Helix Wind, Corp. - FORM 10-Q

Attached files

file	filename
EX-31.2 - CERTIFICATION - Helix Wind, Corp.	helix_10q-ex3102.htm
EX-10.1 - NOTE AND WARRANT PURCHASE AGREEMENT DATED AUGUST 10, 2010 - Helix Wind, Corp.	helix_10q-ex1001.htm
EX-10.2 - CONVERTIBLE SECURED PROMISSORY NOTE DATED AUGUST 10, 2010 - Helix Wind, Corp.	helix_10q-ex1002.htm
EX-10.3 - CONSENT TO ENTRY OF JUDGMENT BY CONFESSION DATED AUGUST 10, 2010 - Helix Wind, Corp.	helix_10q-ex1003.htm
EX-31.1 - CERTIFICATION - Helix Wind, Corp.	helix_10q-ex3101.htm
EX-10.4 - IRREVOCABLE TRANSFER AGENT INSTRUCTION LETTER DATED AUGUST 10, 2010 - Helix Wind, Corp.	helix_10q-ex1004.htm
EX-32.2 - CERTIFICATION - Helix Wind, Corp.	helix_10q-ex3202.htm
EX-32.1 - CERTIFICATION - Helix Wind, Corp.	helix_10q-ex3201.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(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, 2010 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.)

13125 Danielson Street, Suite 101
Poway, California	92064
(Address of Principal Executive Offices)	(Zip Code)

(858) 513-1033

(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 August 11, 2010, 163,265,101 shares of common stock of the registrant were outstanding.

HELIX WIND, CORP.

Quarterly Report on Form 10-Q for the period ended June 30, 2010

INDEX

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Shareholders’ Deficit	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	31
Item 4.	Controls and Procedures.	32
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	33
Item 1A.	Risk Factors.	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
Item 3.	Defaults Upon Senior Securities.	40
Item 4.	(Removed and Reserved)	41
Item 5.	Other Information.	41
Item 6.	Exhibits.	42

PART I - FINANCIAL INFORMATION

HELIX WIND, CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

Item 1. Financial Statements

	June 30, 2010 (Unaudited)			December 31, 2009

ASSETS

CURRENT ASSETS

Cash	$	124,462		$	-
Accounts receivable		43,986			44,861
Related party receivable		-			3,356
Inventory		159,514			202,119
Prepaid expenses and other current assets		8,399			10,600
		336,361			260,936

EQUIPMENT, net		354,600			414,668
PATENTS		69,495			63,930

Total assets	$	760,456		$	739,534

LIABILITIES AND SHAREHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable	$	1,182,505		$	1,120,020
Accrued compensation		228,334			350,264
Accrued interest		322,790			401,057
Other accrued liabilities		862			11,493
Accrued taxes		9,659			-
Deferred revenue		112,164			28,244
Related party payable		-			59,904
Short term debt		620,907			930,528
Convertible notes payable, net of discount		172,393			4
Derivative liability		4,502,222			30,854,755
	$	7,151,836		$	33,756,269
COMMITMENTS AND CONTINGENCIES

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, 115,882,284 and 39,256,550 issued and outstanding as of June 30, 2010 and December 31, 2009, respectively		11,588			3,926
Additional paid in capital		33,733,432			22,888,624
Accumulated deficit		(40,136,400	)		(55,909,285	)

Total shareholders’ deficit		(6,391,380	)		(33,016,735	)
Total liabilities and shareholders’ deficit	$	760,456		$	739,534

The accompanying notes are an integral part of these condensed consolidated financial statements.

HELIX WIND, CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009

REVENUES	$	-		$	140,991		$	5,637		$	542,368

COST OF SALES		-			112,094			4,455			426,463

GROSS MARGIN		-			28,897			1,182			115,905

OPERATING COSTS AND EXPENSES
Research and development		90,060			252,177			183,361			610,625
Selling, general and administrative		872,004			2,521,070			1,480,172			12,177,225

LOSS FROM OPERATIONS		(962,064	)		(2,744,350	)		(1,662,351	)		(12,671,945	)

OTHER INCOME (EXPENSES)
Gain on issuance of stock for company expenses		-			-			416			-
Loss on acquisition agreement termination		(4,626	)		-			(2,158,591	)		-
Interest expense		(1,411,509	)		(7,669,855	)		(6,195,618	)		(12,959,224	)
Loss on debt extinguishment		-			-			-			(12,038,787	)
Change in fair value of derivative liability		(140,243	)		(11,489,557	)		25,789,829			(13,920,572	)
Total other income (expense)		(1,556,378	)		(19,159,412	)		17,436,036			(38,918,583	)

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES	$	(2,518,442	)	$	(21,903,762	)	$	15,773,685		$	(51,590,528	)

PROVISION FOR INCOME TAXES		-			-			(800	)		-

NET INCOME (LOSS)	$	(2,518,442	)	$	(21,903,762	)	$	15,772,885		$	(51,590,528	)

NET INCOME (LOSS) PER SHARE - BASIC	$	(0.03	)	$	(0.62	)	$	0.26		$	(1.76	)
NET INCOME (LOSS) PER SHARE – DILUTED	$	(0.03	)	$	(0.62	)	$	0.02		$	(1.76	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC		77,621,636			35,295,888			61,516,085			29,318,849
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		77,621,636			35,295,888			744,599,373			29,318,849

The accompanying notes are an integral part of these condensed consolidated financial statements.

HELIX WIND, CORP.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT

(Unaudited)


					Additional						Total
	Common Stock				Paid-in			Accumulated			Shareholders'
	Shares		Par Value		Capital			Deficit			Deficit

BALANCE – December 31, 2008		20,546,083	$	2,055	$	273,045		$	(2,810,987	)	$	(2,535,887	)
Share based payments		-		-		10,777,373			-			10,777,373
Stock issued upon reverse merger		16,135,011		1,614		(68,028	)		-			(66,414	)
Stock issued upon note conversion		753,632		75		1,654,491			-			1,654,566
Net loss		-		-		-			(51,590,528	)		(51,590,528	)
BALANCE –June 30, 2009		37,434,726	$	3,744	$	12,636,881		$	(54,401,515	)	$	(41,760,890	)

BALANCE – December 31, 2009		39,256,550	$	3,926	$	22,888,624		$	(55,909,285	)	$	(33,016,735	)
Share based payments		-		-		(462,500	)		-			(462,500	)
Stock issued upon note conversion		61,158,141		6,116		5,036,867			-			5,042,983
Stock issued upon note warrant exercise		997,897		100		738,012			-			738,112
New stock issuance		14,469,696		1,446		5,532,429			-			5,533,875
Net income		-		-		-			15,772,885			15,772,885
BALANCE –June 30, 2010		115,882,284	$	11,588	$	33,733,432		$	(40,136,400	)	$	(6,391,380	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

HELIX WIND, CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30, 2010			June 30, 2009

OPERATING ACTIVITIES
Net income (loss)	$	15,772,885		$	( 51,590,528	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		60,068			58,350
Stock based compensation		(462,500	)		10,777,373
Change in fair value of derivative liability		(25,789,830	)		13,920,572
Interest in connection with derivative liability		2,343,929			12,795,117
Write off of debt discount on converted debt		1,791,257			-
Amortization of debt discount		27,556			-
Loss on acquisition agreement termination		2,158,591			-
Loss on debt extinguishment		-			12,038,787
Gain on issuance of stock for company expenses		(416	)
Note in lieu of expenses incurred on behalf of the Company		-			25,717
Issuance of stock for consulting services		250,000			-
Issuance of stock for fundraising		577,000			-
Issuance of stock for payment of debt		1,887,000			-
Issuance of stock for note amendment		4,000			-
Changes in operating assets and liabilities:
Accounts receivable		875			(33,762	)
Inventory		42,605			34,590
Prepaid non-recurring equipment tooling		-			21,734
Other current assets		(8	)		28,656
Accounts payable		135,185			262,554
Accrued compensation		22,907			(12,160	)
Accrued interest		132,939			154,533
Related party payable		(59,042	)		(22,433	)
Deferred revenue		83,920			(118,442	)
Accrued taxes		-			(498	)
Accrued liabilities		(1,838	)		(6,895	)
Net cash used in operating activities		(1,022,917	)		(1,666,735	)

INVESTING ACTIVITIES
Purchase of equipment		-			(299,100	)
Net cash used in investing activities		-			(299,100	)

FINANCING ACTIVITIES
Cash received from reverse merger		-			270,229
Proceeds from convertible notes payable		892,000			1,560,105
Proceeds from short term notes payable		715,000			395,000
Principal payments on short term notes payable		(459,621	)		(75,000	)
Net cash provided by financing activities		1,147,379			2,150,334

