UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 – Q
x |
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31,
2015
¨ |
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-53488
PROPELL TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in its
charter)
Delaware |
26-1856569 |
(State or other jurisdiction of incorporation or
organization) |
(IRS Employer Identification Number) |
1701 Commerce Street, Houston, Texas 77002
(Address of principal executive offices including
zip code)
(713) 227 - 0480
(Registrant’s telephone number, including
area code)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive
data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 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). Yes x
No ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
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. (Check one):
Large Accelerated Filer ¨ |
Accelerated Filer ¨ |
Non-Accelerated Filer ¨ |
Smaller Reporting Company x |
Number of shares outstanding of the issuer’s
common stock as of the latest practicable date: 264,558,931 shares of common stock, $.001 par value per share, as of May 11, 2015.
PROPELL TECHNOLOGIES GROUP, INC.
Index
Item 1.
PROPELL TECHNOLOGIES GROUP, INC.
TABLE OF CONTENTS
March 31, 2015
PROPELL TECHNOLOGIES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Unaudited | | |
| |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 3,913,166 | | |
$ | 40,844 | |
Accounts receivable | |
| 88,391 | | |
| 5,892 | |
Prepaid expenses | |
| 47,502 | | |
| 13,031 | |
Total Current Assets | |
| 4,049,059 | | |
| 59,767 | |
| |
| | | |
| | |
Non-Current assets | |
| | | |
| | |
Plant and Equipment, net | |
| 350,441 | | |
| 319,574 | |
Intangibles, net | |
| 280,000 | | |
| 297,500 | |
Deposits | |
| 2,200 | | |
| 2,200 | |
Total non-current assets | |
| 632,641 | | |
| 619,274 | |
Total Assets | |
$ | 4,681,700 | | |
$ | 679,041 | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity (Deficit) | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 67,308 | | |
$ | 347,437 | |
Accrued liabilities and other payables | |
| 267,619 | | |
| 240,426 | |
Notes payable | |
| 3,000 | | |
| 117,489 | |
Short-term convertible notes payable, net | |
| - | | |
| 183,109 | |
Derivative financial liabilities | |
| - | | |
| 18,455 | |
Total Current Liabilities | |
| 337,927 | | |
| 906,916 | |
| |
| | | |
| | |
Long Term Liabilities | |
| | | |
| | |
Convertible notes payable, net | |
| - | | |
| 6,220 | |
Total Long Term Liabilities | |
| - | | |
| 6,220 | |
Total Liabilities | |
| 337,927 | | |
| 913,136 | |
| |
| | | |
| | |
Stockholders' Equity (Deficit) | |
| | | |
| | |
Preferred stock, $0.001 par value, 10,000,000 authorized shares, 0 shares and 5,000,000 shares undesignated. | |
| - | | |
| - | |
Series A-1 Convertible Preferred stock, $0.001 par value; 5,000,000 shares designated, 3,137,500 and 3,512,500 shares issued and outstanding, respectively. (liquidation preference $251,000 and $281,000, respectively) | |
| 3,138 | | |
| 3,513 | |
Series B Convertible, Redeemable Preferred Stock, $0.001 par value; 500,000 shares designated; 75,000 and 0 issued and outstanding (liquidation preference $900,000 and $0) | |
| 75 | | |
| 75 | |
Series C Convertible, Preferred Stock, $0.001 par value; 4,500,000 shares designated; 1,525,424 and 0 issued and outstanding (liquidation preference $5,000,000 and $0) | |
| 1,525 | | |
| - | |
Common stock, $0.001 par value; 500,000,000 shares authorized, 264,558,931 and 260,169,499 shares issued and outstanding, respectively | |
| 264,559 | | |
| 260,169 | |
Additional paid-in capital | |
| 15,162,838 | | |
| 9,914,303 | |
Accumulated deficit | |
| (11,088,362 | ) | |
| (10,412,155 | ) |
Total Stockholders' Equity (Deficit) | |
| 4,343,773 | | |
| (234,095 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity (Deficit) | |
$ | 4,681,700 | | |
$ | 679,041 | |
See notes to the unaudited condensed consolidated
financial statements
PROPELL TECHNOLOGIES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
| |
Three months ended, March 31, 2015 | | |
Three Months ended March 31, 2014 | |
| |
| | |
| |
Net Revenues | |
$ | 82,500 | | |
$ | 16,583 | |
| |
| | | |
| | |
Cost of Goods Sold | |
| 57,823 | | |
| 18,343 | |
| |
| | | |
| | |
Gross Profit (Loss) | |
| 24,677 | | |
| (1,760 | ) |
| |
| | | |
| | |
Equity based compensation | |
| 241,286 | | |
| 625,397 | |
Sales and Marketing | |
| 597 | | |
| 800 | |
Professional Fees | |
| 155,731 | | |
| 43,652 | |
Consulting fees | |
| 94,387 | | |
| 55,828 | |
General and administrative | |
| 141,805 | | |
| 161,886 | |
Depreciation and amortization | |
| 32,433 | | |
| 4,591 | |
Total Expense | |
| 666,239 | | |
| 892,154 | |
Loss from Operations | |
| (641,562 | ) | |
| (893,914 | ) |
| |
| | | |
| | |
Amortization of debt discount and finance costs | |
| (53,100 | ) | |
| (202,405 | ) |
Change in fair value of derivative liabilities | |
| 18,455 | | |
| (338,477 | ) |
| |
| (34,645 | ) | |
| (540,882 | ) |
Loss before Provision for Income Taxes | |
| (676,207 | ) | |
| (1,434,796 | ) |
| |
| | | |
| | |
Provision for Income Taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Net Loss | |
| (676,207 | ) | |
| (1,434,796 | ) |
| |
| | | |
| | |
Deemed preferred stock dividend | |
| (1,101,696 | ) | |
| (1,604,335 | ) |
| |
| | | |
| | |
Undeclared Series B and Series C preferred dividends
| |
| (82,575 | ) | |
| - | |
| |
| | | |
| | |
Net loss available to common stock holders | |
$ | (1,860,478 | ) | |
$ | (3,039,131 | ) |
| |
| | | |
| | |
Net Loss Per Share – Basic and Diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted Average Number of Shares Outstanding – Basic and Diluted | |
| 250,363,331 | | |
| 205,794,150 | |
See notes to the unaudited condensed consolidated
financial statements
PROPELL TECHNOLOGIES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN
STOCKHOLDERS' EQUITY(DEFICIT)
FOR THE PERIOD JANUARY 1, 2015 TO MARCH 31,
2015
| |
Preferred
Stock | | |
Common
stock | | |
| | |
| | |
| |
| |
Series
A-1 | | |
Series
B | | |
Series
C | | |
| | |
| | |
| | |
| | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Additional
Paid
in
Capital | | |
Accumulated
deficit | | |
Total
Stockholders’
Equity
(Deficit) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance
as of January 1, 2015 | |
| 3,512,500 | | |
$ | 3,513 | | |
| 75,000 | | |
$ | 75 | | |
| - | | |
$ | - | | |
| 260,169,499 | | |
$ | 260,169 | | |
$ | 9,914,303 | | |
$ | (10,412,155 | ) | |
$ | (234,095 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of notes and
accrued interest thereon to common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 639,432 | | |
| 640 | | |
| 12,149 | | |
| - | | |
| 12,789 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Subscription for Series
C Convertible Preferred Stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,525,424 | | |
| 1,525 | | |
| - | | |
| - | | |
| 4,998,475 | | |
| - | | |
| 5,000,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of Series A-1
preferred stock to common | |
| (375,000 | ) | |
| (375 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,750,000 | | |
| 3,750 | | |
| (3,375 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted stock awards | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 241,286 | | |
| - | | |
| 241,286 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the three months ended March
31, 2015 | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| | | |
| - | | |
| - | | |
| - | | |
| (676,207 | ) | |
| (676,207 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of March 31, 2015 | |
| 3,137,500 | | |
$ | 3,138 | | |
| 75,000 | | |
$ | 75 | | |
| 1,525,424 | | |
$ | 1,525 | | |
| 264,558,931 | | |
$ | 264,559 | | |
$ | 15,162,838 | | |
$ | (11,088,362 | ) | |
$ | 4,343,773 | |
See notes to the unaudited condensed consolidated
financial statements
PROPELL TECHNOLOGIES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
| |
Three Months ended, March 31, 2015 | | |
Three Months ended, March 31, 2014 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss for the period | |
$ | (676,207 | ) | |
$ | (1,434,796 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation expense | |
| 14,933 | | |
| 4,591 | |
Amortization expense | |
| 17,500 | | |
| - | |
Amortization of debt discount | |
| 16,232 | | |
| 59,732 | |
Equity based compensation charge | |
| 241,286 | | |
| 625,397 | |
Derivative financial liability | |
| (18,455 | ) | |
| 338,477 | |
Changes in Assets and Liabilities | |
| | | |
| | |
Accounts receivable | |
| (82,499 | ) | |
| (77,000 | ) |
Prepaid expenses | |
| (34,471 | ) | |
| (1,542 | ) |
Accounts payable | |
| (280,129 | ) | |
| (15,597 | ) |
Accrued liabilities | |
| 27,193 | | |
| 3,717 | |
Deferred revenue | |
| - | | |
| 210,860 | |
Accrued interest | |
| (11,261 | ) | |
| 27,762 | |
Cash
Used in Operating Activities | |
| (785,878 | ) | |
| (258,399 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of plant and equipment | |
| (45,800 | ) | |
| (25,000 | ) |
NET
CASH USED IN INVESTING ACTIVITIES | |
| (45,800 | ) | |
| (25,000 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| |
| | | |
| | |
Proceeds on issuance of Series C Preferred stock | |
| 5,000,000 | | |
| - | |
Proceeds on issuance of Series B Preferred stock | |
| - | | |
| 750,000 | |
Proceeds from notes payable and advances | |
| 125,000 | | |
| 100,000 | |
Repayment of notes payable and advances | |
| (421,000 | ) | |
| (351,948 | ) |
| |
| | | |
| | |
NET
CASH PROVIDED BY FINANCING ACTIVITIES | |
| 4,704,000 | | |
| 498,052 | |
| |
| | | |
| | |
NET INCREASE IN CASH | |
| 3,872,322 | | |
| 214,653 | |
CASH AT BEGINNING OF PERIOD | |
| 40,844 | | |
| 28,423 | |
CASH
AT END OF PERIOD | |
$ | 3,913,166 | | |
$ | 243,076 | |
| |
| | | |
| | |
CASH PAID FOR INTEREST AND TAXES: | |
| | | |
| | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
Cash paid for interest | |
$ | 48,130 | | |
$ | 114,678 | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
Licenses acquired not yet paid for | |
$ | - | | |
| 350,000 | |
Conversion of debt to equity | |
$ | 12,789 | | |
$ | 224,011 | |
See notes to the unaudited condensed consolidated
financial statements
PROPELL TECHNOLOGIES
GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
1 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
Propell Technologies Group, Inc.
(formerly known as Propell Corporation) (the “Company”), is a Delaware corporation originally formed on January 29,
2008 as CA Photo Acquisition Corp. On April 10, 2008 Crystal Magic, Inc. (“CMI”), a Florida Corporation, merged with
an acquisition subsidiary of Propell’s, and the Company issued an aggregate of 180,000 shares to the former shareholders
of CMI. On May 6, 2008, the Company acquired both Mountain Capital, LLC (doing business as Arrow Media Solutions) (“AMS”)
and Auleron 2005, LLC (doing business as Auleron Technologies) (“AUL”) and made each a wholly owned subsidiary and
issued a total of 41,897 shares of the Company’s common stock to the members of Mountain Capital, LLC and a total of 2,722
shares of the Company’s common stock to the members of AUL. In 2010 AUL and AMS were dissolved and the operations of CMI
were discontinued. On February 4, 2013, the Company entered into a Share Exchange Agreement with Novas Energy (USA), Inc. (“Novas”)
whereby the Company exchanged 100,000,000 shares of its common stock for 100,000,000 shares of common stock in Novas. After the
consummation of the share exchange, Novas became a wholly owned subsidiary of the Company. As a result of the share exchange the
shareholders of Novas obtained the majority of the outstanding shares of the Company. As such, the exchange is accounted for as
a reverse merger or recapitalization of the Company and Novas was considered the acquirer for accounting purposes.
|
b) |
Description of the business |
The Company, through its wholly
owned subsidiary, Novas, is an innovative technology and services company whose aim is to radically improve oil production by introducing
modern and innovative technologies. Novas has a unique and patent pending, Plasma-Pulse Treatment (“PPT”) technology,
which is a new Enhanced Oil Recovery methodology and process that has been developed to be environmentally friendly, mobile, time
efficient and extremely cost effective. PPT has the potential to drive new and renewed revenue for energy producers and become
a new standard for the entire petroleum industry.
|
2 |
ACCOUNTING POLICIES AND ESTIMATES |
The accompanying unaudited condensed
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)
for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited
condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial
statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting
only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The
results of operations and cash flows for the three months ended March 31, 2015 may not necessarily be indicative of results that
may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this quarterly report on
Form 10-Q should be read in conjunction with our audited financial statements included in our annual report on Form 10-K as of
and for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (the “SEC”).
Significant accounting policies
are described in Note 2 to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of December
31, 2014.
The preparation of unaudited consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are evaluated on
an ongoing basis, that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Management
bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of
revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments.
In particular, significant estimates and judgments include those related to: the estimated useful lives for plant and equipment,
the fair value of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude
of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating
losses, those related to revenue recognition and the allowance for doubtful accounts.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the unaudited consolidated financial statements, which management considered
in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from our estimates.
