PERPETUAL INDUSTRIES INC. - Quarter Report: 2015 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2015.

Commission File Number: 333-187134

Perpetual Industries Inc.

(Exact name of registrant as specified in its charter)

403-214-4321

(Registrant’s telephone number, including area code)

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    [    ]

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).

[ X ] Yes    [    ]

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.

[   ] 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

34,266,000 common shares issued and outstanding as of March 13, 2015

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FORWARD LOOKING STATEMENTS

IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE EXCHANGE ACT, AND ARE MADE IN RELIANCE UPON THE PROTECTIONS PROVIDED BY SUCH ACTS FOR FORWARD-LOOKING STATEMENTS. IN THIS QUARTERLY REPORT, THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE", "MAY", "WILL", "WOULD", "COULD", "SHOULD", "EXPECTS", "INTENDS", "PLAN", "ESTIMATES", "PREDICTS", "PROJECTS", "SEEKS", "POTENTIAL", "LIKELY", "CONTINUE", AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS.  THE FORWARD-LOOKING STATEMENTS IN THIS QUARTERLY REPORT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE.  THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN THIS QUARTERLY REPORT, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED.  READERS ARE CAUTIONED TO CONSIDER THE SPECIFIC RISK FACTORS DESCRIBED IN THIS QUARTERLY REPORT AND NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY REPORT.  ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ARE MADE ONLY AS OF THE DATE OF THIS QUARTERLY REPORT, AND WE DO NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY UPDATE OR CORRECT ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT SUBSEQUENTLY OCCUR OR OF WHICH WE, AFTER THE DATE OF THIS QUARTERLY REPORT, BECOME AWARE.  YOU SHOULD READ THIS DOCUMENT AND THE DOCUMENTS THAT WE INCORPORATE BY REFERENCE INTO THIS QUARTERLY REPORT COMPLETELY AND WITH THE UNDERSTANDING THAT OUR ACTUAL FUTURE RESULTS MAY BE MATERIALLY DIFFERENT FROM WHAT WE EXPECT.  WE MAY NOT UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN IF OUR SITUATION CHANGES IN THE FUTURE. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US ARE EXPRESSLY QUALIFIED BY THESE CAUTIONARY STATEMENTS.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Perpetual Industries Inc.

Contents

Balance Sheets as of January 31, 2015 (end of Q2 ’15, unaudited) and July 31, 2014 (YE ’14)

Statements of Operations for the Six Months and Three Months Ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14, and Q2 ’15 & ’14, unaudited)

Statements of Cash Flows for the Six Months Ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14, unaudited)

Notes to Financial Statements (unaudited)

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Perpetual Industries Inc.

Balance Sheets

	January 31, 2015 (end of Q2 ’15, unaudited)	July 31, 2014 (YE ’14)
Assets
Current Assets
Cash	$     7,675	$       32,117
Accounts Receivable	535	535
Total current assets	8,210	32,652
Equipment, Net of Accumulated Depreciation	3,783	3,406
Total assets	$     11,993	$       36,058
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable (including related party balances of approximately $25,189 and $150,000 at January 31, 2015 and July 31, 2014 respectively)	$   30,641	$     151,653
Accrued expenses (including related party balances of approximately $52,576 and $1,113,000 at January 31, 2015 and July 31, 2014 respectively)	245,658	1,330,140
Convertible notes payable and accrued interest (including related party balances of approximately $1,436,000 and $0 at January 31, 2015 and July 31, 2014 respectively)	1,913,231	-
Other current liabilities	67,895	64,016
Total current liabilities	2,257,425	1,545,809
Long Term Liabilities	-	110,000
Total liabilities	2,257,425	1,655,809
Stockholders' Deficit
Common stock, $.001 par value, 100,000,000 shares authorized, 34,266,000 and 33,122,000 shares issued and outstanding at January 31, 2015 and July 31, 2014 respectively
	34,266	33,123
Capital in excess of par value	6,260,468	5,045,258
Prepaid stock services	(138,000)	-
Deficit accumulated during development stage	(8,402,166)	(6,698,132)
Total stockholders' deficit	(2,245,432)	(1,619,751)
Total liabilities and stockholders' deficit	$     11,993	$     36,058

The accompanying notes are an integral part of the financial statements.

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Perpetual Industries Inc.

Statements of Operations (unaudited)

	Six Months Ended January 31,			Three Months Ended January 31,
	2015 (Q1/Q2 ’15)	2014 (Q1/Q2 ’14)		2015 (Q2 ’15)	2014 (Q2 ’14)
Revenues	$ -	$ 157,211		$ -	$ 25,986
Operating Expenses
Related party expenses	(277,569)	(168,193)		(90,418)	(81,363)
Other operating expenses	(677,345)	(186,627)		(123,257)	(88,376)
Total operating expenses	(954,914)	(354,820)		(213,675)	(169,739)
Operating loss	(954,914)	(197,609)		(213,675)	(143,753)
Other Income (Expense)
Interest income, related party	(5,589)	15,898		(2,833)	7,220
Interest expense, related party	(48,096)	(24,845)		(28,696)	(12,682)
Interest expense, non-related party	(16,469)	(1,182)		(10,212)	(1,182)
Stock option issuance expense	(678,303)	-		-	-
Warrant issuance expense	-	(184,408)		-	-
Other	(663)	6,468		(911)	6,928
Net Loss	(1,704,034)	(385,678)		(256,327)	(143,469)
Basic and Diluted Loss Per Share	$ (0.05)	$ (0.01)		$ (0.01)	$ (0.00)
Basic and Diluted Weighted Average Common Shares Outstanding	33,837,367	32,470,000		34,186,293	32,470,000

The accompanying notes are an integral part of the financial statements.