Net increase in cash		124,462			184,499

Cash – beginning of period		-			5,980

Cash – end of period	$	124,462		$	190,479

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES
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
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
Accrued interest on convertible notes payable converted to additional paid in capital	$	191,206		-
Financing charge for violation of St. George note	$	877,219		-
Issuance of convertible note in lieu of liabilities owned to former CEO	$	144,837		-
Interest charge for penalty in violation of short term debt	$	20,000		-
Reclass of derivative liability to additional paid in capital due to conversion of notes payable	$	2,468,520		-
Escrow of shares for former employee related to St. George bridge financing	$	480		-
Conversion of convertible notes payable to additional paid in capital	$	2,383,257		-
Conversion of warrants to additional paid in capital	$	738,112		-
Conversion of convertible notes payable and warrants into common stock and new issues	$	7,662	$	75

The accompanying notes are an integral part of these condensed consolidated financial statements.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

1.	ORGANIZATION

Helix Wind, Corp. (“Helix Wind”) was incorporated under the laws of the State of Nevada on January 10, 2006 (Inception) and has its headquarters located in Poway, California. Helix Wind was originally named Terrapin Enterprises, Inc. 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, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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 August 11, 2010, 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 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, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or for any other period. Amounts related to disclosures of December 31, 2009, balances within these interim condensed consolidated financial statements were derived from the audited 2009 consolidated financial statements and notes thereto filed on Form 10-K on April 15, 2010.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(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 10-K filed on April 15, 2010 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 a working capital deficit of $2,313,253 excluding the derivative liability of $4,502,222, an accumulated deficit of $40,136,400 at June 30, 2010, recurring losses from operations and negative cash flow from operating activities of $1,022,917 for the six months ended June 30, 2010. 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 2009 and the first six months of 2010, 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. 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 balance in the allowance for doubtful accounts is $36,607 as of June 30, 2010 and December 31, 2009.

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 spent $5,565 for the six months ended June 30, 2010 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.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(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, 2010 and December 31, 2009, inventory at various suppliers or at the Company totaled $159,514 and $202,119, 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, 2010 or December 31, 2009.

Impairment of Long-Lived Assets

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. US GAAP 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, 2010 or during 2009.

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, 2010 and December 31, 2009 is recognized as fixed assets and being depreciated over 5 years. Tooling that has been partially paid for as of June 30, 2010 and December 31, 2009 is recognized as a prepaid expense. 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.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Advertising

The Company expenses advertising costs as incurred. During the six months ended June 30, 2010 and 2009, the Company incurred and expensed approximately $5,040 and $29,790, 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, 2010 and 2009, research and development costs incurred were $183,361 and $610,625, 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 received purchase orders for six S594 units from domestic customers during the quarter ended June 30, 2010. The Company had deferred revenue of $112,164 and $28,244 as of June 30, 2010 and December 31, 2009, respectively, relating to the deposit received for the unshipped units.

Income Taxes

In July 2009, ASC 740, Income Taxes, (formally FIN 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109) establishes a single model to address accounting for uncertain tax positions. ASC 740 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 ASC-740. Upon adoption, the Company recognized no adjustment in the amount of unrecognized tax benefits.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Share Based Compensation

The Company accounts for its share-based compensation in accordance with ASC 718-20 (formerly SFAS 123-R, Share Based Payment). 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).

Basic and Diluted Income (Loss) per Share

We incurred a net loss in each period presented, except the six months ended June 30, 2010, 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 three months ended June 30, 2010 and 2009 and the six months ended June 30, 2009. 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, 2010 and 2009, the Company estimates that all potentially dilutive common stock equivalents that would result from the conversion or exercise of outstanding convertible notes, warrants and stock options amounts to 683,083,288 and 20,252,794 respectively.

Revenue Recognition

The Company’s revenues are recorded in accordance with the FASB ASC No. 605, “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

In October 2009, the FASB issued authoritative guidance that amends earlier guidance addressing the accounting for contractual arrangements in which an entity provides multiple products or services (deliverables) to a customer. The amendments address the unit of accounting for arrangements involving multiple deliverables and how arrangement consideration should be allocated to the separate units of accounting, when applicable, by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. The amendments also require that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted. We are currently evaluating the effects that the guidance may have on our financial statements.

In October 2009, the FASB issued authoritative guidance that amends earlier guidance for revenue arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of guidance for recognizing revenue from the sale of software, but would be accounted for in accordance with other authoritative guidance. The guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted. We are currently evaluating the effects that the guidance may have on our financial statements.

In January 2010, the FASB issued amended standards that require additional fair value disclosures. These disclosure requirements are effective in two phases. In the first quarter of 2010, we adopted the requirements for disclosures about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers. Beginning in the first quarter of 2011, these amended standards will require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3). These amended standards do not affect our condensed consolidated statements of operations or balance sheets.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

3.	RELATED PARTY TRANSACTIONS AND CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES

As of June 30, 2010, there was no related party receivable. At December 31, 2009, the Company had a related party receivable from a Company director for $3,356. The receivable carried no interest and was due on demand.

At December 31, 2009, the Company had an unsecured related party payable to Fidelis Charitable Trust, bearing no interest payable on demand in the amount of $59,904. The Company’s former Chief Executive Officer is a 50% trustee of the trust.

As of June 30, 2010, convertible notes payable to a related party was $144,837 (see note 5). Such note is held by the Company’s former Chief Executive Officer. At December 31, 2009, convertible notes payable to related parties were $175,365. Such notes were held by the Company’s former Chief Executive Officer and a shareholder founder of the Company. Such notes did not convert and remained as part of the 12% convertible debt.

EQUIPMENT

Equipment consisted of the following as of June 30, 2010 and December 31, 2009:

	2010			2009

Equipment	$	49,260		$	49,260
NRE tooling		424,903			424,903
Test facility		100,560			100,560
Leasehold improvements		10,254			10,254
Web site development costs		13,566			13,566
		598,543			598,543
Accumulated depreciation		(243,943	)		(183,875	)

	$	354,600		$	414,668

DEBT

Short Term Debt

Short term debt was $620,907 as of June 30, 2010 and $930,528 at December 31, 2009. At June 30, 2010, this included a Subsidiary 12% related party note totaling $77,744 and two promissory notes from non-related parties totaling $95,000. The promissory notes have an interest rate of 20% and were extended in the first quarter 2010. In addition, short term debt includes $348,163 and $100,000 received from two non-related parties during 2009. The two promissory notes have a term of 1 year and accrue interest at prime (3.25% at June 30, 2010) plus 1%.

At December 31, 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 $568,163 and $100,000 received from two non-related parties during 2009. The two promissory notes have a term of 1 year and accrue interest at prime (3.25% at December 31, 2009) plus 1%. Also included in short term debt was the receipt of $37,500 each from each of the two non related parties in fourth quarter 2009. The promissory notes had a term of 90 days and an interest rate of 20%.

Convertible Notes Payable and Convertible Notes Payable to Related Party

Convertible notes payable totaled $3,629,424 as of June 30, 2010 as described below. In connection with the convertible notes payable issued, the Company issued an aggregate of 15,797,888 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.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

	Amount		Discount			Convertible Notes Payable, net of discount		Convertible Notes Payable Related Party, net of discount

Exchange Notes	$	1,239,795	$	(1,231,378	)	$	8,417	$	-
Reverse Merger Notes		100,000		(98,320	)		1,680		-
New Convertible Notes		2,239,629		(2,223,038	)		16,591		144,837
Other Convertible Notes		50,000		(49,132	)		868		-
	$	3,629,424	$	(3,601,868	)	$	27,556	$	144,837

Exchange Notes – Convertible Notes Payable and Convertible Notes Payable to Related Party, net of discount

During the period ended June 30, 2010, $265,457 of the Exchange Notes was converted into common stock (the unamortized debt discount related to the converted notes was immediately charged to interest expense on the day the notes were converted). The Company is amortizing the remaining portion of debt discount using the effective interest method over the term of the convertible notes payable which is three years. During the period ended June 30, 2010, there was $8,417 amortized under this amortization method.

Reverse Merger Notes-Convertible Notes Payable, net of discount

During the period ended June 30, 2010, there was no change in the principal balance of the notes. The Company is amortizing the debt discount using the effective interest method over the term of the convertible notes payable which is three years. During the period ended June 30, 2010, there was $1,680 amortized under this amortization method.

New Convertible Notes-Convertible Notes Payable, net of discount

During the period ended June 30, 2010, $431,125 of the New Convertible Notes were converted into common stock (the unamortized debt discount related to the converted notes was immediately charged to interest expense on the day the note was converted). The Company is amortizing the remaining portion of debt discount using the effective interest method over the term of the convertible notes payable which is three years. During the period ended June 30, 2010 there was $16,591 amortized under this amortization method.