All amounts referred to in the notes
to the unaudited consolidated financial statements are in United States Dollars ($) unless stated otherwise.
|
b) |
Principles of Consolidation |
The unaudited consolidated financial
statements include the financial statements of the Company and its subsidiary in which it has a majority voting interest. All significant
inter-company accounts and transactions have been eliminated in the unaudited consolidated financial statements. The entities included
in these unaudited consolidated financial statements are as follows:
Propell Technologies Group, Inc.
– Parent Company
Nova Energy USA Inc.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
Certain conditions may exist as
of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such
assessment inherently involves an exercise of judgment.
If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case
the guarantee would be disclosed.
|
d) |
Fair Value of Financial Instruments |
The Company adopted the guidance
of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair
value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:
Level 1-Inputs are unadjusted quoted
prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
The carrying amounts reported in
the balance sheets for cash, accounts receivable, prepaid expenses, deposits, accounts payable, accrued liabilities, notes payable,
and convertible notes payable approximate fair value due to the relatively short period to maturity for these instruments. The
recorded derivative liabilities during the years ended December 31, 2014 was noted as subject to level III fair value measurements.
The Company did not identify any other assets or liabilities that are required to be presented on the balance sheets at fair value
in accordance with the accounting guidance.
ASC 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
|
e) |
Risks and Uncertainties |
The Company's operations will
be subject to significant risk and uncertainties including financial, operational, regulatory and other associated risks, including
the potential risk of business failure. The recent global economic crisis has caused a general tightening in the credit markets,
lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed
income markets. These conditions not only limit the Company’s access to capital, but also make it difficult for its customers,
vendors and the Company to accurately forecast and plan future business activities.
The Company’s operations are
carried out in the USA and Mexico. Accordingly, the Company’s business, financial condition and results of operations may
be influenced by the political, economic and legal environment in the USA and Mexico and by the general state of those economies.
The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, and rates and methods of taxation, among other things.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
|
f) |
Recent Accounting Pronouncements |
In June 2014, FASB issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a single
comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide
goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods
or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific
guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included
in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies
and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information
to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue
recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial
statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting
periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently reviewing
the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2015, FASB issued Accounting Standards Update
(“ASU”) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of
Debt Issuance Costs, to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies,
the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within
those fiscal years. Early application is permitted. This updated guidance is not expected to have a material impact on our results
of operations, cash flows or financial condition.
Any new accounting standards, not
disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to
have a material impact on the financial statements upon adoption.
No segmental information is presented
as the Company has disposed of its historical virtual trading store business which had minimal revenues. The Company is focusing
on developing its Novas Energy, Plasma Pulse Technology for the petroleum industry.
Revenues to date are insignificant.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
|
h) |
Cash and Cash Equivalents |
The Company considers all highly
liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At March 31,
2015 and December 31, 2014, respectively, the Company had no cash equivalents.
The Company minimizes credit
risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times
may exceed federally insured limits. At March 31, 2015, the Company had cash balances of $3,913,166 which exceeded the federally
insured limits by $3,663,166. At December 31, 2014, the balance did not exceed the federally insured limit.
|
i) |
Accounts Receivable and Allowance for Doubtful Accounts |
Accounts receivable are reported
at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue
is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number
of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral
part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state
of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates.
Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense. Receivables deemed
uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries
of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no recoveries
during the three months ended March 31, 2015 and the year ended December 31, 2014.
The Company had no inventory as
of March 31, 2015 or December 31, 2014.
Plant and equipment is stated at
cost, less accumulated depreciation. Plant and equipment with costs greater than $1,000 are capitalized and depreciated. Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets
are as follows:
Description |
|
Estimated Useful Life |
Office equipment and furniture |
|
2 years |
Leasehold improvements and fixtures |
|
Lesser of estimated useful life or life of lease |
Plant and equipment |
|
2 to 3 years |
Plasma pulse tools |
|
5 years |
The cost of repairs and maintenance
is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are included in income in the year of disposition.
All of our intangible assets are
subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances
that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to
be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its
book value.
License agreements acquired by the
Company are reported at acquisition value less accumulated amortization and impairments.
Amortization is reported in the income
statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite.
Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license
agreement is five years which is the expected period for which we expect to derive a benefit from the underlying license agreements
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
Assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company records revenue when
all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the service is completed without further
obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.
|
o) |
Share-Based Payment Arrangements |
Generally, all forms of share-based
payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation
awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair
value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded
in operating expenses in the unaudited consolidated statement of operations.
Income taxes are computed using
the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available
evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes
as interest expense or penalties expense. As of March 31, 2015, there have been no interest or penalties incurred on income taxes.
Basic net loss per share is computed
on the basis of the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed
on the basis of the weighted average number of common shares and common share equivalents outstanding. Dilutive securities having
an anti-dilutive effect on diluted net loss per share are excluded from the calculation (See Note 13, below).
Dilution is computed by applying
the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common shares
at the average market price during the period.
Dilution is computed by applying
the if-converted method for convertible preferred shares. Under this method, convertible preferred stock is assumed to be converted
at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine
income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common shares
outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
Any common shares issued as a result
of the issue of stock options and warrants would come from newly issued common shares from our remaining authorized shares.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
Comprehensive income is defined
as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions
resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented
includes net loss.
Parties are considered to be related
to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with the Company, or own in aggregate, on a fully diluted basis 5% or more of the Company’s stock.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners
of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests. The Company shall disclose all related party transactions. All transactions shall
be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to
the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to
related party.
Prepaid expenses consisted of the following as of March
31, 2015 and December 31, 2014:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
- | |
Prepaid insurance | |
$ | 42,301 | | |
$ | 8,144 | |
Prepaid professional fees | |
| 4,850 | | |
| 4,417 | |
Other | |
| 351 | | |
| 470 | |
| |
$ | 47,502 | | |
$ | 13,031 | |
Plant and Equipment consisted of the following as of March
31, 2015 and December 31, 2014:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Capital work in progress | |
$ | 64,282 | | |
$ | 18,482 | |
Plasma pulse tool | |
| 310,374 | | |
| 310,374 | |
Furniture and equipment | |
| 26,643 | | |
| 26,643 | |
Field equipment | |
| 19,627 | | |
| 19,627 | |
Computer equipment | |
| 1,500 | | |
| 1,500 | |
Total cost | |
| 422,426 | | |
| 376,626 | |
Less: accumulated depreciation | |
| (71,985 | ) | |
| (57,052 | ) |
Plant and equipment, net | |
$ | 350,441 | | |
$ | 319,574 | |
Depreciation expense was $14,933
and $4,591 for the three months ended March 31, 2015 and 2014, respectively.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Licenses
Novas licenses the “Plasma-Pulse
Technology” (“the Technology”) from Novas Energy Group Limited, the Licensor, pursuant to the terms of an exclusive
perpetual royalty bearing license it entered into in January 2013, which was amended on March, 2014 and further amended on December
23, 2014. The amended license agreement provides Novas with the exclusive right to develop, use, market and commercialize the Technology
for itself and/or third parties, sublicense and provide services to third parties related to the Technology in the United States
and Mexico including all of its states, districts, territories, possessions and protectorates. The amended license agreement also
provides Novas with the right to design and have manufactured the apparatus and to make modifications and improvements to the Technology
provided that the Licensor is provided a non-exclusive license to any such improvements and modifications and any patent rights
of Novas related to the Technology. The license is limited to the United States and Mexico. It also provides that Novas will pay
the Licensor royalties equal to seven and a half percent (7.5%) of Net Service Sales (as defined in the second amendment to the
license agreement) and Non-Royalty Sublicensing Consideration (as defined in the second amendment to the license agreement) and
provides for a minimum royalty payment of $500,000 per year from United States operations and $500,000 per year from Mexican operations;
however, no minimum royalty payment is due prior to the three year anniversary of the license agreement for revenue derived from
the United States operations and no minimum royalty is due prior to December 31, 2015 for revenue derived from Mexico. Revenue
derived from operations in one territory can be used to satisfy obligations for minimum royalty payments in the other territory.
All royalty payments made by Novas as well as sublicensing revenue paid by Novas to the Licensor are credited towards the minimum
royalty payment. If the minimum royalty is not timely paid, the Licensor has the right to terminate the license with respect to
a particular territory and if the minimum royalty payment for both territories is not paid, to terminate the license agreement.
Novas was obligated to pay an initial license fee of $150,000 on or prior to June 30, 2014, this fee was subsequently waived by
the Licensor with effect from July 30, 2014, and an additional $200,000 on or prior to June 30, 2015 for the additional rights
under the amended license agreement. The Licensor is responsible for the cost of filing prosecuting and maintaining the patents
and Novas is responsible for costs of obtaining marketing approvals. The Licensor has the right to terminate the license agreement
upon Novas’ breach or default. If the Licensor dissolves, becomes insolvent or engages in or is the subject of any other
bankruptcy proceeding then the technology and patent rights in the United States shall become our property.
Intangibles consisted of the following as of March 31,
2015 and December 31, 2014, respectively:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
License agreements | |
$ | 350,000 | | |
$ | 350,000 | |
Website development | |
| 8,000 | | |
| 8,000 | |
Total cost | |
| 358,000 | | |
| 358,000 | |
Less: accumulated amortization | |
| (78,000 | ) | |
| (60,500 | ) |
Intangibles, net | |
$ | 280,000 | | |
$ | 297,500 | |
Amortization expense was $17,500
and $0 for the three months ended March 31, 2015 and 2014, respectively.
The minimum commitments due under
the license agreement for the next five years are summarized as follows:
| |
Amount | |
| |
| |
2015 | |
$ | 700,000 | |
2016 | |
| 1,000,000 | |
2017 | |
| 1,000,000 | |
2018 | |
| 1,000,000 | |
2019 | |
| 1,000,000 | |
| |
$ | 4,700,000 | |
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6 |
ACCRUED LIABILITIES AND OTHER PAYABLES |
Accrued liabilities consisted of the following
as of March 31, 2015 and December 31, 2014, respectively:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Payroll liabilities | |
$ | 42,073 | | |
$ | 35,823 | |
Accrued Royalties | |
| 25,546 | | |
| 4,603 | |
License fees payable | |
| 200,000 | | |
| 200,000 | |
| |
$ | 267,619 | | |
$ | 240,426 | |
Notes payable consisted of the following as of March 31,
2015 and December 31, 2014, respectively:
Description | |
Interest Rate | | |
Maturity | |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
| | |
| |
Short-Term | |
| | | |
| |
| | | |
| | |
Owl Holdings | |
| - | | |
- | |
$ | 3,000 | | |
$ | 3,000 | |
JAZ-CEH Holdings, LLC | |
| 7.5 | % | |
October 31, 2015 | |
| - | | |
| 105,000 | |
Accrued interest | |
| | | |
| |
| - | | |
| 9,489 | |
Total JAZ-CEH holdings, LLC | |
| | | |
| |
| - | | |
| 114,489 | |
Total
Notes Payable | |
| | | |
| |
$ | 3,000 | | |
$ | 117,489 | |
Owl Holdings
The note payable advanced by Owl
Holdings to the Company has no interest rate and is repayable on demand.
JAZ-CEH Holdings, LLC
In October 2013, Novas Energy USA,
Inc, entered into an unsecured promissory note with JAZ-CEH Holdings LLC with a face value of $105,000. The note bears interest
at 7.5% per annum and matures on October 31, 2015.
On February 20, 2015, the note to
JAZ-CEH Holdings, LLC, including interest thereon was repaid for a total amount of $115,590.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
8 |
SHORT-TERM CONVERTIBLE NOTES PAYABLE |
Short Term Convertible Notes payable consisted of the
following as of March 31, 2015 and December 31, 2014, respectively:
| |
Interest Rate | | |
Maturity | |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | | |
| |
| | | |
| | |
LG Capital Funding, LLC | |
| 8 | % | |
October 31, 2015 | |
| - | | |
| 107,000 | |
Unamortized debt discount and interest expense | |
| | | |
| |
| - | | |
| (4,379 | ) |
Total LG Capital Funding, LLC | |
| | | |
| |
| - | | |
| 102,621 | |
| |
| | | |
| |
| | | |
| | |
KBM Worldwide, Inc. | |
| 8 | % | |
September 15, 2015 | |
| - | | |
| 84,000 | |
Unamortized debt discount and interest expense | |
| | | |
| |
| - | | |
| (3,512 | |
Total KBM Worldwide, Inc. | |
| | | |
| |
| - | | |
| 80,488 | |
| |
| | | |
| |
| | | |
| | |
Total
Short-Term Convertible Notes Payable | |
| | | |
| |
$ | - | | |
$ | 183,109 | |
LG Capital Funding, LLC
On October 31, 2014, the Company
issued a note for $107,000 to LG Capital Funding, LLC (“LG”) upon receipt of $100,000 from LG. The terms of the note
provided for an original issue discount of 7% amounting to $7,000 which was added to the face value of the note. The note carried
an interest charge of 8% per annum. The note was convertible into common stock at any time, at the holder’s option, in whole
or in part, at a conversion price equal to 62% of the lowest bid prices in the 10 trading days prior to conversion. The note had
a maturity date of October 30, 2015. The holder was not entitled to exercise any conversion right that would result in the holder
owning more than 9.9% of the Company’s common stock. The Convertible Note was redeemable by the Company within 180 days of
the issuance date, after a 3 day notice period, in which notice period the holder could elect to exercise the conversion feature
of the note, at a premium over the principal amount due of 10%, plus any interest earned thereon, subject to the holders approval.
The conversion price of the note had anti-dilutive provisions which would increase the redemption penalty of the note to 150% of
the principal outstanding plus accrued and unpaid interest thereon, or allow conversion immediately prior to the dilutive event
taking place.
On February 20, 2015, the unsecured
promissory note issued to LG of $107,000 was repaid for $125,677, inclusive of interest, original issue discounts and early settlement
penalty accrued thereon. The Company has no further obligations under this note.
