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EXCEL - IDEA: XBRL DOCUMENT - Energy Telecom, Inc.Financial_Report.xls
EX-31.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Energy Telecom, Inc.energytelecom10qex3101.htm
EX-32.01 - CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Energy Telecom, Inc.energytelecom10qex3201.htm
EX-31.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Energy Telecom, Inc.energytelecom10qex3102.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, 2011

or

¨ 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: 333-167380

ENERGY TELECOM, INC.
(Exact name of registrant as specified in its charter)

Florida
65-0434332
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

3501-B N. Ponce de Leon Blvd., #393
St. Augustine, Florida 32084
(Address of principal executive offices) (zip code)

(904) 819-8995
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x  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 for such shorter period that the registrant was required to submit and post such files). Yes x  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
 Smaller reporting company x
(Do not check if a smaller reporting company)
 
                                                                                    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No   x.

As of August 1, 2011, there were 7,303,415 shares of the registrant’s common stock outstanding.
 
 
 

 
 
ENERGY TELECOM, INC.


INDEX
       
PART I.
FINANCIAL INFORMATION
 
       
 
ITEM 1
Financial Statements
 
   
Condensed balance sheets as of June 30, 2011 (unaudited) and December 31, 2010
3
       
   
Condensed statements of operations for the three and six months ended June 30, 2011 and 2010 (unaudited)
4
       
   
Condensed statement of changes in stockholders’ equity (deficiency) for the six months ended June 30, 2011 (unaudited)
5
       
   
Condensed statements of cash flows for the six months ended June 30, 2011 and 2010 (unaudited)
6
       
   
Notes to condensed financial statements (unaudited)
7-10
       
 
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
11-17
       
 
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
17
       
 
ITEM 4.
Controls and Procedures
17-18
       
PART II.
OTHER INFORMATION
 
       
 
ITEM 1.
Legal Proceedings
19
 
ITEM 1A.
Risk Factors
19
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
19
 
ITEM 3.
Defaults Upon Senior Securities
19
 
ITEM 4.
(Reserved)
19
 
ITEM 5.
Other Information
20
 
ITEM 6.
Exhibits
20
       
 
SIGNATURES
21
 
 
2

 

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ENERGY TELECOM, INC.
 
CONDENSED BALANCE SHEETS
 
             
   
June 30,
   
December 31,
 
   
2011
   
2010
 
   
(unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 246,489     $ 87,643  
                 
  Total assets
  $ 246,489     $ 87,643  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 43,261     $ 51,676  
Stockholder notes payable
    18,486       38,486  
                 
  Total current liabilities
    61,747       90,162  
                 
STOCKHOLDERS' EQUITY (DEFICIENCY)
               
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 7,298,415 and 6,282,239 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively
    730       628  
Class B common stock, no par value, 10,000,000 shares authorized, 200,000 shares issued and outstanding as of June 30, 2011 and December 31, 2010
    -       -  
Additional paid in capital
    4,865,971       4,444,637  
Accumulated deficit
    (4,681,959 )     (4,447,784 )
  Total stockholders' equity (deficiency)
    184,742       (2,519 )
                 
  Total liabilities and stockholders' equity (deficiency)
  $ 246,489     $ 87,643  
 
The accompany notes are an integral part of these unaudited condensed financial statements

 
3

 
 
ENERGY TELECOM, INC.
 
CONDENSED STATEMENTS OF OPERATIONS
 
(unaudited)
 
                         
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
REVENUE
  $ -     $ -     $ 950     $ -  
                                 
COST OF GOODS SOLD
    -       -       -       -  
                                 
  Gross profit
    -       -       950       -  
                                 
OPERATING EXPENSES:
                               
Selling, general and administrative expenses
    139,608       464,919       232,900       533,882  
                                 
  Loss from operations
    (139,608 )     (464,919 )     (231,950 )     (533,882 )
                                 
OTHER INCOME (EXPENSE):
                               
Interest income
    252       108       332       296  
Interest expense
    (1,202 )     (5,489 )     (2,557 )     (10,466 )
Income from change in derivative liability
    -       5,513       -       945  
                                 
  Total other income (expense):
    (950 )     132       (2,225 )     (9,225 )
                                 
  Net loss before provision for income taxes
    (140,558 )     (464,787 )     (234,175 )     (543,107 )
                                 
PROVISION FOR INCOME TAXES
                               
Income tax (benefit)
    -       -       -       -  
                                 
NET LOSS
  $ (140,558 )   $ (464,787 )   $ (234,175 )   $ (543,107 )
                                 
Net loss per common share, basic and fully diluted
  $ (0.02 )   $ (0.07 )   $ (0.03 )   $ (0.09 )
                                 
Weighted average number of common shares outstanding, basic and fully diluted
    7,082,342       6,397,450       6,881,706       6,295,618  
 
The accompany notes are an integral part of these unaudited condensed financial statements

 
4

 
 
ENERGY TELECOM, INC.
 