During the period ended March 31, 2010, the Company issued two convertible notes to St. George Investments in the amount of $1,998,250. The note issued to St. George on January 27, 2010 was convertible six months after the date of the note. The note issued to St. George on March 30, 2010 was convertible anytime after the date of the note.

The first convertible note payable was issued to St. George on January 27, 2010 for $780,000, convertible into common stock, six months after the date of the note at the lower of (i) average volume-weighted average price (the “VWAP”) for the three (3) trading days with the lowest average VWAP of the twenty trading days immediately preceding the date set forth on the Conversion Notice or (ii) 50% of the VWAP over the five (5) trading days immediately preceding the date set forth in the Conversion Notice. The Company determined that the embedded conversion feature should not be calculated at fair value on issuance due to the six month contingency that had not been met. The Company recorded a discount on the convertible note of $195,000 based on the initial issuance cost (discussed below).

The Company received $585,000 in cash, the difference was considered an issuance cost (or prepaid interest) in which the Company recorded a discount to the note and amortized this discount to interest expense under the effective interest method over the life of the note. The Note did not bear interest as long as certain covenants were maintained. The note was secured by 4,800,000 registered shares of common stock of the Company that was pledged by Ian Gardner, a former officer of the Company.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

If the Company was in violation of any of the related covenants, a “triggering event”, as defined by the agreement, would occur. The agreement is limited to a maximum of two triggering events. The triggering event would cause the principal balance of the note to increase by 25% for each event and the note would start to accrue interest at a rate of 18% per annum and if the triggering event caused a default, the Note holder had the option to call the pledged shares of common stock to satisfy the outstanding principal balance.

The Company violated the note’s covenants and incurred two triggering events on February 16, 2010 and February 17, 2010. The violation was a failure to maintain a minimum volume weighted average stock price. As a result of the violation, the principal balance increased by $195,000 and $243,750 on February 16, 2010 and February 17, 2010, respectively. The principal balance was increased to $1,218,750. The Company increased both the principal balance and related discount as an additional finance costs that would be amortized using the effective interest method over the life of the note.

The note was also in default on the above dates due to the covenant violations. As a result of the default, the Note holder was issued the 4,800,000 shares of Company common stock. The Company’s stock price on the violation dates was $0.51 and $0.52. The noteholder took possession of the pledged shares, 2,400,000 on each of the violation dates. The Company also issued 4,800,000 shares of common stock to Ian Gardner, a former officer of the Company, to replenish the shares that were pledged. The fair value of the shares issued was $2,472,000. The Company used the covenant violation dates as the measurement dates to value the common stock issued to satisfy the convertible note payable. The excess of the fair value of the common stock issued over the principal note payable balance was charged to the statement of operations to interest expense as an additional finance cost. The Company charged all unamortized debt discount to interest expense upon satisfaction of the outstanding balance.

The second convertible note payable was issued to St. George on March 30, 2010 for $779,500, convertible at anytime after the date of the note into common stock at the lower of (i) average volume-weighted average price (the “VWAP”) for the three (3) trading days with the lowest average VWAP of the twenty trading days immediately preceding the date set forth on the Conversion Notice or (ii) 50% of the VWAP over the five (5) trading days immediately preceding the date set forth in the Conversion Notice. The Company determined that the embedded conversion feature was a derivative liability based on its variable conversion terms. See Note 6 for disclosure on derivative liabilities. The Company recorded a discount on the convertible note of $779,500 based on the initial issuance cost (discussed below) and the fair value of the embedded conversion feature. The fair value of the embedded conversion feature at issuance was $1,016,257. The Company recorded a discount to the note to the extent of the note balance and charged the remainder of the fair value of the embedded conversion feature to interest expense.

The Company received $592,000 in cash, the difference was considered an issuance cost (or prepaid interest) in which the Company recorded a discount to the note and will amortize this discount to interest expense under the effective interest method over the life of the note. The Note did not bear interest as long as certain covenants were maintained. The note was secured by 4,800,000 registered shares of common stock of the Company that was pledged by Ken Morgan, a former officer of the Company. If the Company was in violation of any of the related covenants, a “triggering event”, as defined by the agreement, would occur. The agreement is limited to a maximum of two triggering events. The triggering event would cause the principal balance of the note to increase by 25% for each event and the note would start to accrue interest at a rate of 15% per annum and if the triggering event caused a default, the Note holder had the option to call the pledged shares of common stock to satisfy the outstanding principal balance. As of March 31, 2010, the outstanding balance was $779,500. As part of the covenant compliance, the Company’s common stock must maintain a minimum volume of trading of no less than $100,000 per day on a five day average. The Company must also maintain a minimum volume weighted average price of its common stock of $0.11. The Company does not expect the stock volume and stock price to be able to maintain these minimum requirements. As such, the Company expects the note holder to take possession of the pledged shares and has put 4,800,000 shares of its common stock into an escrow account to replenish shares to Ken Morgan, a former officer of the Company.

During the period ended March 31, 2010, the Company issued a convertible note payable to Ian Gardner, a former officer of the Company. The note has a principal balance of $144,837 and is convertible into common stock of the Company at a rate of $0.50. The note accrues interest at a rate of 9% per annum and all principal and accrued interest is due on August 22, 2012. The convertible feature on this convertible note payable does not contain any re-set features and is convertible at fixed rates.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

The Company analyzed this note for possible discounts on the conversion feature and concluded there is no beneficial conversion feature since the stock price on the date of issuance is less than the conversion rate of $0.50. The stock price on the date of issuance was $0.20.

During the period ended June 30, 2010, the Company issued three convertible notes to St. George Investments in the amount of $390,000. The notes issued in the current period are convertible anytime after the date of the note at the lower of (i) average volume-weighted average price (the “VWAP”) for the three (3) trading days with the lowest average VWAP of the twenty trading days immediately preceding the date set forth on the Conversion Notice or (ii) 50% of the VWAP over the five (5) trading days immediately preceding the date set forth in the Conversion Notice. The Company determined that the embedded conversion feature was a derivative liability based on its variable conversion terms. See Note 6 for disclosure on derivative liabilities. The Company recorded a discount on the convertible note of $90,000 based on the initial issuance cost (discussed below).

The Company received $300,000 in cash, the difference was considered an issuance cost (or prepaid interest) in which the Company recorded a discount to the note and amortized this discount to interest expense under the effective interest method over the life of the note. The Note did not bear interest as long as certain covenants were maintained. If the Company was in violation of any of the related covenants, a “triggering event”, as defined by the agreement, would occur. The agreement is limited to a maximum of two triggering events. The triggering event would cause the principal balance of the note to increase by 25% for each event and the note would start to accrue interest at a rate of 15% per annum.

During the period ended June 30, 2010, the Company violated the March 30, 2010 note covenants and incurred two triggering events on April 23, 2010 and April 28, 2010. The violation was a failure to maintain a minimum volume weighted average stock price. As a result of the violation, the principal balance increased by $194,875 and $243,594 on April 23, 2010 and April 28, 2010, respectively. The principal balance was increased to $1,217,969. The Company increased both the principal balance and related discount as an additional finance costs that would be amortized using the effective interest method over the life of the note.

Other Convertible Notes-Convertible Notes Payable, net of discount

During the period ended June 30, 2010, there was no change in the principal balance of the notes. 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 period ended June 30, 2010, there was $868 amortized under this amortization method.

Warrants

At June 30, 2010, the fair value of all warrants issued in connection with convertible notes payable and convertible notes payable to related party is estimated to be $938. 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 (1.32% - 2.69%); volatility of (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

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 Company also issued convertible notes payable with variable conversion rates.

The conversion features of both the convertible notes payable and warrants were analyzed for derivative liabilities under GAAP and the Company has determined that they meet 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. 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.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Derivative Liability - Embedded Conversion Features

During the six months ended June 30, 2010, the Company recorded a derivative liability of $1,894,261 for the issuance of convertible notes payable. During the six months ended June 30, 2010, $2,383,257 of convertible notes payable was converted into common stock of the Company. The Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes and the carrying amount of the derivative liability related to the conversion feature of $2,466,520 was re-classed to additional paid in capital on the date of conversion in the accompanying statements of shareholders’ deficit. During the six months ended June 30, 2010, the Company recognized a gain of $11,128,184 based on the change in fair value (mark-to market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations. The value of the derivative liability associated with the embedded conversion features was $4,501,284 at June 30, 2010.