KBM Worldwide, Inc.
On December 10, 2014, the Company
issued an unsecured convertible note to KBM Worldwide, Inc. (“KBM”) with a face value of $84,000, in exchange for $80,000
in cash, including an original issue discount of $4,000. The note was convertible into common stock of the Company and bore interest
at the rate of 8% per annum, which interest was payable in cash or common stock, at the election of the holder, and had a maturity
date of September 12, 2015. The conversion price, as well as the formula for determining the number of shares needed to repay the
note and any interest thereon was 58% of the average of the lowest closing price for any three trading days during the last ten
day trading period prior to conversion or payment of interest. The holder could only convert the note following the expiration
of 180 days from the date of issuance, December 10, 2014. The holder was not entitled to any conversion right that would result
in the holder owning more than 4.99% of the Company’s common stock. This note could be prepaid by the Company from the date
of issuance to 180 days after issuance date at a prepayment penalty ranging from 110% to 135% of the balance outstanding, including
interest thereon, dependent upon the age of the note.
On February 20, 2015, the unsecured
promissory note issued to KBM on December 10, 2014 with a face value of $84,000 was repaid for $102,107, inclusive of interest,
fees and an early settlement penalty accrued thereon. The Company has no further obligations under this note.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
9 |
DERIVATIVE FINANCIAL LIABILITY |
Certain of the short-term convertible
notes disclosed in note 8 above, had variable priced conversion rights with no fixed floor price and would re-price dependent on
the share price performance over varying periods of time. This gave rise to a derivative financial liability, which was valued
at $224,442 at inception of the convertible notes using a Black-Scholes valuation model. The value of this derivative financial
liability is re-assessed at each financial reporting period, with any movement thereon recorded in the statement of operations
in the period in which it is incurred or the convertible debt is converted into equity.
Upon repayment or conversion of the
outstanding notes, the derivative financial liability is no longer required.
The movement in derivative liabilities
is as follows:
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Opening balance | |
$ | 18,455 | | |
$ | 237,799 | |
Derivative financial liability arising on short-term notes with variable conversion prices | |
| - | | |
| 23,060 | |
Conversion of derivative liability for stock issued at a discount | |
| - | | |
| (668,756 | ) |
Fair value adjustments to derivative financial liability | |
| (18,455 | ) | |
| 426,352 | |
| |
$ | - | | |
$ | 18,455 | |
The following assumptions were used in the Black-Scholes
valuation model:
| |
Year ended December 31, 2014 | |
Stock price over the period | |
| $0.17 – $0.23 | |
Risk free interest rate | |
| 0.13%
to 0.25 | % |
Expected life of short-term notes payable | |
| 9 to 14 months | |
Expected volatility | |
| 95.24% - 119.45 | % |
Expected dividend rate | |
| 0 | % |
10 |
LONG-TERM CONVERTIBLE NOTES PAYABLE |
Long Term Convertible Notes payable consisted of the following
as of March 31, 2015 and December 31, 2014, respectively:
Description | |
Interest Rate | | |
Maturity | |
March 31, 2015 | | |
December 31, 2014 | |
Notes payable | |
| 6 | % | |
November 19, 2017 | |
$ | - | | |
$ | 11,250 | |
Accrued interest | |
| | | |
| |
| - | | |
| 1,470 | |
Unamortized debt discount | |
| | | |
| |
| - | | |
| (6,500 | ) |
Total
long-Term Convertible Notes Payable | |
| | | |
| |
$ | - | | |
$ | 6,220 | |
The convertible notes payable
consisted of notes issued to a number of private principals (“the Notes”). The Notes bore interest at the rate of 6%
per annum and were due on November 19, 2017. The Notes were convertible into common stock at a fixed conversion price of $0.02
per share.
On February 6, 2015, the remaining
convertible note with an aggregate principal amount of $11,250, inclusive of interest of $1,539, totaling $12,789 was converted
into 639,432 common shares at a conversion price of $0.02 per share.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY (DEFICIT) |
The Company has authorized 500,000,000 common shares
with a par value of $0.001 each, and issued and outstanding 264,558,931shares of common stock as of March 31, 2015.
The following common shares were
issued by the Company during the three months ended March 31, 2015:
|
i) |
an aggregate of 639,432 shares of Common Stock to convertible note holders upon conversion of an aggregate of $12,789 of long-term convertible notes, inclusive of interest thereon, at a share price of $0.02 per share; |
|
ii) |
an aggregate of 3,750,000 shares of Common Stock were issued upon the conversion of 375,000 shares of Series A-1 Preferred stock in terms of a conversion notice received from a Series A-1 stockholder at a conversion factor of 10 Common shares for one Series A-1Preferred share. |
Included in the Common stock outstanding are 13,000,000
Restricted shares of common stock issued as follows:
|
(a) |
An aggregate of 10,000,000 shares of restricted common stock were issued to our Chief Executive Officer in terms of an employment agreement entered into with him. These shares are restricted and vest as to 1,250,000 shares on January 1, 2015 and a further 1,250,000 shares per quarter thereafter, these shares will be fully vested on September 1, 2016. These restricted shares were valued at the closing price of the common stock on February 4, 2015, the date of approval of the amended and restated employment agreement with our Chief Executive officer. Refer related party disclosure in note 14 below. |
|
(b) |
An aggregate of 3,000,000 shares of restricted common stock were issued to our Director, John Zotos, in terms of a consulting agreement entered into with him. These shares are restricted and vest as to 1,000,000 shares on March 31, 2015, a further 1,000,000 vest on September 30, 2015 with the remaining 1,000,000 vesting on March 31, 2016. These restricted shares were valued at the closing price of the common stock on December 5, 2014, the date of approval of the consulting agreement with John Zotos. Refer related party disclosure in note 14 below. |
The restricted stock outstanding and
exercisable at March 31, 2015 is as follows:
| | |
Restricted Stock Outstanding | | |
Restricted Stock Exercisable | |
Grant date Price | | |
Number Outstanding | | |
Weighted Average Grant Date Price | | |
Number Vested | | |
Weighted Average Grant Date Price | |
$ | 0.15 | | |
| 10,000,000 | | |
$ | | | |
| 1,250,000 | | |
$ | | |
$ | 0.18 | | |
| 3,000,000 | | |
$ | | | |
| 1,000,000 | | |
$ | | |
| | | |
| 13,000,000 | | |
$ | 0.16 | | |
| 2,250,000 | | |
$ | 0.16 | |
The Company has recorded an expense
of $241,286 and $0 for the three months ended March 31, 2015 and 2014, relating to the restricted stock awards and a further $1,403,286
will be expensed over the vesting period of the stock which takes place over the next eighteen months.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY (DEFICIT) (continued) |
The Company has 10,000,000 authorized
preferred shares with a par value of $0.001 each with 5,000,000 preferred shares designated as Series A-1 Convertible Preferred
Stock (“Series A-1 Shares”), 500,000 preferred shares designated as Series B Preferred Stock and on February 19, 2015,
the Company amended its articles of incorporation, designating the remaining 4,500,000 preferred shares as Series C Preferred Stock.
| i) | Series A-1 Convertible Preferred Stock |
The Company has designated 5,000,000
preferred shares as Series A-1 Convertible Preferred Stock (“Series A-1 Shares”), with 3,137,500 Series A-1 Shares
issued and outstanding which are convertible into 31,375,000 shares of common stock.
During the three months ended March
31, 2015, holders of 375,000 Series A-1 shares converted their holdings into 3,750,000 shares of the Company’s Common Stock
at a conversion ratio of 10 common shares to 1 Series A-1 Share.
The rights, privileges and preferences
of the Series A-1 Shares are summarized as follows;
Conversion
Each Series A-1 Share has the following
conversion rights:
|
(a) |
Each share of the Series A-1Shares is convertible into ten shares of Common Stock. |
|
(b) |
There shall be no adjustment made to the conversion ratio of the Series A-1 Shares for any stock split, stock dividend, combination, reclassification or other similar event. |
Company Redemption
The Series A-1Shares are non-redeemable
by the Company.
Voting Rights
Each holder of Series A-1 Shares is
entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to that number of
votes equal to the number of shares of Common Stock into which such holder’s shares of Series A-1 Shares could then be converted.
Dividends
Until such time that any dividend is
paid to the holders of Common Stock, the holders of Series A-1 Shares shall be entitled to a dividend in an amount per share equal
to that which such holders would have been entitled to receive had they converted all of the shares of Series A-1 Shares into Common
Stock immediately prior to the payment of such dividend
Liquidation Preference
Each share of Series A-1 Shares is
entitled to a liquidation preference of $0.08 per share
No Circumvention
The approval of the holders of at least
2/3 (66.6%) of the outstanding shares of the Series A-1 Shares, voting together separately as a class, is required for:
|
(a) |
the merger, sale of all, or substantially all of the assets or intellectual property, recapitalization, or reorganization of the Company; |
|
(b) |
the authorization or issuance of any equity security having any right, preference or priority superior to or on a parity with the Series A-1 Shares; |
|
(c) |
the redemption, repurchase or acquisition of any of the Company’s equity securities or the payment of any dividends or distributions thereon; |
|
(d) |
any amendment or repeal of the Company’s Articles of Incorporation or Bylaws that would have an adverse affect on the rights, preferences or privileges of the Series A-1 Shares; and |
|
(e) |
the making of any loan or advance to any person except in the ordinary course of business. |
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY (DEFICIT) (continued) |
|
ii) |
Series B Convertible Preferred Stock |
The Company has designated 500,000
preferred shares as Series B Convertible Preferred Stock (“Series B Shares”), with 75,000 Series B Shares issued and
outstanding which are convertible into 7,500,000 shares of common stock.
The company issued 75,000 Series
B shares in March 2014 for gross proceeds of $750,000.
The rights, privileges and preferences of the Series B Shares
are summarized as follows:
Conversion
The holders of the Series B Preferred Shares shall have
conversion rights as follows:
|
(a) |
Each share of the Series B Shares shall be convertible at any time prior to the issuance of a redemption notice by the Company into such number of shares of Common Stock by dividing the Stated value ($10) of the Series B Share by $0.10 and shall be subject to adjustment for dividends or distributions made in common stock, the issue of securities convertible into common stock, stock splits, reverse stock splits, or reclassifications of common stock. No adjustments will be made to the conversion rights or conversion price for any reorganization other than to be entitled to receive the same benefits as if the shares were converted immediately prior to such reorganization. No conversion will take place if the holder of the Series B Shares will beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after conversion. As of the date hereof, each Series B Share converts into 100 shares of common stock. |
|
(b) |
The conversion right of the holders of Series B Shares shall be exercised by the surrender of the certificates representing shares to be converted to the Company, accompanied by written notice electing conversion. |
|
(c) |
No fractional shares of Common Stock or script shall be issued upon conversion of Series B Shares. The Company shall pay a cash adjustment in respect to such fractional interest based upon the fair value of a share of Common Stock, as determined in good faith by the Company’s Board of Directors. |
|
(d) |
All shares of Common Stock issued upon conversion of Series B Shares will upon issuance be validly issued, fully paid and non-assessable. All certificates representing Series B Shares surrendered for conversion shall be appropriately canceled on the books of the Company and the shares so converted represented by such certificates shall be restored to the status of authorized but unissued shares of preferred stock of the Company. |
Company Redemption
The Company shall have the right, at
any time after the date the Series B Shares have been issued, to redeem all or a portion of any Holder's Series B Shares at a price
per Series B Share equal to the issue price per Series B Share multiplied by 120%
Voting Rights
Each holder of Series B Shares shall
be entitled to vote on all matters submitted to a vote of the stockholders of the Company and shall be entitled to votes equal
to the number of shares of Common Stock into which Series B Shares could be converted, and the holders of shares of Series B Shares
and Common Stock shall vote together as a single class on all matters submitted to the stockholders of the Company.
Dividends
|
(a) |
The holders of the Series B Shares shall be entitled to receive cumulative dividends at the rate of eight percent per annum of the issue price per share, accrued daily and payable annually in arrears on December 31st of each year (“Dividend Date”). Such dividends shall accrue on any given share from the day of original issuance of such share. Such dividends shall be cumulative, whether or not declared by the Board of Directors, but shall be non-compounding. |
|
(b) |
Any dividend payable on a dividend payment date may be paid, at the option of the Company, either (i) in cash or (ii) in shares of common stock at an issue price of $0.10 per common share. |
|
(c) |
Nothing contained herein shall be deemed to establish or require any payment or other charges in excess of the maximum permitted by applicable law. |
|
(d) |
In the event that pursuant to applicable law or contract the Company shall be prohibited or restricted from paying in cash the full dividends to which the holders of the Series B Shares shall be entitled, the cash amount available pursuant to applicable law or contract shall be distributed among the holders of the Series B Shares ratably in proportion to the full amounts to which they would otherwise be entitled and any remaining amount due to holders of the Series B Shares shall be payable in cash. |
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY DEFICIT (continued) |
|
b) |
Preferred Stock (continued) |
|
ii) |
Series B Convertible Preferred Stock (continued) |
Liquidation Preference
In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B Shares shall be entitled
to receive, prior and in preference to any distribution of any assets of the Company to the holders of any other preferred stock
of the Company and subordinate to any distribution to the Series A-1 Shares, and prior and in preference to any distribution of
any assets of the Company to the holders of the Common Stock, the amount of 120% of the issue price per share. In addition, the
Series B holder has agreed to vote to subordinate the series B Preferred stock liquidation preferences to the Series C Preferred
stock preferences.
No Circumvention
The Company shall not amend its certificate
of incorporation, or participate in any reorganization, sale or transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance
of any of the terms to be observed or performed by the Company.
