UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended October 31, 2012
 
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from __________ to__________
 
Commission File Number: 333-145794

 

Harmonic Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 26-0164981
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

3rd Floor, 207 Regent Street, London W1B 3HH, United Kingdom
(Address of principal executive offices)

 

+44 (0)20 76177300    
(Registrant’s telephone number)

 

___________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer Accelerated filer [ ] Non-accelerated filer
[X] Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 63,037,262 as of December 13, 2012.

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Table of Contents

 

TABLE OF CONTENTS

 

 
  Page
 
PART I – FINANCIAL INFORMATION
 
Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 6
Item 4: Controls and Procedures 6
 
PART II – OTHER INFORMATION
 
Item 1: Legal Proceedings 7
Item 1A: Risk Factors 7
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 7
Item 3: Defaults Upon Senior Securities 7
Item 4: Mine Safety Disclosures 7
Item 5: Other Information 7
Item 6: Exhibits 8
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PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Balance Sheets as of October 31, 2012 and July 31, 2012 (unaudited)
F-2 Statements of Operations for the three months ended October 31, 2012 and 2011 and period from May 1, 2007 (Inception) to October 31, 2012 (unaudited)
F-3 Statements of Cash Flows for the three months ended October 31, 2012 and 2011 and period from May 1, 2007 (Inception) to October 31, 2012 (unaudited)
F-4 Notes to Financial Statements

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended October 31, 2012 are not necessarily indicative of the results that can be expected for the full year.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS (unaudited)

AS OF OCTOBER 31, 2012 AND JULY 31, 2012 

 

    October 31, 2012   July 31, 2012
ASSETS                
Current Assets                
Cash and equivalents   $ 31,633     $ 56,446  
Prepaid expenses     16,447       13,947  
Total Current Assets     48,080       70,393  
                 
Other Assets                
License agreement     525,000       525,000  
                 
TOTAL ASSETS   $ 573,080     $ 595,393  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Liabilities                
Current Liabilities                
Accrued expenses   $ 37,180     $ 39,381  
License fee payable     175,000       175,000  
Total Current Liabilities     212,180       214,381  
                 
Long-term Liabilities                
License fee payable, net of current portion     175,000       175,000  
                 
Total Liabilities     387,180       389,381  
                 
Stockholders’ Equity                
Common Stock, $.001 par value, 100,000,000 shares authorized, 63,037,262 and shares issued and outstanding (63,037,262 – July 31, 2012)     63,037       63,037  
Additional paid-in capital     282,489       282,489  
Stock warrants     249,409       249,409  
Deficit accumulated during the development stage     (409,035 )     (388,923 )
Total Stockholders’ Equity     185,900       206,012  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 573,080     $ 595,393  

 

See accompanying notes to financial statements.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS (unaudited)

FOR THE THREE MONTHS ENDED OCTOBER 31, 2012 AND 2011

FOR THE PERIOD FROM MAY 1, 2007 (INCEPTION) TO OCTOBER 31, 2012

 

 

    Three months ended
October 31, 2012
  Three months ended
October 31, 2011
  Period from
May 1, 2007
(Inception) to
October 31, 2012
             
REVENUES   $ 0     $ 0     $ 200  
                         
EXPENSES                        
Professional fees     2,100       1,400       283,423  
Consulting fees     13,000       0       174,543  
Website development     0       0       9,000  
General and administrative     5,012       0       26,253  
TOTAL EXPENSES     20,112       1,400       493,219  
                         
LOSS FROM OPERATIONS     (20,112 )     (1,400 )     (493,019 )
                         
OTHER INCOME (EXPENSE)                        
Interest expense     0       (300 )     (2,764 )
Gain on settlement of accrued expenses     0       0       86,748  
TOTAL OTHER INCOME (EXPENSE)     0       (300 )     83,984  
                         
LOSS BEFORE PROVISION FOR INCOME TAXES     (20,112 )     (1,700 )     (409,035 )
                         
PROVISION FOR INCOME TAXES     0       0       0  
                         
NET LOSS   $ (20,112 )   $ (1,700 )   $ (409,035 )
                         
NET LOSS PER SHARE: BASIC AND DILUTED   $ (0.00 )   $ (0.00 )        
                         
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED     63,037,262       273,620,595          

 

 

See accompanying notes to financial statements.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTHS ENDED OCTOBER 31, 2012 AND 2011

FOR THE PERIOD FROM MAY 1, 2007 (INCEPTION) TO OCTOBER 31, 2012

 

