Attached files
file | filename |
---|---|
EX-32.1 - CERTIFICATION - Helix Wind, Corp. | helix_10qa-ex3201.htm |
EX-31.2 - CERTIFICATION - Helix Wind, Corp. | helix_10qa-ex3102.htm |
EX-31.1 - CERTIFICATION - Helix Wind, Corp. | helix_10qa-ex3101.htm |
EX-32.2 - CERTIFICATION - Helix Wind, Corp. | helix_10qa-ex3202.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q /A
(Amendment
No.1)
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2009 or
|
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ____________ to
____________
|
Commission
File Number: 000-52107
HELIX
WIND, CORP.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
|
20-4069588
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
1848
Commercial Street
|
|
San
Diego, California
|
92113
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(877)
246-4354
(Registrant’s
Telephone Number, Including Area Code)
___________________________________________________
(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. Yes þ No o
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 such shorter period that the
registrant was required to submit and post such files). Yes o No o
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 o
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
Smaller
reporting company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of
November 18 , 2009, 38,694,333 shares of common stock of the registrant were
outstanding.
Explanatory
Note
This Form
10-Q/A is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2009 (“Original Quarterly Report”), in
response to the SEC’s comments thereto, for the purpose of revising the
following:
·
|
Item
4T-Controls and Procedures;
and
|
·
|
Our
accounting treatment, including valuation method, debt discount and
expense recognition with respect to the fair value of our derivative
liabilities related to the embedded conversion features in our convertible
notes payable, which resulted in an additional material non-cash charge
for the three months and six months ended June 30, 2009 of approximately
$7.1 million and $14.5, respectively. This charge is reported
as interest expense, loss on extinguishment of debt and change in fair
value of derivative liabilities in the statements of operations herein
which resulted in restatement of our financial statements for the three
months and six months ended June 30, 2009, and revisions to the following
notes thereto: Note 2-Basis of Presentation and Summary of Significant
Accounting Policies, in Restatement, in Condensed Consolidated Financial
Statements and in Going Concern, Note 3-Related Party Transactions and
Convertible Notes Payable to Related Parties, Note 5-Debt, Note
6-Derivative Liabilities and Note 8-Stock Based Compensation and
in Item 2-Management’s Discussion and Analysis of Financial Condition
and Results of Operations, under Other expense, Net loss, Going Concern
and Liquidity and Capital
Resources.
|
Except
for the foregoing amended disclosure, this Form 10-Q/A has not been amended or
updated to reflect events that occurred after August 14, 2009, the filing date
of the Original Quarterly Report. Accordingly, this Form 10-Q/A
should be read in conjunction with our filings made with the SEC subsequent to
the filing of the Original Quarterly Report, including any amendments to those
filings.
2
HELIX WIND, CORP.
Quarterly
Report on Form 10-Q /A for the period ended June 30,
2009
INDEX
Page
|
|
PART
I - FINANCIAL INFORMATION
|
|
Item
1. Financial Statements
|
|
Condensed
Consolidated Balance Sheets
|
4
|
Condensed
Consolidated Statements of Operations
|
5
|
Condensed
Consolidated Statements of Shareholders’ Deficit
|
6
|
Condensed
Consolidated Statements of Cash Flows
|
7
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
|
26
|
Item
4T. Controls and Procedures.
|
34
|
PART
II - OTHER INFORMATION
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
35
|
Item
6. Exhibits.
|
36
|
3
PART
I - FINANCIAL INFORMATION
(formerly
Clearview Acquisitions, Inc.)
CONDENSED CONSOLIDATED BALANCE
SHEETS
Item 1. Financial
Statements
June
30, 2009
(Unaudited)
(As
restated)
|
December
31,
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$
|
190,479
|
$
|
5,980
|
||||
Accounts
Receivable
|
33,762
|
-
|
||||||
Related
party receivable
|
3,356
|
3,356
|
||||||
Inventory
|
371,505
|
213,085
|
||||||
Prepaid
inventory
|
-
|
193,010
|
||||||
Prepaid non-recurring
equipment tooling
|
-
|
21,734
|
||||||
Prepaid
expenses and other expenses
|
22,938
|
51,592
|
||||||
622,040
|
488,757
|
|||||||
EQUIPMENT,
net
|
428,267
|
187,517
|
||||||
PATENTS
|
18,928
|
18,928
|
||||||
Total
assets
|
$
|
1,069,235
|
$
|
695,202
|
||||
LIABILITIES
AND SHAREHOLDERS’ DEFICIT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$
|
657,294
|
$
|
449,215
|
||||
Accrued
compensation
|
136,934
|
149,094
|
||||||
Accrued
interest
|
149,155
|
142,844
|
||||||
Other
accrued liabilities
|
5,901
|
11,936
|
||||||
Accrued
taxes
|
9,658
|
10,156
|
||||||
Deferred
revenue
|
255,156
|
373,598
|
||||||
Related
party payable
|
-
|
22,433
|
||||||
Short
term debt
|
533,082
|
-
|
||||||
Convertible
notes payable to related party, net of discount
|
-
|
567,633
|
||||||
Convertible
notes payable, net of discount
|
-
|
1,504,180
|
||||||
Derivative
liability
|
41,082,944
|
-
|
||||||
42,830,125
|
3,231,089
|
|||||||
SHAREHOLDERS’
DEFICIT
|
||||||||
Preferred
stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued or
outstanding
|
-
|
-
|
||||||
Common
stock, $0.0001 par value, 1,750,000,000 shares authorized, 37,434,726 and
20,546,083 issued and outstanding as of June 30, 2009 and December
31, 2008, respectively (1)
|
3,744
|
2,055
|
||||||
Additional
paid in capital (1)
|
12,636,881
|
273,045
|
||||||
Accumulated
deficit
|
(54,401,515)
|
(2,810,987)
|
||||||
Total
shareholders’ deficit
|
(41,760,890)
|
(2,535,887)
|
||||||
Total
liabilities and shareholders’ deficit
|
$
|
1,069,235
|
$
|
695,202
|
(1) The
December 31, 2008 capital accounts of the Company have been retroactively
restated to reflect the equivalent number of common shares based on the exchange
ratio of the merger transaction. See Note 2.
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
(formerly
Clearview Acquisitions, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June
30, 2009
(As
restated)
|
June
30, 2008
|
June
30, 2009
(As
restated)
|
June
30, 2008
|
|||||||||||||
REVENUES
|
$
|
140,991
|
$
|
1,500
|
$
|
542,368
|
$
|
3,000
|
||||||||
COST
OF SALES
|
112,094
|
-
|
426,463
|
-
|
||||||||||||
GROSS
MARGIN
|
28,897
|
1,500
|
115,905
|
3,000
|
||||||||||||
OPERATING
COSTS AND EXPENSES
|
||||||||||||||||
Research
and development
|
252,177
|
77,913
|
610,625
|
136,944
|
||||||||||||
Selling,
general and administrative
|
2,521,070
|
307,582
|
12,177,225
|
515,621
|
||||||||||||
LOSS
FROM OPERATIONS
|
(2,744,350)
|
(383,995)
|
(12,671,945)
|
(649,565)
|
||||||||||||
-
|
-
|
-
|
||||||||||||||
OTHER
EXPENSES
|
||||||||||||||||
Interest
expense
|
(7,669,855)
|
(30,090)
|
(12,959,224)
|
(33,906)
|
||||||||||||
Loss
on debt extinguishment
|
-
|
-
|
(12,038,787)
|
-
|
||||||||||||
Change
in fair value of derivative liability
|
(11,489,557)
|
-
|
(13,920,572)
|
-
|
||||||||||||
Total
other expenses
|
(19,159,412)
|
(30,090)
|
(38,918,583)
|
(33,906)
|
||||||||||||
LOSS
BEFORE PROVISION FOR INCOME TAXES
|
$
|
(21,903,762)
|
$
|
(414,085)
|
$
|
(51,590,528)
|
$
|
(683,471)
|
||||||||
PROVISION
FOR INCOME TAXES
|
-
|
-
|
-
|
-
|
||||||||||||
NET
LOSS
|
$
|
(21,903,762)
|
$
|
(414,085)
|
$
|
(51,590,528)
|
$
|
(683,471)
|
||||||||
NET
LOSS PER SHARE - BASIC and DILUTED
|
$
|
(0.62)
|
$
|
(0.02)
|
$
|
(1.76)
|
$
|
(0.03)
|
||||||||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC and DILUTED
(2)
|
35,295,888
|
20,546,083
|
29,318,849
|
20,546,083
|
(2) The
capital accounts of the Company have been retroactively restated to reflect the
equivalent number of common shares based on the exchange ratio of the merger
transaction in determining the basic and diluted weighted average shares. See
Note 2.
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
(formerly
Clearview Acquisitions, Inc.)
CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT
(Unaudited)
Common Stock
|
Additional Paid-in |
Accumulated
Deficit
|
Total Shareholders'Deficit
|
|||||||||||||||||
Shares
|
Par Value
|
Capital
|
(As
restated)
|
(As
restated)
|
||||||||||||||||
BALANCE–December
31, 2008 (1)
|
20,546,083
|
$
|
2,055
|
$
|
273,045
|
$
|
(2,810,987
|
)
|
$
|
(2,535,887
|
)
|
|||||||||
Stock
issued upon reverse merger
|
16,135,011
|
1,614
|
(68,028
|
)
|
−
|
(66,414
|
)
|
|||||||||||||
Share
based payments
|
−
|
−
|
9,130,185
|
−
|
9,130,185
|
|||||||||||||||
Net
loss
|
−
|
−
|
−
|
( 29,686,766
|
)
|
( 29,686,766
|
)
|
|||||||||||||
BALANCE – March 31,
2009
|
36,681,094
|
$
|
3,669
|
$
|
9,335,202
|
$
|
( 32,497,753
|
)
|
$
|
( 23,158,882
|
)
|
|||||||||
Stock
issued upon note conversion
|
753,632
|
$
|
75
|
1,654,491
|
-
|
1,654,491
|
||||||||||||||
Share
based payments
|
-
|
-
|
1,647,188
|
-
|
1,647,188
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
( 21,903,762
|
)
|
( 21,903,762
|
)
|
|||||||||||||
BALANCE
– June 30, 2009
|
37,434,726
|
3,744
|
12,636,881
|
( 54,401,515
|
)
|
( 41,760,890
|
)
|
(1) The
December 31, 2008 capital accounts of the Company have been retroactively
restated to reflect the equivalent number of common shares based on the exchange
ratio of the merger transaction. See Note 2.