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
 
FOR THE SIX MONTHS ENDED JUNE 30, 2011
 
(unaudited)
 
                                           
                                           
                                       
Total
 
                           
Additional
         
Stockholders'
 
   
Class A Common Stock
   
Class B Common Stock
   
Paid in
   
Accumulated
   
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
(Deficiency)
 
Balance, January 1, 2011
    6,282,239     $ 628       200,000     $ -     $ 4,444,637     $ (4,447,784 )   $ (2,519 )
Common stock issued
    910,732       91       -       -       329,867       -       329,958  
Common stock issued for services rendered
    55,444       6       -       -       40,972       -       40,978  
Common stock issued for officer compensation
    50,000       5                       50,495               50,500  
Net loss
    -       -       -       -       -       (234,175 )     (234,175 )
Balance, June 30, 2011
    7,298,415     $ 730       200,000     $ -     $ 4,865,971     $ (4,681,959 )   $ 184,742  

The accompany notes are an integral part of these unaudited condensed financial statements

 
5

 
 
ENERGY TELECOM, INC.
 
CONDENSED STATEMENTS OF CASH FLOWS
 
(unaudited)
 
             
   
Six months ended June 30,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (234,175 )   $ (543,107 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Common stock issued for services rendered
    40,978       126,988  
Common stock issued for officer compensation
    50,500       -  
Change in fair value of derivative liability
    -       (945 )
Share based compensation
    -       277,301  
Changes in operating assets and liabilities:
               
Increase in inventory
    -       (5,164 )
(Decrease) increase in accounts payable and accrued liabilities
    (8,415 )     10,466  
  Net cash used in operating activities
    (151,112 )     (134,461 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from sale of common stock
    329,958       144,600  
Repayments of shareholder loans
    (20,000 )     (3,000 )
  Net cash provided by financing activities
    309,958       141,600  
                 
Net Increase (decrease) in cash and cash equivalents
    158,846       7,139  
                 
Cash, beginning of period
    87,643       82,355  
Cash, end of period
  $ 246,489     $ 89,494  
                 
Supplemental disclosures of cash flow information:
               
Interest paid
  $ -     $ -  
Taxes paid
  $ -     $ -  
                 
Non-cash financing activities:
               
Increase in derivative liability under anti-dilution agreement
  $ -     $ 96,377  
 
The accompany notes are an integral part of these unaudited condensed financial statements

 
6

 
ENERGY TELECOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
(unaudited)


NOTE 1 — NATURE OF OPERATIONS/BASIS OF PRESENTATION

Energy Telecom, Inc. (the “Company”), formerly The Energy Corp., is an intellectual property exploitation company providing patent protection to its manufacturing business partners so they may manufacture, market, distribute and sell worldwide a family of eyewear products delivering a full range of audio and optical information to mobile workers and recreational eyewear users. The Company also manages and coordinates the process of its manufacturing business partners in manufacturing the product. The Company’s Class A common stock trades from time to time on the over-the-counter-bulletin-board under the symbol “ENRG.OB”.

During the current year, the Company transitioned from a development stage enterprise to an operating company, as the Company’s manufacturing partner, Samsin USA, began producing the telecom eyewear product for delivery to a consumer-retail distributor for resale. The Company will recognize revenue when the product is sold and shipped by the distributor.  The consumer-retail model of the eyewear is being sold through print and online advertising.

The accompanying unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim condensed financial information and Rule 8-03 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these unaudited interim condensed financial statements. Operating results for the three and six month periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2010 has been derived from audited financial statements. The unaudited interim condensed financial statements should be read in conjunction with the financial statements and footnotes thereto for the year ended December 31, 2010.

NOTE 2 — GOING CONCERN

The accompanying unaudited interim condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As shown in the accompanying financial statements, the Company has earned minimal revenues, has had recurring net losses, and has an accumulated deficit through June 30, 2011 totaling $4,681,959. In addition, the Company’s stockholder notes payable are due on demand. If the notes were to be called, the Company may be unable to meet these obligations. Also, the Company is in a position where its current cash on hand may not be adequate to cover all of its operating expenses.