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Perpetual Industries Inc.

Statements of Cash Flows

(unaudited)

	Six months ended January 31,
	2015 (Q1/Q2 ’15)	2014 (Q1/Q2 ’14)
Cash flows from operating activities
Net Loss	$ (1,704,034)	$ (385,678)
Adjustments to reconcile net loss to net cash (used) in operating activities:
Depreciation	909	921
Issuance of stock options	678,303	-
Issuance of warrants	-	184,408
Amortization of common stock issued for services	61,500	-
Expenses incurred related to issuance of convertible notes payable	649,809	-
Increase (Decrease) in:
Accounts payable	30,272	13,367
Accrued expenses	28,658	104,493
Deferred revenue	-	(23,775)
Other liabilities	3,877	(989)
Net cash flows (used) in operating activities	(250,706)	(107,253)
Cash flows used in investing activities
Purchase of equipment	(1,286)	-
Net cash flows used in investing activities	(1,286)	-
Cash flows provided by financing activities
Proceeds from notes payable	-	100,000
Proceeds from exercise of warrants	227,550	-
Net cash flows provided by financing activities	277,550	100,000
Net change in cash	(24,442)	(7,253)
Cash, beginning of period	32,117	30,348
Cash, end of period	$ 7,675	$ 23,095

Supplemental Disclosures of Cash Flow Information

The Company has not paid any income taxes or interest since its inception. See the accompanying notes.

Non-cash Investing and Financing Activities

The Company issued shares of common stock for prepaid services as follows:

	Six months ended January 31, 2015	284,000 shares	$ 199,500
	Three months ended January 31, 2015	-	-
	Six and three months ended January 31, 2014	-	-

The Company issued common stock to retire debenture principal and interest, as follows:

	Six months ended January 31, 2015	370,000 shares	$ 111,000
	Three months ended January 31, 2015	-	-
	Six and three months ended January 31, 2014	-	-

The Company issued convertible notes payable to relieve accounts payable and accrued expenses, as follows:

	Six months ended January 31, 2015		$ 1,863,537
	Three months ended January 31, 2015		-
	Six and three months ended January 31, 2014		-

The accompanying notes are an integral part of the financial statements.

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Perpetual Industries Inc.

Notes to Financial Statements

 Six Months and Three Months Ended January 31, 2015 and 2014
(Q1/Q2 ’15 & ’14, and Q2 ’15 & ’14, unaudited)

Note 1- Basis of Presentation and Background Information

Interim Period Financial Statements

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the Securities and Exchange Commission's instructions. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for such interim period. The results reported in these interim financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and note disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited interim financial statements should be read in conjunction with the Company's audited financial statements for the year ended July 31, 2014.

Nature of Operations

Perpetual Industries Inc. (the “Company”) was incorporated under the laws of Nevada in January 2005. The Company coordinates research and development activities aimed at bringing new technology to market. At present, the Company's feature technology is the internationally patented XYO mechanical balancing system (“XYO”). On January 26, 2005, the Company acquired a license for the worldwide, exclusive right to manufacture or have manufactured, sell, and use the products incorporating XYO, and to sublicense these rights to third parties.

The Company has not commenced its principal operations, and its present condition is characterized by significant expenditures on obtaining the rights to XYO, on preliminary sublicensing and marketing efforts, and on coordinating the development of products that contain XYO. The accompanying financial statements do not reflect the Company's planned principal operations, in which the focus is intended to continue to shift more heavily onto the sublicensing, manufacturing, and marketing of XYO, and to diversification into other technologies.

The Company's corporate office is located in Calgary, Alberta.

Note 2 – Going Concern

As shown in the accompanying financial statements, the Company has negative working capital, has cash used in operations of $250,706 for the six months ended January 31, 2015 (Q1/Q2 ’15), and an accumulated deficit, i.e. an overall loss since inception. While the Company’s current principal business activities are to coordinate the research and development of products that feature the XYO mechanical balancing system and to market these products, there can be no assurance that the Company will be able to successfully develop or operate a business using this concept. Our lack of meaningful operating revenues, negative working capital, cash used in operations, and having an accumulated deficit to date, raise substantial doubt about our ability to continue as a going concern.

The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to carry out its planned principal operations and maintain a certain level of profitability. The Company intends to finance its future activities and working capital needs primarily from the sale of equity securities and ongoing sub-licensing efforts.

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Note 3a - Summary of Significant Accounting Policies

Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average common shares and potentially dilutive common share equivalents. The effects of potential common stock equivalents are not included in computations when their effect is anti-dilutive.