6
(formerly
Clearview Acquisitions, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six
Months Ended
|
||||||||
June
30, 2009
(As
restated)
|
June
30, 2008
(As
restated)
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Net
loss
|
$
|
( 51,590,528
|
)
|
$
|
(683,470
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
58,350
|
2,160
|
||||||
Stock
based compensation
|
10,777,373
|
-
|
||||||
Change
in fair value of derivative liability
|
13,920,572
|
-
|
||||||
Interest
in connection with derivative liability
|
12,795,117
|
-
|
||||||
Loss
on debt extinguishment
|
12,038,787
|
-
|
||||||
Note
in lieu of expenses incurred on behalf of the Company
|
25,717
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
Receivable
|
(33,762
|
)
|
-
|
|||||
Inventory
|
34,590
|
-
|
||||||
Prepaid non-recurring equipment tooling
|
21,734
|
-
|
||||||
Other
current assets
|
28,654
|
5,100
|
||||||
Accounts
payable
|
262,554
|
( 55,909
|
)
|
|||||
Accrued
compensation
|
(12,160
|
)
|
( 6,667
|
)
|
||||
Accrued
interest
|
154,533
|
33,975
|
||||||
Related
party payable
|
(22,433
|
)
|
28,929
|
|||||
Deferred
revenue
|
(118,442
|
)
|
-
|
|||||
Accrued
taxes
|
(498
|
)
|
2,916
|
|||||
Accrued
liabilities
|
(6,895
|
)
|
( 32,568
|
)
|
||||
Net
cash used in operating activities
|
(1,666,73 5
|
)
|
( 705,534
|
)
|
||||
INVESTING
ACTIVITIES
|
||||||||
Purchase
of equipment
|
(299,100
|
)
|
(2,870
|
)
|
||||
Net
cash used in investing activities
|
(299,100
|
)
|
(2,870
|
)
|
||||
FINANCING
ACTIVITIES
|
||||||||
Cash
received from reverse merger
|
270,229
|
-
|
||||||
Proceeds
from convertible notes payable
|
1,560,10 5
|
1,048,874
|
||||||
Proceeds
from short term notes payable
|
395,000
|
175,365
|
||||||
Principal
payments on short term notes payable
|
(75,000
|
) |
-
|
|||||
Net
cash provided by financing activities
|
2,150,33 4
|
1,224,239
|
||||||
Net
increase in cash
|
184,499
|
515,835
|
||||||
Cash – beginning of
period
|
5,980
|
2,409
|
||||||
Cash – end of
period
|
$
|
190,479
|
$
|
518,244
|
||||
Conversion
of convertible notes payable to non-convertible short term
debt
|
$
|
187,365
|
$
|
-
|
||||
Exchange
of convertible notes payable in lieu of related party
payable
|
$
|
90,257
|
$
|
64,000
|
||||
Derivative
liability on warrants issued with convertible notes
payable
|
$
|
4,194,944
|
$
|
-
|
||||
Conversion
of accrued interest to convertible notes payable
|
$
|
148,223
|
$
|
-
|
||||
Common
stock issued upon reverse merger
|
$
|
1,614
|
$
|
-
|
||||
Net
liabilities assumed in reverse merger
|
$
|
66,414
|
$
|
-
|
||||
Common
stock issued for note conversion
|
$
|
75
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
7
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
1.
|
ORGANIZATION
|
Helix
Wind, Corp. (“Helix Wind”) (formerly Clearview Acquisitions, Inc.) was
incorporated under the laws of the State of Nevada on January 10, 2006
(Inception) and has its headquarters located in San Diego,
California. Helix Wind was originally named Terrapin Enterprises,
Inc. On December 6, 2006, Helix Wind merged its newly-formed wholly-owned
subsidiary, Black Sea Oil, Inc., into itself and changed its corporate name to
Black Sea Oil, Inc. pursuant to a Plan and Agreement of Merger dated December 6,
2006. On November 14, 2008, Helix Wind changed its name from Black
Sea Oil, Inc. to Clearview Acquisitions, Inc. pursuant to Amended and Restated
Articles of Incorporation filed with the Secretary of State of
Nevada. On February 11, 2009, Helix Wind’s wholly-owned subsidiary,
Helix Wind Acquisition Corp. was merged with and into Helix Wind, Inc.
(“Subsidiary”), which survived and became Helix Wind’s wholly-owned subsidiary
(the “Merger”). On April 16, 2009, Helix Wind changed its name from
Clearview Acquisitions, Inc. to Helix Wind, Corp., pursuant to an Amendment
to its Articles of Incorporation filed with the Secretary of State of
Nevada. Unless the context specifies otherwise, as discussed in Note
2, references to the “Company” refers to Subsidiary prior to the Merger, and
Helix Wind, Corp. and the Subsidiary combined thereafter.
Helix
Wind was formed to engage in any lawful corporate undertaking, including, but
not limited to, selected mergers and acquisitions. Helix Wind had no operations
up until the Merger, other than issuing shares of its common stock to its
original shareholders and conducting a private offering of shares of its common
stock. The Company is now engaged through the Subsidiary in the
alternative energy business offering a distributed power technology platform
designed to produce electric energy from the wind. Subsidiary was primarily
engaged in the research and development of its proprietary products until the
third quarter of the year ended December 31, 2008, when it began selling its
products. The Company has commenced the outsourcing process to
manufacture its products and has begun to receive purchase orders from
customers. The Company utilizes two distinct distribution channels to market and
sell its products:( i) direct sales to end users and installers and( ii)
indirect or channel sales with resellers domestically and
internationally.
Helix
Wind is authorized to issue up to 1,750,000,000 shares of common stock, par
value $0.0001 per share, and 5,000,000 shares of preferred stock, par value
$0.0001 per share. On November 3, 2008, Helix Wind (formerly Clearview
Acquisitions, Inc.) effected a reverse stock split (the “Stock Split”), as a
result of which each 1,000 shares of Helix Wind’s common stock then issued and
outstanding was converted into one share of Helix Wind’s common
stock.
Immediately
prior to the Merger, Helix Wind had 5,135,011 shares of its common stock issued
and outstanding. In connection with the Merger, Helix Wind issued 20,546,083
shares of its common stock in exchange for the issued and outstanding shares of
common stock of the Subsidiary. Included in the Merger recapitalization of Helix
Wind there were 11,000,000 shares of its common stock issued pursuant to the
settlement of the dispute described in the Company’s Form 8-K filed December 22,
2008 with Securities and Exchange Commission (“SEC”). Helix Wind also reserved
5,753,917 shares of its common stock for issuance upon the conversion of certain
convertible notes of Subsidiary that were converted into new convertible notes
of Helix Wind in connection with the Merger. In second quarter of
2009, Helix Wind issued 753,632 shares of its common stock upon conversion of
certain convertible notes of Subsidiary. At June 30, 2009, there were
37,434,726 shares of Helix Wind’s common stock issued and
outstanding. During the second quarter of 2009, Helix Wind also
granted 300,000 stock options to a new Board of Directors increasing the total
number of stock options granted to 11,051,240, of the 13,700,000 stock options
available under its stock option plan.
8
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Restatement
The
accompanying consolidated financial statements for the quarter ended and
six months ended June 30, 2009 have been restated to reflect certain non-cash
adjustments in the accounting for derivative liabilities associated with
convertible debt issued during the six months ended June 30,
2009. More specifically, the Company corrected errors in reporting as
follows:
|
a.
|
The
convertible debt issued on February 11, 2009 contained certain conversion
price ”reset” features which were determined not to be indexed to the
Company’s stock. Therefore, the conversion feature must be accounted for
as a derivative liability under generally accepted accounting
principles. The Company initially recorded the derivative
liability but limited the amount to the related debt proceeds received.
Upon further review, the Company determined that the derivative liability
must be recorded at full fair value without limitation and made the
appropriate adjustment and was charged to operations for the quarter ended
June 30, 2009.
|
|
b.
|
Such
derivative liability is required to be adjusted to fair value at each
reporting period. Accordingly, the derivative liability in (a)
above was adjusted (increased) to fair value at March 31, 2009 and at June
30, 2009, with such increase charged to operations for the respective
quarter then ended.
|
|
c.
|
The
Company had erroneously reported loss on extinguishment of debt from the
conversion of older outstanding debt into the new February 11, 2009
convertible debt as interest expense. The June 30, 2009
statement of operations, as restated, contains a charge to loss on
extinguishment of debt, representing reclassification of previously
reported expense and the recording of new loss on extinguishment as a
result of matter (a) above.
|
The
effect of such adjustments on the financial statement line items as of June 30,
2009 and for the quarter and six months then ended is summarized as
follows:
Line
Item
|
As
Previously Reported
|
As
Restated
|
Difference
|
|||||||||
Balance
Sheet
|
||||||||||||
Derivative
liability
|
$ | 27,702,516 | $ | 41,082,944 | $ | 13,380,428 | ||||||
Accumulated
deficit
|
39,874,590 | 54,401,515 | 14,526,925 | |||||||||
Statements of
Operations
|
||||||||||||
Interest
expense - Quarter
|
91,284 | 7,669,855 | 7,578,571 | |||||||||
Interest
expense – Six Months
|
295,588 | 12,959,224 | 12,663,636 | |||||||||
Loss
on extinguishment of debt - Quarter
|
- | - | - | |||||||||
Loss
on extinguishment of debt - Six Months
|
213,266 | 12,038,787 | 11,825,521 | |||||||||
Change
in fair value of derivative liability – Quarter
|
11,988,259 | 11,489,557 | 498,702 | |||||||||
Change
in fair value of derivative liability – Six
Months
|
23,882,804 | 13,920,572 | 9,962,232 | |||||||||
Net
loss before provision for income taxes - Quarter
|
14,823,893 | 21,903,762 | 7,079,869 | |||||||||
Net
loss before provision for income taxes – Six Months
|
37,063,603 | 51,590,528 | 14,526,925 | |||||||||
Net
loss - Quarter
|
14,823,893 | 21,903,762 | 7,079,869 | |||||||||
Net
loss – Six Months
|
37,063,603 | 51,590,528 | 14,526,925 | |||||||||
Net
loss per share – basic and diluted - Quarter
|
0.42 | 0.62 | 0.20 | |||||||||
Net
loss per share – basic and diluted – Six Months
|
1.26 | 1.76 | 0.50 | |||||||||
Statement of Cash
Flows
|
||||||||||||
Change
in fair value of derivative liability
|
9,236,381 | 13,920,572 | 4,684,191 | |||||||||
Interest
in connection with derivative liability
|
14,646,423 | 12,795,117 | 1,851,306 | |||||||||
Loss
on extinguishment of debt
|
211,911 | 12,038,787 | 11,826,876 |
Additionally, the accompanying statement of cash flows for the six months ended June 30, 2008 has been restated to reflect the results for the proper reporting period. The previously reported statement of cash flows for such period represented the incorrect reporting period.
Subsequent
Events
Recent
new accounting standards require that management disclose the date to which
subsequent events have been evaluated and the basis for such
date. Accordingly, management has evaluated subsequent events through
November 18,
2009, the date upon which the financial statements were issued. Other
than as disclosed in Note 11, management noted no subsequent events which it
believes would have a material effect on the accompanying consolidated financial
statements.
Reverse
Merger Accounting
Since
former Subsidiary security holders owned, after the Merger, approximately 80% of
Helix Wind’s shares of common stock, and as a result of certain other factors,
including that all members of the Company’s executive management are from
Subsidiary, Subsidiary is deemed to be the acquiring company for accounting
purposes and the Merger was accounted for as a reverse merger and a
recapitalization in accordance with generally accepted accounting principles in
the United States (“GAAP”). These condensed consolidated financial statements
reflect the historical results of Subsidiary prior to the Merger and that of the
combined Company following the Merger, and do not include the historical
financial results of Helix Wind (formerly Clearview Acquisitions, Inc.) prior to
the completion of the Merger. Common stock and the corresponding capital amounts
of the Company pre-Merger have been retroactively restated as capital stock
shares reflecting the exchange ratio in the Merger. In conjunction with the
Merger, the Company received cash of $270,229 and assumed net liabilities of
$66,414.
Condensed
Consolidated Financial
Statements
The
accompanying unaudited condensed consolidated financial statements primarily
reflect the financial position, results of operations and cash flows of
Subsidiary (as discussed above). The accompanying unaudited condensed
consolidated financial statements of Subsidiary have been prepared in accordance
with GAAP for interim financial information and pursuant to the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, these interim financial statements do not include all
of the information and footnotes required by GAAP for annual financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009, or for any other period. Amounts related
to disclosures of December 31, 2008, balances within these interim condensed
consolidated financial statements were derived from the audited 2008
consolidated financial statements and notes thereto filed on Form 8-K on March
31, 2009.
9
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Use
of Estimates
These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto for
Subsidiary included in Helix Wind’s Current Report on Form 8-K filed on March
31, 2009 with the SEC. In preparing these condensed consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the condensed
consolidated financial statements and the reported amount of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Significant estimates and assumptions included in the Company’s
condensed consolidated financial statements relate to the recognition of
revenues, the estimate of the allowance for doubtful accounts, the estimate of
inventory reserves, estimates of loss contingencies, valuation of long-lived
assets, deferred revenues, accrued other liabilities, and valuation assumptions
related to share based payments and derivative liability.