    Three months  ended
October 31, 2012
  Three months ended
October 31, 2011
  Period from
May 1, 2007
(Inception) to
October 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES                        
Net loss for the period   $ (20,112 )   $ (1,700 )   $ (409,035 )
Change in non-cash working capital items                        
Gain on settlement of accrued expenses     0       0       (86,748 )
Changes in assets and liabilities:                        
(Increase) in prepaid expenses     (2,500 )     0       (16,447 )
Increase (decrease) in accrued expenses     (2,201 )     1,400       123,928  
Increase in accrued interest – related party     0       300       2,764  
Net Cash Used in Operating Activities     (24,813 )     (0 )     (385,538 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES                        
Acquisition of license agreement     0       0       (175,000 )
Net Cash Used in Investing Activities     0       0       (175,000 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES                        
Proceeds from issuance of common stock and stock warrants     0       0       581,225  
Offering costs     0       0       (68,491 )
Proceeds from note payable – related party     0       0       79,437  
Net Cash Provided by Financing Activities     0       0       592,171  
                         
NET INCREASE (DECREASE) IN CASH     (24,813 )     0       31,633  
                         
Cash, beginning of period     56,446       0       0  
Cash, end of period   $ 31,633     $ 0     $ 31,633  
                         
SUPPLEMENTAL CASH FLOW INFORMATION:                        
Interest paid   $ 0     $ 0     $ 0  
Income taxes paid   $ 0     $ 0     $ 0  
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:                        
Conversion of note payable – related party and accrued interest to contributed capital   $ 0     $ 0     $ 1,210  
Forgiveness of shareholder debt and accrued interest   $ 0     $ 0     $ 80,991  
License fee payable issued for acquisition of license agreement   $ 0     $ 0     $ 525,000  

 

See accompanying notes to financial statements.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

OCTOBER 31, 2012

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

Harmonic Energy, Inc. (the Company), formerly known as Aviation Surveillance Systems, Inc. and Fairytale Ventures, Inc., was incorporated in the State of Nevada on May 1, 2007.  The Company is currently developing a new business focused on the disposition and recycling of scrap tires through tire re-manufacturing and carbonization of scrap tire components .  The Company has not realized significant revenues to date and therefore is classified as a development stage company.

 

Development Stage Company

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles related to development-stage companies. A development-stage company is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from.

 

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the period ended July 31, 2012. In the opinion of management, all adjustments necessary for the financial statements to be not misleading for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The Company has adopted a July 31 fiscal year end.

 

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accrued expenses, and a license fees payable. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Basic (Loss) per Common Share

Basic (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are 666,667 common stock warrants outstanding as of October 31, 2012.

 

Revenue Recognition

The Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

OCTOBER 31, 2012

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred. The Company has not incurred any advertising expense as of October 31, 2012 and 2011.

 

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

 

Income Taxes

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 valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, the Company has not adopted a stock option plan and has not granted any stock options. As of October 31, 2012, the Company has not issued any stock-based payments to its employees.

 

Recent Accounting Pronouncements

Harmonic Energy does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

 

NOTE 2 – PREPAID EXPENSES

 

Prepaid expenses at October 31, 2012 consisted of $1,515 of prepaid transfer agent services and $12,432 of prepaid legal services as well as $2,500 of site lease deposits. Prepaid expenses at July 31, 2012 consisted of $1,515 of prepaid transfer agent services and $12,432 of prepaid legal services.

 

NOTE 3 – LICENSE AGREEMENT

 

On March 14, 2012, the Company entered into a License Purchase Agreement with Kouei International, Inc. The Company acquired the exclusive rights in North America and Europe to use the Tyrolysis™ technology owned by Kouei Industries Co., Ltd. of Japan. Kouei International holds these rights under license from Kouei Industries and, pursuant to the agreement, has assigned them to the Company. The Tyrolysis™ technology is a comprehensive ‘closed-loop’ solution for the management of scrap tires, which allows for all scrap tires to be either re-manufactured into new tires or reduced, through a carbonization process, into marketable chemical products such as diesel fuel, carbon black and syn-gas.

 

Under the terms of the agreement, the Company is required to pay a total of $525,000 of which $175,000 was due within 90 days of the closing of the agreement (which has been paid), as well as $175,000 due 90 days after the first payment and $175,000 due 90 days after the second payment has been made. The balance due on the license fee payable was $350,000 as of October 31, 2012.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

OCTOBER 31, 2012

 

NOTE 3 – LICENSE AGREEMENT (CONTINUED)

 

During the period ended October 31, 2012, Kouei Industries agreed to extend the second payment due date to June 30, 2013 and the third payment due date to September 30, 2013. All other terms of the agreement remain the same.