Derivative Liability - Warrants

During the six months ended June 30, 2010, the Company recorded a derivative liability of $747,669 for the issuance of warrants. During the six months ending June 30, 2010, 1,468,660 warrants were exercised on a cashless basis. The Company performed a final mark-to-market valuation for the derivative liability associated with the exercised warrants and the fair value carrying amount of the derivative liability on the date of exercise of $738,112 was reclassified to additional paid in capital in the accompanying statement of shareholders’ deficit. During the six months ended June 30, 2010, the Company recognized a gain of $14,661,647 based on the change in fair value (mark-to-market adjustment) of the derivative liability associated with the warrants in the accompanying statement of operations. The value of the derivative liability associated with the warrants was $938 at June 30, 2010.

These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP. The valuation assumptions are classified within Level 1 inputs and Level 2 inputs. The following table represents the Company’s derivative liability activity for both the embedded conversion features and the warrants:

December 31, 2009	$	30,854,755
Issuance of derivative financial instruments		2,641,930
Conversion or cancellation of derivative financial instruments		(3,204,633	)
Mark-to-market adjustment to fair value at June 30, 2010		(25,789,830	)
June 30, 2010	$	4,502,222

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, 2010:

	June 30, 2010
Weighted- average volatility		59% - 75%
Expected dividends		0.0%
Expected term	3 to 5 years
Risk-free rate	1.32% to 2.95%

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

7.	INCOME TAXES

There was no income tax expense recorded for the six months ended June 30, 2010 due to the Company’s net losses and a 100% valuation allowance on deferred tax assets.

8.	STOCK BASED COMPENSATION

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).

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. 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:

	June 30, 2010
Annual dividends	0
Expected volatility		59% -75%
Risk-free interest rate		1.76% - 2.70%
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 similar public entities in the Company’s industry. 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%.

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 GAAP.

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.

The Company is required to estimate the number of forfeitures expected to occur and record expense based upon the number of awards expected to vest. At June 30, 2010, the Company expects all remaining awards issued will be fully vested over the expected life of the awards. During the six months ended June 30, 2010, 4,603,740 employee options were forfeited. The Company made no adjustment in the three month period ending June 30, 2010 for compensation previously recognized on these forfeitures as these awards were vested on the forfeiture date.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

During the quarter ended June 30, 2010, the Company modified its stock option awards by re-pricing the options exercise price on April 22, 2010 from $0.50 to $0.10 and on June 14, 2010 from $0.10 to $0.01. The Company accounted for these re-pricing modifications by measuring the difference between the fair value of the modified awards and the fair value of the original awards on the modification date. The Company then recognized, over the remaining requisite service period, the incremental compensation cost as well as the remaining unrecognized compensation cost for the original award on the modification dates.

Stock Option Activity

A summary of stock option activity for the six months ended June 30, 2010 is as follows:

				Weighted
				Average
	Number			Exercise
	Shares			Price

Options outstanding at December 31, 2009		11,051,240		$	0.58
Granted		3,000,000			0.01
Exercised		-			-
Forfeited		(4,603,740	)		0.50
Options outstanding at June 30, 2010		9,447,500		$	0.01

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2010:

	Outstanding		Exercisable

Number of shares		9,447,500		6,224,376
Weighted average remaining contractual life		4.04		3.74
Weighted average exercise price per share	$	0.01	$	0.01
Aggregate intrinsic value (June 30, 2010 closing price of $0.01)	$	-	$	-

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, 2010 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, 2010. This intrinsic value will vary as the Company’s stock price fluctuates.

Compensation expense arising from stock option grants was $273,154 for the quarter ended June 30, 2010.

The amount of unrecognized compensation cost related to non-vested awards at June 30, 2010 was $952,243. The weighted average period in which this amount is expected to be recognized is 4.04 years.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Stock options outstanding and exercisable at June 30, 2010, and the related exercise price and remaining contractual life are as follows:

Options Outstanding

Options Exercisable

Weighted

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

$0.01 $0.50

9,447,500

0.01

4.04 yrs

6,224,376

0.01

3.74 yrs

9,447,500

0.01

4.04 yrs

6,224,376

0.01

3.74 yrs

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

9.	COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company signed a revocable license agreement with Apex Telecom, LLC to rent office space at 13125 Danielson Street, Poway, CA, 92064. The license period is on a month to month basis beginning effective April 19, 2010 through March 31, 2011, subject to certain provisions, at a current rate of $3,230 per month.

Prior to the office relocation, the Company leased 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 was 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, specifies 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 which calls for no increase in rent during the renewal periods. The lease was renewed November 1, 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 $0 and $0 in management fees to East West during the three months ended June 30, 2010 and June 30, 2009, respectively. The East West accounts payable was $187,105 and $8,135 at June 30, 2010 and 2009 respectively and the Company had a commitment to pay East West $237,505 for cost related to the prospective manufacturing of inventory and tooling. The Company will record the $237,505 as part of its inventory, tooling and other expenses when legal title transfers from East West to the Company consistent with the Company’s policy for inventory as described in Note 2.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(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.

On March 5, 2010, the Company received a summons to appear in the Supreme Court of the State of New York, County of New York, in a lawsuit filed by Crystal Research Associates, LLC (“Crystal”) alleging the Company failed to pay for services rendered by Crystal in the amount of $33,750. On July 19, 2010 the Company received notice that it had defaulted in responding to the lawsuit.

On March 23, 2010, the Company received a Writ of Summons issued from the Superior Court of the State of New Hampshire, Rockingham County, to respond to a lawsuit filed by Alternative Energies, LLC (“Waterline”) relating to claims against the Company under its distribution contract with Waterline. The lawsuit does not specify an amount of damages claimed. As previously announced, the Company did receive a claim from Waterline seeking damages of approximately $250,000. The Company’s legal counsel responded to the Writ of Summons on May 4, 2010 and the Company is defending itself in the lawsuit. Waterline is currently a distributor of the Company’s products. The Company has not accrued any amount as it expects that it will not have any obligation to pay any amounts under this lawsuit.

Effective April 1, 2010, the Company completed a Settlement Agreement and Mutual Release with Kenneth O. Morgan pursuant to which the Company paid Kenneth O. Morgan the amount of $150,000 in settlement of the previously announced litigation between the parties. Pursuant to the terms of the Settlement Agreement, Kenneth O. Morgan agreed to dismiss his lawsuit against the Company and Scott Weinbrandt, and the Company agreed to dismiss its counterclaims against Kenneth O. Morgan. The Company has expensed the $150,000 in the financial statements and fully paid this amount as of June 30, 2010.

On April 12, 2010, the Company received a demand letter from legal counsel for Ian Gardner, the Company’s former CEO and a director, alleging the Company breached the terms of his Separation Agreement and Release. The demand letter demanded payment from the Company in the amount of approximately $223,000 for monies which Mr. Gardner believes he is owed under the Separation Agreement and Release, which includes approximately $72,000 under his convertible note. The demand letter also included allegations that the Company settled its litigation with Kenneth Morgan without including full payment to Mr. Gardner for $57,000 in damages to which he believes he is entitled to for his unrelated owned entities. In addition, the demand letter alleged that the Company failed to honor its obligations to pay him $94,361 upon the closing of an equity financing resulting in minimum gross proceeds of $1,000,000 when the Company completed the financing described in this report with St. George Investments LLC in which the Company has received only $592,000. The Company has accrued its full anticipated obligation of $166,361 in the financial statements as of June 30, 2010. On May 21, 2010, Ian Gardner filed suit against the Company and Scott Weinbrandt seeking approximately $150,000 in stated damages as well as additional unstated damages stemming from the alleged breach of the Settlement Agreement and Release. The Company has denied these allegations. This case is currently pending.

The Company is not presently a party to any other pending or threatened legal proceedings.

Executive Compensation

An employment agreement executed with the Company’s Chief Executive Officer (CEO) on April 22, 2010 calls for a base salary as shown below.

●

$225,000 per annum May 1, 2010 through December 31, 2010

●

$250,000 per annum January 1, 2011 through December 31, 2011

●

$300,000 per annum January 1, 2012

An employment agreement executed with the Company’s Chief Financial Officer (CFO) on April 22, 2010 calls for a base salary as shown below.

●

$200,000 per annum through December 31, 2010

●

$225,000 per annum January 1, 2011 through December 31, 2011

●

$250,000 per annum January 1, 2012

In addition to the salary shown above, the CEO and CFO have earned and are entitled to a $75,000 and $50,000 bonus respectively, which is accrued in the Company’s financials as of June 30, 2010.

HELIX WIND, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

10.	SUBSEQUENT EVENTS

On July 19, 2010, St. George Investments LLC and the Company executed the last of the four additional Convertible Promissory Note’s previously announced to purchase this note in the principal amount of $130,000. Net proceeds from this note is $100,000 of which the Company received $50,000 upon execution of the note and is scheduled to receive another payment of $50,000 on July 30, 2010.