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared
under the assumption that the Company will continue as a going concern. Such
assumption contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has an accumulated
deficit of $ 54,401,515 at June 30, 2009, recurring
losses from operations and negative cash flow from operating activities from
inception to June 30, 2009 of $12,671,945 and $ 1,666,735 , respectively, for the six months ended June 30,
2009. These factors, among others, raise substantial doubt about the Company’s
ability to continue as a going concern. The condensed consolidated financial
statements do not include any adjustments 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
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing as may be required, and ultimately to attain
profitability. During 2008 and the first six months of 2009, the Company raised
funds through the issuance of convertible notes payable to investors and through
a private placement of the Company’s securities to investors to provide
additional working capital. The Company plans to obtain additional financing
through the sale of debt or equity securities. There can be no assurance that
such financings will be available on acceptable terms, or at all.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of the Company
and wholly-owned Subsidiary. All intercompany transactions and balances have
been eliminated in consolidation.
Trade
Accounts Receivable
The
Company records trade accounts receivable when its customers are invoiced for
products delivered and/or services provided. Management develops its
estimate of this allowance based on the Company’s current economic circumstances
and its own judgment as to the likelihood of ultimate payment. Management
believes that they did not require an allowance for doubtful accounts, as there
are no customer accounts with material collection risk at June 30, 2009 and
December 31, 2008. Although the Company expects to collect amounts due, actual
collections may differ from these estimated amounts. Actual receivables are
written off against the allowance for doubtful accounts when the Company has
determined the balance will not be collected.
The
Company does not require collateral from its customers, but performs ongoing
credit evaluations of its customers’ financial condition. Credit risk with
respect to the accounts receivable is limited because of the large number of
customers included in the Company’s customer base and the geographic dispersion
of those customers.
Patents
Patents
represent external legal costs incurred for filing patent applications and their
maintenance, and purchased patents. Amortization for patents is recorded using
the straight-line method over the lesser of the life of the patent or its
estimated useful life. The Company did not expend any funds for the six months
ended June 30, 2009 for the purpose of developing patents. No amortization has
been taken on these expenditures in accordance with Company policy not to
depreciate patents until the patent has been approved and issued by the United
States Patent Office.
10
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Inventory
The
Company contracts with East West Consulting, Ltd. (“East West”) in Thailand to
manage the outsourcing of manufacturing for the Company’s wind turbines. East
West directly places orders with suppliers based on a demand schedule provided
by the Company. Each supplier holds various quantities in their finished goods
inventory for a specified period before it is shipped on behalf of the Company.
For finished goods, inventory title passes to the Company when payments have
been made to East West for these items. Payments that the Company makes to East
West for inventory that is still in process are recognized as prepaid inventory.
The suppliers bear the risk of loss during manufacturing as they are fully
insured for product within their warehouse. The Company records its finished
goods inventory at the lower of cost (first in first out) or net realizable
value. At June 30, 2009 and December 31, 2008, inventory at various suppliers or
at the Company totaled $371,505 and $213,085, respectively. In addition, the
Company makes progress payments to East West for inventory being manufactured
but not completed consisting of prepaid inventory. There was no
prepaid inventory at June 30, 2009 as all inventory had been paid for and
completed, but the Company had prepaid inventory of $193,010 at December 31,
2008.
Impairment
of Long-Lived Assets
SFAS No.
144, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. If the cost basis of a
long-lived asset is greater than the projected future undiscounted net cash
flows from such asset, an impairment loss is recognized. Impairment losses are
calculated as the difference between the cost basis of an asset and its
estimated fair value. No impairment losses were recognized at June 30, 2009 or
during 2008.
Equipment
Equipment
is stated at cost, and is being depreciated using the straight-line method over
the estimated useful lives of the related assets ranging from three to five
years. Non Recurring Equipment (NRE) tooling that was placed in service and paid
in full as of June 30, 2009 and December 31, 2008 is recognized as fixed assets
and being depreciated over 5 years. Tooling that has been partially paid for as
of June 30, 2009 and December 31, 2008 is recognized as a prepaid asset. Costs
and expenses incurred during the planning and operating stages of the Company’s
website are expensed as incurred. Costs incurred in the website application and
infrastructure development stages are capitalized by the Company and amortized
to expense over the website’s estimated useful life or period of benefit.
Expenditures for repairs and maintenance are charged to expense in the period
incurred. At the time of retirement or other disposition of equipment and
website development, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is recorded in results of
operations.
11
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Advertising
The
Company expenses advertising costs as incurred. During the six months ended June
30, 2009 and 2008, the Company incurred and expensed approximately $29,790 and
$10,223, respectively, in advertising expenses, which are included in selling,
general and administrative expenses in the accompanying condensed consolidated
statements of operations.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. Purchased
materials that do not have an alternative future use and the cost to develop
prototypes of production equipment are also expensed. Costs incurred after the
production process is viable and a working model of the equipment has been
completed will be capitalized as long-lived assets. For the six months ended
June 30, 2009 and 2008, research and development costs incurred were $610,625
and $136,944, respectively.
Deferred
Revenue
The
Company receives a deposit for up to 50% of the sales price when the purchase
order is received from a customer, which is recorded as deferred revenue until
the product is shipped. The Company had received purchase orders from various
domestic and international customers to purchase approximately 85 wind turbines
and the Company has shipped 53 units as of June 30, 2009. The Company had
deferred revenue of $255,156 and $373,598 as of June 30, 2009 and December 31,
2008, respectively, relating to the deposit received for the unshipped
units.
Income
Taxes
In June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48 Accounting for Uncertainty in Income
Taxes – an
interpretation of FASB Statement 109 (“FIN 48”). FIN 48 establishes a
single model to address accounting for uncertain tax positions. FIN 48 clarifies
the accounting for income taxes by prescribing a minimum recognition threshold a
tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
The
Company adopted the provisions of FIN 48 and
recognized no adjustment in the amount of unrecognized tax
benefits.
Derivative
Liabilities and Classification
We
evaluate free-standing instruments (or embedded derivatives) indexed to its
common stock to properly classify such instruments within equity or as
liabilities in our financial statements, pursuant to the requirements of the
EITF Issue No. 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED
TO AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK," EITF Issue No. 01-06,
"THE MEANING OF INDEXED TO A COMPANY'S OWN STOCK," FSP EITF Issue No. 00-19-2,
"ACCOUNTING FOR REGISTRATION PAYMENT ARRANGEMENTS," and SFAS No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," as amended.
Accordingly, the classification of an instrument indexed to our stock, which is
carried as a liability, must be reassessed at each balance sheet date. If the
classification changes as a result of events during a reporting period, the
instrument is reclassified as of the date of the event that caused the
reclassification. There is no limit on the number of times a contract may be
reclassified.
12
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Registration
Payment Arrangement
We
account for our liquidated damages on registration rights agreements in
accordance with FASB Staff Position EITF Issue No. 00-19-2 "ACCOUNTING FOR
REGISTRATION PAYMENT ARRANGEMENTS" which specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement should be separately recognized and measured in
accordance with SFAS No. 5, "ACCOUNTING FOR CONTINGENCIES" ("SFAS No. 5").
Pursuant to SFAS No. 5, a liability related to potential liquidated damages if
such damages were determined to be both probable and reasonably estimable. There
was no liability related to potential liquidated damages booked as of June 30,
2009 or December, 31, 2008.
Basic
and Diluted Loss per Share
In
accordance with SFAS No. 128, “ Earnings per Share ”, the
Company calculates basic and diluted net loss per share using the weighted
average number of common shares outstanding during the periods
presented.
We
incurred a net loss in each period presented, and as such, did not include the
effect of potentially dilutive common stock equivalents in the diluted net loss
per share calculation, as their effect would be anti-dilutive for all
periods. Potentially dilutive common stock equivalents would include
the common stock issuable upon the exercise of warrants, stock options and
convertible debt. As of June 30, 2009 and 2008, all potentially
dilutive common stock equivalents amount to 28,845,016 and 0,
respectively.
Revenue
Recognition
The
Company’s revenues are recorded in accordance with the SEC Staff Accounting
Bulletin No. 104, “Revenue Recognition.” The Company recognizes revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collectability is reasonably assured. In
instances where final acceptance of the product is specified by the customer or
is uncertain, revenue is deferred until all acceptance criteria have been
met.
Significant
Recent Accounting Pronouncements
The
summary of significant accounting policies presented below is designed to assist
in understanding the Company’s condensed consolidated financial statements. Such
financial statements and accompanying notes are the representation of the
Company’s management, who is responsible for their integrity and
objectivity.
In May
2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1 entitled Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement). This FSP amends the following pronouncements (among several
others) issued by the FASB’s Emerging Issues Task Force
(“EITF”): Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, and Issue No. 00-27 Application of Issue No. 98-5 to
Certain Convertible Instruments.
13
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
FSP APB
14-1 applies to convertible debt instruments that, by their stated terms, may be
settled in cash or other assets upon conversion (including partial cash
settlement), unless the embedded conversion option must be separately accounted
for as a derivative under SFAS No. 133. Convertible preferred shares that are
mandatorily redeemable financial instruments and classified as liabilities under
SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity are within the scope of FSP APB 14-1; however, convertible
preferred stock reported as equity (or temporary equity) is not within the scope
of this pronouncement. In addition, FSP APB 14-1 does not apply to convertible
debt instruments that require or permit settlement in cash (or other assets)
upon conversion when the holders of the underlying stock would receive the same
form of consideration in exchange for their shares.
FSP APB
14-1 requires that both the equity component (the conversion feature) and
liability component of convertible debt within its scope be separately accounted
for at estimated fair value in order to reflect the entity’s nonconvertible
borrowing rate when interest cost is recognized in subsequent periods. The
excess of the principal amount of the liability component over its carrying
value must be amortized to interest cost using the interest method described in
APB Opinion No. 21 Interest on
Receivables and Payables. The equity component is not re-measured as long
as it continues to meet the conditions for equity classification in EITF Issue
No. 00-19 Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock. FSP APB 14-1 also provides guidance on
de-recognition as it relates to modifications, exchanges and induced conversions
of debt instruments within its scope. This FSP is effective for financial
instruments issued during fiscal years beginning after December 15, 2008,
and interim periods within those years; early adoption is not permitted.
However, FSP APB 14-1 must be applied retrospectively to all periods presented,
and thus may impact instruments within its scope that were outstanding at any
time during such prior periods. Adoption of the FSP APB 14-1 did not have a
material effect on the Company’s interim financial statements for the quarter
ended June 30, 2009.
In June
2008, the FASB ratified EITF Issue No. 07-5 entitled Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock. This
pronouncement applies to any freestanding financial instrument or embedded
feature that has all the characteristics of a derivative set forth in paragraphs
6-9 of SFAS No. 133 for purposes of determining whether such instrument or
embedded feature qualifies for the first part of the scope exception set forth
in paragraph 11(a) of SFAS No. 133. EITF Issue No. 07-5 also applies to any
freestanding financial instrument that is potentially settled in an entity’s own
stock, regardless of whether the instrument has all the characteristics of a
derivative set forth in SFAS No. 133, for purposes of determining whether the
instrument is within the scope of EITF Issue No. 00-19. EITF Issue No. 07-5 does
not apply to share-based payment awards within the scope of SFAS No. 123(R) for
purposes of determining whether such instruments are classified as liability or
equity. EITF Issue No. 01-6 (“The Meaning of ‘Indexed to a Company’s Own
Stock’”) has been superseded.
As more
fully explained below, the objective of EITF Issue No. 07-5 is to determine
whether a financial instrument or an embedded feature qualifies for the first
part of the scope exception (“indexed to its own stock”) described in paragraph
11(a) of SFAS No. 133. If so, and if the financial instrument or embedded
feature has all the characteristics described in paragraphs 6-9 of SFAS No. 133,
it must be analyzed under other GAAP [including EITF Issue No. 05-2 The Meaning of ‘Conventional
Convertible Debt Instrument’ in Issue No. 00-19 to determine whether it
is classified in stockholders’ equity - or would be if it were a freestanding
instrument. If a financial instrument is otherwise a derivative as defined by
SFAS No. 133 and does not qualify under the exception described above, it must
be reported as a derivative and accounted for at estimated fair value; whether
such an embedded feature must be separated from the host contract (and accounted
for as a derivative) is based on other criteria described in SFAS No. 133. If
the conversion feature embedded in a convertible debt instrument meets both
elements of the scope exception in paragraph 11(a) of SFAS No. 133, it would not
be separated from the host contract or accounted for as a derivative by the
issuer.