We have undeclared dividends on
the Series B Preferred stock amounting to $60,658 as of March 31, 2015. If the dividends are paid in stock, the beneficial conversion
feature of these undeclared dividends will be recorded upon the declaration of these dividends. The computation of loss per common
share for the three months ended March 31, 2015 takes into account these undeclared dividends.
|
iii) |
Series C Convertible Preferred Stock |
The Company has designated 4,500,000
preferred shares as Series C Convertible Preferred Stock (“Series C Shares”), with 1,525,424 Series C Shares issued
and outstanding which are convertible into 40,677,973 shares of common stock (a conversion price of $0.12291665 per share).
On February 19, 2015, the Company entered
into a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Ervington Investment Limited, an
entity organized under the laws of the Republic of Cyprus whose ultimate beneficial owner is Roman Abramovich (“Ervington”),
and closed the first tranche of a private placement offering under the Purchase Agreement, raising $5,000,000 in gross proceeds
from the sale of 1,525,424 shares of our Series C Preferred Stock (“Series C Preferred Stock”) at a purchase price
of $3.277777778 per share. The Company agreed to use the net proceeds of the offering for research and development, commercialization
of new products, sales and marketing, repayment of debt, accounts payable and administrative expenses. The Purchase Agreement also
provides, subject to the conditions set forth therein, for the sale by the Company to Ervington of an additional 2,974,576 shares
of Series C Preferred Stock for an additional gross proceeds to us of $9,750,000. The proceeds of the second closing are to be
used by us for the acquisition, enhancement and maintenance of an oil field for deployment of our Plasma Pulse Technology.
We have valued the beneficial conversion
rights of the Series C Convertible Preferred Stock to be the right to the additional effective common shares as converted utilizing
the opening market price of the common stock of $0.15 per share. Such computation valued the beneficial conversion rights to be
$1,101,696 for purposes of presenting the net loss to common stock holders.
In connection with the Purchase
Agreement, the Company also entered into an Investors’ Rights Agreement with Ervington (the “Investors’ Rights
Agreement”). The Investors’ Rights’ Agreement provides that the Holders (as defined in the Investors’ Rights
Agreement) of a majority of the outstanding Registerable Securities (defined therein as the shares of common stock and Series A-1
Convertible Preferred Stock (“Series A-1 Preferred Stock”) issued pursuant to the Secondary Stock Purchase Agreement
(as defined below), the shares of Series C Preferred Stock issued pursuant to the Purchase Agreement and any common stock issued
as dividends thereon or in exchange for such) are entitled to demand registration rights under certain circumstances and piggyback
registration rights. In addition, the Investors’ Rights Agreement provides that Ervington (or its assignee) has the right
to designate a person to be appointed as the Company’s Chief Executive Officer, a board observer right if a representative
of Ervington or its affiliate is not a member of our board of directors and certain consultation rights if a representative of
Ervington or its affiliate is not a member of our board of directors so long as it holds a majority of the Registerable Securities
and at least 36,000,000 shares of our common stock on an “as converted” basis. Ervington and its affiliates also have
a right of first refusal to acquire their pro rata share of any New Securities (as defined in the Investors’ Rights Agreement)
which we propose to issue and sell.
In connection with the Purchase
Agreement, Ervington also entered into a stock purchase agreement (the “Secondary Purchase Agreement”) with certain
of our stockholders (the “Selling Stockholders”), pursuant to which the Selling Stockholders sold to Ervington an aggregate
of 7,624,990 shares of our common stock and 2,437,500 shares of our Series A-1 Preferred Stock (representing 24,375,000 shares
of our common stock on an as converted basis) at a purchase price of $.001 per share. The Secondary Purchase Agreement also provides
that the Selling Stockholders will sell to Ervington at the second closing or subsequent closings under the Purchase Agreement
in the aggregate an additional 56,677,477 shares of our common stock and 700,000 shares of our Series A-1 Preferred Stock (representing
7,000,000 shares of our common stock on an as converted basis).
The Company also entered into a
Stockholders Agreement with the Selling Stockholders and Ervington (the “Stockholders Agreement”) providing that until
a Change of Control Transaction (as defined in the Stockholders Agreement), each person a party thereto shall vote all of such
person’s shares of our common stock in favor of the designees appointed by Ervington and two additional directors appointed
by two of the Selling Stockholders and Ervington agreed to vote its shares in favor of the two designees appointed by the two Selling
Stockholders provided that the certain Selling Stockholders continue to own a certain threshold number of shares of our common
stock or preferred stock convertible into our common stock. In addition, the Selling Stockholders granted Ervington certain drag
along rights in the event of a Change of Control Transaction (as defined in the Stockholders Agreement) and Ervington and its affiliates
were granted certain rights of first refusal.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY DEFICIT (continued) |
|
b) |
Preferred Stock (continued) |
|
iii) |
Series C Convertible Preferred Stock (continued) |
In accordance with the terms of the
Series C Preferred Stock Certificate of Designations (the “Series C Certificate of Designations”), Ervington appointed
Ivan Persiyanov to serve as a director, holding two votes. In addition, James Fuller, Mark Kalow and Dan Steffens resigned from
the Board of Directors effective upon the closing.
In addition, as a condition to
the consummation of the Purchase Agreement, the Company filed a Certificate of Designations to our Certificate of Incorporation
with the Secretary of State of the State of Delaware setting forth the rights, preferences and privileges of the Series C Preferred
Stock, our Bylaws were amended and restated and we entered into an Indemnification Agreement with Ivan Persiyanov.
The terms attached to the Series C
Preferred Stock (“Series C Share”) are summarized below:
Conversion
Subject to adjustment for stock splits,
stock dividends, reorganizations and recapitalizations and similar transactions, each Series C Share is currently convertible at
the option of the holder into 26.67 shares of common stock.
Company Redemption
The Series C Shares are not subject
to redemption by the Company.
Voting Rights
Generally, holders of Series C Shares
will, on an as-converted basis, vote together with the common stock as a single class.
Upon the issuance of at least 1,500,000
shares of Series C Preferred Stock the holders of the Series C Preferred Stock, as a class, are entitled to elect either two directors
holding one vote or one director holding two votes. Upon the issuance of an aggregate of 4,500,000 shares of Series C Preferred
Stock, the holders of the Series C Preferred Stock are entitled to elect either three directors holding one vote each, one director
holding three votes or two directors with one director holding two votes and another director holding one vote.
Dividends
The Series C Shares accrue dividends
at the rate per annum equal to 4% of the stated price (which initially is $3.277777778) payable annually in arrears on December
31 of each year in preference and priority to any payment of any dividend on our common stock, or any other class of preferred
stock.
Liquidation Preference
In the event of our liquidation, dissolution
or winding up and other liquidation events (as defined in the Series C Certificate of Designations), holders of Series C Shares
are entitled to receive from proceeds remaining after distribution to our creditors and prior to the distribution to holders of
common stock or any other class of preferred stock the (x) stated value (as adjusted for
stock splits, stock dividends, reorganizations, recapitalizations and the like) held by such holder and (y) all accrued but unpaid
dividends on such shares.
Anti Dilution
The Series C Shares are entitled to
certain weighted average anti-dilution protection as specified in the Series C Certificate of Designations.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY DEFICIT (continued) |
|
b) |
Preferred Stock (continued) |
|
iii) |
Series C Convertible Preferred Stock (continued) |
No Circumvention
The approval by holders of a majority
of the Series C Shares, voting separately as a class, will be required for the following:
|
(i) |
merger, sale of substantially all of our assets or our recapitalization, reorganization, liquidation, dissolution or winding up; |
|
(ii) |
redemption or acquisition of shares of our common stock other than in limited circumstances; |
|
(iii) |
declaration or payment of a dividend or distribution with respect to our capital stock; |
|
(iv) |
making any loan or advance; |
|
(v) |
amending our Certificate of Incorporation or Bylaws; |
|
(vi) |
authorizing or creating any new class or series of equity security; |
|
(vii) |
increasing the number of authorized shares for issuance under any existing stock or option plan; |
|
(viii) |
materially changing the nature of the business |
|
(ix) |
incurring any indebtedness; |
|
(x) |
engaging in or making investments not authorized by our board of directors; |
|
(xi) |
acquiring or divesting a material amount of assets; |
|
(xii) |
selling, assigning, licensing, pledging or encumbering our material technology or intellectual property; |
|
(xiii) |
entering into any corporate strategic relationship involving payment, contribution or assignment by us or to us of any assets. |
We have undeclared dividends on
the Series C Preferred stock amounting to $21,918 as of March 31, 2015. If the dividends are paid in stock, the beneficial conversion
feature of these undeclared dividends will be recorded upon the declaration of these dividends. The computation of loss per common
share for the three months ended March 31, 2015 takes into account these undeclared dividends.
The Company’s Board of Directors approved the Company’s
2008 Stock Option Plan (the “Stock Plan”) for the issuance of up to 5,000,000 shares of common stock to be granted
through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted
stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company
and its subsidiaries. After the reverse stock split in August 2012, a total of 100,000 shares were available for grant. Subsequent
to the reverse split the Board of Directors approved an increase in the number of awards available for grant to 2,100,000 shares.
The exercise price of stock options under the Stock Plan is determined by the Board of Directors, and may be equal to or greater
than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over
various periods from the date of grant, and generally expire ten years after the grant date.
At March 31, 2015 and December 31, 2014, there were 380,950
Plan options issued and outstanding, respectively, under the Stock Option Plan.
The vesting provisions for these stock
options are determined by the board of directors at the time of grant, there are no unvested options outstanding as of March 31,
2015.
No options were issued during the three months ended March
31, 2015.
In the event of the employees’ termination, the Company
will cease to recognize compensation expense.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY (DEFICIT) (continued) |
|
c) |
Stock Options (continued) |
A summary of all of our option activity
during the period January 1, 2014 to March 31, 2015 is as follows:
| |
Shares | | |
Exercise price per share | | |
Weighted average exercise price | |
Outstanding
January 1, 2014 | |
| 11,452,960 | | |
$ | 0.25
to 25.00 | | |
$ | 0.30 | |
Granted | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| (11,072,010 | ) | |
| 0.25 to 25.00 | | |
| 0.25 | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding
December 31, 2014 | |
| 380,950 | | |
$ | 0.51
to 13.50 | | |
$ | 0.90 | |
Granted | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding
March 31, 2015 | |
| 380,950 | | |
| 0.51
to 13.50 | | |
| 0.90 | |
Stock options outstanding as of
March 31, 2015 and December 31, 2014 as disclosed in the above table, have an intrinsic value of $0 and $0, respectively.
The options outstanding and exercisable at March 31,
2015 are as follows:
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
Exercise
Price |
|
|
Number
Outstanding |
|
|
Weighted
Average
Remaining
Contractual
life in years |
|
|
Weighted
Average
Exercise
Price |
|
|
Number
Exercisable |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining
Contractual
life in years |
|
$ |
13.50 |
|
|
|
3,480 |
|
|
|
4.21 |
|
|
$ |
|
|
|
|
3,480 |
|
|
$ |
|
|
|
|
4.21 |
|
$ |
12.50 |
|
|
|
2,000 |
|
|
|
5.54 |
|
|
$ |
|
|
|
|
2,000 |
|
|
$ |
|
|
|
|
5.54 |
|
$ |
8.50 |
|
|
|
500 |
|
|
|
6.25 |
|
|
$ |
|
|
|
|
500 |
|
|
$ |
|
|
|
|
6.25 |
|
$ |
5.00 |
|
|
|
14,800 |
|
|
|
6.55 |
|
|
$ |
|
|
|
|
14,800 |
|
|
$ |
|
|
|
|
6.55 |
|
$ |
0.65 |
|
|
|
36,924 |
|
|
|
8.01 |
|
|
$ |
|
|
|
|
36,924 |
|
|
$ |
|
|
|
|
8.01 |
|
$ |
0.63 |
|
|
|
38,096 |
|
|
|
3.25 |
|
|
$ |
|
|
|
|
38,096 |
|
|
$ |
|
|
|
|
3.25 |
|
$ |
0.51 |
|
|
|
285,150 |
|
|
|
5.04 |
|
|
$ |
|
|
|
|
285,150 |
|
|
$ |
|
|
|
|
5.04 |
|
|
|
|
|
|
380,950 |
|
|
|
5.20 |
|
|
$ |
0.90 |
|
|
|
380,950 |
|
|
$ |
0.90 |
|
|
|
5.20 |
|
The Company has applied fair value
accounting for all share based payment awards since inception. The fair value of each option or warrant granted is estimated on
the date of grant using the Black-Scholes option-pricing model. There is no deferred compensation recorded upon initial grant date,
instead, for employees, the fair value of the share-based payment is recognized ratably over the stated vesting period. For consultants,
the fair value is recognized as expense immediately.