On July 21, 2010, the Company received a notice from St. George Investments, LLC notifying the Company that a liquidity default had incurred under the four Convertible Secured Promissory Notes dated May 1, 2010; June 1, 2010; July 1, 2010; and August 1, 2010, each in the principal amount of $130,000. As a result of the default, the outstanding amount of the Notes was increased by 125%; the interest rate under the Notes increased to 15%; and the balance of the Notes, as increased, plus all accrued interest, fees, and costs and penalties are due and payable within 30 days of the default notice.

On August 2, 2010, the Company executed Amendment No. 4 to the Placement Agency Agreement with Dominick & Dominick, LLC to continue as its exclusive investment banker for a period of eighteen months commencing with execution of agreement. The Company also issued ten million shares of restricted common stock to Dominick & Dominick’s designees.

On August 10, 2010, the Company closed a financing transaction under a Note Purchase Agreement with St. George Investments, LLC whereby the Company issued a convertible secured promissory note in the aggregate principal amount of $72,500. The Note has an original issue discount of $15,000 and an obligation to pay $7,500 of the Investor’s transaction fees resulting in net proceeds to the Company of $50,000. The Note Purchase Agreement also provides that, subject to meeting certain conditions, the Investor will loan to the Company an additional $450,000 pursuant to nine additional notes in the principal amount of $50,000 each on or about each two week anniversary of the issuance of the First Note.

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

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.

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:

●

The factors described in Item 1A-Risk Factors in this Quarterly Report on Form 10-Q;

●

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;

●

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, revenue and oil and gas production. 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. See the section entitled “Risk Factors” for a more detailed discussion of uncertainties and risks that may have an impact on future results.

Basis of Presentation

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, 2010. 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. For a discussion of some of the factors that might cause such a difference, see the Forward-Looking Statements section above or Item 1A – Risk Factors in this Quarterly Report on Form 10-Q.

Overview

Helix Wind is a small wind Solutions Company focused on the renewable alternative energy market. Helix Wind’s headquarters are located in Poway, CA (San Diego area).

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.

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

Interest expense, net of amounts capitalized, is incurred on various debt financings as well as the amount recorded for the derivative liability associated with the 9% convertible notes and warrants. Any interest income earned on our cash, cash equivalents and marketable securities is netted in other expenses as it is immaterial.

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.

Results of Operations

For the three months ended June 30, 2010 compared to the three months ended June 30, 2009

Revenues

Revenue decreased by $140,991 from $140,991 in the three months ended June 30, 2009 to $0 in the three months ended June 30, 2010, primarily as a result of having no shipments in second quarter of 2010 compared to shipping 10 S322 models and 5 S594 models to customers in the second quarter of 2009.

Cost of Revenues

There was no revenue and therefore, no cost of revenues for the three months ended June 30, 2010. 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.

Gross profit

Gross profit decreased by $28,897 from $28,897 in the three months ended June 30, 2000 to $0 in the three months ended June 30, 2010, reflecting a decrease in revenue. The Company’s first product shipments to customers occurred in 2009.

Research and development

Cost incurred for research and development are expensed as incurred. Research and development expense decreased by $162,117 from $252,177 in the three months ended June 30, 2009 to $90,060 in the three months ended June 30, 2010. The decrease primarily related to the decrease of $25,449 relating to product development and testing as well as a decrease of $136,668 for share based compensation expense related to stock options for second quarter.

Selling, general and administrative

Selling, general and administrative expense decreased by $1,649,066 from $2,521,070 in the three months ended June 30, 2009 to $872,004 in the three months ended June 30, 2010. The reduction related primarily to a decrease in share based payments related to stock options of $1,306,374, compensation to management and employees decreasing by $119,576, advertising decreasing by $29,193, shipping decreasing by $182,505, warranty expenses decreasing by $81,107 and various other expenses decreasing by $23,520. These decreases were offset by an increase in legal, professional and related costs of $93,209.

Other expense

Other expenses decreased by $17,603,034 from $19,159,412 in the three months ended June 30, 2009 to $1,556,378 in the three months ended June 30, 2010, primarily as a result of a decrease in interest expense from the change in fair value of the convertible notes of $6,258,319, and a decrease in the fair value of derivative liability of $11,349,341 offset by a slight increase in expenses of $4,626 associated with the issuance of common stock for services rendered.

Provision for income taxes

We made no provision for income taxes for the three months ended June 30, 2010 and 2009 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

Net loss decreased by $19,385,321 from $21,903,762 in the three months ended June 30, 2009 to $2,518,441 in the three months ended June 30, 2010, primarily as a result of the decrease in the fair value of the derivative liability of $11,349,341, a decrease in interest expense of $6,258,319 recorded for the fair value of the convertible notes and a decrease of share based compensation of $1,374,034, all non-cash charges. The remaining amount of net loss relates to various operational and other expenses for the existing business.

For the six months ended June 30, 2010 compared to the six months ended June 30, 2009

Revenues

Revenue decreased by $536,731 from $542,368 in the six months ended June 30, 2009 to $5,637 in the six months ended June 30, 2010, as a result of shipping 1 S594 model to a customer in the first six months of 2010 compared to shipping 22 S322 models and 30 S594 models to customers in the first six months of 2009.

Cost of Revenues

The cost of revenues decreased by $422,008 from $426,463 for the six months ended June 30, 2009 to $4,455 in the six months ended June 30, 2010 as a direct result of the sales decrease for the first six months of 2010. This represented the direct product costs from the manufacturer associated with the bill of material for the S322 and the S594 units received by customers.

Gross profit

Gross profit decreased by $114,723 from $115,905 in the six months ended June 30, 2009 to $1,182 in the six months ended June 30, 2010, reflecting the decrease in revenue. The Company’s first product shipments to customers occurred in 2009.

Research and development

Cost incurred for research and development are expensed as incurred. Research and development expense decreased by $427,264 from $610,625 in the six months ended June 30, 2009 to $183,361 in the six months ended June 30, 2010, primarily as a result of the decrease of $451 relating to product development and testing as well as a $426,813 reduction to share based compensation expense related to stock options.

Selling, general and administrative

Selling, general and administrative expense decreased by $10,697,053 from $12,177,225 in the six months ended June 30, 2009 to $1,480,172 in the six months ended June 30, 2010, primarily as a result of a decrease of $10,913,060 for share based payments related to stock options, compensation to management and employees decreasing by $129,464, shipping decreasing by $165,501, advertising decreasing by 24,751, warranty expenses decreasing by $81,107, traveling decreasing by $50,093 and other various expenses decreasing by $18,069. These decreases were offset by an increase in professional, consulting and outside services of $684,992.

Other expense

Other expenses decreased by $56,354,619 from an expense of $38,918,583 in the six months ended June 30, 2009 to other income of $17,436,036 in the six months ended June 30, 2010, primarily as a result of the change in fair value of the derivative liability decreasing by $39,710,401, loss on debt extinguishment decreasing $12,038,787 and interest expense relating to the fair value of the convertible notes and other expenses decreasing by $4,605,431.

Provision for income taxes

The $800 provision for income taxes for the six months ended June 30, 2010 related to the California minimum franchise tax and there was no provision for income taxes for the six months ended June 30, 2009. 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 income increased by $67,363,414 from a net loss of $51,590,528 in the six months ended June 30, 2009 to net income of $15,772,886 in the six months ended June 30, 2010, primarily as a result of the decrease for the change in the fair value of the derivative liability of $39,710,401, a decrease in interest expense relating to the fair value of the convertible notes and other expenses of $4,605,431, a decrease of share based compensation of $11,339,873, and loss on debt extinguishment decreasing by $12,038,787, all non-cash charges. This increase in net income is offset by a $114,723 decrease in gross margin, and a net increase in operating expenses of $216,355.

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 a working capital deficit of $2,313,253 excluding the derivative liability of $4,502,222, and an accumulated deficit of approximately $40,136,400 at June 30, 2010.

Financial Condition and Liquidity

Liquidity and Capital Resources

As of June 30, 2010 and June 30, 2009, Helix Wind had a working capital deficit of approximately $6,815,475 and $42,208,085 respectively. The negative working capital in 2010 results primarily from the derivative liability relating to the convertible notes and fair value of the warrants of $4,502,222, short term debt of $620,907, accounts payable of $1,182,505 and various other accrued liabilities of $509,841. 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 offset by net assets in excess of various other accrued liabilities of $64,859. The income of approximately $15,772,885 for the six months ended June 30, 2010 was comprised of expenses of $133,279 for research and development, $57,956 for sales and marketing, offset by a decrease of $462,500 for share based compensation expense for stock options, and offset by a net decrease of $17,436,036 resulting from the change in fair value of derivative liability relating to the convertible notes and fair value of the warrants and interest, and the balance for working capital relating to general and administrative expenses. 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. Cash provided by financing activities for the six months ended June 30, 2010 and 2009 totaled $1,147,379 and $2,150,334 respectively resulting from 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. For the remainder of 2009, the Company received funding of $395,000 from short term non-convertible promissory notes from non related parties. Beginning in 2010 through July 31, 2010, the Company executed convertible secured promissory notes with St. George Investments, LLC yielding an aggregate of $1,600,000 of funding for the Company. See Company’s Current Reports on Form 8-Ks filed with the SEC, and associated exhibits, for a complete description of the terms and conditions of the Note and financing.