14
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Under
EITF Issue No. 07-5, an entity must determine whether an equity-linked financial
instrument or embedded feature is indexed to its own stock by using the
following two-step approach: (1) evaluate the instrument’s contingent exercise
provisions (if any), and (2) evaluate its settlement provisions. An exercise
contingency (as defined) will not preclude an instrument or an embedded feature
from being considered indexed to an entity’s own stock provided that it is based
on either (a) an observable market other than the market for the issuer’s
capital stock or (b) an observable index other than one calculated or measured
solely by reference to the issuer’s own operations (for example, revenues or
EBITDA). If the instrument qualifies under Step 1, it is then analyzed under
Step 2. An instrument (or embedded feature) is considered indexed to an entity’s
own stock if its settlement amount will equal the difference between the
estimated fair value of a fixed number of the entity’s equity shares and either
a fixed monetary amount or a fixed amount of a debt instrument issued by the
entity. With very few exceptions - unless the only variables that could affect
the settlement amount would be inputs to the estimated fair value of a
“fixed-for-fixed” forward or option on equity shares, an instrument’s strike
price or the number of shares used to calculate the settlement are not
considered fixed if its terms provide for any potential adjustment, regardless
of the probability of the adjustment or whether any such adjustments are within
the entity’s control. As a result, standard anti-dilution clauses will
apparently preclude an instrument from being considered “indexed to its own
stock.”
EITF
Issue No. 07-5 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years. The
guidance in such pronouncement must be applied to outstanding instruments as of
the beginning of the fiscal year in which it is adopted, with a
cumulative-effect adjustment of opening retained earnings (or other appropriate
components of equity or net assets). The Company adopted the provisions of EITF
No. 07-5 during the first quarter of 2009, the impact of the adoption of EITF
07-5 is described in note 6.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2
(FSP 157-2), Effective
Date of FASB Statement No. 157. FSP 157-2 deferred the
effective date of SFAS 157, Fair Value Measurements, for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, until fiscal years beginning after November 15, 2008. As a result of
FSP 157-2, we adopted SFAS 157 for our nonfinancial assets and
nonfinancial liabilities as of the beginning of the year ending December 31,
2009. The adoption of SFAS 157 for these assets and liabilities did not have a
material impact on our consolidated financial position, consolidated results of
operations or consolidated cash flows.
In March
2008, the FASB issued SFAS 161, Disclosures About Derivative
Instruments and Hedging
Activities — an amendment of FASB Statement No. 133.
SFAS 161 expands quarterly disclosure requirements in SFAS 133 about
an entity’s derivative instruments and hedging activities. SFAS 161 became
effective for us as of the beginning of the year ending December 31, 2009. The
Company adopted SFAS 161 in the first quarter of 2009 and has made the
appropriate disclosure requirements.
In
February 2009, the FASB issued FSP FAS 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies. FSP FAS 141R-1 amends the guidance in SFAS 141R about the
accounting for assets acquired and liabilities assumed in a business combination
that arise from contingencies that would be within the scope of SFAS 5 if not
acquired or assumed in a business combination. FSP FAS 141R-1 is effective for
us at the beginning of our year ending December 31, 2009 and therefore will
apply to any business combination that we might enter into after December 31,
2008. The Company adopted the provision of FSP FAS 141R-1 which did not have a
material impact on our financial position, results of operations and cash flows
for the quarter ended June 30, 2009.
15
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. FSP FAS 107-1 and APB 28-1 amend SFAS 107,
Disclosures about Fair Value
of Financial Instruments to require disclosures about fair value of
financial instruments for interim reporting periods as well as in annual
financial statements. This FSP also amends ABP 28 to require those disclosures
in summarized financial information at interim reporting periods. We adopted FSP
FAS 107-1 and APB 28-1 in our second fiscal quarter ended on June 30, 2009. The
adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on our
consolidated financial position, consolidated results of operations or
consolidated cash flows.
In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are not Orderly. FSP FAS
157-4 provides additional guidance for estimating fair value in accordance with
SFAS 157, Fair Value
Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. We adopted
FSP FAS 157-4 in our second fiscal quarter ended on June 30, 2009 without any
impact on our consolidated financial position, consolidated results of
operations or consolidated cash flows.
In May
2009, the FASB issued SFAS 165 which established general standards for
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. In
particular, SFAS 165 sets forth the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 is effective for interim and
annual periods ending after June 15, 2009 and became effective for the
Company in the second quarter of 2009.
In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—A
Replacement of FASB Statement No. 162 (“SFAS 168”), which
established the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied in the
preparation of financial statements in conformity with generally accepted
accounting principles. SFAS 168 explicitly recognizes rules and interpretative
releases of the Securities and Exchange Commission (“SEC”) under federal
securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become
effective in the third quarter of 2009 and will not have a material impact on
the Company’s results of operations, financial position or
liquidity.
The
Sarbanes-Oxley Act of 2002 (“the Act”) introduced new requirements regarding
corporate governance and financial reporting. Among the many requirements of the
Act is for management to annually assess and report on the effectiveness of its
internal control over financial reporting under Section 404(a) and for its
registered public accountant to attest to this report under Section 404(b).
The SEC has modified the effective date and adoption requirements of
Section 404(a) and Section 404(b) implementation for non-accelerated
filers multiple times. Based on current SEC requirements, we will be required to
have our auditor attest to internal controls over financial reporting in our
fiscal year ending December 31, 2009.
16
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
3.
|
RELATED
PARTY TRANSACTIONS AND CONVERTIBLE NOTES PAYABLE TO
RELATED PARTIES
|
At December 31, 2008, the Company had an unsecured related party payable to Lab4Less, LLC,
bearing no interest, payable on demand , in the
amount of $22,433 . The Company’s Chief Executive Officer and director was a 50%
owner of Lab4Less, LLC . During the quarter ended
March 31, 2009, the Company repaid such note payable in
full.
At December 31, 2008, convertible notes payable to related parties were $567,633. Such notes were held by the Company’s Chief Executive Officer and certain shareholder founders and co-founders of the Company. During the quarter ended March 31, 2009, $392,268 of such convertible notes payable were converted to the newly issued 9% convertible debt. The remaining $175,365 of such notes did not convert and remain as part of the 12% convertible debt (see Note 6).
4.
|
EQUIPMENT
|
Equipment
consisted of the following as of June 30, 2009 and December 31,
2008:
2009
|
2008
|
|||||||
Equipment
|
$
|
37,989
|
$
|
27,409
|
||||
NRE
tooling
|
388,446
|
124,287
|
||||||
Test
facility
|
77,445
|
56,856
|
||||||
Leasehold
improvements
|
6,524
|
2,752
|
||||||
Web
site development costs
|
13,566
|
13,566
|
||||||
523,970
|
224,870
|
|||||||
Accumulated
depreciation
|
(95,703
|
)
|
(37,353
|
)
|
||||
$
|
428,267
|
$
|
187,517
|
DEBT
|
Short
Term Debt
Short
term debt was $533,082 and 0 as of June 30, 2009 and December 31, 2008,
respectively. At June 30, 2009, short term debt represents a
Subsidiary 12% related party note totaling $115,365 and two non-related party
Subsidiary 12% note holders totaling $72,000 that elected not to convert as part
of the note exchange offered with the Merger. In addition, short term debt
includes $245,717 and $100,000 received from two non-related parties in the
second quarter of 2009. The two promissory notes have a term of 1
year and accrue interest at prime (3.25% at June 30, 2009) plus 1%.
Convertible
Notes Payable and Convertible Notes Payable to Related Party
Convertible
notes payable totaled $3,819,712 and $2,071,813, as of June 30, 2009 and
December 31, 2008, respectively, as described below. In
connection with the convertible notes payable issued during the six months ended
June 30, 2009, the Company issued an aggregate of 9,403,888 warrants. All
of the convertible notes payable and warrants contain an anti-dilution provision
which “re-set” the related conversion rate and exercise price if any subsequent
equity linked instruments are issued with rates lower than those of the
outstanding equity linked instruments. The accounting
literature related to the embedded conversion feature and warrants issued in
connection with the convertible notes payable is discussed under note 6
below.
17
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Amount
|
Discount
|
Convertible
Notes Payable,
net
of discount
|
Convertible
Notes Payable Related Party, net of
discount
|
|||||||||||||
Exchange
Notes
|
2,209,347
|
(2,209,347
|
)
|
-
|
-
|
|||||||||||
Reverse
Merger Notes
|
300,000
|
(300,000
|
)
|
-
|
-
|
|||||||||||
New
Convertible Notes
|
1,235,365
|
(1,235,365
|
)
|
-
|
-
|
|||||||||||
Other
Convertible Notes
|
75,000
|
(75,000
|
)
|
-
|
-
|
|||||||||||
3,819,712
|
(3,819,712
|
)
|
-
|
-
|
Exchange
Notes – Convertible Notes Payable and Convertible Notes Payable to Related
Party, net of discount
On
February 11, 2009, in connection with and as part of the Merger, the Company
exchanged existing convertible notes (“12% notes”) for 9% convertible notes (
the “Exchange Notes”). Prior to the Merger, the total amount of the 12% notes
exchanged was $2,234,579. This amount included principal of
$1,874,448 plus accrued interest charges of $146,866 and other premiums of
$213,265. The Exchange Notes had a principal amount at June 30, 2009,
of $2,209,347, bearing interest at 9% per annum, with principal and interest due
three years from the date of issuance. The Exchange Notes required no payment of
principal or interest during the term and may be converted to our common stock
at the conversion price of $0.50 per share at any time at the option of the note
holder. In addition to the stated interest rate; the exchange transaction also
modified the conversion rate as well as the issuance of 5,469,158 warrants to
the various convertible note holders, the warrants have an exercise price of
$0.75 per share for each share of the Company issuable upon conversion of the
note. The warrants expire 5 years from issuance and contain cashless
exercise provisions which are settled in shares. The warrants
and notes were issued in connection with a registration rights
agreement.
For
accounting purposes, the Company analyzed the conversion of the Exchange
Notes under the guidance of EITF 96-19 “Debtor's Accounting for a
Modification or Exchange of Debt Instruments”, EITF 05-7 “Accounting for Modifications to
Conversion Options Embedded in Debt Instruments and Related Issues”, EITF
06-6 “Debtor's Accounting for
a Modification (or Exchange) of Convertible Debt
Instruments”. Based on the guidance referred to above, the
Company concluded that the changes in the note agreements, conversion feature
and warrants were considered substantive and accordingly the transaction should
be accounted for as an extinguishment of debt and an issuance of new
debt. As such, the Company recorded a loss on extinguishment of debt
of approximately $ 12,038,787 which is recorded in
other expenses in the accompanying condensed consolidated statements of
operations, during the six months ended June 30, 2009.
The
Company initially recorded a discount to the Exchange Notes of $2,234,579. During the six months ended June 30, 2009, $25,232 of the
Exchange Notes was converted into common stock (the unamortized debt discount
related to the converted note was immediately charged to interest expense on the
day the note was converted) as described under Notes 6 and 9
below. The Company amortized the debt
discount using the effective interest method over
the term of the convertible notes payable which is three years. During
the six months ended June 30, 2009 there was $0 amortized
under this amortization method .
Reverse
Merger Notes-Convertible Notes Payable, net of discount
On
February 11, 2009 upon completion of the Merger, the Company issued $650,000 of
convertible notes payable to 3 different note holders (“Reverse Merger
Notes”). The Reverse Merger Notes had a principal amount at June 30,
2009, of $300,000 (after the conversion of $350,000 into the Company’s common
stock as described in Notes 6 and 9 below), bearing interest at 9% per annum,
with principal and interest due three years from the date of issuance. The
Reverse Merger Notes required no payment of principal or interest during the
term and may be converted to the Company’s common stock at the conversion price
of $0.50 per share at any time at the option of the note holder. The
Company also issued 1,300,000 warrants to the various note holders; the warrants
have an exercise price of $0.75 per share for each share of the Company issuable
upon conversion of the note. The warrants expire 5 years from
issuance and contain cashless exercise provisions which are settled in
shares. The warrants and notes were issued in connection with a
registration rights agreement.