 

In addition, the Company is to pay a royalty of 3% of all revenues in respect of gross sales for a period of 5 years, and a royalty of $2.50 per remanufactured passenger tire and a royalty of $3.00 per remanufactured light truck and truck tire at the end of each month for a period of 5 years. There have been no revenues generated from the license agreement as of October 31, 2012.

 

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of October 31, 2012 and July 31, 2012:

 

    October 31, 2012   July 31, 2012
Accrued legal fees   $ 2,680     $ 2,681  
Accrued accounting and audit fees     4,500       6,700  
Accrued filing fees     0       0  
Accrued consulting fees     30,000       30,000  
Total Accrued Expenses   $ 37,180     $ 39,381  

 

NOTE 5 – LOAN PAYABLE – RELATED PARTY

 

On June 14, 2010, the Company signed a promissory note for $20,000 with an officer.  The loan was due on June 14, 2011, bears 6% interest and is unsecured. The terms of the notes were revised to adjust maturity to due on demand during the year ended July 31, 2011. Interest expense on this loan was $1,200 for the years ended July 31, 2012 and 2012. During the year ended July 31, 2012, the shareholder forgave the balance of the loan and all accrued interest. The forgiveness of debt of $22,554 was recorded as contributed capital.

 

In association with the change in control during the year ended July 31, 2012, the selling shareholders paid certain legal and accounting expenses on behalf of the company. A total of $58,437 was paid by the shareholder and has been recorded as contributed capital.

 

NOTE 6 – CAPITAL STOCK

 

The Company has 90,000,000 shares of $0.001 par value common stock authorized.

 

The Company has 10,000,000 shares of $0.001 par value preferred stock authorized.

 

On May 14, 2007, the Company received $4,000 from its founders for 58,994,015 shares of its common stock. On June 22, 2007, the Company completed an unregistered private offering under the Securities Act of 1933, as amended, relying upon the exemption from registration afforded by Rule 504 of Regulation D promulgated there under.  The Company sold 23,450,110 shares of its $0.001 par value common stock at a price of $0.004 per share for $11,925 in cash.

 

On July 21, 2008, the Company’s shares of common stock were forward split on the basis of 1.84356289 shares for 1.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

OCTOBER 31, 2012

 

NOTE 6 – CAPITAL STOCK (CONTINUED)

 

On May 1, 2009, the Company’s shares of common stock were forward split on the basis of 1.6 shares for 1.

 

On March 15, 2010, the Company sold 191,176,470 shares of common stock for total cash proceeds of $65,000.

 

On November 3, 2011, a shareholder of the company voluntarily returned 1,250,000 shares of common stock to treasury for cancellation.

 

On February 22, 2012, a shareholder of the company voluntarily returned 210,000,000 shares of common stock to treasury for cancellation.

 

On March 12, 2012, the Company the Company’s shares of common stock were forward split on the basis of 5 shares for 1.

 

All share and per share data in the accompanying financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.

 

On March 27, 2012, the Company received subscription proceeds of $500,000 related to a subscription agreement for 666,667 shares of common stock and common stock warrants $0.75 per unit. The common stock warrants were valued using the Black-Scholes valuation method. The valuation was made using the following assumptions and the proceeds were allocated based on the fair value of the common stock and common stock warrants;

 

Stock Warrant valuation assumptions    
Stock price at grant date   $ 1.00  
Exercise price   $ 1.12  
Term     4 years  
Risk-free interest rate     0.37 %
Volatility     284 %

 

As of October 31, 2012, the Company had 63,037,262 shares of common stock issued and outstanding.

 

There are no shares of preferred stock issued and outstanding as of October 31, 2012.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Harmonic Energy neither owns nor leases any real or personal property. An officer has provided office services without charge. There is no obligation for this arrangement to continue. Such costs are immaterial to the financial statements and accordingly are not reflected herein. The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.