Because of the net losses for all periods presented, the basic and diluted weighted average shares outstanding are the same since including the additional shares would have an anti-dilutive effect on the loss per share calculations. Common stock warrants and options to purchase 20,217,500 and 16,509,500 shares of common stock for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) and 20,217,500 and 16,509,500 shares of common stock for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), respectively, were not included in the computation of diluted weighted average common shares outstanding. Additionally, $1,913,231 of convertible debt and accrued interest can potentially convert into 6,377,437 shares of common stock as of January 31, 2015 (end of Q2 ’15).

Note 3b - Impact of Recently Issued Accounting Standards

Other than as disclosed in previous financial statements, we do not believe that any accounting pronouncements recently issued by the FASB, the AICPA, and the SEC, would if adopted have a material effect on our present or future financial statements.

Note 4 - Loan Receivable and Lease Obligation

During the period January 25, 2005 (Inception) through January 1, 2010, the Company advanced funds to a limited liability company that has been identified as a Variable Interest Entity (“VIE”). These funds supported the operations of this VIE, which are to research and develop products that feature XYO and to market these products. The Company holds a note for these advances and the uncollected interest due, which calls for 9% interest per annum and has a maturity date of August 31, 2012 and is currently in default. In addition to the advancement of funds, the Company continues to have two other forms of involvement with the above VIE. The Company incurred marketing expenses for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) totalling approximately $0 and $2,400, respectively, and for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), $0 and $0, respectively, for services performed by the VIE. In this regard there was no balance owing to the VIE at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14). The Company also leases its offices from the above VIE. The terms of the lease call for monthly rent of $3,000 through March 31, 2015. The Company’s involvement with this VIE is limited to the aforementioned transactions.

Management has determined that although the above transactions created a variable interest in this entity, the Company is not the VIE’s primary beneficiary and, as such, the Company is not required to consolidate the financial statements of the VIE. In determining that it is not the primary beneficiary, the Company considered the VIE’s equity and voting interests, the percentage of the Company’s variable interest compared to the total of all other variable interests as well as an analysis determining the bearer of any losses and the benefactor of any gains from the VIE.

The maximum exposure to loss from this variable interest is limited to the collection of the loan receivable. The Company’s variable interest in the VIE amounted to $809,245 as of July 31, 2010 prior to the establishment of a full allowance on that date. Factors considered in establishing the allowance included the current financial condition of the VIE coupled with the fact that the loan is not guaranteed and has no liquidation preference. The carrying amounts on the balance sheets as of January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14) are $0, net of allowances.

Total rent expense for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) was approximately $16,000 and $17,100, respectively, and for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), $7,900 and $8,400, respectively. The future rent obligations under this lease will require approximately $6,000 for the remaining two months until the lease ends. Since February 2012, the Company’s rent obligations have been met by recording the amount of rent expense as interest income in lieu of cash outlay, and this arrangement may continue. However, during the last six months of the year ended July 31, 2014, and the six months ended January 31, 2015 (Q1/Q2 ’15), the Company paid the VIE’s landlord (the landowner) and the VIE’s utilities providers directly for portions of the back rent and back utilities owed by the VIE, in amounts totaling approximately $33,300 and $25,600, respectively. In the six months ended January 31, 2015 (Q1/Q2 ’15) the VIE paid the Company approximately $4,000 and the Company therefore booked approximately $16,000 rent as paid in cash, with the surplus amount of $5,600 being applied against interest income.

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Note 5 – Non-Derivative Warrants

In the years ended July 31, 2014 and 2013, the Company issued 2,069,000 and 14,440,500 non-derivative warrants in connection with previous issuances of 2,069,000 and 14,440,500 shares of common stock, respectively. These warrants vest immediately upon grant date and have a two year expiration period. The warrants have fixed escalating exercise prices based on time elapsed from the date of grant, ranging from $0.30 to $0.50 per share for subscriptions before March 14, 2007, and from $0.40 to $0.60 per share for subscriptions after that date. For the six months ended January 31, 2015 and 2014, the Company recorded $0 and $184,408 of expense, respectively, associated with warrants.

The following is a reconciliation of the number and weighted-average exercise prices for the warrants with non-derivative features:

		Warrants
		Number of Shares		Weighted Average Exercise Price ($)
	Outstanding, July 31, 2014	15,907,500		0.47
	Exercised in six months ended January 31, 2015	(490,000)		0.46
	Outstanding, January 31, 2015 (end of Q2 ‘15)	15,417,500		0.57

The following summarizes information about warrants with non-derivative features outstanding as of  January 31, 2015 (end of Q2 ’15):

The Company estimated the fair value of the warrants issued during the periods using the Black-Scholes option pricing model with the following assumptions:

		Year Ended July 31, 2014	Year Ended July 31, 2013
	Expected life (in years)	2	2
	Expected dividend yield (%)	0.00	0.00
	Expected volatility (%)	81.3	79.7
	Risk free interest rate (%)	0.36	0.33

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Note 6 – Stock Options

In the six months ended January 31, 2015 (Q1/Q2 ’15), the Company issued non-statutory stock options to independent contractors and consultants as well as to employees. Options have been granted to purchase a total of 4,800,000 shares at $0.30 per Share. The Board of the Company has authorized the Chairman, President and CEO to issue a cumulative aggregate quantity of up to 15% (as of January 31, 2015, 5,139,900 shares) of the issued and outstanding common stock total at the time of any grant. As of January 31, 2015, 339,900 shares of the authorized total had not been granted. No options had previously been granted. The terms, prices, and quantities of any future grants are to be determined.

