 79,494 | ||
Uncollateralized demand note to an unrelated entity bearing 5% interest per annum | - | 50,000 | ||
Uncollateralized demand note to an unrelated entity bearing 6% interest per annum | 20,000 | 20,000 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 30,867 | 30,867 | ||
Uncollateralized demand note to an unrelated entity bearing 5% interest per annum | 250,000 | 250,000 | ||
Uncollateralized demand note to an unrelated entity bearing 5% interest per annum | 406,766 | 130,000 | ||
Secured convertible promissory note to an unrelated entity bearing 5% imputed interest per annum which matures on April 27, 2015 | 1,341,963 | 1,341,963 | ||
Collateralized term note to an unrelated entity bearing 5.15% interest per annum which matures on September 7, 2018. | 111,401 | 132,157 | ||
Uncollateralized demand note to a related entity bearing 8% interest per annum | 21,308 | 21,308 | ||
Uncollateralized demand note to a related entity bearing 7% interest per annum | 32,313 | 32,313 | ||
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum | 33,201 | 35,000 | ||
Uncollateralized demand note to an unrelated entity bearing 7% interest per annum | - | 20,000 | ||
Uncollateralized term note to a related entity bearing 5% interest per annum which matures on February 28, 2015 | 198,168 | - | ||
Collateralized note to an unrelated entity bearing 1% interest for the first year and then 7% per annum for years two – seven. | 954,743 | 1,000,000 | ||
Uncollateralized demand note to a related entity bearing 6% interest per annum | 60,000 | - | ||
Convertible demand note to an unrelated entity bearing 7.5% imputed interest per annum which matures on July 10, 2018. | 33,877 | 40,134 | ||
Uncollateralized demand notes to an unrelated entity bearing 5% interest per annum | 405,000 | 405,000 | ||
Capital leases payable to various vendors expiring in various years through September 2016; collateralized by certain equipment with a cost of $205,157. | 80,450 | 85,505 | ||
6,509,536 | 6,187,226 | |||
Less current liabilities | 5,539,808 | 5,077,080 | ||
Total long term liabilities | $ 969,728 | $ | 1,110,146 | |
On August 28, 2014, Joe Eberhard filed a complaint in the United States District Southern District of Florida alleging that Abakan defaulted on a convertible note and promissory note in the principal aggregate amount of $550,000. The complaint seeks $720,699 plus interest, penalties and legal fees. Abakan believes that it has mitigating defenses to the lawsuit. Court proceedings are in the discovery stage and Abakan has been in settlement discussions with Sonoro through a mediator. | ||||
On October 2, 2014, Sonoro Invest, S.A. (“Sonoro”) initiated legal proceedings against Abakan alleging that Abakan defaulted on two convertible debt obligations and a promissory note due to Sonoro in the principal aggregate amount of $2,105,000. The complaint seeks $3,187,057 which amount includes interest, penalties and legal fees. The Court granted a Temporary Restraining Order in favor of Sonoro on November 6, 2014 and on February 11, 2015, the Company and Sonoro’s attorneys agreed to terms of a Preliminary Injunction enjoining Abakan from undertaking certain actions “outside of its normal business without Sonoro’s consent, which will not be unreasonably withheld” pending the outcome of the legal proceedings. The actions that Abakan is enjoined from undertaking, include paying dividends, acquiring its own shares, becoming liable for significant new debt outside its normal course business, disposing of significant amounts of its assets, lending amounts in excess of $100,000, and effecting any distribution of its capital stock outside of a previously approved equity placement. Court proceedings are in the discovery stage. Abakan believes that it has mitigating defenses to the lawsuit. A trial date has been set for October 5, 2015. |
5_Stockholders_Equity
5. Stockholders' Equity | 9 Months Ended | ||||||||||||
Feb. 28, 2015 | |||||||||||||
Notes | |||||||||||||
5. Stockholders' Equity | |||||||||||||
5. STOCKHOLDERS' EQUITY | |||||||||||||
Common Stock Issuances | |||||||||||||
For the nine months ended February 28, 2015, Abakan issued the following shares in private placements and the conversion of debt to shares: | |||||||||||||
On July 31, 2014, we issued 43,800 shares of our common stock for services to be performed valued at $31,098. In connection with this placement we had no offering costs. | |||||||||||||