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HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

OCTOBER 31, 2012

 

NOTE 8 – GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern.  However, the Company has an accumulated deficit of $409,035 as of October 31, 2012.  The Company currently has a working capital deficit, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

 

NOTE 9 – INCOME TAXES

 

As of October 31, 2012, the Company had net operating loss carry forwards of approximately $409,035 that may be available to reduce future years’ taxable income in various amounts through 2032. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

 

The provision for Federal income tax consists of the following for the three months ended October 31, 2012 and 2011:

 

    2012   2011
Federal income tax benefits attributable to:                
Current operations   $ 6,840     $ 578  
Less: valuation allowance     (6,840 )     (578 )
Net provision for Federal income taxes   $ 0     $ 0  

 

The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of October 31, 2012 and July 31, 2012:

 

    October 31, 2012   July 31, 2012
Deferred tax asset attributable to:                
Net operating loss carryover   $ 139,072     $ 132,234  
Less: valuation allowance     (139,072 )     (132,234 )
Net deferred tax asset   $ 0     $ 0  

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $409,035 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.

 

NOTE 10 – SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to October 31, 2012 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 other than the events described above.

F- 8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Company Overview

 

We are a Nevada corporation, formed May 1, 2007.  We are currently developing a new business which will provide a comprehensive solution for the disposition and recycling of scrap tires through tire re-manufacturing and carbonization of scrap tire components. Tire re-manufacturing is a process that takes high quality used tires, removes the old tread and sidewall markings, and then applies new rubber to the tread and sidewall. The used casing along with the new rubber is vulcanized under high pressure and heat to produce a new tire. This is the same process used by new tire manufacturers except that they make the casing (the most costly part of the tire). Carbonization is a technology that heats tires in an oxygen free environment and turns spent tire casings into diesel fuel, carbon black, steel, and syn-gas.

 

On March 14, 2012, we entered into a License Purchase Agreement (the “Agreement”) with Kouei International, Inc. (“Kouei International”). Under the Agreement, we have acquired the exclusive rights in North America and Europe to use the Tyrolysis™ technology owned by Kouei Industries Co., Ltd. of Japan (“Kouei Industries”). Kouei International holds these rights under license from Kouei Industries and, pursuant to the Agreement, has assigned them to us. The Tyrolysis™ technology is a comprehensive ‘closed-loop’ solution for the management of scrap tires, which allows for all scrap tires to be either re-manufactured into new tires or reduced, through a carbonization process, into marketable chemical products such as diesel fuel, and steel. The carbon char material will be upgraded to produce a general purpose carbon black that can be used again in the rubber, plastic and asphalt industries. Syn-gas is used for process heat within the system.

 

Under the Agreement, as currently extended, we have agreed to pay Kouei International a total purchase price of $525,000 as follows:

 

  • $175,000 – due within ninety (90) days of closing (which has been paid)
  • $175,000 – due on or before June 30, 2013
  • $175,000 – due on or before September 30, 2013

In addition, the Agreement calls for Kouei International to be paid ongoing royalties for the next five (5) years as follows:

 

  • 3% of gross sales
  • $2.50 per remanufactured passenger tire
  • $3.50 per remanufactured light truck and truck tire

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The Agreement provides us with full access to Kouei International’s properties, books, records, information, technical drawings, contacts and equipment supplied by Kouei Industries. In addition, Kouei International will be contracted for a two year period to help with the transaction and successful implementation of the technology transfer. During this term, Kouei International may be required to provide its engineering expertise and/or participate in industry technology presentations.

 

Management is currently evaluating facilities locations in Europe and North America. We plan for our facilities to receive scrap tires and produce both re-manufactured tires and commodity chemicals produced through the Tyrolysis™ carbonization technology. We hope to have 6 to 10 plants operational in Europe and North America within the next 5 years.

 

Our planned facilities will need to be located near suitable sources of scrap tires and other scrap rubber materials. In preparation for a potential recycling plant to be located in Michigan, we entered into a Tire Feedstock Agreement (the “Agreement”) with Enertech R.D., LLC (“Enertech”) on April 11, 2012. Under the Agreement, we have agreed to purchase all of Enertech’s output of scrap tires and other low-value rubber-based materials (referred to as “Feedstock”) for a term of ten (10) years. We intend to use the Feedstock to supply a planned tire recycling facility. Enertech’s estimated daily output of Feedstock is approximately 200 tons per day, though actual output will fluctuate in response to Enertech’s flow of business operations. The maximum daily output that we are required to accept under the Agreement is 300 tons. If Enertech’s output diminishes to less than 100 tons on each of five successive days, we may rescind the Agreement on 20 days written notice.

 

The Agreement requires us to pay Enertech a fee of $30 per ton for chipped, two-inch-minus scrap tires which are 90% to 95% steel free. The price per ton will be adjusted annually in accordance with future negotiations between the parties. The Feedstock will be delivered to us at a distance of up to 2 miles from Enertech’s facility in Michigan. We will be required to pay for delivery costs for distances beyond two miles.