Helix Wind expects significant capital expenditures during the next 12 months, contingent upon raising capital. We currently anticipate that we will need $5,000,000 for operations for the next 12 months. These anticipated expenditures are for manufacturing of systems, infrastructure, overhead, integration of acquisitions and working capital purposes.

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 of 2009 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, subject to adjustment. 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.

Critical Accounting Policies

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the six months ended June 30, 2010 and 2009, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may materially differ from our estimates.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 3.

Item 4.

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, 2010, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2010, 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 remaining 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 the 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, 2010, 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On March 5, 2010, the Company received a summons to appear in the Supreme Court of the State of New York, County of New York, in a lawsuit filed by Crystal Research Associates, LLC (“Crystal”) alleging the Company failed to pay for services rendered by Crystal in the amount of $33,750. On July 19,, 2010, the Company received notice that it had defaulted in responding to the lawsuit.

On April 12, 2010, the Company received a demand letter from legal counsel for Ian Gardner, the Company’s former CEO and a director, alleging the Company breached the terms of his Separation Agreement and Release. The demand letter demanded payment from the Company in the amount of approximately $223,000 for monies which Mr. Gardner believes he is owed under the Separation Agreement and Release, which includes approximately $72,000 under his convertible note. The demand letter also included allegations that the Company settled its litigation with Kenneth Morgan without including full payment to Mr. Gardner for $57,000 in damages to which he believes he is entitled to for his unrelated owned entities. In addition, the demand letter alleged that the Company failed to honor its obligations to pay him $94,361 upon the closing of an equity financing resulting in minimum gross proceeds of $1,000,000 when the Company completed the financing described in this report with St. George Investments LLC in which the Company has received only $592,000. On May 21, 2010, Ian Gardner filed suit against the Company and Scott Weinbrandt seeking approximately $150,000 in stated damages as well as additional unstated damages stemming from the alleged breach of the Settlement Agreement and Release. The Company has denied these allegations. This case is currently pending.

Item 1A. Risk Factors.

This report includes forward-looking statements about our business and results of operations that are subject to risks and uncertainties. See "Forward-Looking Statements," above. Factors that could cause or contribute to such differences include those discussed below. In addition to the risk factors discussed below, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these known or unknown risks or uncertainties actually occur, our business could be harmed substantially.

Risks Related To Our Financial Condition and Our Business

Our auditors have expressed substantial doubt about our ability to continue as a “going concern.” Accordingly, there is significant doubt about our ability to continue as a going concern.

Our business began recording revenues in 2009 and we may never become profitable. As of June 30, 2010, we had an accumulated deficit of $40,136,400 and a negative working capital of $2,313,253 excluding the derivative liability of $4,502,222. A significant amount of capital will be necessary to advance the development of our product to the point at which they will become commercially viable and these conditions raise substantial doubt about our ability to continue as a going concern.

If we continue incurring losses and fail to achieve profitability, we may have to cease our operations. Our financial condition raises substantial doubt that we will be able to continue as a “going concern”, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on our financial statements as of June 30, 2010. These financial statements do not include any adjustments that might result from the uncertainty as to whether we will continue as a “going concern”. Our ability to continue status as a “going concern” is dependent upon our generating cash flow sufficient to fund operations. Our business plans may not be successful in addressing these issues. If we cannot continue as a “going concern”, you may lose your entire investment in us.

We do not have sufficient cash on hand. If we do not generate sufficient revenues from sales among other factors, we will be unable to continue our operations.

We estimate that within the next 12 months we will need $5,000,000 for operations, and we do not have sufficient cash on hand to meet this requirement. Although we are seeking additional sources of debt or equity financings, there can be no assurances that we will be able to obtain any additional financing. We recognize that if we are unable to generate sufficient revenues or obtain debt or equity financing, we will not be able to earn profits and may not be able to continue operations.

There is limited history upon which to base any assumption as to the likelihood that we will prove successful, and we may not be able to continue to generate enough operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.

We have a limited operating history and if we are not successful in continuing to grow the business, then we may have to scale back or even cease ongoing business operations.

We have a very limited history of revenues from operations ($1,200,000 to date). We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to sign customer contracts or operate on a profitable basis. As we are in the early production stage, potential investors should be aware of the difficulties normally encountered in commercializing the product. If the business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in us.

If we are unable to obtain additional funding, business operations will be harmed and if we do obtain additional financing then existing shareholders may suffer substantial dilution.

We anticipate that we will require up to $5,000,000 to fund continued operations for the next twelve months, depending on revenue, if any, from operations. Additional capital will be required to effectively support the operations and to otherwise implement overall business strategy. We currently do not have any contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.

We have significant debt obligations, and if we fail to restructure or repay or outstanding indebtedness, the lenders may take actions that would have a material adverse impact on the Company.

The Company has significant outstanding indebtedness. As of June 30, 2010, the Company had an aggregate outstanding balance of $3,629,424 in convertible debt obligations (excluding accrued interest). If the lenders under these convertible notes do not convert and demand repayment, the Company does not have the cash to pay its debt obligations. Our failure to repay this debt could result in events of default under the convertible notes which provide the lenders with certain rights, including the right to institute an involuntary bankruptcy proceeding against the Company. If the debt remains unpaid past the due dates and the lenders choose to exercise their rights of default, the Company may be forced to seek the protection afforded by Chapter 7 of the federal bankruptcy laws which would have a material adverse effect on the Company. The Company’s default on its debt obligations or potential need to seek protection under the federal bankruptcy laws raise substantial doubt about our ability to continue as a going concern.

Because we are small and do not have much capital, we may have to limit business activity which may result in a loss of your investment.

Because we are small and do not have much capital, we must limit our business activity. As such we may not be able to complete the sales and marketing efforts required to drive our sales. In that event, if we cannot generate revenues, you will lose your investment.

If we are unable to continue to retain the services of Messrs. Scott Weinbrandt or Kevin Claudio, or if we are unable to successfully recruit qualified Board members and managerial and company personnel having experience in the small wind turbine industry, we may not be able to continue operations.

Our success depends to a significant extent upon the continued services of Mr. Scott Weinbrandt, Chairman, CEO and President, and Kevin Claudio, Chief Financial Officer. The loss of the services of Messrs. Weinbrandt or Claudio could have a material adverse effect on our growth, revenues, and prospective business. Both of these individuals are committed to devoting substantially all of their time and energy to us through their respective employment agreements. Any of these employees could leave us with little or no prior notice. We do not have “key person” life insurance policies covering any of our employees. Additionally, there are a limited number of qualified technical personnel with significant experience in the design, development, manufacture, and sale of our wind turbines, and we may face challenges hiring and retaining these types of employees.

In order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and company personnel having experience in the small wind turbine business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms. Additionally, the Company has made efforts to identify and recruit additional members for its board of directors. However, to date, the Company has been unable to retain any additional board members, and the board members it has identified have expressed a reluctance to join the board until the Company is better capitalized.

We are a new entrant into the small wind turbine industry without profitable operating history.

As of June 30, 2010, we had an accumulated deficit of $40,136,400. We expect to derive our future revenues from sales of our systems, however, these revenues are highly uncertain. We continue to devote substantial resources to expand our sales and marketing activities, further increase manufacturing capacity, and expand our research and development activities. As a result, we expect that our operating losses will increase and that we may incur operating losses for the foreseeable future.

If we are unable to successfully achieve broad market acceptance of our systems, we may not be able to generate enough revenues in the future to achieve or sustain profitability.

We are dependent on the successful commercialization of our systems. The market for small wind turbines is at an early stage of development. The market for our systems is unproven. The technology may not gain adequate commercial acceptance or success for our business plan to succeed.

If we cannot establish and maintain relationships with distributors, we may not be able to increase revenues.

In order to increase our revenues and successfully commercialize our systems, we must establish and maintain relationships with our existing and potential distributors. A reduction, delay or cancellation of orders from one or more significant customers could significantly reduce our revenues and could damage our reputation among our current and potential customers. We currently have approximately 33 signed distribution agreements throughout the United States and international locations, however, the agreements have no termination penalties.

We were recently sued by one of our distributors and may face additional lawsuits in the future.