On October 7, 2014, we issued 557,000 shares of our common stock in a private placement valued at $222,800. Abakan also issued 512,500 shares of its common stock for a subscription payable valued at $205,000. In connection with this placement we had no offering costs. | |||||||||||||
On October 7, 2014, we issued 1,792,973 restricted shares due to a downside protection provision and obtained the agreement of the placees to relinquish the right to additional warrants to purchase 832,487 restricted shares. Abakan offered downside stock price protection in two private placements that totaled 1,664,973 shares that closed in April 2014 and May 2014. The down-side protection offered additional shares if new private placements were offered within one year at a lower price. After receipt of these additional shares, the placees would hold the same quantity of shares as if they would have had participated in any subsequent lower priced private placement. As of the date of the issuance of this report, all private placements with downside protection are past the one year anniversary except 60,000 shares. | |||||||||||||
On November 11, 2014, we issued 7,500,000 shares of our common stock in a private placement valued at $3,000,000. In connection with this placement we had no offering costs. | |||||||||||||
On November 26, 2014, we issued 270,000 shares of our common stock in a private placement valued at $108,000. In connection with this placement we had no offering costs. | |||||||||||||
On November 26, 2014, we satisfied a debt obligation of $140,000, for 350,000 shares of our restricted common stock. In connection with this placement we incurred stock expense on satisfaction of $59,500. | |||||||||||||
On November 26, 2014, we satisfied accounts payable obligations of $40,000, for 100,000 shares of our restricted common stock. In connection with this placement we incurred stock expense on conversion of $17,000. | |||||||||||||
Common Stock Warrants | |||||||||||||
A summary of the common stock warrants granted, forfeited or expired during the nine months ended February 28, 2015 and the year ended May 31, 2014, is presented below: | |||||||||||||
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Terms (In Years) | |||||||||||
Balance at June 1, 2013 | 2,842,992 | $ | 1.8 | 1.00 years | |||||||||
Granted | 877,634 | 1.41 | |||||||||||
Exercised | - | - | |||||||||||
Forfeited or expired | -1,681,058 | 1.89 | |||||||||||
Balance at May 31, 2014 | 2,039,568 | $ | 1.89 | 1.15 years | |||||||||
Granted | - | - | |||||||||||
Exercised | - | - | |||||||||||
Forfeited or expired | -1,429,645 | 1.72 | |||||||||||
Balance at February 28, 2015 | 609,923 | $ | 2.27 | 0.13 years | |||||||||
Exercisable at February 28, 2015 | 609,923 | $ | 2.27 | 0.13 years | |||||||||
Weighted average fair value of | $ | NA | |||||||||||
warranted granted during the three months ended February 28, 2015 | |||||||||||||
The following table summarizes information about the common stock warrants outstanding at February 28, 2015: | |||||||||||||
Warrants Exercisable | |||||||||||||
Range of Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | ||||||||
$ | 1.5 | 250,000 | .13 Years | $ | 1.5 | $ | 250,000 | $ | 1.5 | ||||
$ | 2.7 | 224,261 | .09 Years | $ | 2.7 | $ | 224,261 | $ | 2.7 | ||||
$ | 3 | 135,662 | .17 Years | $ | 3 | $ | 135,662 | $ | 3 | ||||
609,923 | .13 Years | $ | 2.27 | $ | 609,923 | $ | 2.27 | ||||||
6_Earningspershare_Calculation
6. Earnings-per-share Calculation | 9 Months Ended | ||
Feb. 28, 2015 | |||
Notes | |||
6. Earnings-per-share Calculation | |||
6. EARNINGS-PER-SHARE CALCULATION | |||
Basic earnings per common share for the three and nine months ended February 28, 2015 and 2014 are calculated by dividing net income by weighted-average common shares outstanding during the period. Diluted earnings per common share for the three and nine months ended February 28, 2015 and 2014 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: | |||
For the three months ended February 28, 2015 | For the three months ended February 28, 2014 | ||
Net earnings (loss) from operations | -1,647,632 | (1,371,535) | |
Weighted-average common shares | 79,501,088 | 64,481,144 | |
Effect of dilutive securities: | |||
Warrants | - | - | |
Options to purchase common stock | - | - | |
Dilutive potential common shares | 79,501,088 | 64,481,144 | |
Net earnings per share from operations: | |||
Basic | $ (0.02) | $ (0.02) | |
Diluted | $ (0.02) | $ (0.02) | |
For the nine months ended February 28, 2015 | For the nine months ended February 28, 2014 | ||
Net earnings (loss) from operations | -4,544,847 | -4,933,979 | |