Our independent registered public accounting firm, in their report dated March 10, 2011 on our financial statements as of and for the year ended December 31, 2010, have included an emphasis of matter paragraph with respect to our ability to continue as a going concern. The existence of such a report may adversely affect our stock price and our ability to raise capital. Further, no assurance can be given that the Company will maintain its cost structure as presently contemplated or raise additional capital on satisfactory terms. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited interim condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company plans on issuing authorized but unissued shares to the extent available and to obtain debt financing to generate cash to cover short-falls in working capital as it continues to develop its products and operations. The Company expects that as sales volume increases, operations will generate working capital sufficient to allow it to continue as a going concern.
 
 
7

 
ENERGY TELECOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
(unaudited)

 
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of these unaudited interim condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures in the financial statements. Accordingly, actual results could differ from these estimates

CASH AND CASH EQUIVALENTS

The Company considers financial instruments with an original maturity date of three months or less to be cash equivalents. The Company had no cash equivalents at June 30, 2011 and December 31, 2010.

REVENUE RECOGNITION

The Company recognizes revenue on four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (4) is based on management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectability of those fees. Revenue is earned for product shipped and sold by our distributor on a per unit basis.

 Revenue recognized in the six months ended June 30, 2011 relate to sales of product which had previously been expensed and used as sample units; therefore, there is no cost of goods associated with these sales.

SHARE-BASED COMPENSATION

Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The Company measures the fair value of the share-based compensation issued to non-employees using the average stock price observed (for stock transactions) or the fair value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

NET LOSS PER COMMON SHARE

Basic loss per share (“EPS”) is computed by dividing the net loss attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and warrants (using the “treasury stock” method), unless their effect on net loss per share is antidilutive. The effect of computing diluted loss per share is antidilutive and, as such, basic and diluted loss per share is the same for the three and six months ended June 30, 2011 and 2010.

RECENT ACCOUNTING PRONOUNCEMENTS

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 NOTE 4 — FINANCIAL INSTRUMENTS

 
8

 
ENERGY TELECOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
(unaudited)



CONCENTRATIONS OF CREDIT RISK

The Company’s financial instrument that is exposed to a concentration of credit risk is cash. Effective December 31, 2010 and extending through December 31, 2012, all non-interest-bearing transaction accounts are fully insured by the Federal Deposit Insurance Corporation (FDIC), regardless of the balance of the account. On occasion, the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.

NOTE 5 — STOCKHOLDER NOTES PAYABLE

The Company has received financing from the Company’s founder, Chief Executive Officer, President and majority stockholder (the “officer/director”). The stockholder notes bear interest of 10% per annum, compounding annually and are due on demand.

The following table summarizes stockholder notes payable as of June 30, 2011 (unaudited) and December 31, 2010:

 
 
June 30,
2011
 
 
December 31, 2010
 
Notes payable, due on demand, interest at 10%
 
$
18,486
 
 
$
38,486
 
Accrued interest
 
 
30,919
 
 
 
28,362
 
 
 
$
49,405
 
 
$
66,848
 

The Company recognized interest expense associated with the notes of $1,202 and $1,528 for the three months ended June 30, 2011 and 2010, respectively, and $2,557 and $3,057 for the six months ending June 30, 2011 and 2010, respectively.

NOTE 6 — STOCKHOLDERS’ EQUITY

PRIVATE PLACEMENTS

During the six month period ended June 30, 2011, the Company completed private placements of 910,732 shares of Class A common stock and has received proceeds totaling $329,958.

SHARES ISSUED TO CONSULTANTS

During the six month period ended June 30, 2011, the Company issued an aggregate of 55,444 shares of Class A common stock to consultants in exchange for services rendered with a fair value totaling $40,978.

SHARES ISSUED AS COMPENSATION

During the six month period ended June 30, 2011, the Company issued 50,000 shares of Class A common stock as officer compensation with a fair value totaling $50,500.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENT-TOM RICKARDS

On May 3, 2011, the Company entered into a one year employment agreement with Tom Rickards, Chief Executive Officer, director and founder whereby Mr. Rickards shall receive an annual salary of $36,000, which may be increased up to $50,000 by mutual agreement by Mr. Rickards and the Board of Directors and dependent on the financial strength of the Company.  In addition, Mr. Rickards is to receive 200,000 shares of series A common stock payable in equal installments at the end of each calendar quarter and a $600 per month car allowance.