All options are fully vested and
have been fully amortized as of March 31, 2015. The Company has recorded an expense of $0 and $490,397 for the three months ended
March 31, 2015 and 2014 relating to options issued.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
11 |
STOCKHOLDERS’ EQUITY (DEFICIT) (continued) |
A summary of all of our warrant
activity during the period January 1, 2014 to March 31, 2015 is as follows:
| |
Shares | | |
Exercise price per share | | |
Weighted average exercise price | |
Outstanding January 1, 2014 | |
| 375,000 | | |
$ | 0.30 | | |
$ | 0.30 | |
Granted | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding December 31, 2014 | |
| 375,000 | | |
$ | 0.30 | | |
$ | 0.30 | |
Granted | |
| 5,964,498 | | |
| 0.15 to 0.25 | | |
| 0.23 | |
Forfeited/Cancelled | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding March 31, 2015 | |
| 6,339,498 | | |
$ | 0.15 to 0.30 | | |
$ | 0.24 | |
The warrants outstanding and exercisable at March 31,
2015 are as follows:
|
|
|
Warrants Outstanding |
|
|
Warrants Exercisable |
|
Exercise
Price |
|
|
Number
Outstanding |
|
|
Weighted
Average
Remaining
Contractual
life in years |
|
|
Weighted
Average
Exercise
Price |
|
|
Number
Exercisable |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining
Contractual
life in years |
|
$ |
0.30 |
|
|
|
375,000 |
|
|
|
3.59 |
|
|
$ |
0.30 |
|
|
|
375,000 |
|
|
$ |
0.30 |
|
|
|
3.59 |
|
$ |
0.25 |
|
|
|
1,751,667 |
|
|
|
4.24 |
|
|
$ |
0.25 |
|
|
|
1,751,667 |
|
|
$ |
0.25 |
|
|
|
4.24 |
|
$ |
0.15 |
|
|
|
525,500 |
|
|
|
4.24 |
|
|
$ |
0.15 |
|
|
|
525,500 |
|
|
$ |
0.15 |
|
|
|
4.24 |
|
$ |
0.25 |
|
|
|
1,508,333 |
|
|
|
4.34 |
|
|
$ |
0.25 |
|
|
|
1,508,333 |
|
|
$ |
0.25 |
|
|
|
4.34 |
|
$ |
0.15 |
|
|
|
577,499 |
|
|
|
4.36 |
|
|
$ |
0.15 |
|
|
|
577,499 |
|
|
$ |
0.15 |
|
|
|
4.36 |
|
$ |
0.25 |
|
|
|
968,166 |
|
|
|
4.36 |
|
|
$ |
0.25 |
|
|
|
968,166 |
|
|
$ |
0.25 |
|
|
|
4.36 |
|
$ |
0.25 |
|
|
|
633,333 |
|
|
|
4.41 |
|
|
$ |
0.25 |
|
|
|
633,333 |
|
|
$ |
0.25 |
|
|
|
4.41 |
|
|
|
|
|
|
6,339,498 |
|
|
|
4.27 |
|
|
$ |
0.24 |
|
|
|
6,339,498 |
|
|
$ |
0.24 |
|
|
|
4.27 |
|
The warrants outstanding have an
intrinsic value of $0 as of March 31, 2015 and 2014, respectively.
12 |
EQUITY BASED COMPENSATION |
Equity based compensation
is made up of the following:
| |
Three months
ended March 31, 2015 | | |
Three months
ended March 31, 2014 | |
| |
| | |
| |
Stock option compensation charge | |
$ | - | | |
$ | 490,397 | |
Restricted stock award compensation charge | |
| 241,286 | | |
| - | |
Stock issued for services rendered | |
| - | | |
| 135,000 | |
| |
| | | |
| | |
| |
$ | 241,286 | | |
$ | 625,397 | |
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Basic loss per share is based on
the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares as
determined above plus common stock equivalents, including convertible preferred shares and convertible notes as well as the incremental
shares that would be issued upon the assumed exercise of in-the-money stock options using the treasury stock method. The computation
of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.
For the three months ended March 31, 2015 and 2014, all stock options, unvested restricted stock awards, warrants, convertible
preferred stock and convertible notes were excluded from the computation of diluted net loss per share. Dilutive shares which could
exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect
would have been anti-dilutive are as follows:
| |
Three
Months
ended March
31, 2015 (Shares) | | |
Three months
ended March
31, 2014 (Shares) | |
| |
| | |
| |
Options to purchase shares of common stock | |
| 380,950 | | |
| 11,452,960 | |
Restricted stock awards – unvested | |
| 10,750,000 | | |
| - | |
Warrants to purchase shares of common stock | |
| 6,339,498 | | |
| 375,000 | |
Series A-1 convertible preferred shares | |
| 31,375,000 | | |
| 38,875,000 | |
Series B convertible preferred shares | |
| 7,500,000 | | |
| 7,500,000 | |
Convertible long term notes | |
| - | | |
| 19,443,750 | |
Convertible short term notes* | |
| - | | |
| - | |
| |
| 56,345,448 | | |
| 77,646,710 | |
* In the prior year convertible short
term notes have variable conversion pricing dependent upon share prices prior to conversion
As of March 31, 2014, short term
notes with a principal amount outstanding of $273,650 were convertible into common shares at discounts ranging from 50% to 65%
of average trading prices immediately prior to conversion. Certain of these short term notes had a floor conversion price of $0.05
per share. The remainder of the short term notes did not have a floor or capped conversion price.
14 |
RELATED PARTY TRANSACTIONS |
On February 4, 2015, we entered into
an Amended and Restated Employment Agreement (the “Employment Agreement”) with John Huemoeller II, that superseded
the Company’s prior Employment Agreement with Mr. Huemoeller that was previously entered into on December 5, 2014 (the “Prior
Agreement”).
Under the Employment Agreement, which
has a stated term of three (3) years, for his continued service as the Chief Executive Officer and President of the Company, Mr.
Huemoeller will continue to receive the same annual base salary of $180,000 provided for under the Prior Agreement and will be
entitled to bonuses at the discretion of the Company based on performance. The new Employment Agreement restated a previous grant
to Mr. Huemoeller of 10,000,000 shares of the Company’s restricted stock, which vest on the following schedule: 1,250,000
shares vested on January 1, 2015 and thereafter 1,250,000 shares will vest on each quarter anniversary, commencing April 1, 2015
for seven (7) quarters. The restricted stock grant was in lieu of the options that had previously been granted to Mr. Huemoeller,
which options were canceled on December 5, 2014.The Employment Agreement also provides that Mr. Huemoeller will receive a restricted
stock grant of 750,000 shares of stock on an annual basis commencing January 1, 2016, which will vest upon issuance. In the event
of a Change of Control (as defined in the Employment Agreement), termination without Cause (as defined in the Employment Agreement),
termination due to disability (as defined in the Employment Agreement), death or termination by Mr. Huemoeller for Good Reason
(as defined in the Employment Agreement), Mr. Huemoeller will receive: (i) a severance payment equal to two (2) months base salary
together with payment of medical insurance or COBRA payments for two (2) months after termination; and (ii) all restricted stock
grants that have been issued to Mr. Huemoeller will immediately vest. If Mr. Huemoeller terminates his employment at any time prior
to January 1, 2016 Without Good Reason (as defined in the Employment Agreement) or is terminated for Cause (as defined in the Employment
Agreement) then 5,000,000 of any restricted stock grants will immediately vest. The Employment Agreement also includes customary
confidentiality obligations and inventions assignments by Mr. Huemoeller.
On December 5, 2014, the Company
entered into a consulting agreement with John Zotos (“Zotos”), our director for a two year period. In terms of the
agreement, Zotos will provide consulting services to the Company for a consideration of $5,000 per month and the grant of 3,000,000
restricted shares which will vest in three equal tranches on March 31, 2015, September 15, 2015 and March 31, 2016. Early termination
of the agreement by either party will result in immediate vesting of the remaining unvested shares. The Company will also reimburse
the consultant for all out of pocket expenses incurred whilst performing his duties. The consulting agreement also includes customary
confidentiality obligations and invention assignments by Mr. Zotos.
PROPELL TECHNOLOGIES GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
15 |
COMMITMENTS AND CONTINGENCIES |
The Company disposed of its Crystal
Magic, Inc. subsidiary effective December 31, 2013. In terms of the sale agreement entered into by the Company, the purchaser has
been indemnified against all liabilities whether contingent or otherwise, claimed by third parties, this includes claims by creditors
of the Company amounting to $372,090 and claims against long-term liabilities of $848,916. Management does not consider it likely
that these claims will materialize and accordingly no provision has been made for these contingent liabilities.
The Company leases approximately
2,300 square feet of office space in Houston, Texas, the original term of the lease agreement terminated on January 31, 2014 with
automatic renewals for six month periods unless 60 days written notice is given prior to renewal. The rental is $2,200 per month.
The future minimum lease installments
under this agreement as of March 31, 2015 for the period April 1, 2015 to July 31, 2015 (the automatic renewal period) is $8,800.
The Company sub-leases approximately
2,300 square feet of loft space in Houston, Texas from a related party in terms of a lease agreement entered into on September
1, 2014 and expiring on August 31, 2015. The lease provides for automatic renewal on a month to month basis unless 60 days written
notice is given to terminate the lease. The monthly rental is $3,220 per month.
The future minimum lease installments
under this agreement as of March 31, 2015 for the period April 1, 2015 to August 31, 2015 is $16,100.
The future minimum operating lease
commitments are as follows:
In terms of the license agreement
commitments disclosed in note 5 above, the minimum commitments due under the amended license agreement entered into on January
30, 2013, for the next five years, are summarized as follows:
| |
Amount | |
| |
| | |
2015 | |
$ | 700,000 | |
2016 | |
| 1,000,000 | |
2017 | |
| 1,000,000 | |
2018 | |
| 1,000,000 | |
2019 | |
| 1,000,000 | |
| |
$ | 4,700,000 | |
In accordance with ASC 855-10, the
Company has analyzed its operations subsequent to March 31, 2015 to the date these financial statements were issued, and has determined
that it does not have any material subsequent events to disclose in these financial statements.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis is
intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated.
The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein and
the risk factors and the financial statements and the other information set forth in our Annual Report on Form 10-K for the
year ended December 31, 2014. In addition to historical information, the following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed
herein and any other periodic reports filed and to be filed with the SEC.
Cautionary Note Regarding Forward-Looking Statements
This report and other documents that we file
with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about
our future performance, our business, our beliefs and our management’s assumptions. Statements that are not historical
facts are forward-looking statements. Words such as “expect,” “outlook,” “forecast,”
“would,” “could,” “should,” “project,” “intend,” “plan,”
“continue,” “sustain”, “on track”, “believe,” “seek,” “estimate,”
“anticipate,” “may,” “assume,” and variations of such words and similar expressions are often
used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve
risks, assumptions and uncertainties, including, but not limited to, those described in this Quarterly Report on Form 10-Q and
other reports that we file or furnish with the SEC. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such
forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update
publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes
in assumptions or otherwise.
Overview and Financial Condition
Our Company
We are a Delaware corporation with principal
offices located at 1701 Commerce Street, Houston, Texas 77002. We are engaged in the commercial application of a proprietary Plasma
Pulse Technology to enhance the recovery of oil in the United States and Mexico. We began introducing the Plasma Pulse
Technology in the United States on a limited basis in March 2013. Prior to this, all of our revenue had been derived from
our e-commerce and other lines of business, which we discontinued, effective December 31, 2014, to enable us to focus all of our
attention to our oil recovery business.
Since February 4, 2013, following the closing
of the Share Exchange Agreement with the shareholders of Novas, under which we acquired all of the outstanding equity securities
of Novas in exchange for 100,000,000 shares of our common stock, our primary focus has been to the further development of
our licensed oil recovery technology. The Plasma Pulse Technology used by Novas is based on an exclusive, perpetual royalty-bearing
license to engage in the commercial application of the proprietary Plasma Pulse Technology entered into on January 30, 2013,
as amended in March 2014 and December 23, 2014 with Novas Energy Group Limited, as licensor which granted Novas the right to use
the Plasma Pulse Technology in the United States to enhance oil production. The License Agreement provides Novas with
the right to practice the licensed process and to utilize the Plasma Pulse Technology to provide services to third parties and
for ourselves as well, and to sublicense the Plasma Pulse Technology in the United States. In March 2014, the License Agreement
was amended to, among other things, increase the territory in which Novas can practice the licensed process and utilize the Plasma
Pulse Technology to include Mexico. Although new to the United States and Mexico, the Plasma Pulse Technology has been successfully
utilized outside of the United States and Mexico for several years. The Licensor has filed for patent protection of the Plasma
Pulse Technology in the United States. The process utilizes a down-hole tool that is lowered into vertical wellbores
to the perforated oil producing zone. When initiated, the tool delivers metallic plasma-generated, directed, non-linear,
wide-band elastic oscillations at resonance frequencies to enhance oil production using the tool developed by the Licensor and
enhanced by Novas. The Plasma Pulse Technology is suitable for oil wells as deep as 12,000 feet. By optimizing production
efficiency combined with the resulting increased oil production we expect to extend the economic life of mature oil fields and
to recover previously unrecoverable oil efficiently.
Since March 19, 2013, we have used the Plasma
Pulse Technology to treat over forty oil and injector wells located in eight states; Louisiana, Oklahoma, Kansas, Texas, California,
Tennessee, Colorado and Wyoming. The Plasma Pulse Technology has been shown to increase oil production or injection rates in many
of the wells that we have treated. The initial results of this treatment have been very encouraging, however the results on the
wells treated may not be indicative of the results of treatment on additional wells. We currently have six tools that we use to
perform the treatments, of which four only work in vertical wells with a minimum of 5 ½-inch casings and not in horizontal
wells. We developed U.S. made prototype tools to treat 4 ½-inch cased wells and treated 3 wells with the new tools.
To date we have financed our operations, from
sales of our securities, both debt and equity, and revenue from operations and we expect to continue to obtain required capital
in a similar manner. We have incurred an accumulated deficit of $11,088,362 through March 31, 2015 and there can be no assurance
that we will be able to achieve profitability.
Our fiscal year end is December 31.