Weighted-average common shares | 73,212,202 | 64,365,475 | |
Effect of dilutive securities: | |||
Warrants | - | - | |
Options to purchase common stock | - | - | |
Dilutive potential common shares | 73,212,202 | 64,365,475 | |
Net earnings per share from operations: | |||
Basic | $ (0.06) | $ (0.08) | |
Diluted | $ (0.06) | $ (0.08) | |
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 Abakan’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. | |||
These securities below were excluded from the calculations above because to include them would be anti-dilutive: | |||
For the three months ended February 28, 2015 | For the three months ended February 28, 2014 | ||
Common Stock Equivalents: | |||
Warrants | 609,923 | 2,136,397 | |
Options to purchase common stock | 3,928,327 | 4,166,667 | |
Total of Common Stock Equivalents: | 4,538,250 | 6,303,064 | |
For the nine months ended February 28, 2015 | For the nine months ended February 28, 2014 | ||
Common Stock Equivalents: | |||
Warrants | 609,923 | 2,136,397 | |
Options to purchase common stock | 3,928,327 | 4,166,667 | |
Total of Common Stock Equivalents: | 4,538,250 | 6,303,064 | |
7_Comprehensive_Income
7. Comprehensive Income | 9 Months Ended | |||||||||
Feb. 28, 2015 | ||||||||||
Notes | ||||||||||
7. Comprehensive Income | 7. COMPREHENSIVE INCOME | |||||||||
Comprehensive income consist of two components, net income and OCI. OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Abakan’s OCI consists of foreign currency translation adjustments from its Canadian subsidiary not using the U.S. dollar as their functional currency. | ||||||||||
The following table shows the changes in OCI by component for the three months ended February 28, 2015. There was no OCI prior to November 30, 2014. | ||||||||||
Cumulative Foreign Currency Translation | Total | |||||||||
Balance at November 30, 2014 | $ | - | $ | - | ||||||
Other comprehensive income | 766 | 766 | ||||||||
Tax effect | - | - | ||||||||
Balance at February 28, 2015 | 766 | 766 | ||||||||
8_Stock_Based_Compensation
8. Stock Based Compensation | 9 Months Ended | |||||||
Feb. 28, 2015 | ||||||||
Notes | ||||||||
8. Stock Based Compensation | ||||||||
8. STOCK – BASED COMPENSATION | ||||||||
2009 Stock Option Plan – Abakan | ||||||||
Our board of directors adopted and approved our 2009 Stock option Plan (“Plan”) on December 14, 2009, as amended on June 14, 2012, which provides for the granting and issuance of up to 10 million shares of our common stock. The total value of employee and non-employee stock options granted during the nine months ended February 28, 2015 and 2014, was $424,623 and $234,271, respectively. | ||||||||
We granted 100,000 stock options to a consultant on December 11, 2014, at an exercise price of $0.65 per share that expire in ten years from the grant date, and vest one third parts commencing on the date of the grant and each anniversary. | ||||||||
We granted 1,000,000 stock options to an employee on January 1, 2015, at an exercise price of $0.60 per share that expire in ten years from the grant date, and vest in equal one half parts on May 31, 2015 and May 31, 2016. | ||||||||
A summary of the options granted to employees and non-employees under the plan and changes during the nine months ended February 28, 2015 year ending May 31, 2014 is presented below: | ||||||||
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Terms(In Years) | Aggregate Intrinsic Value | |||||
Balance at June 1, 2013 | 3,800,000 | $ | 1.26 | 7.78 years | $ | 108,750 | ||
Granted | 850,000 | 1.35 | ||||||
Exercised | - | - | ||||||
Forfeited or expired | -1,230,006 | $ | 1.35 | |||||
Balance at May 31, 2014 | 3,419,994 | $ | 1.36 | 7.90 years | $ | 126,750 | ||
Granted | 1,100,000 | 0.61 | ||||||
Exercised | -50,000 | 0.65 | ||||||
Forfeited or expired | -541,667 | $ | 1.87 | |||||
Balance at February 28, 2015 | 3,928,327 | $ | 1.14 | 7.86 years | $ | |||
Exercisable at February 28, 2015 | 2,178,335 | $ | 1.33 | 6.62 years | $ | 82,000 | ||
Weighted average fair value of | $ | 0.61 | ||||||
options granted during the nine months ending February 28, 2015 | ||||||||
9_Related_Party
9. Related Party | 9 Months Ended |
Feb. 28, 2015 | |
Notes | |
9. Related Party | 9. RELATED PARTY |
Employment agreement | |