	Optionee’s Relationship to the Registrant Company	Number of Shares Pursuant to Which Option is Granted
	President, Chairman and CEO	1,000,000
	General Manager of Operations	400,000
	Subtotal, Executive Officers (as defined in Rule 501(f) of Reg D)	1,400,000
	Director	300,000
	Director	300,000
	Consultants and/or independent contractors	2,800,000
	Subtotal, Non- Executive Officers	3,400,000
	Total	4,800,000

These stock options vest immediately upon grant date and have expiration periods of two, three, or five years. The exercise price is fixed at $0.30 per share. The Company recorded $678,303 of expense associated with these stock options at the time of issuance. The following summarizes information about stock options outstanding as of January 31, 2015 (end of Q2 ’15):

The Company estimated the fair value of the options issued during the periods using the Black-Scholes option pricing model with the following assumptions:

		2 year term	3 year term	5 year term
	Expected life (in years)	1	1.5	2.5
	Expected dividend yield (%)	0.00	0.00	0.00
	Expected volatility (%)	52.8	69.5	98.7
	Risk free interest rate (%)	0.13	0.58	1.07

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Note 7 - Convertible Notes

In the six months ended January 31, 2015 (Q1/Q2 ’15), the Board authorized the Company’s Chairman, President and CEO to enter the Company into various convertible notes for the purposes of (1) retiring existing debts and (2) taking on new debts for services rendered. The fixed conversion price is set at $0.30 per share, up to an aggregate total of 8,000,000 shares, hence a total potential value of $2,400,000. The notes do not specify any repayment term, have an interest rate of 8%, and do not involve any collateral; accordingly they are considered short term liabilities.

In connection with the issuance of these convertible notes the Company recognized approximately $650,000 in non-cash expenses during the six months ended January 31, 2015 (Q1/Q2 ’15), related to management services, royalty and license fees, and various marketing, engineering and administrative services, and accrued interest.

Note 8 – Reg D 506(c) Offering

In the six months ended January 31, 2015 (Q1/Q2 ’15), the Company began the pursuit of additional financing in the form of a private offering in accordance with Regulation D under the Securities Act and subject to the terms of an appropriate private placement memorandum. Said offering is for the sale of a maximum of 4,800,000 shares of the Company’s $0.001 par value common stock at a price per share of $0.75, for a maximum offering amount of $3,600,000. There is no minimum offering and no provision to return or escrow investor funds if any minimum number of shares is not sold. The minimum investment established per investor is $15,000, unless such minimum is waived in the Company’s sole discretion. This offering is restricted to Accredited Investors. No funds have been accepted in relation to said offering.

Note 9 – Accrued Expenses

Accrued expenses as of January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14) consisted of the following:

		January 31, 2015 (end of Q2 ’15)	July 31, 2014 (YE ’14)
	Accrued license fees	$      26,667	$    287,873
	Accrued royalties	25,000	475,000
	Accrued interest	9,924	204,200
	Accrued management fees	-	151,000
	Accrued legal fees	125,000	125,000
	Accrued audit fees	59,067	87,067
		$    245,658	$  1,330,140

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Note 10 - Related Party Transactions and Commitments

Management and Other Expenses

The Company’s president deferred portions of the first three years of compensation due him. The balance due him as of July 31, 2014 (YE ’14) for amounts deferred totalled $151,000. These back management fees are unsecured, non-interest bearing and due upon demand. There was no formal deferred management fees agreement and therefore no set repayment date. The Company recorded this amount as current in the accompanying July 31, 2014 (YE ’14) balance sheet.

	Period During Which Management Fees Were Earned	Portion Deferred	Balance Deferred
	YE July 31, 2006	$72,000	$72,000
	YE July 31, 2007	$38,500	$110,500
	YE July 31, 2008	$40,500	$151,000

In subsequent years the Company contracted for management services from an entity owned by the Company’s president.  

During the period January 25, 2005 (Inception) through January 31, 2015 (end of Q2 ’15), the Company paid certain entities owned by members of management for management services rendered. The amounts for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) were approximately $178,500 and $76,900, respectively, and for the three months ended January 31, 2015 and 2014 (Q2 ’15 &’14), $40,100 and $37,900, respectively. The Company has not made payments against management fees that have been accruing in recent months, and thus as of January 31, 2015 and 2014 (end of Q2 ’15 & ’14), the Company owed these entities approximately $25,200 and $132,400, respectively, which is included in accounts payable and convertible notes payable in the accompanying balance sheets.

As described in Note 7, on September 30, 2014, all amounts owing to the president and the president’s entity were combined into a convertible note in his personal name, and all amounts owing to the general manager of operations’ entity were combined into a convertible note in his personal name. As of January 31, 2015 (end of Q2 ’15), the Company had not paid the president's entity for approximately 13 months of management fees, approximately $194,000 (not including the $151,000 described above), and the Company had not paid the general manager of operations' entity for approximately 17 months of management fees, approximately $89,000.

During the periods presented, the Company was provided multi-media marketing, advertising and website maintenance services from a related entity. The owner of the entity is a small shareholder of the Company, and a relative of the Company’s president. There was no amount due to this entity at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14). Total services provided from this entity to the Company during the six months and three months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) were $3,400 and $0, respectively, and during the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14) were $2,800 and $0,

Expenses pertaining to the Variable Interest Entity (“VIE”) mentioned in Note 4 are included in Statements of Operations as related party expenses.