The
Company has initially recorded a debt discount to the Reverse Merger Notes in
the amount of $650,000. During the six months
ended June 30, 2009, $350,000 of the Reverse Merger Notes was converted into
common stock (the unamortized debt discount related to the converted note was
immediately charged to interest expense on the day the note was
converted). The Company amortized the debt discount using the
effective interest method over the term of the convertible notes payable which
is three years. During the six months ended June 30, 2009 there was $0 amortized
under this amortization method.
18
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
New
Convertible Notes-Convertible Notes Payable, net of discount
During
the six months ended June 30, 2009, the Company also issued additional
convertible notes payable in the amount of $1,235, 365 (“New Convertible
Notes”). The New Convertible Notes bear interest at 9% per annum,
with principal and interest due three years from the date of issuance, required
no payment of principal or interest during the term and may be converted to our
common stock at the conversion price of $0.50 per share at any time at the
option of the note holder. The Company also issued 2,484,730 warrants
to the various note holders. The warrants have an exercise price of $0.75 per
share for each share of the Company issuable upon conversion of the
note. The warrants expire 5 years from issuance and contain cashless
exercise provisions which are settled in shares. The warrants
and notes were issued in connection with a registration rights
agreement.
The
Company has initially recorded a debt discount in the amount of
$1,235,365. The Company amortized the
debt discount using the effective interest method over the
term of the convertible notes payable which is three years. During the
six months ended June 30, 2009 there was $0 amortized under
this amortization method .
Other
Convertible Notes-Convertible Notes Payable, net of discount
On
February 11, 2009 upon completion of the Merger, the Company also issued $25,000
of related party convertible notes and $50,000 of non-related party convertible
notes in exchange for equipment and inventory (“Other Convertible Notes”) for a
total of $75,000. The Other Convertible Notes bear interest at 9% per
annum, with principal and interest due three years from the date of issuance,
require no payment of principal or interest during the term and may be converted
to our common stock at the conversion price of $0.50 per share at any time at
the option of the note holder. The Company also issued 150,000
warrants to the various note holders. The warrants have an exercise price of
$0.75 per share for each share of the Company issuable upon conversion of the
note. The warrants expire 5 years from issuance and contain cashless
exercise provisions which are settled in shares. The warrants
and notes were issued in connection with a registration rights
agreement.
The
Company has initially recorded a debt discount in the amount of
$75,000. The Company amortized the debt
discount using the effective interest method over
the term of the convertible notes payable which is three years. During
the six months ended June 30, 2009 there was $0 amortized
under this amortization method.
At June
30, 2009, the fair value of all warrants issued in connection with convertible
notes payable and convertible notes payable to related party is estimated to be
$23,882,804. Management estimated the fair value of the warrants
based upon the application of the Black-Sholes option-pricing model using the
following assumptions: expected life of three to five years; risk free interest
rate of (1.67% - 2.95%); volatility of (59% - 75%) and expected dividend yield
of zero. At the date of issuance of the exchange
notes, the related Black-Sholes assumptions were: expected life of three years;
risk free interest rate of 1.32%; volatility of 59% and expected
dividend yield of zero.
6.
|
DERIVATIVE
LIABILITIES
|
As
described in Note 5, the Company issued financial instruments in the form of
warrants and convertible notes payable with conversion features. All
of the convertible notes payable and warrants contain an anti-dilution provision
which “re-set” the related conversion rate and exercise price if any subsequent
equity linked instruments are issued with rates lower than those of the
outstanding equity linked instruments.
The
conversion features of both the convertible notes payable and warrants were
analyzed under SFAS 133. Under this guidance, bifurcation of the
conversion option from the host contract and accounting for it separately as a
derivative may be necessary if (i) the conversion feature is not clearly and
closely related to the host contract (ii) the hybrid instrument is not accounted
for at fair value and (iii) a separate instrument with the same terms as the
embedded instrument would qualify as a derivative instrument and be subject to
the requirements of SFAS 133.
SFAS 133,
paragraph 11(a) specifies that if a contract is (i) indexed to the Company’s own
stock and (ii) would be classified in shareholders’ equity if it were a free
standing instrument, the conversion option would be excluded from the scope of
this guidance. To determine if the conversion option was indexed to
the Company’s own stock, the Company applied EITF 07-5 “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own Stock”.
The Company applied the two step approach as defined by EITF
07-5. In assessing step 2, evaluating the conversion instrument’s
settlement provisions, the Company concluded that, pursuant to the guidance, the
anti-dilution provision or re-set provision met the criteria of EITF
07-5.
Pursuant
to SFAS 133, derivative instruments shall be recognized as either assets or
liabilities, depending on the rights or obligations under the
contract. Based on the terms of the host contract, the Company has
determined that this clearly meets the definition of a derivative liability due
to the contracts obligations. Derivative instruments shall also be
measured at fair value at each reporting period with gains and losses recognized
in current earnings.
19
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
The Company calculated the fair value of these instruments using the
Black-Scholes pricing model. The significant assumptions used in the calculation
of the instruments fair value are detailed in the table below. At
March 31, 2009, the value of the derivative liability for the embedded
conversion features was $ 10,879,732 and the derivative liability for the warrants
was $ 11,894,545. During the quarter ending June 30, 2009, the Company issued additional
derivative liabilities with initial fair value for the embedded conversion
features of $4,063,805 and warrants of $4,034,638, the excess of the initial
fair value over the amount of debt discount were recorded as interest expense in
the accompanying condensed consolidated statement of
operation.
During the quarter ended June 30, 2009, $375,232 of
convertible notes payable was converted into common
stock of the Company. The Company performed a
final mark-to-market for the derivative liability related to the converted notes and the carrying amount of the derivative
liability related to the conversion feature on the date of conversion of
$1,279,333 was re-classed to additional paid in capital in the accompanying
condensed statements of shareholders’ deficit .
During
the six months ended June 30, 2009, we recognized a charge of $ 11,489,557 based on the change in fair value (mark-to-market adjustment) of both the warrant derivative liability and the embedded conversion feature
derivative liability in the accompanying condensed consolidated statement of
operations. The value of the derivative liability was $ 41,082,944 at June 30, 2009.
These
derivative liabilities have been measured in accordance with SFAS 157, “Fair
Value Measurements”. The valuation assumptions are classified within
Level 1 inputs and Level 2 inputs. The
following table represents the Company’s derivative liability
activity:
December
31, 2008
|
$
|
-
|
||
Issuance
of derivative financial instruments
|
20,343,262
|
|||
Mark-to-market
adjustment to fair value at March 31, 2009
|
2,431,015
|
|||
March
31, 2009
|
$
|
22,774,277
|
||
Issuance
of derivative financial instruments
|
8,098,443
|
|||
Conversion
of derivative financial instrument
|
(1,279,333)
|
|||
Mark-to-market
adjustment to fair value at June 30, 2009
|
11,489,557
|
|||
June
30, 2009
|
$
|
41,082,944
|
These
instruments were not issued with the intent of effectively hedging any future
cash flow, fair value of any asset, liability or any net investment in a foreign
operation. The instruments do not qualify for hedge accounting, and
as such, all future changes in the fair value will be recognized currently in
earnings until such time as the instruments are exercised, converted or
expire. The following assumptions were used to determine the
fair value of the warrants as of June 30, 2009 and at date
of issuance of February 11, 2009 :
June
30,
2009
|
February
11,
2009
|
|||
Weighted-
average volatility
|
59% - 75% |
59%
|
||
Expected
dividends
|
0.0% |
0.0%
|
||
Expected
term
|
3
to 5 years
|
3
years
|
||
Risk-free
rate
|
1.67%
to 2.95%
|
1.32%
|
7.
|
INCOME
TAXES
|
The
Company’s method of accounting for income taxes is the asset and liability
approach required by SFAS 109, Accounting for Income Taxes.
There was no income tax expense recorded for the six months ended June 30, 2009
or year ended December 31, 2008, due to the Company’s net losses and a 100%
valuation allowance on deferred tax assets.
We made
no provision for income taxes for the six months ended June 30, 2009 and 2008
due to net losses incurred except for minimum tax liabilities. We
have determined that due to our continuing operating losses as well as the
uncertainty of the timing of profitability in future periods, we should fully
reserve our deferred tax assets. As of June 30, 2009, our deferred tax assets
continued to be fully reserved. We will continue to evaluate, on a quarterly
basis, the positive and negative evidence affecting the realization of our
deferred tax assets.
STOCK
BASED COMPENSATION
|
The
Company accounts for stock-based compensation in accordance with the provisions
set forth in SFAS No. 123(R), Share-Based Payment (SFAS
No. 123(R)). Under the provisions of SFAS No. 123(R), stock-based
compensation cost is measured at the date of grant, based on the calculated fair
value of the stock-based award, and is recognized as expense over the employee’s
requisite service period (generally the vesting period of the
award).
20
On
February 9, 2009, the Company’s Board of Directors adopted the 2009 Equity
Incentive Plan authorizing the Board of Directors or a committee to issue
options exercisable for up to an aggregate of 13,700,000 shares of common stock.
Currently there were 11,051,240 options granted during the six-month period
ended June 30, 2009, at an exercise prices ranging from $0.50 to $2.70 per
share. The Company's Share Employee Incentive Stock Option Plan was approved by
the shareholders of the Company and the definitive Schedule 14C Information
Statement was filed with the SEC on July 14, 2009.
The
Company estimates the fair value of employee stock options granted using the
Black-Scholes Option Pricing Model. Key assumptions used to estimate the fair
value of stock options include the exercise price of the award, the fair value
of the Company’s common stock on the date of grant, the expected option term,
the risk free interest rate at the date of grant, the expected volatility and
the expected annual dividend yield on the Company’s common stock.
The
following weighted average assumptions were used in estimating the fair value of
certain share-based payment arrangements:
Three
and six
Months
Ended
|
|||
June
30, 2009
|
|||
Annual
dividends
|
0
|
||
Expected
volatility
|
59%
-75%
|
||
Risk-free
interest rate
|
1.7%
|
||
Expected
life
|
5
years
|
Since
there is insufficient stock price history that is at least equal to the expected
or contractual terms of the Company’s options, the Company has calculated
volatility using the historical volatility of a similar public entity in the
Company’s industry in accordance with Question 4 of SAB Topic 14.D.1 and
paragraph A22 of SFAS 123R. In making this determination and
identifying a similar public company, the Company considered the industry,
stage, life cycle, size and financial leverage of such other
entities. This resulted in an expected volatility of 59% to 75%
for the period ended June 30, 2009.
The
expected option term in years is calculated using an average of the vesting
period and the option term, in accordance with the “simplified method” for
“plain vanilla” stock options allowed under Staff Accounting Bulletin (SAB)
110.
The risk
free interest rate is the rate on a zero-coupon U.S. Treasury bond with a
remaining term equal to the expected option term. The expected volatility is derived from an industry-based index, in accordance with the calculated value method allowed under SFAS
No. 123(R ).
SFAS
No. 123(R) requires entities to estimate the number of forfeitures expected
to occur and record expense based upon the number of awards expected to vest. At
June 30, 2009, the Company expects all awards issued will be fully vested over
the expected life of the awards.
Stock
Option Activity
A summary
of stock option activity for the six months ended June 30, 2009 is as
follows:
Weighted
|
||||||||
Average
|
||||||||
Number
|
Exercise
|
|||||||
Shares
|
Price
|
|||||||
Options
outstanding at December 31, 2008
|
-
|
$
|
-
|
|||||
Granted
|
11,051,240
|
0.57
|
||||||
Exercised
|
-
|
-
|
||||||
Forfeited
|
-
|
-
|
||||||
Options
outstanding at June 30, 2009
|
11,051,240
|
$
|
0.57
|
21
Outstanding
|
Exercisable
|
|||||||
Number
of shares
|
11,051,240
|
7,134,565
|
||||||
Weighted
average remaining contractual life
|
4.63
|
4.62
|
||||||
Weighted
average exercise price per share
|
$
|
0.57
|
$
|
0.54
|
||||
Aggregate
intrinsic value (June 30, 2009 closing price of $3.01)
|
$
|
26,915,925
|
$
|
17,612,970
|
The
aggregate intrinsic value in the preceding table represents the total pre-tax
intrinsic value (the difference between the Company’s closing stock price as of
June 30, 2009 and the weighted average exercise price multiplied by the number
of shares) that would have been received by the option holders had all option
holders exercised their options on June 30, 2009. This intrinsic value will vary
as the Company’s stock price fluctuates.