 
9

 
ENERGY TELECOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
(unaudited)

 
LITIGATION

The Company may, from time to time, become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not aware of any such legal proceedings that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

NOTE 8— RELATED PARTY TRANSACTIONS

The Company has an operating lease agreement for office space with the Company's Chief Executive Officer and director who has agreed to sublet space to the Company for a fixed fee of $1,750 on a month-to-month basis. Total rent expense for the three months ended June 30, 2011 and 2010 was $5,250 and $3,500, respectively, and for the six months ended June 30, 2011 and 2010 was $10,500 and $8,750, respectively.

As discussed in Note 5 above, the Company has received financing from the Company’s Chief Executive Officer, director, founder and majority stockholder. The stockholder loans bear interest of 10% per annum, compounding annually and are due on demand. During the six months ended June 30, 2011, the Company paid an aggregate of $20,000 as partial payment against the notes.

NOTE 9 — DEPENDENCY ON KEY MANAGEMENT

The future success or failure of the Company is dependent primarily upon the continued services and efforts of its Chief Executive Officer, director and founder. The ability of the Company to pursue its business strategy effectively will also depend upon, among other factors, the successful recruitment and retention of additional highly skilled and experienced managerial, marketing, engineering and technical personnel. There can be no assurance that the Company will be able to retain or recruit such personnel.
 
NOTE 10 — SUBSEQUENT EVENTS

During July 2011, the Company began to shipping its product, via its distributor, for delivery to a consumer-retail distributor.
On July 28, 2011, the company issued 5,000 shares of its Series A common stock to a consultant in exchange for services rendered valued at $3,950.
 
 
10

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for materials, and competition.

Overview
 
We were incorporated on September 7, 1993 under the laws of the State of Florida as The Energy Corp. On April 24, 2004, we changed our name to Energy Telecom, Inc.
 
We hold U.S. and foreign patents allowing for the manufacture, marketing and distribution of a hands-free, wireless communication eyewear providing quality sound and noise attenuation.
 
During the current year, we have transitioned from a development stage enterprise to an operating company, as our manufacturing partner, Samsin USA, begin producing our telecom eyewear product for delivery to Qmadix, a consumer-retail distributor, for resale.  The consumer-retail model of the eyewear is being sold through print and online advertising, by Brookstone.  As such, we expect to recognize revenues from sales of our product in the third quarter of 2011.
 
We have developed the world's first hands-free two-way, sound attenuating wireless telecommunication eyewear.  The eyewear is designed for use on a recreational and professional basis.  Our recreational eyewear is equipped with wireless two-way Bluetooth voice communication that is compatible with any cellular telephone that is Bluetooth enabled and is capable of streaming stereo music from any Bluetooth enabled music device. In addition, our eyewear works with handheld Bluetooth- enabled VHF and UHF walkie-talkies and Bluetooth adaptors. It contains built-in dual microphones to cancel out background noise and noise-isolating ear plugs that reduce noise levels by up to 42 decibels. In addition, the safety lenses come in clear, gray and amber colors, allowing them to be used indoor and outside. In June 2011, our retail distributor placed orders for our telecom eyewear for which revenue was not recognized until the product was shipped in July 2011.
 
We have a professional model, which is similar to the recreational model, but contains additional safety features and is intended to be marketed to the Personal Protective Equipment markets (commonly expressed as PPE) for use by police, fire, rescue, military and security personnel as well as companies in bio-hazardous, mining, construction and heavy manufacturing that utilize VHF and UHF radio communication.  We have obtained numerous certifications for our telecommunications eyewear.  We have obtained the necessary certifications to sell our product as personal protective equipment.  We contracted with Colts Laboratories, an independent testing facility that is accredited by the Safety Equipment Institute to complete and verify standard tests.

 
11

 

Within the PPE market, our telecommunication eyewear competes primarily in the markets represented by hearing and eye protection and communication headset products and will be targeted towards the following end-markets:
 
 
• 
Police and fire rescue, security services and military: To protect the eyes and ears during the use of firearms, explosives and other weaponry, to provide hands-free communication among personnel and allow for real-time viewing of intelligence;
     
 
• 
Manufacturing: To protect workers from plant hazards such as industrial noise and flying particles that may cause eye injuries; and
     
 
• 
Construction, Mining and Logging Operations: To protect workers from airborne dust and debris and construction equipment noise and to provide two-way, instant communication.
 