Royalties and License Fees Pertaining to Exclusive Rights

In January 2005, the Company entered into a licensing agreement with a related party whose primary business is the ownership and maintenance of patents concerning the XYO technology, for the exclusive rights in XYO for automatic balancing systems suitable in the balancing and stabilization of rotating systems. These rights enable the Company to manufacture, or have manufactured, sell, and use, the products incorporating this technology, and to sub-license to third parties the right to manufacture or have manufactured, sell and use, the products incorporating this technology. The agreement calls for annual royalties and license fees. Royalties are calculated annually at a rate of 2.5% on any revenue derived from the use of the technology, subject to a varying minimum annual royalty fee of up to $125,000, for a period that is equal to the life of the underlying patents, i.e., until March 7, 2023. The license fees are due annually, in advance, in escalating amounts as stated in the agreement through January 2015.

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The agreement also requires 6% annual interest, compounded quarterly, on any unpaid license fees, and 6% annual interest, compounded quarterly, on any unpaid royalty fees outstanding after January 2010.

The License Agreement was modified by an Amendment and Waiver of Default effective July 31, 2010, in which ETI waived any rights to terminate the Agreement in the event of non-payment by Perpetual.

As described in Note 7, on September 30, 2014, all amounts owing to this entity were combined into a convertible note. The above agreement continues with respect to license and royalty fees, and interest thereon, that accrue after the date of the convertible note (i.e. the accrued expense amounts in respect of the agreement that appear on the balance sheet at January 31, 2015 represent just four months worth of new accruals).

In connection with the above agreement, the Company incurred royalties for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) amounting to $37,500 and $37,500, respectively, and for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), $18,750 and $18,750, respectively. Included in accrued expenses as of January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14) are $25,000 and $475,000 relating to unpaid royalty fees.

The Company also incurred license fees related to the above agreement, amounting to $40,000 and $35,000 in the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) respectively, and $20,000 and $17,500 for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), respectively. Included in accrued expenses as of January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14) are $26,667 and $287,873 relating to unpaid license fees.

Included in accrued expenses as of January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14) are $909 and $199,267 of interest accrued on the above amounts outstanding computed in accordance with the agreement.

The following minimum payments are required under the aforementioned royalty and licensing agreement:

	Year ended July 31,	Amount
	2015 (remaining six months)	$  82,500
	2016	$120,000
	Annually thereafter until projected 2023 expiry	$  75,000

General

The amounts and terms of related party transactions are not necessarily indicative of the amounts and terms which would have been incurred had the transactions been incurred with unrelated parties.

Reconciliation of Related Party Expenses Disclosures

to Related Party Expenses Line of Statement of Operations

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Note 11 – Debenture with Non-Affiliated Shareholder

On October 1, 2013, the Company entered into an unsecured debenture under which it borrowed $100,000 from a non-affiliated shareholder at an annual non compounding interest rate of 12%. Repayments were to be applied first to payment of principal and secondly to payment of interest. No maturity date was specified. During the six months ended January 31, 2015 (Q1/Q2 ’15), this debenture was retired in full, with interest, via conversion of the $111,000 total to 370,000 shares of common stock at a fixed conversion rate of $0.30 per share. Accordingly, as of July 31, 2014, this amount was classified on the balance sheet as a long term liability.

Note 12 – Marketing Engagements with Non-Affiliated Shareholders

During the periods presented, the Company was provided publicity services from a non-affiliated entity that was paid partly via issuance of 30,000 shares of common stock in the Company at a value of $0.30 per share. The stock issuance was booked as prepaid stock services to be applied against monthly fees of $1,500 per month commencing October 1, 2014. There was $575 and $0 due to this entity at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14), respectively. Total expenses related to this agreement during the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), were $21,150 and $0, respectively, and during the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), were $15,575 and $0, respectively.

During the periods presented, the Company entered into a twelve month non-exclusive public relations campaign agreement with a non-affiliated entity for a total value of $220,500 consisting of monthly cash payments of $2,500 and the issuance of 254,000 shares of common stock in the Company at a value of $0.75 per share. $10,500 of the stock issuance was applied toward initial setup fees, and the remainder was set up as prepaid stock services to be applied against monthly fees of $15,000 per month, which commenced November 1, 2014. There was $2,500 and $0 due to this entity at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14), respectively. Total expenses related to this agreement during the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), were $63,000 and $0, respectively, and during the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), were $52,500 and $0, respectively.

Note 13 - Customer Concentrations

During the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), revenues earned from zero and three customers, respectively, amounted to approximately $0 and $157,000 (100% and 100% of total revenue), and during the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), revenues earned from zero and two customers, respectively, amounted to approximately $0 and $26,000 (100% and 100% of total revenue). There were no amounts due from these customers at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ‘14).

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED JANUARY 31, 2015 AND 2014 (Q1/Q2 ’15 & ’14, UNAUDITED)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this Quarterly Report, including our financial statements and related notes set forth in Item 1. This discussion and analysis contains forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.