Compensation
expense arising from stock option grants was $10,777,373 for the six months
ended June 30, 2009, of which $10,528,381 was included in selling, general and
administrative expenses and $248,992 was included in research and development
expense.
The
amount of unrecognized compensation cost related to non-vested awards at June
30, 2009 is $5,598,210. The weighted average period in which this
amount is expected to be recognized is 4.63 years.
Stock
options outstanding and exercisable at June 30, 2009, and the related exercise
price and remaining contractual life are as follows:
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||||||
Average
|
Average
|
|||||||||||||||||||
Weighted
|
Remaining
|
Weighted
|
Remaining
|
|||||||||||||||||
Number
of
|
Average
|
Contractual
|
Number
of
|
Average
|
Contractual
|
|||||||||||||||
Exercise
|
Options
|
Exercise
|
Life
of Options
|
Options
|
Exercise
|
Life
of Options
|
||||||||||||||
Price
|
Outstanding
|
Price
|
Outstanding
|
Exercisable
|
Price
|
Exercisable
|
||||||||||||||
$
|
0.50-$0.55
|
10,751,240
|
$
|
0.52
|
4.62
yrs
|
7,054,292
|
$
|
0.52
|
4.62
yrs
|
|||||||||||
$
|
2.70
|
300,000
|
$
|
2.70
|
4.96
yrs
|
80,273
|
$
|
2.70
|
4.96
yrs
|
|||||||||||
11,051,240
|
$
|
0.57
|
4.63
yrs
|
7,134,565
|
$
|
0.54
|
4.62
yrs
|
The total
intrinsic value of stock options exercised during the six months ended June 30,
2009 was $0 as no stock options were exercised.
9.
|
COMMON
STOCK
|
Common
Stock Issued
We are
authorized to issue up to 1,750,000,000 shares of common stock, par value
$0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001
per share. As a result of the Merger on February 11, 2009, the
Company had 25,681,094 shares of its common stock
outstanding. Clearview Acquisition, Inc. settled a lawsuit
originating during the year ended December 31, 2008, with Bluewater Partners as
part of the Merger on February 11, 2009, for 11,000,000 shares of its common
stock under Section 3a-10 of the Securities Act, which was an exchange of
11,000,000 free trading shares for debt and accrued interest for approximately
$105,000. In addition, two 9% convertible notes were converted into
753,632 restricted shares of the Company’s common stock during second quarter of
2009. The Company’s common stock outstanding at June 30, 2009 was
37,434,726. The Company also reserved 5,713,918 shares of Common Stock for
issuance upon the conversion of certain convertible notes of Subsidiary that
were converted into new convertible notes of the Company in connection with the
Merger. The outstanding shares of Common Stock are validly issued,
fully paid and nonassessable.
22
10.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Leases
The
Company leases its corporate office located at 1848 Commercial Street, San
Diego, California under a lease agreement with a partnership that is affiliated
with a principal stockholder, who is also an executive officer, founder and a
director of the Company. The lease expired on October 31, 2008, monthly rent was
$200 per month for the period January 1, 2007 through February 29, 2008, and
then increased to $2,000 per month for the period March 1, 2008 through October
31, 2008. The Company entered into a new lease effective November 1, 2008. The
initial term of this lease for the period November 1, 2008 through October
31, 2009, provides for a monthly base rent of $7,125. This lease also includes a
scheduled base rent increase of 3.0% – 6.0% per year over the term of the lease
based on the Consumer Price
Index / All Urban Consumers – San Diego, California.
The
Company leases a test facility in California for $300 per month under a lease
which expired on October 31, 2008. Under a new lease effective November 1, 2008,
the rent increased to $450 per month. The initial term of this lease
is November 1, 2008 through October 31, 2009, with a one-year renewal option for
each of the next five years with no increase in rent during the renewal
periods.
At June
30, 2009, future minimum lease payments under noncancelable operating leases
approximate $30,300 for the four months ending October 31, 2009.
Manufacturing
Agreement
The
Company entered into a three year contract with East West of Thailand on June
14, 2008 to manage the manufacturing and distribution of its products. The
contract can be cancelled due to gross nonperformance from East West or the
failure to meet milestones. Milestones disclosed in the contract include:
development of supply chain, understanding of design package of product to be
manufactured, identifying approved suppliers, placing orders based on production
planning and managing the implementation of a logistics warehouse for customer
orders. If the contract is cancelled due to nonperformance or failure to meet
the documented milestones, the Company is not obligated to pay the remainder of
the contract. The monthly management fee payable to East West is $16,270. The
Company paid $48,810 which included past due payables and $0 in management fees
to East West during the three months ended June 30, 2009 and June 30, 2008,
respectively. The East West accounts payable was $8,135 at June 30, 2009 and the
Company had a commitment to pay East West $189,413 for cost related to the
prospective manufacturing of inventory and tooling. The Company will record the
$189,413 as part of its inventory and tooling when legal title transfers from
East West to the Company consistent with the Company’s policy for inventory as
described in Note 2.
23
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
Legal
Matters
From time
to time, claims are made against the Company in the ordinary course of business,
which could result in litigation. Claims and associated litigation are subject
to inherent uncertainties and unfavorable outcomes could occur, such as monetary
damages, fines, penalties or injunctions prohibiting the Company from selling
one or more products or engaging in other activities. The occurrence of an
unfavorable outcome in any specific period could have a material adverse effect
on the Company’s results of operations for that period or future
periods.
In
December of 2008 we entered into a settlement agreement and release (“Settlement
Agreement”) with Bluewater Partners, S.A., IAB Island Ventures, S.A., CAT
Brokerage AG, and David Lillico (collectively, “Bluewater”) in order to settle a
lawsuit with Bluewater originally filed in the Supreme Court of New York State,
County of New York on December, 17, 2008, and subsequently moved to the Circuit
Court for the 15th Judicial Circuit in Palm Beach County, Florida on February
20, 2009. In this lawsuit, Bluewater alleged that the Company failed
to pay approximately $96,000 due under certain promissory notes issued to
Bluewater by the Company. Among other things, the Settlement
Agreement required us to issue 11,000,000 shares of our common stock to
Bluewater pursuant to Section 3(a)(10) of the Securities Act of 1933, as
amended, and to obtain the approval of a court with appropriate jurisdiction of
the terms and conditions for such issuance after a hearing upon the fairness of
such terms and conditions. On March 25, 2009, the Circuit Court for
the 15th Judicial Circuit in Palm Beach County, Florida approved the terms
and conditions of the issuance of the 11,000,000 shares in accordance with the
Settlement Agreement and the Settlement Agreement became final.
The
Company is not presently a party to any pending or threatened legal
proceedings.
Executive
Compensation
Employment
agreements executed with two of the Company’s executives call for base salary
for each executive as shown below.
●
|
$200,000
per annum August 1, 2008 through July 31, 2009
|
|
●
|
$250,000
per annum August 1, 2009 through July 31, 2010
|
|
●
|
$300,000
per annum August 1, 2010 through December 31,
2010
|
In
addition to the salary shown above, each executive is entitled to a $75,000
bonus payable upon closing of the Company’s series A financing.
24
(formerly
Clearview Acquisitions, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
11.
|
SUBSEQUENT
EVENTS
|
Subsequent
to June 30, 2009, the Company received purchase orders from various domestic
customers, to purchase approximately 13 wind turbines. The Company
currently anticipates shipping a majority of these wind turbines in the 4th quarter of 2009.
On July
2, 2009, the company signed a Memorandum Of Understanding (“MOU”) with Atoll
Financial Group (“AFG”) regarding the structuring of an investment into the
Company by AFG and its strategic partners or investors in an amount currently
estimated to be ten million dollars ($10,000,000), which if effectuated, the
Company believes will support corporate endeavors involved in the manufacture
and sale of small wind turbines by Helix worldwide and certain strategic
acquisitions. In connection with the MOU, the Company will pay a non
refundable fee of $50,000 to AFG for appraisal, financial
structuring, and negotiation services provided by AFG, $20,000 of which was paid
upon signing the MOU and $30,000 will be payable upon the closing of
the financing. The financing is subject to AFG's due diligence
investigations.
On July
21, 2009, the Company closed its private placement offering of convertible notes
and warrants. An aggregate of $5,100,000 notes and 11,900,000
warrants were issued in the private placement offering. The
convertible notes carry a coupon rate of 9%, are due on March 20, 2010, and
convert to common stock at a price of $0.50 per share (subject to
adjustments). The warrants have a maturity of five years, an exercise
price of $0.75, and provide for cashless exercise.
On July
23, 2009, the Company signed a Letter of Agreement with Crystal
Research Associates, LLC to write an Executive Informational Overview
(EIO). The cost of the initial extended EIO report and the four
quarterly updates is $45,000 and five year warrants to purchase 150,000 shares
of common stock of the Company at an exercise price of $2.96 per share the
current stock price as of July 23, 2009. The cash payment is spread equally over
four quarters with the first payment made upon signing of the
agreement.
On August
4, 2009, the Company executed an Investor Relations and Capital Raising
Agreement with RAMPartners, SA (RAMP). Under the Agreement, RAMP will
provide investor relations and capital raising consulting services to assist the
Company with communicating its message to qualified international
investors. In addition to $5,000 paid upon signing the Agreement, the
Company issued RAMP 50,000 shares of restricted stock.
On August
4, 2009, the Company signed a Placement Agency Agreement with Dominick &
Dominick, LLC (“Dominick”) to act as the exclusive financial advisor and
placement agent for offering of debt and/or equity securities of the Company in
an aggregate of up to $30,000,000. Dominick currently anticipates
raising a minimum of $5,000,000 up to $30,000,000 through a “PIPE” transaction
involving the sale of debt and/or equity, including warrants to institutional
and accredited investors. The Company paid a non-refundable retainer
to Dominick in the amount of $20,000 upon execution of this
Agreement. The term of this Agreement will continue for a period of
12 months.
On August
6, 2009, the Company signed a media relations contract with New Millenium PR
Communications (“New Millenium”) for the provision of media relations services
to the Company for a 6 month period beginning August 15, 2009, for a monthly fee
of $6,000. In addition, the Company will issue New Millenium 25,000 shares
of restricted common stock.
25
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking Statements
and Factors Affecting Future Results
Helix
Wind, Corp., and its wholly-owned subsidiary, Helix Wind, Inc. (collectively,
“Helix Wind,” we,” “our,” “us” or the “Company”) may from time to time make
written or oral “forward-looking statements,” including statements contained in
our filings with the Securities and Exchange Commission (the “SEC”) (including
this Quarterly Report on Form 10-Q and the exhibits hereto), in our reports to
shareholders and in other communications by us, which are made in good faith by
us pursuant to the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995.
These
forward-looking statements include statements concerning our beliefs, plans,
objectives, goals, expectations, anticipations, estimates, intentions,
operations, future results and prospects, including statements that include the
words “may,” “could,” “should,” “would,” “believe,” “expect,” “will,” “shall,”
“anticipate,” “estimate,” “propose,” “continue,” “predict,” “intend,” “plan” and
similar expressions. These forward-looking statements are based upon
current expectations and are subject to risk, uncertainties and assumptions,
including those described in this quarterly report and the other documents that
are incorporated by reference herein. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
expected, projected, intended, committed or believed.