History
Propell Technologies Group, Inc. (f/k/a
Propell Corporation) is a Delaware corporation originally formed on January 29, 2008 as CA Photo Acquisition Corp. On April
10, 2008 Crystal Magic, Inc. (“CMI”), a Florida Corporation, merged with an acquisition subsidiary of
Propell’s, and we issued an aggregate of 108,000 shares to the former shareholders of CMI. On May 6, 2008, we acquired
both Mountain Capital, LLC (d/b/a Arrow Media Solutions) (“AMS”) and Auleron 2005, LLC (d/b/a Auleron
Technologies) (“AUL”) and made each a wholly owned subsidiary and issued a total of 41,987 shares of our Common
Stock to the members of Mountain Capital, LLC and a total of 2,721 shares of our Common Stock to the members of AUL (the
shares referenced above are in pre-split amounts, that is prior to our 50-to-1 reverse split in August 2012). In 2010 AUL and
AMS were dissolved. In September 2010, CMI’s assets were foreclosed upon by its largest creditor and these assets were
liquidated and effective December 31, 2013, we disposed of our interest in CMI for nominal consideration. On July 6, 2012, we
filed a Certificate of Designations, Rights and Preferences with the Secretary of State of the State of Delaware designating
5,000,000 Preferred shares as Series A-1 Preferred Stock. On August 17, 2012, we filed an amendment to our Certificate of
Incorporation, which increased the number of shares of our authorized Common Stock to 500,000,000 shares, effectuated a 50:1
reverse split of the number of shares of our outstanding common stock and changed our name to Propell Technologies Group,
Inc. On February 4, 2013, we acquired all of the outstanding shares of Novas and Novas became our wholly owned subsidiary.
Effective December 31, 2013, we disposed of our ecommerce line of business. On March 14, 2014, we filed a Certificate of
Designations, Rights and Preferences with the Secretary of State of the State of Delaware designating 500,000 preferred
shares as Series B Preferred Stock. On February 17, 2015, we filed a Certificate of Designations, Rights and Preferences with
the Secretary of State of the State of Delaware designating 4,500,000 preferred shares as Series C Preferred Stock. On
February 19, 2015, we entered into a Purchase Agreement with Ervington Investments Limited, an entity organized under
the laws of the Republic of Cyprus whose ultimate beneficial owner is Roman Abromovich (“Ervington”) and
closed the first tranche of a private placement offering under the Purchase Agreement, raising $5,000,000 in gross proceeds
from the sale of 1,525,424 shares of our Series C Preferred Stock at a purchase price of $3.277777778 per share. We have
agreed to use the net proceeds of the offering for research and development, commercialization of new products, sales and
marketing, repayment of debt, accounts payable and administrative expenses.
We offer our services on a fee based model
and charge a service fee for use of the Plasma Pulse Technology. In addition, we may acquire wells and use the Plasma Pulse Technology
on our acquired wells to increase their production. Our anticipated customers are the owners of independent oil wells and major
oil and oil service companies.
Management Discussion and Analysis of
financial condition
Our discussion and analysis of our financial
condition and results of operations are based upon our unaudited condensed consolidated financial statements as of March 31, 2015
and March 31, 2014, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities
at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis
we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe
to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions
or conditions.
Results of Operations for the three months
ended March 31, 2015 and March 31, 2014
Net revenues
Net revenues were $82,500 and $16,583 for the three months ended
March 31, 2015 and 2014 respectively, an increase of $65,917 or 397.5%. Revenue in the current year consists of revenue earned
on the treatment of several wells in the USA. The revenue from the prior year represented amortization of a once off licensing
fee and initial set up revenues for a well treatment project undertaken in Mexico, which has subsequently been terminated and renegotiated
with another vendor. Revenue has been sporadic as the business is being developed and comparison to prior periods during this development
stage has limited value to business analysis.
Cost of goods sold
Cost of goods sold was $57,823 and $18,343 for the three months
ended March 31, 2015 and 2014, respectively, an increase of $39,480 or 215.2%. Cost of goods sold during the current year, primarily
represents engineering services provided by third party contractors which is contracted on a monthly basis and is not correlated
to the revenues earned, while cost of goods sold in the prior year represents non-recoverable set up fees including engineering
costs and travel costs incurred on the Mexico project, offset by cost recovery fees charged to our customer.
Gross profit (loss)
Gross profit was $24,677 and $(1,760) for
the three months ended March 31, 2015 and 2014, respectively, an increase of $26,437. This increase is due primarily to set up
expenditure incurred on our Mexico projects in the prior year which were not initially recoverable from the project.
Total expenses
Total expenses were $666,239 and $892,154 for
the three months ended March 31, 2015 and 2014, respectively, a decrease of $225,915 or 25.3%. Total expenses consisted primarily
of the following:
|
· |
Stock based compensation expense was $241,286 and $625,397 for the three months ended March 31, 2015 and 2014, respectively, a decrease of $384,111. The current year charge includes a charge of $241,286 for restricted stock issued to our Chief Executive Officer, John Huemoeller which vest over the next eighteen months, the prior year charge included a charge of $135,000 as equity compensation charge for management services and a charge of $490,397 which represents a charge for the amortization of stock option compensation expense. The stock option compensation expense amortization consisted primarily of options issued to John Zotos, our director and John Huemoeller, our CEO, which options were cancelled and replaced with restricted stock in December 2014. |
|
· |
General and administrative expenditure was $141,805 and $161,886 for the three months ended March 31, 2015 and 2014, respectively, a decrease of $20,081 or 12.4%. This decrease is due to a reduction in travel expenditure and conference expenditure during the current year. |
|
· |
Professional fees were $155,731 and $43,652 for the three months ended March 31, 2015 and 2014, respectively, an increase of $112,079 or 256.8%. The increase is primarily due to an increase in; i) legal expenditure which increased by $79,804 over the prior year due to additional time spent on the recent agreements entered into with Ervington; and ii) corporate secretarial fees of $15,000 incurred in the current year, which were not incurred in the first three months of the prior year. |
|
· |
Consulting fees were $94,387 and $55,828 for the three months ended March 31, 2015 and 2014, respectively, an increase of $38,559 or 69.1%, primarily due to consulting fees paid to a third party of $37,060 for recruiting services whilst we attempt to increase the depth of our management skills. |
|
· |
Depreciation and amortization expense was $32,433 and $4,591 for the three months ended March 31, 2015 and 2014, respectively, an increase of $27,842, this is primarily due to the amortization of licenses in the current year of $17,500 and an increase in depreciation expense of $10,342 primarily due to deprecation on our US developed down-hole tool. |
Amortization of debt discount and finance
costs
Amortization of debt discount and finance costs
was $53,100 and $202,405 for the three months ended March 31, 2015 and 2014, respectively, the current year includes a penalty
interest charge of $32,850 on the early repayment of the remaining convertible debt before conversion took place; the amortization
of debt discount on long-term notes of $16,232 which includes the accelerated amortization of debt discount on our remaining long
term notes which were converted into common stock during the current period; and interest charged on our loans prior to repayment
of all of these loans during the current period. In the prior year, the amortization of debt and finance costs, included the accelerated
amortization of $33,037 of short-term notes converted to equity during the prior period; the normal amortization of debt discount;
a penalty interest charge of $107,399 on the early redemption of short-term convertible notes and an interest accrual of $35,041
on notes payable. All interest bearing loans have been repaid as of March 31, 2015.
Change in fair value of derivatives
The change in fair value of derivative liabilities
was $18,455 and $(338,477) for the three months ended March 31, 2015 and 2014 respectively, a decrease of $356,932 or 105.5%. The
current year includes a credit of $18,455 representing the remaining derivative liability which is no longer required as all convertible
notes subject to derivative liability have been repaid. In the prior year the derivative liability movement reflected a charge
of $511,234 relating to the mark-to-market of equities issued to short-term note holders who converted their debt to equity at
deeply discounted prices based on variable priced conversion rates which was offset by a mark-to-market credit of $178,561on the
remaining short-term convertible notes.
Net loss
We incurred a net loss of $(676,207) and
$(1,434,796) for the three months ended March 31, 2015 and 2014, a decrease of $758,589 or 52.9%, respectively and which consists
of the various revenue and expense items discussed above.
A deemed preferred stock dividend of $1,101,696
and $1,604,335 has been disclosed in the statement of operations for the three months ended March 31, 2015 and 2014, respectively.
This amount represents the in-the-money value of the conversion feature of the Series C and the Series B Preferred Stock as of
the date of issue. These Shares of Series C and Series B Preferred Stock are convertible into common stock at an exercise price
of $0.12291665 and $0.10 per share, respectively.
Liquidity and Capital Resources.
To date, our primary sources of cash have been
funds raised from the sale of our securities and the issuance of convertible and non-convertible debt. We raised gross proceeds
of $5,000,000 from the sale of our Series C Preferred Stock in February 2015. In addition, we also raised temporary debt in the
aggregate principal amount of $125,000 from the sale of our debt securities, this debt together will all other outstanding interest
bearing debt in the aggregate principal amount of $$296,000, including interest and early settlement penalty interest thereon was
repaid on February 20, 2015 out of the proceeds raised on the sale of the Series C Preferred Stock.
We have incurred an accumulated deficit of
$11,088,362 through March 31, 2015 and incurred negative cash flow from operations of $785,878 for the three months ended March
31, 2015. We have spent, and need to continue to spend, substantial amounts in connection with implementing our business strategy,
including our planned product development effort.
Our primary financial commitments on the date
hereof are payments owed under the License Agreement. The minimum commitments due under the license agreement for the next five
years are summarized as follows:
|
|
Amount |
|
|
|
|
|
2015 |
|
$ |
700,000 |
|
2016 |
|
|
1,000,000 |
|
2017 |
|
|
1,000,000 |
|
2018 |
|
|
1,000,000 |
|
2019 |
|
|
1,000,000 |
|
|
|
$ |
4,700,000 |
|
As of March 31, 2015 we had notes, in the principal
amount outstanding of $3,000, this note is non-interest bearing and has no fixed repayment terms.
Off Balance Sheet Arrangements
There are no off balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market
Risks
None.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Pursuant to Rule 13a-15(b) under the Securities
Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”), who also serves as our principal financial
and accounting officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e)
under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO
who also serves as our principal financial and accounting officer concluded that due to a lack of segregation of duties and insufficient
controls over review and accounting for certain complex transactions, that the Company’s disclosure controls and procedures
as of March 31, 2015 were not effective to ensure that information required to be disclosed by the Company in the reports that
the Company files or submits under the Exchange Act, was recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s
management, including the Company’s CEO, as appropriate, to allow timely decisions regarding required disclosure. The Company
intends to retain additional individuals to remedy the ineffective controls. We have begun to take actions that we believe will
substantially remediate the material weaknesses identified. In response to the identification of our material weaknesses, we are
in the process of expanding our finance and accounting staff. However, we cannot assure you that our internal control over financial
reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
(b) Changes in Internal Control over Financial
Reporting
There has been no change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter
ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Investing in our Company involves a high
degree of risk. In addition to the risks related to our business set forth in this Form 10-Q, you should carefully consider the
risks described below before investing in our Company. Additional risks, uncertainties and other factors not presently known to
us or that we currently deem immaterial may also impair our business operations.
Risks Relating to Our Company
Our business is difficult to evaluate
because we are currently focused on a new line of business and have very limited operating history and limited information.
We have recently engaged in a new business
line involving our Plasma Pulse Technology. There is a risk that we will be unable to successfully operate this new line of business
or be able to successfully integrate it with our current management and structure. Our estimates of capital, personnel and equipment
required for our new line of business are based on the experience of management and businesses they are familiar with. Our management
has limited direct experience in our new lines of business. We are subject to the risks such as our ability to implement our business
plan, market acceptance of our proposed business and services, under-capitalization, cash shortages, limitations with respect to
personnel, financing and other resources, competition from better funded and experienced companies, and uncertainty of our ability
to generate revenues. There is no assurance that our activities will be successful or will result in any revenues or profit, and
the likelihood of our success must be considered in light of the stage of our development. Even if we generate revenue, there can
be no assurance that we will be profitable. In addition, no assurance can be given that we will be able to consummate our business
strategy and plans, as described herein, or that financial, technological, market, or other limitations may force us to modify,
alter, significantly delay, or significantly impede the implementation of such plans. We have insufficient results for investors
to use to identify historical trends or even to make quarter to quarter comparisons of our operating results. You should consider
our prospects in light of the risk, expenses and difficulties we will encounter as an early stage company. Our revenue and income
potential is unproven and our business model is continually evolving. We are subject to the risks inherent to the operation of
a new business enterprise, and cannot assure you that we will be able to successfully address these risks.
We currently have limited revenues from
our Plasma Pulse Technology and may not generate any revenue in the near future, if at all, from the use of our technology.
We currently have generated limited revenues
from the use of our Plasma Pulse Technology. The majority of the wells that were treated were treated as sample wells to demonstrate
the ability of the Plasma Pulse Technology at no cost to the well owner. Therefore there can be no assurance that well owners will
determine that the price to be paid by our customers for our services, whether in the form of a cash payment or profit sharing
arrangement, will be deemed to be reasonable and that customers will be willing to pay such prices.
We may not be profitable.
We expect to incur operating losses for the
foreseeable future. For the three months ended March 31, 2015 and the year ended December 31, 2014, we had net revenues
of $82,500 and $190,035, respectively, from our oil recovery business. For the three months ended March 31, 2015 and the year ended
December 31, 2014, we sustained a net loss of $676,207 and $5,018,483, respectively. To date, we have not generated significant
revenue from our Plasma Pulse Technology. Our ability to become profitable depends on our ability to have successful operations
and generate and sustain sales, while maintaining reasonable expense levels, all of which are uncertain in light of our limited
operating history in our current line of business.
Our future plans and operations are dependent
on our raising additional capital.
To date, we have not generated enough revenue
from operations to pay all of our expenses. During the three months ended March 31, 2015 and the year ended December 31, 2014 we
raised a total of $5,000,000 from our private placement of Series C Preferred stock to Ervington consummated during February 2015
and $1,103,000 during the period June to August of 2014 and an additional $750,000 from the sale of our Series B Preferred Stock
in March 2014. We have used the funds raised in our financings for working capital purposes. Ervington has an option until
May 31, 2015 to acquire an additional $9,750,000 worth of Series C Preferred Stock; however there can be no assurance that Ervington
will exercise its option.
We may not be able to service customers
with the five tools that we currently have.
Our ability to continue to service customers
and expand our business is dependent upon us acquiring additional apparatuses to be utilized with the Plasma Pulse Technology.