Overview

Perpetual Industries Inc., or the “Company” is a Nevada corporation formed on January 25, 2005 with a principal business address at #110, 5 - 8720 Macleod Trail South, Calgary, Alberta, Canada T2H 0M4.  Telephone: 403-214-4321.

Business

We are an emerging growth company that coordinates the research and development of new and innovative energy efficient products. Our key technology is a mechanical patented balancing device called XYO. We design, prototype, test, and manufacture or have manufactured products containing XYO technology, and sub-license XYO technology to third parties. XYO technology is used for balancing rotating parts in machines so that they produce less vibration, resulting in a machine that operates in a more energy efficient manner.

XYO is a patented technology that we have licensed from ETI Technologies Inc. on an exclusive worldwide basis. The term of the License Agreement is from January 27, 2005 to the end of the life of the last existing XYO patent defined in the agreement, which is currently projected to be March 7, 2023. The License Agreement was modified by an Amendment and Waiver of Default effective July 31, 2010, in which ETI waived any rights to terminate the Agreement in the event of non-payment by Perpetual.

Future patent applications regarding the XYO technology will be pursued in order to extend the patent protection component of this agreement and extend the term of the original agreement if possible. The territory of the Agreement is worldwide, and we have the right to manufacture or have manufactured, sell, and use, the products incorporating XYO (that is, XYO balancers and machines that use them), as well as to sub-license these rights to third parties.

Revenue

We obtain revenue in several ways: agent fees, application evaluation and development projects, licensing, royalties from licensees, and the sale of our own products. This year, we have continued to execute, or prepare to execute, the following types of activities:

·

design, production and sale of XYO branded balancers

·

design, production and sale of XYO branded products optimized around XYO balancers

·

prototype evaluation projects and commercialization of XYO implementations through other parties on a sub-license and royalty fee basis

The process of revenue generation involves market research and interaction with potential customer companies to understand their industries and the specific vibration-related technical issues involved with the machines they manufacture. With interested customers, we enter into a prototype evaluation contract in which we provide baseline testing, XYO balancer design, fabrication and installation, comparative testing, and a feasibility report. If results are acceptable, we may attempt to negotiate a sub-licensing and royalty agreement with the customer. The wide range of our prototyping experience has equipped us to begin the process of designing and manufacturing XYO balancers ourselves, and supplying them to customers instead of the customers handling the manufacturing themselves.

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For the six months ended January 31, 2015 (Q1/Q2 ’15), we had no revenue although we continued to develop and market our technology in additional industries.

For the three months ended January 31, 2015 (Q2 ’15), we had no revenue although we continued to develop and market our technology in additional industries.

During the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), zero and three customers, respectively, accounted for $0 and $157,211 (all of the total revenue in both periods). There were no amounts due from these customers at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14).

During the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), zero and two customers, respectively, accounted for $0 and $25,986 (all of the total revenue in both periods). There were no amounts due from these customers at January 31, 2015 (end of Q2 ’15) and July 31, 2014 (YE ’14).

We have no agreements with these customers, who purchase from us on a purchase order type basis only

Expenses

Our expenses for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), are shown in the table below. Advertising and Marketing rose by approximately $344,981, primarily as a result of there being more product design and commercialization planning activities, funded mainly by means of convertible notes. Travel expenses increased by approximately $15,500 as a result of changing patterns of travel. Management fees increased temporarily by approximately $104,657 as a result of substantial investment in key personnel during Q1 ’15, which was funded by means of convertible notes, as discussed separately below. A significant amount of new engineering in regards to potentially patentable intellectual property, and the manufacturing thereof, is represented by the new Engineering line item in the table reflecting work done in the first quarter, which is distinct from the commercialization design work that has historically been grouped into Advertising and Marketing. License and Royalty fees varied only slightly, the difference being due to the variable annual amounts payable under the agreement with patent holder ETI. Professional fees decreased by approximately $10,700 due to differing patterns of engagement.

Our expenses for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), are shown in the table below. Advertising and Marketing rose by approximately $44,900, primarily as a result of there being more publicity activities, funded mainly by means of stock issued in Q1 ’15. Travel expenses increased by approximately $3,000 as a result of changing patterns of travel. Management fees remained steady except for foreign exchange fluctuations. License and Royalty fees varied only slightly, the difference being due to the variable annual amounts payable under the agreement with patent holder ETI. Professional fees decreased by approximately $8,900 due to differing patterns of engagement.

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For the upcoming year, we plan to keep operating expenses around the same level as for the three months ended January 31, 2015 (Q2 ’15), except that we expect professional fees to increase substantially due to compliance and governance costs related to being a public company.

Notes regarding management fees:

During the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), the Company paid certain entities owned by members of management for management services rendered. The Company has not made payments against management fees that have been accruing in recent months. On September 30, 2014, all amounts owing to the president and the president’s entity were combined into a convertible note in his personal name, and all amounts owing to the general manager of operations’ entity were combined into a convertible note in his personal name. As of January 31, 2015 (end of Q2 ’15), the Company had not paid the president's entity for approximately 13 months of management fees, approximately $194,000, plus an earlier accrued $151,000 that also became part of the convertible note; and the Company had not paid the general manager of operations' entity for approximately 17 months of management fees, approximately $89,000.