In
connection with the safe harbors created by Section 21E of the Securities
Exchange Act of 1934, as amended, and the provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides the following cautionary
statements identifying important factors (some of which are beyond our control)
which could cause the actual results or events to differ materially from those
set forth in or implied by the forward-looking statements and related
assumptions. Such factors include, but are not limited to, the
following:
●
|
Our
ability to attract and retain management and field personnel with
experience in the small wind turbine
industry;
|
●
|
Our
ability to raise capital when needed and on acceptable terms and
conditions;
|
●
|
Our
ability to commercialize our
products;
|
●
|
Product
defects or malfunctions;
|
●
|
The
intensity of competition; and
|
●
|
General
economic conditions.
|
All
written and oral forward-looking statements made in connection with this
Quarterly Report on Form 10-Q that are attributable to us or persons acting on
our behalf are expressly qualified in their entirety by these cautionary
statements. Given the uncertainties that surround such statements, you are
cautioned not to place undue reliance on such forward-looking
statements.
Information
regarding market and industry statistics contained in this report is included
based on information available to us that we believe is accurate. It is
generally based on academic and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not reviewed or
included data from all sources, and we cannot assure you of the accuracy or
completeness of the data included in this Report. Forecasts and other
forward-looking information obtained from these sources are subject to the same
qualifications and the additional uncertainties accompanying any estimates of
future market size and revenue. We have no obligation to update forward-looking
information to reflect actual results or changes in assumptions or other factors
that could affect those statements.
26
The
following management’s discussion and analysis is intended to provide additional
information regarding the significant changes and trends which influenced our
financial performance for the six month period ended June 30, 2009. This
discussion should be read in conjunction with the unaudited financial statements
and notes as set forth in this Report.
The
comparability of our financial information is affected by our acquisition of
Helix Wind, Inc. in February of 2009. As a result of the acquisition, financial
results reflect the combined entity beginning February 11, 2009. For further
discussion of the acquisition see note 1 above.
Certain
statements contained in this Quarterly Report on Form 10-Q are forward-looking
in nature and involve known and unknown risks, uncertainties, and other factors
that may cause our actual results, performance or achievements to be materially
different from any future results.
Overview
Helix
Wind is a small wind solutions company focused on the renewable alternative
energy market. We develop or acquire small wind products and
solutions for different vertical markets worldwide. Helix Wind is
engaged in the design, manufacturing and sale of small wind vertical axis
turbines designed to generate 300W, 1kW, 2.0kW, 4.0kW, and 50kW of clean
renewable electricity. Helix Wind was incorporated under the laws of
the State of Nevada on January 10, 2006. The Company’s headquarters are located
in San Diego, California.
Helix
Wind provides energy independence utilizing wind, a resource that never runs
out. Wind power is an abundant, renewable, emissions free energy
source that can be utilized on large and small scales. At the soul of
Helix Wind lies the belief that energy self sufficiency is a responsible and
proactive goal that addresses the ever-increasing consequences of legacy energy
supply systems.
Plan of
Operations
Helix
Wind’s strategy is to pursue selected opportunities that are characterized by
reasonable entry costs, favorable economic terms, high reserve potential
relative to capital expenditures and the availability of existing technical data
that may be further developed using current technology.
Revenues
We
generate substantially all of our net sales from the sale of small wind
turbines. Helix Wind uses a mix of a direct and indirect distribution
model. Direct sales personnel are employed to offer extra coverage of
the United States as a vast majority of our lead generation is from this
area. We continue to rollout our distribution network. Our structure
is built on a non-exclusivity of territory but exclusivity of
leads. Therefore, we define a reasonable territory the distributors
can cover from a sales and service point of view. We demand no reselling of our
products as well as define a retail price which must be adhered to by all
distributors, as a condition of their agreement with Helix Wind. Pricing in the
Euro zone is subject to the fluctuation of the exchange rate between the euro
and U.S. dollar. Distributors must adhere to the price guidelines which is based
on our U.S. retail price, subject to adjustment each quarter to take into
account the currency exchange on the last day of the previous quarter.
Confirmation of an order is given on receipt of a signed purchase agreement with
a 50% deposit in U.S. dollars. Sales are recognized and title and
risk is passed on delivery to customers in the United States and by delivery CIF
to international locations. Our customers do not have extended payment terms or
rights of cancellation under these contracts. No single customer
accounted for more than 18% of our revenue for the six months ended June 30,
2009.
27
Cost
of Sales
Our cost
of sales includes the cost of raw material and components such as blades,
rotors, invertors, mono poles and other components. Other items
contributing to our cost of sales are the direct assembly labor and manufactured
overhead from our component suppliers and East West, a Thailand company that
manages the manufacturing and distribution of our products. Overall,
we currently expect our cost of sales per unit to decrease as we ramp production
lots in the future to meet the product demands from our customers.
Gross
Profit
Gross
profit is affected by numerous factors, including our average selling prices,
distributor discounts, foreign exchange rates, and our manufacturing
costs. Another factor impacting gross profits is the ramp of
production going forward. As a result of the above, gross profits may
vary from quarter to quarter and year to year.
Research
and development.
Research
and development expense consists primarily of salaries and personnel-related
costs and the cost of products, materials and outside services used in our
process and product research and development activities.
Selling,
general and administrative
Selling,
general and administrative expense consists primarily of salaries and other
personnel-related costs, professional fees, insurance costs, travel expense,
other selling expenses as well as share based compensation expense relating to
stock options. We expect these expenses to increase in the near term,
both in absolute dollars and as a percentage of net sales, in order to support
the growth of our business as we expand our sales and marketing efforts, improve
our information processes and systems and implement the financial reporting,
compliance and other infrastructure required by a public
company. Over time, we expect selling, general and administrative
expense to decline as a percentage of net sales as our net sales
increase.
Other
Expenses
Use
of estimates
Our
discussion and analysis of our financial condition and results of operations are
based upon our unaudited condensed consolidated financial statements, which have
been prepared in accordance with U.S. GAAP for interim financial
information. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amount of assets,
liabilities, net sales and expenses and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates,
including those related to inventories, intangible assets, income taxes,
warranty obligations, marketable securities valuation, derivative financial
instrument valuation, end-of-life collection and recycling, contingencies and
litigation and share based compensation. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.
28
For
the three months ended June 30, 2009 compared to the three months
ended June 30, 2008
Revenues
Revenue
increased by $139,491 from $1,500 in the three months ended June 30, 2008 to
$140,991 in the three months ended June 30, 2009, primarily as a result of
shipping 10 S322 models and 5 S594 models to customers in the second quarter of
2009. The Company was in its development stage and did not generate
any revenues from product sales for the three months ended June 30, 2008 but did
record $1,500 from a feasibility study for the second quarter of
2008.
Cost
of Revenues
The cost
of revenues of $112,094 for the three months ended June 30, 2009 represented the
direct product costs from the manufacturer associated with the bill of material
for the S-322 and the S-594 units received by customers in the second quarter of
2009. There was no revenue and therefore, no cost of revenues for the
three months ended June 30, 2008.
Gross
profit
Gross
profit increased by $27,397 from $1,500 in the three months ended June 30, 2008
to $28,897 in the three months ended June 30, 2009, reflecting an increase in
revenue. The Company’s first product shipments to customers occurred
in 2009. Prior to 2009, the Company was in its development
stage.
Research
and development
Cost
incurred for research and development are expensed as
incurred. Research and development expense increased by $174,264 from
$77,913 in the three months ended June 30, 2008 to $252,177 in the three months
ended June 30, 2009, primarily as a result of the increase of $85,569 relating
to product development and testing that continued to ramp during the period as
well as $88,696 recorded for share based compensation expense related to stock
options.
Selling,
general and administrative
Selling,
general and administrative expense increased by $2,213,488 from $307,582 in the
three months ended June 30, 2008 to $2,521,070 in the three months ended June
30, 2009, primarily as a result of the increase of $1,558,492 recorded for share
based payments related to stock options, compensation to management and
employees increasing by $218,849, advertising increasing by $23,203,
professional fees increasing by $65,003, insurance increasing
by $25,970, shipping increasing by $180,905, warranty expenses
increasing by $81,107 and various other expenses totaling
$60,000.
Other
expense
Other
expenses increased by $ 19,129,322 from $30,090 in
the three months ended June 30, 2008 to $ 19,159,412
in the three months ended June 30, 2009,as a result of interest expense recorded
for the fair value of the convertible notes of
$ 7,681,583 and change in fair value of derivative
liability of $11, 447,739 .
Provision
for income taxes
We made
no provision for income taxes for the three months ended June 30, 2009 and 2008
due to net losses incurred except for minimum tax liabilities. We
have determined that due to our continuing operating losses as well as the
uncertainty of the timing of profitability in future periods, we should fully
reserve our deferred tax assets.
29
Net loss
increased by $ 21,489,677 from $414,085 in the three
months ended June 30, 2008 to $ 21,903,762 in the
three months ended June 30, 2009, primarily as a result of the change in the
fair value of the derivative liability of $11, 447,739,
interest expense of $7,681,583 recorded for the fair value of the convertible
notes and the recording of share based compensation of $1,647,188, both
non-cash charges. The remaining amount of net loss relates to various
operational and other expenses for growing existing business.
For
the six months ended June 30, 2009 compared to the six months ended June 30,
2008
Revenues
Revenue
increased by $539,368 from $3,000 in the six months ended June 30, 2008 to
$542,368 in the six months ended June 30, 2009, primarily as a result of
shipping 22 S322 models and 30 S594 models to customers in the first six months
of 2009. The Company was in its development stage and did not
generate any revenues from product sales for the six months ended June 30, 2008
but did record $3,000 from two feasibility studies for the first six months of
2008.
Cost
of Revenues
The cost
of revenues of $426,463 for the six months ended June 30, 2009 represented the
direct product costs from the manufacturer associated with the bill of material
for the S-322 and the S-594 units received by customers for the first six months
of 2009. There was no revenue from product sales and therefore, no
cost of revenues for the six months ended June 30, 2008.
Gross
profit
Gross
profit increased by $112,905 from $3,000 in the six months ended June 30, 2008
to $115,905 in the six months ended June 30, 2009, reflecting an increase in
revenue. The Company’s first product shipments to customers occurred in
2009. Prior to 2009, the Company was in its development
stage.
Research
and development
Cost
incurred for research and development are expensed as
incurred. Research and development expense increased by $473,681 from
$136,944 in the six months ended June 30, 2008 to $610,625 in the six months
ended June 30, 2009, primarily as a result of the increase of $224,689 relating
to product development and testing that continued to ramp during the period as
well as $248,992 recorded for share based compensation expense
related to stock options.
Selling,
general and administrative
Selling,
general and administrative expense increased by $11,661,604 from $515,621 in the
six months ended June 30, 2008 to $12,177,225 in the six months ended June 30,
2009, primarily as a result of the increase of $10,528,381 recorded for share
based payments related to stock options, compensation to management and
employees increasing by $431,414, rent increasing by $34,067,
professional fees increasing by $238,173, insurance increasing
by $42,483, shipping increasing by $194,052, supplies and office
expense increasing by 50,040, advertising increasing by 13,268, warranty
expenses increasing by $81,107 and other various expenses increasing
by $48,619.
30
Other
expense
Other
expenses increased by $ 38,884,677 from $33,906 in
the six months ended June 30, 2008 to $ 38,918,583 in
the six months ended June 30, 2009, primarily as a result of interest expense
recorded for the fair value of the 9% convertible
of $13,267,136 , loss on debt extinguishment of
$ 12,038,787 and change in the fair value of
derivative liability of $ 13,878,754.
Provision
for income taxes
We made
no provision for income taxes for the six months ended June 30, 2009 and 2008
due to net losses incurred except for minimum tax liabilities. We have
determined that due to our continuing operating losses as well as the
uncertainty of the timing of profitability in future periods, we should fully
reserve our deferred tax assets.
Net
loss
The net
loss increased by $ 50,907,057 from $683,471 in the
six months ended June 30, 2008 to $ 51,590,528 in the
six months ended June 30, 2009, primarily as a result of the change in the fair
value of the derivative liability of $ 13,878,754, interest
expense of 13,001,042 recorded for the fair value of the convertible
notes , recording of share based compensation of $10,777,373, and loss on
debt extinguishment of $ 12,038,787 , all non-cash
charges. The remaining amount of net loss relates to various operational and
other expenses for growing existing business.