We were recently named in a lawsuit by one of our distributors for claims which include misrepresentation, breach of contact, breach of warranties and unfair practices under consumer protection statutes relating to our products and performance under the distribution agreement. While we believe we have defenses to these claims, there is a potential that the claims could be decided against us, which could result on our obligation to pay damages to the distributor, which would have an adverse effect on our financial condition. Additionally, we could face similar lawsuits from distributors or customers in the future.

If we can not assemble a large number of our systems, we may not meet anticipated market demand or we may not meet our product commercialization schedule.

To be successful, we will have to assemble our systems in large quantities at acceptable costs while preserving high product quality and reliability. If we cannot maintain high product quality on a large scale, our business will be adversely affected. We may encounter difficulties in scaling up production of our systems, including problems with the supply of key components, even if we are successful in developing our assembly capability, we do not know whether we will do so in time to meet our product commercialization schedule or satisfy the requirements of our customers. In addition, product enhancements need to be implemented to various components of the platform to provide better overall quality and uptime in high wind regimes. The system is now rated to support 100 mph sustained winds. The implementation of the enhancements to our system may also delay significant production by requiring additional manufacturing changes and technical support to facilitate the manufacturing process.

If we are unable to raise sufficient capital, we may not be able to pay our key suppliers.

Our ability to pay key suppliers on time will allow us to effectively manage our business. Currently we have a large outstanding liability with our product manufacturer that is inhibiting us from receiving additional units at this time. In addition, we have other large outstanding accounts payable with key suppliers that may inhibit the Company from receiving system product in the future.

If we experience quality control problems or supplier shortages from component suppliers, our revenues and profit margins may suffer.

Our dependence on third-party suppliers for components of our systems involves several risks, including limited control over pricing, availability of materials, quality and delivery schedules. Any quality control problems or interruptions in supply with respect to one or more components or increases in component costs could materially adversely affect our customer relationships, revenues and profit margins.

International expansion will subject us to risks associated with international operations that could increase our costs and decrease our profit margins.

International operations are subject to several inherent risks that could increase our costs and decrease our profit margins including:

- reduced protection of intellectual property rights;

- changes in foreign currency exchange rates;

- changes in a specific country’s economic conditions;

- trade protective measures and import or export requirements or other restrictive actions by foreign governments; and

- changes in tax laws.

If we cannot effectively manage our internal growth, our business prospects, revenues and profit margins may suffer.

If we fail to effectively manage our internal growth in a manner that minimizes strains on our resources, we could experience disruptions in our operations and ultimately be unable to generate revenues or profits. We expect that we will need to significantly expand our operations to successfully implement our business strategy. As we add marketing, sales and build our infrastructure, we expect that our operating expenses and capital requirements will increase. To effectively manage our growth, we must continue to expend funds to improve our operational, financial and management controls, and our reporting systems and procedures. In addition, we must effectively expand, train and manage our employee base. If we fail in our efforts to manage our internal growth, our prospects, revenue and profit margins may suffer.

Our technology competes against other small wind turbine technologies. Competition in our market may result in pricing pressures, reduced margins or the inability of our systems to achieve market acceptance.

We compete against several companies seeking to address the small wind turbine market. We may be unable to compete successfully against our current and potential competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance. The current level of market penetration for small wind turbines is relatively low and as the market increases, we expect competition to grow significantly. Our competition may have significantly more capital than we do and as a result, they may be able to devote greater resources to take advantage of acquisition or other opportunities more readily.

Our inability to protect our patents and proprietary rights in the United States and foreign countries could materially adversely affect our business prospects and competitive position.

Our success depends on our ability to obtain and maintain patent and other proprietary-right protection for our technology and systems in the United Stated and other countries. If we are unable to obtain or maintain these protections, we may not be able to prevent third parties from using our proprietary rights.

If we cannot effectively increase and enhance our sales and marketing capabilities, we may not be able to increase our revenues.

We need to further develop our sales and marketing capabilities to support our commercialization efforts. If we fail to increase and enhance our marketing and sales force, we may not be able to enter new or existing markets. Failure to recruit, train and retain new sales personnel, or the inability of our new sales personnel to effectively market and sell our systems, could impair our ability to gain market acceptance of our systems.

If we encounter unforeseen problems with our current technology offering, it may inhibit our sales and early adoption of our product.

We are in the process of shipping our third production run of units and continue to improve on the products performance capabilities, but any unforeseen problems relating to the units operating effectively in the field could have a negative impact on adoption, future shipments and our operating results.

We are to establish and maintain required disclosure controls and procedures and internal controls over financial reporting and to meet the public reporting and the financial requirements for our business.

Our management has a legal and fiduciary duty to establish and maintain disclosure controls and control procedures in compliance with the securities laws, including the requirements mandated by the Sarbanes-Oxley Act of 2002. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. Because we have limited resources, we may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting, and disclosure controls and procedures. In addition, the attestation process by our independent registered public accounting firm is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accounting firm. If we cannot assess our internal control over financial reporting as effective or provide adequate disclosure controls or implement sufficient control procedures, or our independent registered public accounting firm is unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

Risks Related to Common Stock

There is a significant risk of our common shareholders being diluted as a result of our outstanding convertible securities.

We have 115,882,284 shares of common stock issued and outstanding as of June 30, 2010. We also have outstanding an aggregate of $3,629,424 of 9% Convertible Notes as of June 30, 2010 which may be converted into shares of common stock at the conversion rate as provided in the convertible notes. Because the conversion rate under the Convertible Notes is at a discounted price from the trading price of the Company’s common stock, and the low trading price of the Company’s common stock, any additional conversions of these Convertible Notes will result in the issuance of a significant amount of additional shares of common stock which will dilute the ownership interest of our shareholders. The conversion of these Convertible Notes during the quarter resulted in an increase in the number of the Company’s issued and outstanding shares of common stock from 60,916,897 as of March 31, 2010 to 115,882,284 shares issued and outstanding as of June 30, 2010. Since June 30, 2010 and through the date of this report, additional conversions of Convertible Notes and other issuances of shares by the Company has resulted in an increase in the Company’s issued and outstanding shares to 163,265,101. In addition, we recently completed financings described in this report with St. George Investments, LLC pursuant to which we issued a convertible note and warrants which, if exercised, would result in a significant amount of additional shares of common stock outstanding. Further, we anticipate the need to raise additional capital which would also result in the issuance of additional shares of common stock and/or securities convertible into our common stock. Accordingly, a common shareholder has a significant risk of having its interest in our company being significantly diluted. Although the Company does not know the exact amount of dilution which may occur, the weighted average number of common shares outstanding on a diluted basis which would result from the conversion or exercise of all outstanding convertible notes, warrants and options is 744,599,373 as reported in the June 30, 2010 financial statements.

The large number of shares eligible for immediate and future sales may depress the price of our stock.

Our Articles of Incorporation authorize the issuance of 1,750,000,000 shares of common stock, $0.0001 par value per share and 5,000,000 shares of preferred stock, $0.0001 par value per share. As discussed above, we had 115,882,284 shares of common stock outstanding as of June 30, 2010, and a significant amount of additional shares issuable upon exercise and conversion of our outstanding warrants, stock options and convertible notes.

Because we have available a significant number of authorized shares of common stock, we may issue additional shares for a variety of reasons which will have a dilutive effect on our shareholders and on your investment, resulting in reduced ownership and in our company and decreased voting power, or may result in a change of control.

Our board of directors has the authority to issue additional shares of common stock up to the authorized amount stated in our Articles of Incorporation. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or other types of property, or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change of control of the company.

Additional financings may dilute the holdings of our current shareholders.

In order to provide capital for the operation of the business, we may enter into additional financing arrangements. These arrangements may involve the issuance of new shares of common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock or warrants for the purchase of common stock. Any of these items could result in a material increase in the number of shares of common stock outstanding, which would in turn result in a dilution of the ownership interests of existing common shareholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing common stock.

There is currently a limited public market for our common stock. Failure to develop or maintain a trading market could negatively affect its value and make it difficult or impossible for you to sell your shares.

There has been a limited public market for our common stock and an active public market for our common stock may not develop. Failure to develop or maintain an active trading market could make it difficult for you to sell your shares or recover any part of your investment in us. Even if a market for our common stock does develop, the market price of our common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.

“Penny Stock” rules may make buying or selling our common stock difficult.

If the market price for our common stock is below $5.00 per share, trading in our common stock may be subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules would require that any broker-dealer that would recommend our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations would require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

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

Unregistered Sales of Equity Securities

Effective August 10, 2010, the Company issued a total of 1,250,000 shares of common stock to an accredited investor upon the conversion of certain previously issued convertible promissory notes. Other than the extinguishment of debt principal in the amount of $5,312, no consideration was received by the Company in the transaction. The issuance of the shares of Common Stock was exempt from registration under the Securities Act pursuant to Section 4(2) thereof and/or Rule 506 of Regulation D under the Securities Act, as amended.