Notes regarding Warrants, stock options and convertible notes:

Warrants were re-issued without derivative features during the six months ended January 31, 2014 (Q1/Q2 ’14), and as a result we report a Warrant Issuance Expense of $184,408.

Stock options were issued during the six months ended January 31, 2015 (Q1/Q2 ’15), and as a result we report a Stock Option Issuance Expense of $678,303.

Convertible notes were issued during the six months ended January 31, 2015 (Q1/Q2 ’15) in relation to non-cash expenses of $649,809 including convertible interest.

The impact of warrants, stock options and convertible notes is discussed further under the heading Net Loss, below.

Income and Operation Taxes

The Company has not filed U.S. or Canadian income tax returns since its inception, as it has incurred continual losses since that time. The Company has not recognized any tax benefits for the periods presented as it is more likely than not that the tax benefits will not be realized.

Net Loss

We incurred net losses for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14), amounting to $1,704,034 and $385,678, respectively, and for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14), amounting to $256,327 and $143,469, respectively.

Notes regarding impact of warrants, stock options and convertible notes on Net Loss:

Warrant Issuance Expense and Stock Option Issuance Expense are non-cash expenses that have a significant effect on the Net Loss figure. However, under Generally Accepted Accounting Principles regarding the valuation of different types of share purchase warrants and stock options, we are required to record these non-cash expenses on our financial statements. In addition, convertible notes were issued in relation to non-cash expenses. Without these three expense categories, the net loss for the six months ended January 31, 2015 and 2014 (Q1/Q2 ’15 & ’14) would have been $375,922 and $201,270 respectively, and the net loss for the three months ended January 31, 2015 and 2014 (Q2 ’15 & ’14) would have been $219,056 and $143,469 respectively.

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Because of the potential for misinterpretation of the Statements of Operations in this regard, we draw the reader’s attention alternatively to the Statements of Cash Flows line item “Net cash flows (used) provided in operating activities,” which removes the effect of non-cash items and shows that operations consumed approximately $251,000 in cash during the six months ended January 31, 2015 (Q1/Q2 ’15), versus approximately $107,000 in the six months ended January 31, 2014 (Q1/Q2 ’14).

Going Concern Qualification

Our lack of meaningful operating revenues, negative working capital, cash used in operations, and having an accumulated deficit to date, raise substantial doubt about our ability to continue as a going concern.

Liquidity and Capital Resources

We have executed or prepared to execute the types of activities described in “Revenue” above.

We anticipate that we will incur certain costs irrespective of our operational and business development activities, including bank service fees and those costs associated with SEC requirements associated with remaining public, estimated to be $125,000 annually. We anticipate that we would incur approximately $900,000 in operational expenses during the next 12 months if we continue to implement our business plan at its current level, comprised of expenses related to continuing to conduct and participate in similar events and operational activities at the same rate as currently. As we estimate our total need for funds for operations at our current level, including all expense of staying public and continuing operations at their current level in the next 12 months is within $1,000,000, we accordingly anticipate an average monthly burn rate of approximately $85,000 during the next 12 months to maintain operations at their current levels as well as pay costs associated with going and staying public. We do not believe that our current cash resources plus anticipated revenues during the next 12 months will be sufficient to meet these requirements. We anticipate that funding will be provided by the sale of debt or equity securities, as described herein, as well as operational revenue. Management has made no commitment to provide and is not obligated to provide any additional funding.

A number of transactions have recently been funded through the issuance of stock in the Company:

In October 2013, the Company entered into an unsecured debenture under which it borrowed $100,000 from a non-affiliated shareholder at an annual non compounding interest rate of 12%. Repayments were to be applied first to payment of principal and secondly to payment of interest. No maturity date was specified. Subsequent to the July 31, 2014 year end, this debenture was retired in full, with interest, via conversion to 370,000 shares of the Company at a fixed conversion rate of $0.30 per share. Accordingly, as of July 31, 2014, this amount has been classified on the balance sheet as a long term liability.

In October 2014, the Company was provided publicity services from a non-affiliated entity that was paid partly via issuance of 30,000 shares of common stock in the Company at a value of $0.30 per share. The stock issuance was booked as prepaid stock services to be applied against monthly fees of $1,500 per month commencing October 1, 2014.

In October 2014, the Company entered into a twelve month non-exclusive public relations campaign agreement with an non-affiliated entity for a total value of $220,500 consisting of monthly cash payments of $2,500 and the issuance of 254,000 shares of common stock in the Company at a value of $0.75 per share. $10,500 of the stock issuance was applied toward initial setup fees, and the remainder was set up as prepaid stock services to be applied against monthly fees of $15,000 per month commencing November 1, 2014.

In the six months ended January 31, 2015 (Q1/Q2 ’15), the following significant financing activities were set in motion:

The Company’s Board authorized a plan for the potential issuance of non-statutory stock options to independent contractors and consultants as well as to employees, in an aggregate quantity of up to 15% (as of March 13, 2015, 5,139,900 shares) of the issued and outstanding common stock total at the time of any grant. As of March 13, 2015, 339,900 shares of the authorized total had not been granted. Options have been granted to purchase a total of 4,800,000 shares at $0.30 per Share. No options had previously been granted. The terms, prices, and quantities of any future grants are to be determined.