Current Operating Trends and Financial Highlights
 
Management currently considers the following events, trends and uncertainties to be important in understanding our results of operations and financial condition during the current fiscal year:

 
·
Qmadix presented our eyewear at the Consumer Electronics Show in Las Vegas, Nevada in January 2011 and at the International CTIA Wireless convention in Orlando, Florida in March 2011. At the show, Qmadix presented the ready-to-market eyewear to various cellular network and cellular retail suppliers which expressed interest in selling the eyewear for business-to-business commercial customers.  As a result, Qmadix has entered into agreements with three retailers, including Brookstone, to test the marketability of the eyewear;
 
 
·
Samsin Innotec and Samsin USA are developing samples of polarized and 3D eyewear lenses for use with our telecom eyewear, which we anticipate will be ready for initial testing by the end of 2011. These new lenses would be able to be secured into place and removed at the user’s convenience. Samples of both lenses have been submitted for testing;
 
 
·
We expect that additional purchase orders for the telecom eyewear will be received in the next few months as Qmadix continues to feature the eyewear and discussions with interested retailers are completed;
 
 
·
We have one patent application pending in the United States, which we expect to receive communication regarding from the USPTO in the third quarter of 2011.  In addition, we have made the necessary filings to allow us to file a patent application in certain European and Asian counties if our pending patent application is granted by the USPTO; and
 
 
·
Escalating tensions between North Korea and South Korea could disrupt our operations. The telecommunication eyewear frames are manufactured by Samsin Innotec, which has plants in South Korea. In addition, all the components are shipped to South Korea, where they are assembled and tested, and then shipped out as a product ready for sale.

Results of Operations
 
The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

Three months ended June 30, 2011 compared to the three months ended June 30, 2010

Revenue

We did not generate any revenue for the three months ended June 30, 2011 and 2010. We expect to have an  increase in revenue later in 2011 as we have completed our primary research and development, the product is ready for sale, and we have received product orders a from national marketer. In addition, we continue to seek distributors for our product, and have an informal relationship with Qmadix that we anticipate will be memorialized in writing in the near future.

 
12

 
 
Expenses

For the three months ended June 30, 2011 and 2010, selling, general and administrative expenses totaled $139,608 and $464,919, respectively.

           A summary comparison for the three months ended June 30, 2011 and 2010 is as follows:

 
 
2011
   
2010
 
Professional fees
 
$
51,175
   
$
158,966
 
Office and utilities
   
8,845
     
9,804
 
Travel and promotion
   
8,127
     
6,501
 
Salaries and related taxes
   
9,688
     
12,874
 
Non cash compensation
   
50,500
     
277,301
 
Patents and trademarks
   
10,580
     
3,227
 
Other
   
693
     
(3,754
)
 Total
 
$
139,608
   
$
464,919
 

The primary decease in selling, general and administrative is due to share based compensation for the three months ended June 30, 2011 of $50,500 as compared to $277,301 for the same period last year, a decrease of $226,801.  During the three months ended June 30, 2010, we issued an aggregate of 1,500,000 fully vested options to our President and a consultant with a fair value of $277,301.

In addition, our professional fees for the three months ended June 30, 2011 totaled $51,175 as compared to $158,966 for the same period last year, a $107,791 decrease. During the three months ended June 30, 2010, we incurred higher professional fees in connection with the filing of a Form S-1 registration statement as compared to the three months ended June 30, 2011.

Other Income and Expenses
 
For the three months ended June 30, 2011, we incurred $1,202 in interest expense which was offset by $252 in interest income compared to $5,489 in interest expense, which was offset by $5,513 in derivative instrument income and by $108 in interest income for the three months ended June 30, 2010.

Interest expense decreased by $4,287 primarily due to reduction in notes payable settled in 2010.  The decrease in derivative instrument expense during 2010 was a result of the adjustments in our past obligation under a shareholder anti-dilution agreement, which was treated as a derivative instrument and which has since been settled.

Net Loss
 
For the three months ended June 30, 2011, we incurred a net loss of $140,558 ($0.02 per share of common stock) as a result of the foregoing, compared to a net loss of $464,787 ($0.07 per share of common stock) for the three months ended June 30, 2010.