Purchases of equity securities by the issuer and affiliated purchasers

None.

Item 3. Defaults Upon Senior Securities.

On April 23, 2010, the Company received a notice from St. George Investments, LLC, a Illinois limited liability company (“St. George”) notifying the Company that a liquidity default had occurred under the convertible secured promissory note, dated March 30, 2010, in the principal amount of $779,500 made by the Company in favor of St. George (the “Note”). As a result of the decrease in the market value of the Company’s common stock, St. George also exercised its default remedies under the pledge agreement with Kenneth O. Morgan which resulted in St. George receiving the 4,800,000 shares of Company common stock pledged by Kenneth Morgan, and Kenneth Morgan receiving the 6,000,000 shares of Company common stock placed into escrow by the Company. Reference is made to the Company’s Current Report on Form 8-K that was filed with the SEC on April 6, 2010, and the exhibits of that report, for a complete description of the terms and conditions of the Note, pledge agreement and financing.

On July 21, 2010, the Company received a notice from St. George notifying the Company that a liquidity default had occurred under the four Convertible Secured Promissory Notes dated May 1, 2010; June 1, 2010; July 1, 2010; and August 1 2010, each in the principal amount of $130,000, made by the Company in favor of St. George (the “Notes”). On July 21, 2010, the five-day average dollar volume of the Company's common stock remained below $100,000 which created a liquidity default under the Notes. As a result of the default, the outstanding amount of the Notes was increased by 125%; the interest rate under the Notes increased to 15%; and the balance of the Notes, as increased, plus all accrued interest, fees, costs and penalties are due and payable within 30 days of the default notice. Reference is made to the Company’s Current Report on Form 8-K that was filed with the SEC on April 6, 2010, and the exhibits of that report, for a complete description of the terms and conditions of the Notes and related financing.

Item 4. (Removed and Reserved)

Item 5. Other Information.

Effective as of August 10, 2010, the Company closed the financing transaction under a Note Purchase Agreement (the “Purchase Agreement”) with St. George Investments, LLC, an Illinois limited liability company (the “Investor”) pursuant to which, among other things, the Company issued a convertible secured promissory note in the aggregate principal amount of $72,500 (the “First Note”).The Purchase Agreement also contains representations, warranties and indemnifications by the Company and the Investor.

The Purchase Agreement also provides that, subject to meeting certain conditions, and no Event of Default has occurred under any of the notes, the Investor will loan to the Company an additional $450,000 pursuant to nine additional notes in the principal amount of $50,000 each (the “Additional Notes”) on or about each two week anniversary of the issuance of the First Note during the nine consecutive two week periods immediately following such issuance of the First Note, for a total aggregate additional net purchase price of $450,000 (after deducting the original issue discount amounts).

In connection with the financing, Dominick & Dominick, the placement agent, received a cash payment of $4,000, and will receive an additional $4,000 upon the issuance of each Additional Note.

The following is a brief summary of each of those agreements. These summaries are not complete, and are qualified in their entirety by reference to the full text of the agreements that are attached as exhibits to this Quarterly Report. Readers should review those agreements for a more complete understanding of the terms and conditions associated with this transaction.

Purchase Agreement

Pursuant to the Purchase Agreement, so long as the First Note is outstanding, the Company will not (i) incur any new indebtedness for borrowed money without the prior written consent of the Investor; provided, however the Company may incur obligations under trade payables in the ordinary course of business consistent with past practice without the consent of the Investor; (ii) grant or permit any security interest (or other lien or other encumbrance) in or on any of its assets; and (iii) enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any affiliate of the Company, or amend or modify any agreement related to any of the foregoing, except on terms that are no less favorable, in any material respect, than those obtainable from any person who is not an affiliate.

First Note and Additional Notes

The First Note has an original issue discount of $15,000 and an obligation to pay $7,500 of the Investor’s transaction fees. Accordingly, the amount provided under the First Note is $50,000. The First Note matures 6 months from the date of issuance. If there is a default the Note will accrue interest at the rate of 15% per annum. The number of shares of Common Stock to be issued upon such conversion of the First Note shall be determined by dividing (i) the conversion amount under the First Note by (ii) the lower of (1) 100% of the volume-weighted average price of the Company’s Common Stock (the “VWAP”) for the three (3) trading days with the lowest VWAP during the twenty (20) trading days immediately preceding the date set forth on the notice of conversion, or (2) 50% of the lower of (A) the average VWAP over the five (5) trading days immediately preceding the date set forth in the notice of conversion or (B) the VWAP on the day immediately preceding the date set forth in the notice of conversion. The shares deliverable to the Investor must be delivered electronically, via DWAC or DTC, if the Company is eligible. If the Company does not deliver shares issuable upon conversion of the Note within three days of a conversion notice, the Company must pay the Investor a penalty of 1.5% of the conversion amount added to the balance of the First Note per day. The number of shares the Note is convertible into is subject to customary anti-dilution provisions.

The First Note provides that upon each occurrence of any of the triggering events described below (each, a “Trigger Event”), the outstanding balance under the First Note shall be immediately and automatically increased to 125% of the outstanding balance in effect immediately prior to the occurrence of such Trigger Event,, and upon the first occurrence of a Trigger Event, (i) the outstanding balance, as adjusted above, shall accrue interest at the rate of 15% per annum until the First Note is repaid in full, and (ii) the Investor shall have the right, at any time thereafter until the First Note is repaid in full, to (a) accelerate the outstanding balance under the First Note, and (b) exercise default remedies under and according to the terms of the First Note; provided, however, that in no event shall the balance adjustment be applied more than two (2) times. The Trigger Events include the following: (i) a decline in the five-day average daily dollar volume of the Company Common Stock in its primary market to less than $10,000.00 of volume per day; (ii) a decline in the average VWAP for the Common Stock during any consecutive five (5) day trading period to a per share price of less than one half of one cent ($0.005); (iii) the occurrence of any Event of Default under the First Note (other than an Event of Default for a Trigger Event which remains uncured or is not waived) that is not cured for a period exceeding ten (10) business days after notice of a declaration of such Event of Default from Investor, or is not waived in writing by the Investor.

An Event of Default under the Frist Note includes (i) a failure to pay any amount due under the First Note when due; (ii) a failure to deliver shares upon conversion of the First Note; (iii) the Company breaches any covenant, representation or other term or condition in the Purchase Agreement, Note or other transaction document; (iv) having insufficient authorized shares; (v) an uncured Trigger Event; or (vi) upon bankruptcy events. So long as no Event of Default shall have occurred, the Investor remains obligated to purchase the Additional Notes according to the terms and subject to the conditions of the Purchase Agreement:

Each of the nine Additional Notes in the principal amount of $50,000.00 have substantially similar terms to the terms of the First Note. The amount to be provided under each Additional Note is $50,000 after the original issue discount.

Other Terms

The First Note and the Additional Notes contain certain limitations on conversion and exercise. They provide that no conversion or exercise may be made if, after giving effect to the conversion and/or exercise, the Investor would own in excess of 9.99% of the Company’s outstanding shares of Common Stock.

Other than Excepted Issuances (described below), if the First Note and Additional Notes are outstanding, the Company agrees to issue shares or securities convertible for shares at a price (including an exercise price) which is less than the conversion price of the First Note or Additional Notes, then the conversion price and exercise price, as the case may be, shall be reduced to the price of any such securities. The only Excepted Issuances are (i) the Company’s issuance of securities to strategic licensing agreements or other partnering agreements which are not for the purpose of raising capital and no registration rights are granted and (ii) the Company’s issuance to employee, directors and consultants pursuant to plans outstanding.

The First Note and Additional Notes were offered and sold in reliance on the exemption from registration afforded by Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended. The offering was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by the Investor in connection with the offering.

Item 6. Exhibits.

Those exhibits marked with an asterisk (*) refer to exhibits filed herewith.

Exhibit No.		Description

10.1*		Note and Warrant Purchase Agreement dated August 10, 2010

10.2*		Convertible Secured Promissory Note dated August 10, 2010

10.3*		Consent to Entry of Judgment by Confession dated August 10, 2010

10.4*		Irrevocable Transfer Agent Instruction Letter dated August 10, 2010

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HELIX WIND, CORP.

	By:	/s/ Kevin Claudio
		Kevin Claudio
		Chief Financial Officer
		(Principal Financial Officer)

Date: August 11, 2010

Helix Wind, Corp. - FORM 10-Q - August 11, 2010

Attached files

Helix Wind, Corp. Reports