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The Board authorized the Company’s Chairman, President and CEO to enter the Company into various convertible notes for the purposes of (1) retiring existing debts and (2) taking on new debts for services rendered. The conversion basis is set at $0.30 per share, up to an aggregate total of 8,000,000 shares, hence a total potential value of $2,400,000. Such notes have been entered into with various parties for a total principal value convertible to 6,216,000 shares before accrual of interest (rounded up to the nearest 1,000 shares for each holder). Notes for the remaining authorized 1,784,000 shares have not been entered into. The notes do not specify any repayment term, have an interest rate of 8%, and do not involve any collateral; accordingly they are considered short term liabilities.

The Company began the pursuit of additional financing in the form of a private offering in accordance with Regulation D under the Securities Act and subject to the terms of an appropriate private placement memorandum. Said offering is for the sale of a maximum of 4,800,000 shares of the Company’s $0.001 par value common stock at a price per share of $0.75, for a maximum offering amount of $3,600,000. There is no minimum offering and no provision to return or escrow investor funds if any minimum number of shares is not sold. The minimum investment established per investor is $15,000, unless such minimum is waived in the Company’s sole discretion. This offering is restricted to Accredited Investors. No funds have been accepted in relation to said offering.

During the next 12 months, we anticipate engaging in the following activities to support the implementation of our business plan. We may vary our plans depending upon operational conditions and available funding:

The primary obstacle to implementing this plan will be the lack of operating capital until we raise or generate additional funding as described above.

We estimate that we will need up to an additional $3,000,000 to support the implementation of our business plan at the level described in the table above. If we do not generate sufficient cash flow from operations in excess of the amount necessary to maintain operations at their current levels as well as pay costs associated with going and staying public as described in the table above, we may have to raise additional capital to finance activities desired to support the implementation of our business plan. Any such financing could be difficult to obtain or only available on unattractive terms and could result in significant dilution of stockholders’ interests.

Failure to secure any necessary financing in a timely manner and on favorable terms could hinder or delay our desired activities to support the implementation of our business plan. Except as set forth above, we do not have any plans or specific agreements for new sources of funding or any planned material acquisitions.

The fact that we have not commenced our planned principal operations raises substantial doubt about our ability to continue as a going concern. The financial statements do not include adjustments that might result from the outcome of this uncertainty and if we are unable to generate significant revenue or secure financing we may be required to cease or curtail our operations.

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Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Other Critical Accounting Policies and Estimates

Our Financial Statements have been prepared in accordance with U.S. GAAP and fairly present our financial position and results of operations. We believe the following accounting policies are critical to an understanding of our financial statements. The application of these policies requires management’s judgment and estimates in areas that are inherently uncertain.

Accounts Receivable

Financial instruments that potentially subject the Company to concentrations of credit risk consist mainly of accounts receivable. Accounts receivable consist of receivables from revenue earned for entering into license agreements and prototype evaluation agreements with potential licensees.

The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable, which is based on an analysis of the Company’s prior collection experience, customer creditworthiness, and current economic trends. Based on management’s review of accounts receivable, an allowance for doubtful accounts is not considered necessary at  January 31, 2015 and 2014 (end of Q2 ’15 & ’14). The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables.

Warrant and Stock Option Valuation

Fair value is estimated using the Black-Scholes option valuation technique, utilizing Level II inputs. The observable inputs include the exercise price of the warrants and options, the treasury yield curve, the Company’s common stock price and the expected volatility, which is based on the average volatilities of five similar public entities. Option-based techniques are highly volatile and sensitive to changes in the Company’s trading market price and the trading market price of various peer companies, which historically have high volatility.

Revenue Recognition

The Company recognizes revenue when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, there is a fixed or determinable sales price, and collectability is reasonably assured. Deferred revenue arises from amounts received from potential and actual licensees prior to services being provided and is being amortized to income as it is earned. Certain of these revenues are categorized as noncurrent due to the length of the contract.

 New Accounting Pronouncements

Other than as disclosed in previous financial statements, we do not believe that any accounting pronouncements recently issued by the FASB, the AICPA, and the SEC, would if adopted have a material effect on our present or future financial statements.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We designed our disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of January 31, 2015 (end of Q2 ’15). Based on that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were not effective as of January 31, 2015 as a result of inadequate segregation of duties over authorization, review and recording of transactions, as well as the financial reporting of such transactions. Although financial resources are limited, management continues to evaluate opportunities to mitigate said ineffectiveness.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the six months ended January 31, 2015 (Q1/Q2 ’15) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

From August through December 2014, the Company issued 490,000 shares of common stock at prices ranging from $0.40 to $0.60 per share related to the exercise of common stock warrants, for cash proceeds of approximately $228,000.

During September 2014, the Company issued 30,000 shares of common stock to a consultant related to services performed at $0.30 per share.

During October 2014, the Company issued 254,000 shares of common stock to a consultant related to services performed at $0.75 per share.

During September 2014, the Company issued 370,000 shares of common stock at $0.30 per share related to the conversion of certain unsecured debentures and accrued interest.  

The Company issued the above common stock without registration pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

ITEM 6. EXHIBITS

See Part I, Item I for Financial Statements. The Exhibits below are filed herewith.

All other Exhibits called for by Rule 601 of Regulation SK are not applicable to this filing.

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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.

Perpetual Industries Inc.

Registrant

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