We currently have four down-hole tools that can treat 5 ½ inch cased wells and one new tool that treats 4 ½-inch
cased wells and horizontal wells. If the tools should require repair we may be unable to service customers. In addition, with only
five tools, we can only treat a limited number of wells at a time and are unable to treat wells on days when the tools are in transit
from one customer’s well to another well. In addition, only one of the tools can treat the 4 ½-inch cased wells
and horizontal wells.
We may not be able to retrofit the down-hole
tool to fit a large number of well holes in the United States.
Four of our tools only work in vertical wells
with a minimum of 5 ½-inch casings and not in horizontal wells. We recently developed a tool to treat 4 ½-inch
cased wells and also horizontal wells. However, there can be no assurance that such tool will be effective in treating wells in
the United States and Mexico.
There is uncertainty as to market acceptance
of the Plasma Pulse Technology and products.
The Plasma Pulse Technology that we license
has been utilized in the United States on a limited basis. We have not yet generated significant revenue from the Plasma Pulse
Technology that we license and there can be no assurance that the Plasma Pulse Technology will be accepted in the market or that
our commercialization efforts will be successful.
The results of our the application of
our technology for initial well treatments may not support future well treatments and are not necessarily predictive of future
long term results on the wells for which the initial data is favorable.
To date, we have applied our licensed Plasma
Pulse Technology to treat over forty wells, which treatments were performed fairly recently, and we do not have long terms results
on the wells that were treated. Of such wells, we have seen improvement results in many wells. Favorable results in our early treatments
may not last and may not be repeated in later treatments of other wells. Success in early treatments does not ensure that wells
treated at a later date will be successful. Additionally, collecting treatment data results is not always possible as operators
that pay for the service are not required to deliver data or we are required to work under non-disclosure agreements.
We rely on a license to use the Plasma
Pulse Technology that is material to our business and if the agreement were to be terminated, it would halt our ability
to market our technology, as well as have an immediate material adverse effect on our business, operating results and financial
condition.
We have a License Agreement with Novas Energy
Group Limited granting us the right to use certain critical intellectual property. If we breach the terms of this agreement, including
any failure to make minimum royalty payments required thereunder, the Licensor has the right to terminate the license. If we were
to lose or otherwise be unable to maintain this license on acceptable terms, or find that it is necessary or appropriate to secure
new licenses from other third parties, it would halt our ability to market the Plasma Pulse Technology, which would have an immediate
material adverse effect on our business, operating results and financial condition.
We may be unable to generate sufficient
revenues to meet the minimum royalties under our license agreement,
The License Agreement with Novas Energy Group
Limited requires us to pay aggregate minimum royalty payments of $1,000,000 per year; however, no minimum royalty payment is due
prior to (i) December 31, 2015 with respect to Mexican operations and (ii) the three year anniversary of the license agreement
with respect to the United States operations. If the minimum royalty is not timely paid, the Licensor has the right to terminate
the license agreement with respect to a certain territory under certain circumstances and in certain other circumstances has the
right to terminate the entire agreement. In addition, we are obligated to pay an additional $200,000 on or prior to June 30, 2015
with respect to our rights in Mexico. To date, we have not generated enough revenue to pay minimum royalty payments. No assurance
can be given that we will generate sufficient revenue to make these minimum royalty payments. Any failure to make the payments
would permit the Licensor to terminate the license. If we were to lose or otherwise be unable to maintain this license, it would
halt our ability to market our technology, which would have an immediate material adverse effect on our business, operating results
and financial condition.
The beneficial ownership of a significant percentage
of our common stock gives Ervington effective control of us, and limits the influence of other shareholders on important policy
and management issues.
Ervington currently beneficially owns approximately
22.3% of our voting shares on a fully diluted basis (including outstanding options, warrants and convertible instruments) and has
an option to acquire an additional 2,974,576 shares of Series C Preferred Stock from us; 700,000 shares of Series A-1 Preferred
Stock and 56,677,477 shares of common stock from certain of our stockholders. If the option is fully exercised, Ervington
will beneficially own 50.9% of our voting stock on a fully diluted basis (including outstanding options, warrants and convertible
instruments). In addition, Ervington currently has the right to appoint two board members and if it fully exercises its option
it will have the right to appoint three board members, which shall constitute a majority of our board of directors. As a result
of these appointment rights and its voting control of our company, Ervington has the power to control the outcome of all matters
submitted to our shareholders for approval, including the election of our directors, our business strategy, our day-to-day operations
and any proposed merger, consolidation or sale of all or substantially all of our assets. Ervington’s control of our company
could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, preventing
a change in control of our company that might be otherwise beneficial to our shareholders, and possibly depress the trading price
of our common stock. There can be no assurance that conflicts of interest will not arise with respect to Ervington’s ownership
and control of our company or that any conflicts will be resolved in a manner favorable to the other shareholders of our company.
Trends in oil and natural gas prices
affect the level of exploration, development, and production activity of our customers and the demand for our services and products
which could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.
Demand for our services and products is particularly
sensitive to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil
and natural gas companies, including national oil companies. The level of exploration, development, and production activity is
directly affected by trends in oil and natural gas prices, which historically have been volatile and are likely to continue to
be volatile.
Prices for oil and natural
gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas,
market uncertainty, and a variety of other economic factors that are beyond our control. The recent decline in oil prices from
$80 per barrel in December 2014 to $45 per barrel in March 2015 has resulted in a decline in oil drilling rigs which has depressed
the immediate level of exploration, development, and production activity which could have a material adverse effect on our business,
consolidated results of operations, and consolidated financial condition. Even the perception of longer-term lower oil and natural
gas prices by oil and natural gas companies can similarly reduce or defer major expenditures given the long-term nature of many
large-scale development projects. Factors affecting the prices of oil and natural gas include:
|
· |
the level of supply and demand for oil and natural gas, especially demand for natural gas in the United States; |
|
· |
governmental regulations, including the policies of governments regarding the exploration for and production and development of their oil and natural gas reserves; |
|
· |
weather conditions and natural disasters; |
|
· |
worldwide political, military, and economic conditions; |
|
· |
the level of oil production by non-OPEC countries and the available excess production capacity within OPEC; |
|
· |
oil refining capacity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas; |
|
· |
the cost of producing and delivering oil and natural gas; and |
|
· |
potential acceleration of development of alternative fuels. |
Legislative and regulatory changes affecting
the environment and the oil industry could adversely affect our business
Political, economic and regulatory influences
are subjecting oil recovery efforts to potential fundamental changes that could substantially affect our results of operations.
State and local governments, for example, continue to propose and pass legislation designed to reduce the impact of oil recovery
efforts on the environment. We cannot predict the effect any legislation may have on our business and we can offer no assurances
they will not have a material adverse effect on our business.
Various federal legislative and regulatory
initiatives have been undertaken which could result in additional requirements or restrictions being imposed on hydraulic fracturing
operations and possibly our operations. For example, the Department of Interior has issued proposed regulations that would apply
to hydraulic fracturing operations on wells that are subject to federal oil and gas leases and that would impose requirements regarding
the disclosure of chemicals used in the hydraulic fracturing process as well as requirements to obtain certain federal approvals
before proceeding with hydraulic fracturing at a well site. These regulations, if adopted, could also be applicable to our operations
and would establish additional levels of regulation at the federal level that could lead to operational delays and increased operating
costs. At the same time, legislation and/or regulations have been adopted in several states that require additional disclosure
regarding chemicals used in the hydraulic fracturing process but that include protections for proprietary information. Legislation
and/or regulations are being considered at the state and local level that could impose further chemical disclosure or other regulatory
requirements (such as restrictions on the use of certain types of chemicals or prohibitions on hydraulic fracturing operations
and competitive operations in certain areas) that could affect our operations.
The adoption of any future federal, state,
local, or foreign laws or implementing regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing
process if applicable to competitive processes such as ours, could make it more difficult to complete natural gas and oil wells
and could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.
Liability for cleanup costs, natural
resource damages, and other damages arising as a result of environmental laws could be substantial and could have a material adverse
effect on our liquidity, consolidated results of operations, and consolidated financial condition.
We will be exposed to claims under environmental
requirements. In the United States, environmental requirements and regulations typically impose strict liability. Strict liability
means that in some situations we could be exposed to liability for cleanup costs, natural resource damages, and other damages as
a result of our conduct that was lawful at the time it occurred or the conduct of prior operators or other third parties. Liability
for damages arising as a result of environmental laws could be substantial and could have a material adverse effect on our liquidity,
consolidated results of operations, and consolidated financial condition.
Existing or future laws, regulations,
related to greenhouse gases and climate change could have a negative impact on our business and may result in additional compliance
obligations with respect to the release, capture, and use of carbon dioxide that could have a material adverse effect on our liquidity,
consolidated results of operations, and consolidated financial condition.
Changes in environmental requirements related
to greenhouse gases and climate change may negatively impact demand for our services. For example, oil and natural gas exploration
and production may decline as a result of environmental requirements (including land use policies responsive to environmental concerns).
State, national, and international governments and agencies have been evaluating climate-related legislation and other regulatory
initiatives that would restrict emissions of greenhouse gases in areas in which we conduct business. Because our business depends
on the level of activity in the oil and natural gas industry, existing or future laws, regulations, treaties, or international
agreements related to greenhouse gases and climate change, including incentives to conserve energy or use alternative energy sources,
could have a negative impact on our business if such laws, regulations, treaties, or international agreements reduce the worldwide
demand for oil and natural gas. Likewise, such restrictions may result in additional compliance obligations with respect to the
release, capture, sequestration, and use of carbon dioxide that could have a material adverse effect on our liquidity, consolidated
results of operations, and consolidated financial condition.
Our failure to protect our proprietary
information and any successful intellectual property challenges or infringement proceedings against us could materially and adversely
affect our competitive position.
We rely on a variety of intellectual property
rights that we use in our services and products. We may not be able to successfully preserve these intellectual property rights
in the future, and these rights could be invalidated, circumvented, or challenged. In addition, the laws of some foreign countries
in which our services and products may be sold do not protect intellectual property rights to the same extent as the laws of the
United States. Our failure to protect our proprietary information and any successful intellectual property challenges or infringement
proceedings against us could materially and adversely affect our competitive position.
We may acquire oil wells or form joint
ventures or make investments in oil wells that could harm our operating results, dilute our stockholders’ ownership, increase
our debt or cause us to incur significant expense.
As part of our business strategy, we intend
to pursue acquisitions of oil wells. In fact, Ervington’s exercise of its option to acquire additional shares of our Series
C Preferred Stock is conditioned upon us identifying an oil field for acquisition and having entered into a definitive agreement
for the acquisition of such oil field. We also may pursue strategic alliances and joint ventures that leverage our core technology.
We have no experience with acquiring oil wells or interests therein. We may not be able to find suitable partners or acquisition
candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we
may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent
liabilities. Any future acquisitions also could result in significant write-offs or the incurrence of debt and contingent liabilities,
any of which could have a material adverse effect on our financial condition, results of operations and cash flows. Integration
of an acquired company also may disrupt ongoing operations and require management resources that would otherwise focus on developing
our existing business. We may experience losses related to investments in other companies, which could have a material negative
effect on our results of operations. We may not identify or complete these transactions in a timely manner, on a cost-effective
basis, or at all, and we may not realize the anticipated benefits of any acquisition, technology license, strategic alliance or
joint venture.
We intend to use the proceeds of our second
closing with Ervington to finance our initial oil field acquisition. To finance any additional acquisitions or joint ventures,
we may choose to issue shares of our common stock as consideration, which would dilute the ownership of our stockholders. If the
price of our common stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using
our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public
or private financings. Additional funds may not be available on terms that are favorable to us, or at all. In addition, we may
choose to incur additional debt in order to finance such acquisitions, which may also negatively affect our financial position.
Any future recompletion activities engaged
upon by us on wells that we acquire may not be productive.
We may acquire properties upon which we believe
recompletion activity will be successful. Recompletion or workovers on oil and natural gas wells involves numerous risks, including
the risk that we will not encounter commercially productive oil or natural-gas reservoirs. The costs of recompleting, and operating
wells are often uncertain, and operations may be curtailed, delayed, or canceled as a result of a variety of factors, including
the following unexpected drilling conditions:
|
· |
pressure or irregularities in formations; |
|
· |
equipment failures or accidents; |
|
· |
fires, explosions, blowouts, and surface cratering; |
|
· |
difficulty identifying and retaining qualified personnel; |
|
· |
other adverse weather conditions; and |
|
·· |
shortages or delays in the delivery of equipment |
Certain of our future activities may not be
successful and, if unsuccessful, this failure could have an adverse effect on our future results of operations and financial condition.
International expansion of our business
exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside
of the United States.
Our amended license agreement grants us a license
to utilize the Plasma Pulse Technology in Mexico. Doing business internationally involves a number of risks, including:
|
· |
multiple, conflicting and changing laws and regulations such as tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses; |
|
· |
failure by us to obtain regulatory approvals for the sale or use of our technology in various countries; |
|
· |
difficulties in managing foreign operations; |
|
· |
financial risks, such as longer payment cycles, difficulty enforcing contracts and collecting accounts receivable and exposure to foreign currency exchange rate fluctuations;· |
|
· |
reduced protection for intellectual property rights; |
|
· |
natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; and |
|
· |
failure to comply with the Foreign Corrupt Practices Act, including its books and records provisions and its anti-bribery provisions, by maintaining accurate information and control over activities. |
Any of these risks, if encountered, could significantly
harm our future international expansion and operations and, consequently, have a material adverse effect on our financial condition,
results of operations and cash flows.
We will have limited control over the
activities on properties for which we own an interest but we do not operate.