Going
Concern
There is
substantial doubt about our ability to continue as a “going concern” because the
Company has incurred continuing losses from operations, has negative
working capital of approximately $ 42,208,085 and
accumulated deficit of approximately $ 54,401,515 at
June 30, 2009.
Financial Condition and
Liquidity
Liquidity and Capital
Resources
As
of June 30, 2009 and December 31, 2008, Helix Wind had a working
capital deficit of approximately $ 42,208,085 and
$2,742,000 respectively. The negative working capital in 2009
results primarily from the derivative liability relating to the convertible
notes and fair value of the warrants of approximately $ 41,082,944, short term debt of $533,000, accounts payable
of approximately $657,000 and various other accrued liabilities of $68,500 and
the negative balance in 2008 results primarily from notes payable of $2,072,000,
accounts payable of $449,215 and various other accrued liabilities of
$220,700. The deficit of approximately $ 51,590,528 for the six months ended June 30, 2009 was
comprised of approximately $252,000 for research and development, $141,000 for
sales and marketing, $10,777,000 for share based compensation expense for stock
options, $ 38,918,583 of
interest, loss on debt extinguishment and change in
fair value of derivative liability relating to the convertible
notes and fair value of the warrants and the balance for working capital
relating to general and administrative expenses. The deficit of
approximately $2,810,987 for the six months ended June 30, 2008 was comprised of
approximately $137,000 for research and development and the balance for working
capital relating to general and administrative expenses. Cash
provided by financing activities for the six months ended June 30, 2009 totaled
$2,150,334 resulting from funding from the issuance of convertible notes payable
and cash provided from financing activities at June 30, 2008 totaled $393,173
resulting from the funding from the issuance of convertible notes
payable.
The
Company has funded its operations to date through the private offering of debt
and equity securities. Beginning in 2008 through July 21, 2009, the
Company issued an aggregate of $5,100,000 in 9% convertible notes and 11,900,000
warrants.
31
Helix
Wind presently does not have any available credit, bank financing or other
external sources of liquidity. Due to its brief history and historical operating
losses, Helix Wind’s operations have not been a source of liquidity. Helix Wind
will need to obtain additional capital in order to expand operations and become
profitable. In order to obtain capital, the Company may need to sell additional
shares of its common stock or borrow funds from private lenders. There can be no
assurance that Helix Wind will be successful in obtaining additional
funding.
Helix
Wind will need additional investments in order to continue operations.
Additional investments are being sought, but Helix Wind cannot guarantee that it
will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of Helix Wind’s common
stock and a downturn in the U.S. stock and debt markets could make it more
difficult to obtain financing through the issuance of equity or debt securities.
Even if Helix Wind is able to raise the funds required, it is possible that it
could incur unexpected costs and expenses, fail to collect significant amounts
owed to it, or experience unexpected cash requirements that would force it to
seek alternative financing. Further, if Helix Wind issues additional equity or
debt securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of Helix Wind’s common stock. If additional financing is not
available or is not available on acceptable terms, Helix Wind will have to
curtail its operations.
On
February 11, 2009, the Company exchanged existing convertible notes (12% notes)
for 9% convertible notes. In addition to the stated interest rate, the exchange
transaction also modified the conversion rate as well as the issuance of
5,753,918 warrants to the various convertible note holders. The total
amount of the 12% notes exchanged was $2,234,579. This amount
included principal plus accrued interest charges and other
charges. In addition, the Company issued new convertible 9%
notes subsequent to February 11, 2009 for $1,960,365 as of June 30,
2009.
Off-balance sheet
arrangements
We have
no off-balance sheet arrangements.
Contractual
Obligations
The
Company exchanged 12% convertible notes of Helix Wind, Inc. for its own 9%
convertible notes during the first quarter as a part of the merger transaction
with Helix Wind, Inc. The new notes are convertible into common
shares of the Company’s stock at a conversion price $0.50 per
share. In addition, for each share of common stock into which such
notes can convert, the noteholder received one warrant at an exercise price
of $0.75. In addition, subsequent to the reverse merger transaction
on February 11, 2009, the Company issued new 9% convertible notes and warrants
with the same terms and conditions described above.
32
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Significant
estimates include those related to the debt discount and those associated with
the realization of long-lived assets.
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standards (“SFAS”) No. 107, Disclosures about Fair Value of
Financial Instruments, requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value.
Management believes that the carrying amounts of the Company’s financial
instruments, consisting primarily of cash, accounts payable, accrued
compensation, accrued other liabilities, related party payable and convertible
notes payable approximated their fair values as of March 31, 2009 and December
31, 2008, due to their short-term nature.
Long-lived
Assets
In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of the
impairment review, assets are reviewed on an asset-by-asset basis.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of each asset to future net cash flows expected to be generated
by such asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount which the carrying amount of the assets
exceeds the fair value of the assets. Through March 31, 2009, there have been no
such losses.
Recent Accounting
Pronouncements
See the
condensed consolidated financial statements note 2. Basis of Presentation and
Summary Accounting Policies – Significant Recent Accounting
Pronouncements.
33
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures.
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"),
our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) as of June 30, 2009, the end of the period covered by
this Quarterly Report on Form 10-Q/A. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of June 30,
2009, our disclosure controls and procedures were not effective.
Disclosure controls and procedures means controls and other procedures that are
designed to ensure that information required to be disclosed by us 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
Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us 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, as appropriate to allow timely decisions regarding required
disclosure.
We have identified material weaknesses in our internal
control over financial reporting related to the
following matters:
·
|
We
identified a lack of sufficient segregation of duties. Specifically, this
material weakness is such that the design over these areas relies
primarily on detective controls and could be strengthened by adding
preventative controls to properly safeguard company
assets.
|
·
|
Management
has identified a lack of sufficient personnel in the accounting function
due to our limited resources with appropriate
skills, training and experience to perform the review processes to ensure
the complete and proper application of generally accepted accounting
principles, particularly as it relates to valuation of share based
payments, the valuation of warrants, and other complex debt /equity
transactions. Specifically, this material weakness lead to segregation of
duties issues and resulted in audit adjustments to the annual consolidated
financial statements and revisions to related disclosures, share based
payments, valuation of warrants and other equity
transactions.
|
Our plan
to remediate those material weaknesses is as follows:
·
|
Improve
the effectiveness of the accounting group by continuing to augment our existing resources with additional consultants
or employees to improve segregation procedures and to assist in the
analysis and recording of complex accounting transactions. We plan to mitigate the segregation of duties issues
by hiring additional personnel in our
accounting department once we generate
significantly more revenue, or raise
significant additional working
capital.
|
·
|
Improve
segregation procedures by strengthening cross approval of various
functions including quarterly internal audit procedures where
appropriate.
|
In the fiscal quarter ended June 30, 2009, there were no
changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
34
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity
Securities
We have
issued unregistered securities to the following entities which have not been
previously reported:
On July
17, 2009, the Company issued five-year warrants to purchase 600,000 shares of
its common stock at an exercise price of $0.75 to its chief financial
officer.
On August
4, 2009, the Company issued 50,000 shares of its common stock to a firm for
investor relation services provided to the Company pursuant to a contract with
such firm.
On August
4, 2009, the Company issued 20,000 shares of its common stock to an entity for
business and financial services provided to the Company.
On August
6, 2009, the Company issued 25,000 shares of its common stock to a firm for
media relation services provided to the Company pursuant to a contract with such
firm.
These
transactions did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The sale of these securities was deemed to
be exempt from the registration requirements of the Securities Act of 1933 by
virtue of Section 4(2) thereof, and/or Rule 506 of Regulation D promulgated
thereunder, as a transaction by an issuer not involving a public
offering.
35
Exhibit
No.
|
Description
|
|
3.1
|
Articles
of Incorporation of Helix Wind, Corp., incorporated by reference to
Exhibit 3.1 to Helix Wind Corp's., Registration Statement on Form SB-2
filed on June 1, 2006
|
|
3.2
|
Certificate
of Amendment to Articles of Incorporation of Helix Wind, Corp.,
incorporated by reference to Exhibit 3.1 to Helix Wind Corp's Current
Report on Form 8-K filed on April 24, 2009
|
|
3.3
|
Bylaws
of Helix Wind, Corp., incorporated herein by reference to Exhibit 3.2 to
Helix Wind, Corp.'s Registration Statement on Form SB-2 2 filed on June 1,
2006
|
|
4.1
|
Form
of 9% Convertible Note, incorporated by reference to Exhibit
10.6 to Helix Wind, Corp’s Current Report on Form 8-K filed on
February 11, 2009).
|
|
4.2
|
Form
of Registration Rights Agreement among Helix Wind, Corp. and the investors
signatory thereto in the 9% Convertible Note offering, incorporated by
reference to Exhibit 4.1 to Helix Wind, Corp’s Current Report
on Form 8-K filed on February 11, 2009
|
|
4.3
|
Form
of Warrant for the 9% Convertible Note offering, incorporated by reference
to Exhibit 4.2 to Helix Wind, Corp’s Current Report on Form 8-K filed on
February 11, 2009
|
|
4.4
|
Convertible
Promissory Note dated March 31, 2009, issued by Helix Wind, Corp. to
Whalehaven Capital Fund Limited, incorporated by reference to Exhibit 10.2
to Helix Wind, Corp’s Current Report on Form 8-K filed on April 3,
2009
|
|
4.5
|
Common
Stock Purchase Warrant dated March 31, 2009, issued by Helix Wind, Corp.
to Whalehaven Capital Fund Limited, incorporated by reference to Exhibit
4.1 to Helix Wind, Corp’s Current Report on Form 8-K filed on April 3,
2009
|
|
4.6
|
Form
of Convertible Promissory Note issued by Helix Wind, Corp., incorporated
by reference to Exhibit 10.2 to Helix Wind’s Current Report on Form 8-K
filed on July 15, 2009
|
|
4.7
|
Form
of Common Stock Purchase Warrant issued by Helix Wind, Corp., incorporated
by reference to Exhibit 10.3 to Helix Wind’s Current Report on Form 8-K
filed on July 15, 2009
|
|
10.1
|
Helix
Wind, Corp. Share Employee Incentive Stock Option Plan, incorporated by
reference to Exhibit 10.1 to Helix Wind, Corp’s Current Report on Form 8-K
filed on February 11, 2009 (File No.
000-52107).
|
36
Exhibit
No.
|
Description
|
|
10.2
|
Form
of Subscription Agreement, incorporated by reference to Exhibit 10.1 to
Helix Wind, Corp’s Current Report on Form 8-K filed on July 15,
2009
|
|
10.3
|
Joint
Development Agreement, dated June 3, 2009, with CheckPoint Fluidic Systems
International, Limited, incorporated by reference to Exhibit 10.5 to Helix
Wind, Corp’s Current Report on Form 8-K filed on June 9,
2009
|
|
10.4
|
Service
and Indemnification Agreement, dated as of June 6, 2009, between Gene
Hoffman and Helix Wind, Corp., incorporated by reference to Exhibit
10.6 to Helix Wind, Corp’s Current Report on Form 8-K filed on June 17,
2009
|
|
10.5
|
Letter
of Intent, dated June 24, 2009, between Helix Wind, Corp. and Venco Power
GmbH, incorporated by reference to Exhibit 10.1 to Helix Wind, Corp’s
Current Report on Form 8-K filed on June 26, 2009
|
|
10.6
|
Agreement,
entered into on June 24, 2009, between Helix Wind, Corp. and Venco Power
GmbH, incorporated by reference to Exhibit 10.2 to Helix Wind, Corp’s
Current Report on Form 8-K filed on June 26, 2009
|
|
31.1*
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
|
|
31.2*
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
|
|
32.1*
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of
2002.
|
* Filed
herewith
37
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.
HELIX
WIND, CORP.
|
|||
By:
|
/s/
Kevin Claudio
|
||
Kevin
Claudio
|
|||
Chief
Financial Officer
|
|||
(Principal
Financial Officer)
|
Date:
November 18, 2009
38