On December 20, 2014, we entered into an employment agreement effective January 1, 2015, with a related individual to perform duties as the Chief Operating Officer of Abakan and to continue to serve as the Chief Executive Officer of Abakan’s subsidiary, MesoCoat. The individual also serves as a director of Abakan and MesoCoat. The employee retains previously granted stock options for his service as a director. The terms of the employment agreement include a $20,000 per month salary of which a portion is deferred, and a 1,000,000 stock options grant with an exercise price of $0.60 per share that will expire ten years from the option grant date that vest in equal parts on May 31, 2015 and May 31, 2016. The employment agreement will end on December 31, 2016 and at which time it can be renewed for two one year periods. In the event that this agreement is terminated early, the employee may be eligible for a severance payment. |
10_Commitments
10. Commitments | 9 Months Ended | |
Feb. 28, 2015 | ||
Notes | ||
10. Commitments | ||
10. COMMITMENTS | ||
Contribution Agreement | ||
Abakan and MesoCoat entered into a Contribution Agreement with Northern Alberta Institute of Technology to establish a prototype demonstration facility for developing, testing and commercializing wear-resistant clad pipe and components in Alberta, Canada. Out of the total project cost of $4,110,000; CDN $2,750,000 is being provided by Alberta’s Ministry of Innovation and Advanced Education and Western Economic Diversification Canada, CDN$160,000 by Northern Alberta Institute of Technology, and the rest has been committed by MesoCoat and Abakan. The agreement requires Abakan and MesoCoat to contribute cash of CDN$870,000 to the operating expenses and payroll of the facility which will be invoiced quarterly with equal payments through January 2017. In addition, Abakan has committed to spend CDN$330,000, either by itself or with industry partners, for product testing, qualification, and the hiring of a sales person in Canada during the two year term of this project. Abakan’s commitments in the agreement are a necessary precursor to commencing sales of CermaClad wear resistant clad plate and pipe in Canada. MesoCoat has delivered equipment and will lease the equipment over 24 months for a total rental value of CDN$500,000 of which CDN$250,000 has been received as of February 28, 2015 and reflected in both rental revenue and deferred revenue liability. For the nine months ending February 28, 2015 and 2014, Abakan has recorded no operating expense reimbursement as the facility is not yet commissioned. The amounts are to be settled in Canadian dollars and will be converted from US dollars at the exchange rate in effect at the time of payment. | ||
Operating Leases – Lessor | ||
Future minimum rental payments as of February 28, 2105, to be received on non-cancelable operating lease in Alberta, Canada are contractually due in Canadian dollars and will be converted to US dollars at the exchange rate in effect at the time of payment are as follows: | ||
Year Ending | May 31, | |
2015 | CDN$ 83,333 | |
2016 | CDN$ 166,667 | |
CDN$ 250,000 | ||
11_Subsequent_Events
11. Subsequent Events | 9 Months Ended |
Feb. 28, 2015 | |
Notes | |
11. Subsequent Events | |
11. SUBSEQUENT EVENTS | |
Management has evaluated subsequent events after the balance sheet date, through the issuance of the financial statements, for appropriate accounting and disclosure. Abakan has determined that there were no such events that warrant disclosure or recognition in the financial statements, except for the following: | |
Sonoro Invest S.A. | |
On April 21, 2015, Abakan notified Sonoro Invest S.A. of its intent to borrow funds to satisfy that amount due to George Town Associates S.A. on April 27, 2015. Sonoro responded that it believed that Abakan was prohibited from borrowing additional funds not for the purpose of repaying amounts due to Sonoro. The position taken by Sonoro is based on a Preliminary Injunction pursuant to which the Court enjoined Abakan from assuming new debt. Abakan is in the process of seeking a settlement with Sonoro that would include its consent to the assumption of debt to repay George Town. | |
George Town Associates S.A. | |
On April 22, 2015, Abakan received a Notice of Violation from George Town Associates S.A., in connection with its failure to file a periodic report on Form 10-Q in a timely manner as required by the Exchange Act pursuant to the terms and conditions of a Secured Convertible Promissory Note dated April 28, 2014. The Notice was followed by a Default Notice dated April 30, 2015, due to Abakan’s failure to cure the violation within the time frame prescribed in the Note. Abakan is in the process of securing financing to satisfy amounts due to George Town. | |