We may acquire interests in oil wells that
will be operated by other companies. We will have limited ability to influence or control the operation or future development of
these non-operated properties or the amount of capital expenditures that we are required to fund with respect to them. Our dependence
on the operator and other working interest owners for these projects and our limited ability to influence or control the operation
and future development of these properties could materially adversely affect the realization of our targeted returns on capital
and lead to unexpected future costs.
The loss of key personnel and an inability
to attract and retain additional personnel could affect our ability to successfully grow our business.
We are highly dependent upon the continued
service and performance of our senior management, in particular John W. Huemoeller II, our Chief Executive Officer. The loss of
any key employees may significantly delay or prevent the achievement of our business objectives. We believe that our future success
will also depend in part on our and their continued ability to identify, hire, train and motivate qualified personnel. We and they
face intense competition for qualified individuals. We may not be able to attract and retain suitably qualified individuals who
are capable of meeting our growing operational and managerial requirements, or we may be required to pay increased compensation
in order to do so. Our failure to attract and retain qualified personnel could impair our ability to implement our business plan.
We may be adversely affected by actions
of our competitors.
The market in the oil and gas recovery industry
is highly competitive. Many of our competitors have substantially greater financial, technical and other resources than we have.
We face competition from owners of oil wells as well as large oil and gas companies Our ability to compete effectively depends
in part on market acceptance of our technology, the environmental impact of our technology and our ability to service our customers
in a timely manner. There can be no assurance that we will be able to compete effectively or that we will respond appropriately
to industry trends or to activities of competitors.
We intend to expend a significant amount
of time and resources to develop additional down-hole tools and products related to our technology, and if the Plasma Pulse Technology
does not achieve commercial acceptance, ours operating results may suffer.
We expect to spend a significant amount of
time and resources to develop additional down-hole tools and enhancements to our current down-hole tool. In light of the long product
development cycles, any developmental expenditure will be made well in advance of the prospect of deriving revenues from the use
of the Plasma Pulse Technology. Our ability to commercially introduce and successfully market our Plasma Pulse Technology will
be subject to a wide variety of challenges during this development cycle that could delay introduction of these products. If we
do not achieve market acceptance of our technology, our operating results will suffer. Our technology may also be priced higher
than alternative competitive technologies, which may impair commercial acceptance. We cannot predict whether our technology will
achieve commercial acceptance.
Most of our potential customers are owners
of oil wells and are subject to risks faced by those industries.
We expect to derive a significant portion of
our future revenues from the implementation of the Plasma Pulse Technology. As a result, we will be subject to risks and uncertainties
that affect the oil industry, such as availability of capital, weather and environmental issues, government regulation, and the
uncertainty resulting from technological change.
We have no separate independent audit
committee. Our full Board of Directors functions as our audit committee and is composed of three directors, none of whom are considered
to be independent. This may hinder our Board of Directors’ effectiveness in fulfilling the functions of the audit committee.
Currently, we have no separate audit committee.
Our full Board of Directors functions as our audit committee and is comprised of three directors, one of whom who has two votes
and none of whom are considered to be "independent" in accordance with the requirements of Rule 10A-3 under the Exchange
Act. An independent audit committee plays a crucial role in the corporate governance process, assessing the Company's processes
relating to its risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes.
The lack of an independent audit committee may prevent the Board of Directors from being independent from management in its judgments
and decisions and its ability to pursue the committee's responsibilities without undue influence. We may have difficulty attracting
and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors,
the management of our business could be compromised.
Our Board of Directors, which does not
have a majority of independent directors, acts as our compensation committee, which presents the risk that compensation and benefits
paid to these executive officers who are board members and other officers may not be commensurate with our financial performance.
A compensation committee consisting of independent
directors is a safeguard against self-dealing by company executives. Our Board of Directors acts as the compensation committee
and determines the compensation and benefits of our executive officers, administers our employee stock and benefit plans, and reviews
policies relating to the compensation and benefits of our employees. Although all board members have fiduciary obligations in connection
with compensation matters, our lack of an independent compensation committee presents the risk that our executive officers on the
board may have influence over their personal compensation and benefits levels that may not be commensurate with our financial performance.
Trading on the OTCQB may be sporadic
because it is not a stock exchange, and stockholders may have difficulty reselling their shares.
Trading in stock quoted on the OTCQB is often
thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations
or business prospects. Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic
than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like NYSE. Accordingly, you may have
difficulty reselling any of the shares you purchase from the selling stockholders.
We cannot guarantee that an active trading
market will develop for our common stock.
There currently is not an active public market
for our common stock and there can be no assurance that a regular trading market for our common stock will ever develop or that,
if developed, it will be sustained. Therefore, purchasers of our common stock should have long-term investment intent and should
recognize that it may be difficult to sell the shares, notwithstanding the fact that they are not restricted securities. We cannot
predict the extent to which a trading market will develop or how liquid a market might become.
There may be future dilution of our common
stock.
If we sell additional equity or convertible
debt securities, those sales could result in additional dilution to our stockholders. If Ervington exercises its option to acquire
additional shares of Series C Preferred Stock, holders of our common stock will experience dilution. In addition, holders of our
Series A-1 Preferred Stock have the right to convert their shares into 31,375,000 shares of common stock and; the holder of the
Series B Preferred Stock has the right to convert his shares into 7,500,000 common shares and Ervington, the sole holder of the
Series C Preferred Stock has the right to convert its shares of Series C Preferred Stock into 40,677,973 shares of common stock.
We also have warrants outstanding that are convertible into 6,339,498 shares of our common stock.
Recent accounting changes may make it
more difficult for us to sustain profitability.
We are a publicly traded company, and are therefore
subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), which requires that our internal controls and
procedures comply with Section 404 of the Sarbanes-Oxley Act. We expect compliance to be costly and it could impact our results
of operations in future periods. In addition, the Financial Accounting Standards Board now requires us to follow the accounting
standards on share based payments. Under this rule, companies must calculate and record in their statement of operations the cost
of equity instruments, such as stock options or restricted stock, awarded to employees for services. We expect that we will use
stock options to attract, incentivize and retain our employees and will therefore incur the resulting stock-based compensation
expense. This will continue to adversely affect our operating results in future periods.
Maintaining and improving our financial
controls and the requirements of being a public company may strain our resources, divert management’s attention and affect
our ability to attract and retain qualified board members.
As a public company, we are subject to the
reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of an exchange or the OTCQB. The
requirements of these rules and regulations will likely continue to increase our legal, accounting and financial compliance costs,
make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and effective internal control over financial reporting.
Significant resources and management oversight are required to design, document, test, implement and monitor internal control over
relevant processes and to, remediate any deficiencies. As a result, management’s attention may be diverted from other business
concerns, which could harm our business, financial condition and results of operations. These efforts also involve substantial
accounting related costs.
We have identified material weaknesses
in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional
material weaknesses will not occur in the future. If our internal control over financial reporting or our disclosure controls and
procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic
reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to
a decline in our stock price.
Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. We
have identified material weaknesses in our internal controls with respect to our financial statement for the year ended December
31, 2014. Our management discovered insufficient controls over review and accounting for certain complex transactions and a lack
of segregation of duties.
The design of monitoring controls used to assess
the design and operating effectiveness of our internal controls is inadequate.
We have begun to take actions that we believe
will substantially remediate the material weaknesses identified. In response to the identification of our material weaknesses,
we are in the process of expanding our finance and accounting staff. However, we cannot assure you that our internal control over
financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
We have never paid dividends and have
no plans to pay dividends on our common stock in the future.
Holders of shares of our common stock are entitled
to receive such dividends as may be declared by our Board of Directors. To date, we have paid no cash dividends on our shares of
our preferred or common stock and we do not expect to pay cash dividends in the foreseeable future on our common stock. Our Series
C Preferred Stock accrues dividends at the rate of 4% per annum of the stated price which initially is $3.277777778 payable annually
in arrears on December 31 of each year. In addition, our Series B Preferred Stock accrues dividends at the rate of 8% per annum
of the stated price which initially is $10.00 payable annually in arrears on December 31 of each year. Other than dividend payments
on the preferred stock we intend to retain future earnings, if any, to provide funds for operations of our business. Therefore,
any return investors in our preferred or common stock may have will be in the form of appreciation, if any, in the market value
of their shares of common stock.
Our stock price may be volatile or may
decline regardless of our operating performance.
The market price of our common stock may fluctuate
significantly in response to numerous factors, many of which are beyond our control, including:
|
· |
price and volume fluctuations in the overall stock market; |
|
· |
changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; |
|
· |
the public’s response to our press releases or other public announcements, including our filings with the SEC; |
|
· |
announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; |
|
· |
introduction of technologies or product enhancements that reduce the need for our products; |
|
· |
market conditions or trends in our industry or the economy as a whole; |
|
· |
the loss of key personnel; |
|
· |
lawsuits threatened or filed against us; |
|
· |
future sales of our common stock by our executive officers, directors and significant stockholders; and |
|
· |
other events or factors, including those resulting from war, incidents of terrorism or responses to these events. |
We may issue preferred stock with greater
rights than our common stock.
Our Certificate of Incorporation authorizes
the Board of Directors to issue up to 10 million shares of preferred stock, par value $.001 per share. The preferred stock may
be issued in one or more series, the terms of which may be determined by the Board of Directors at the time of issuance without
further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. Any preferred stock
that is issued may rank ahead of our common stock, in terms of dividends, liquidation rights and voting rights that could adversely
affect the voting power or other rights of the holders of our common stock. In the event of such an issuance, the Preferred Stock
could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change of control of our
company. Any delay or prevention of a change of control transaction or changes in our Board of Directors or management could deter
potential acquirers or prevent the completion of a transaction in which our stockholders could require substantial premium over
the then current market price per share. We currently have 3,137,500 Series A-1 Preferred Stock outstanding, 75,000 Series B Preferred
Stock outstanding and have recently designated 4,500,000 preferred shares as Series C Preferred Stock, of which 1,525,424 are outstanding
and Ervington has an option to acquire the remaining 2,974,576 shares of Series C Preferred Stock. The Series C Preferred Stock
has the right to annual dividends in preference to all other preferred stock and the common stock and the Series B Preferred Stock
is also entitled to an annual dividend. The Series A-1, B and C Preferred Stock all have liquidation preferences over the common
stock. In addition the vote of a majority of the Series C Preferred Stock will be required for the (i) merger, sale of substantially
all of our assets or our recapitalization, reorganization, liquidation, dissolution or winding up, (ii) redemption or acquisition
of shares of our common stock other than in limited circumstances, (iii) declaration or payment of a dividend or distribution with
respect to our capital stock, (iv) making any loan or advance, (v) amending our Certificate of Incorporation or Bylaws, (vi) authorizing
or creating any new class or series of equity security, (vii) increasing the number of authorized shares for issuance under any
existing stock or option plan, (viii) materially changing the nature of the business, (ix) incurring any indebtedness, (x) engaging
in or making investments not authorized by the Board of Directors, (xi) acquiring or divesting a material amount of assets (xii)
selling, assigning, licensing, pledging or encumbering our material technology or intellectual property, and (xiii) entering into
any corporate strategic relationship involving payment, contribution or assignment by us or to us of any assets. The vote of two-thirds
of the Series A-1 Preferred Stock is also required to take certain actions similar to those set forth above.
If we fail to meet the new eligibility
requirements of the OTC Market Group, we will no longer be eligible to have our common stock quoted on the OTCQB.
If we fail to maintain a minimum bid price
of $.01 per share one day per each thirty consecutive days, our stock will no longer be eligible to be traded on the OTCQB and
will be traded on the pink sheets. Effective May 1, 2014, the OTC Market Group implemented new eligibility standards for companies
traded on the OTCQB that will be gradually phased in over a one year period. Investors of companies that do not meet the eligibility
requirements will not have the benefit of the additional disclosure
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
for the three months ended March 31, 2015
The following shares were issued by the
company during the three months ended March 31, 2015:
|
i. |
an aggregate of 639,432 shares of Common Stock to convertible note holders upon conversion of an aggregate of $12,789 of long-term convertible notes, inclusive of interest thereon, at an average share price of $0.02 per share. The exchange of the Common Stock for debt is exempt from registration requirements under Section 3(a) (9) of the Securities Act of 1933, as amended (“the Securities Act”). |
|
ii. |
An aggregate of 3,750,000 shares of Common Stock on the conversion of 375,000 Series A-1 Preferred Stock into common stock at a conversion ratio of ten Common shares for each Series A-1 preferred share. The conversion of Series A-1 Preferred Stock into common stock is exempt from registration requirements under section 3(a) (9) of the Securities Act. |
Item 3. Defaults upon senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Regulation
Number |
|
Exhibit |
31.1 |
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Certification of the Chief Executive Officer and Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
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Certification of the Chief Executive Officer and Chief financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act |
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101.INS XBRL Instance Document |
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101.SCH XBRL Taxonomy Extension Schema Document |
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101.CAL XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE XBRL Taxonomy Extension Presentation Linkbase Document |
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.
DATE: May 14, 2015 |
PROPELL TECHNOLOGIES GROUP, INC.
(Registrant) |
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By: |
/s/John W. Huemoeller II |
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John W. Huemoeller II, President and Chief Executive Officer |
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(Principal Executive Officer and Principal Financial Officer) |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FONANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John W. Huemoeller II, certify that:
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I have reviewed this quarterly report on Form 10-Q of Propell Technologies Group, Inc.; |
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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; |
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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 registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are 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 13-a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our 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; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions 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 |
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d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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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 registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: May 14, 2015
/s/ John W. Huemoeller II |
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John W. Huemoeller II
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer) |
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EXHIBIT 32.1
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 Propell technologies
Group, Inc. (the "Registrant") on Form 10-Q for the period ending March 31, 2015 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, John Huemoeller, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to Section. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(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 Registrant.
/s/ John W. Huemoeller II |
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John W. Huemoeller II
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer) |
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May 14, 2015