 

The Agreement is conditional upon:

 

  1. Our building and operating a tire recycling facility, located within 2 miles of Enertech’s facility in Michigan, that is capable of processing Enertech’s total Feedstock output, and
  2. Our registering with the Michigan Environmental Protection Agency and complying with all permit and license requirements for the tire recycling facility which will accept Enertech’s output of Feedstock.

 

Management estimates that approximately $50 million in new equity will be required in order to procure the necessary equipment, facilities, and supplies for our planned business and to commence our planned tire recycling operations. We currently do not have any firm arrangements for equity or debt financing and we may not be able to obtain financing when required, in the amount necessary to commence our planned operations, or on terms which are feasible in the opinion of management.

 

Results of operations for the three months ended October 31, 2012 and 2011, and for the period from May 1, 2007 (date of inception) through October 31, 2012.

 

We have not earned significant revenues since the inception of our business and we earned no revenues during the three months ended October 31, 2012 and 2011.  We are presently in the development stage of our business and we can provide no assurance that we will produce significant revenues or, if revenues are earned, that we will be profitable.

 

We have incurred net losses in the amount of $409,035 from our inception on May 1, 2007 through the period ending October 31, 2012.  During the three months ended October 31, 2012, we incurred expenses and a net loss of $20,112, compared to expenses and a net loss of $1,700 for the three months ended October 31, 2011. Our losses are attributable to our operating expenses combined with a lack of significant revenues during our current stage of development.

 

Prior to the generation of revenues, we expect that our expenses will continue to increase significantly as we progress with the development of our new tire recycling business.

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Liquidity and Capital Resources

 

As of October 31, 2012, we had current assets of $48,080, consisting of cash in the amount of $31,633 and prepaid expenses in the amount of $16,447. As of October 31, 2012, we had current liabilities of $212,180, consisting of license fees payable of $175,000 and accrued expenses of $37,180.  Thus, we had a working capital deficit of $164,100 as of October 31, 2012. The largest component of our current liabilities is a $175,000 license fee payable under our License Purchase Agreement with Kouei International. This represents the second of the three installment payments called for under the agreement.

 

On May 15, 2012, we raised a total of $500,000 in a private offering of common stock and warrants. Our efforts to secure equity financing for our planned operations is ongoing. We will need additional funding in order to complete our payments under the License Purchase Agreement with Kouei International. We have not established profitable operations and will be dependent upon obtaining financing to pursue a long-term business plan. As discussed above, we will also require substantial new equity and debt financing in the approximate amount of $50 million to successfully pursue the full scope of our planned tire recycling operations. We currently do not have any arrangements for financing and we may not be able to obtain financing when required. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.

 

Off Balance Sheet Arrangements

 

As of October 31, 2012 , there were no off balance sheet arrangements.

 

Going Concern

 

We have negative working capital, have incurred losses since inception, and not yet established a source of revenues. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

 

Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 31, 2012. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Jamie Mann. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2012, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended October 31, 2012.

 

Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.

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Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

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Item 6. Exhibits

 

Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of 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 of 2002

 

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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.

 

Harmonic Energy, Inc.
 
Date: December 14, 2012
   
By: /s/ Jamie Mann
Title: Jamie Mann, Chief Executive Officer

 

9

 

CERTIFICATIONS

 

I, Jamie Mann, certify that;

 

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended October 31, 2012 of Harmonic Energy, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer 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 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 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;

 

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;

 

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

 

d. Disclosed in this report any change in the registrant’s internal control over financial 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

 

5. The registrant’s other certifying officer 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):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 14, 2012

 

/s/ Jamie Mann

By: Jamie Mann

Title: Chief Executive Officer

CERTIFICATIONS

 

I, Jamie Mann, certify that;

 

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended October 31, 2012 of Harmonic Energy, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer 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 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 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;

 

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;

 

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

 

d. Disclosed in this report any change in the registrant’s internal control over financial 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

 

5. The registrant’s other certifying officer 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):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 14, 2012

 

/s/ Jamie Mann

By: Jamie Mann

Title: Chief Financial Officer

 

CERTIFICATION OF 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 OF 2002

 

In connection with the quarterly Report of Harmonic Energy, Inc (the “Company”) on Form 10-Q for the quarter ended October 31, 2012 filed with the Securities and Exchange Commission (the “Report”), I, Jamie Mann, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

 

By: /s Jamie Mann
Name: Jamie Mann
Title: Principal Executive Officer, Principal Financial Officer and Director
Date: December 14, 2012

 

 

 

 

 

 

 

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.