Six months ended June 30, 2011 compared to the six months ended June 30, 2010

Revenue

We generated $950 in revenue for the six months ended June 30, 2011 compared to $0 for the six months ended June 30, 2010. Our cost of sales was $-0- since our limited sales were from our sample/ product testing supplies previously expensed, netting gross profit of $950.

 
13

 

Expenses

For the six months ended June 30, 2011 and 2010, selling, general and administrative expenses totaled $232,900 and $533,882, respectively.

A summary comparison for the six months ended June 30, 2011 and 2010 is as follows:

 
 
2011
   
2010
 
Professional fees
 
$
106,428
   
$
173,348
 
Office and utilities
   
21,415
     
26,861
 
Travel and promotion
   
14,098
     
13,160
 
Salaries and related taxes
   
19,505
     
19,663
 
Non cash compensation
   
50,500
     
280,487
 
Patents and trademarks
   
17,231
     
22,511
 
Other
   
3,723
     
(2,148
)
 Total
 
$
232,900
   
$
533,882
 

The primary decease in selling, general and administrative is due to share based compensation for the six months ended June 30, 2011 of $50,500 as compared to $280,487 for the same period last year, a decrease of $229,987. During the six months ended June 30, 2010, we issued an aggregate of 1,500,000 fully vested options to our President and a consultant with a fair value of $277,301.

In addition, professional fees for the six months ended June 30, 2011 totaled $106,428 as compared to $173,348 for the same period last year, a $66,920 decrease. During the six months ended June 30, 2010, we incurred higher professional fees in connection with the filing of a Form S-1 registration statement as compared to the six months ended June 30, 2011.

Other Income and Expenses
 
For the six months ended June 30, 2011, we incurred $2,557 in interest expense which was offset by $332 in interest income compared to $10,466 in interest expense, which was offset by $945 in derivative instrument gain and by $296 in interest income for six months ended June 30, 2010.

Interest expense decreased by $7,909 primarily due to reduction in notes payable settled in 2010.  The decrease in derivative instrument expense during 2010 was a result of the adjustments in our past obligation under a shareholder anti-dilution agreement, which was treated as a derivative instrument and which has since been settled.

Net Loss
 
For the six months ended June 30, 2011, we incurred a net loss of $234,175 ($0.03 per share of common stock) as a result of the foregoing, compared to a net loss of $543,107 ($0.09 per share of common stock) for the six months ended June 30, 2010.
 
 
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Liquidity and Capital Resources

As of June 30, 2011, we had a working capital of $184,742.  For the six months ended June 30, 2011, we generated a net cash flow deficit from operating activities of $151,112 consisting primarily of a year to date loss of $234,175.  Non cash adjustments included $91,478 for share based compensation offset by a decrease in accounts payable and accrued liabilities of $8,415.  Cash provided by financing activities totaled $309,958 primarily from the sale of common stock, net of repayments of shareholder loans of $20,000. From time to time since our formation in 1993, we have sold shares to investors in private placement transactions. For the six months ended June 30, 2011, we sold an aggregate of 910,732 shares of our common stock for $329,958 in 13 different transactions. Except for anti-dilution protection provided to one shareholder in connection with investments made in 2007 and 2008, our financing transactions have not contained additional equity components (such as warrants) nor provide the investors with rights (such as piggyback or demand registration rights).
 
We expect to incur expenditures during the next 12 months, contingent upon raising capital. These anticipated expenditures are for marketing, advertising, equipment and overhead. We believe that we have sufficient funds to conduct our proposed operations for approximately six months, depending on revenues, but not for 12 months or more. If we are unable to raise any additional funds, we have sufficient capital for about six months of operation. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. However, based on years of experience of financing operations through the sale of securities, we believe we will generate sufficient capital to meet our needs for the next 12 months.
 
Although there are no assurances that we will be able to raise additional funds through the sale of securities, in the first six months of 2011 we raised $329,958, which is more funds than from the sale of securities that we achieved for the for the same period last year. In addition, as we have moved from development stage to actual operations, investors may be more willing to fund operations in the short-term. The private placements that occurred since January 2011 were with accredited investors that contacted us, either because they previously invested with us or were referred to us by word of mouth from existing investors, with approximately 50% of the investors in that period representing investors who had previously invested in our company. For each private placement, we negotiate the price per share with such potential investor, based upon the amount of money the potential investor desires to invest, recent trading activity and the current price of our common stock. 
 
 Other than possible family relationships between the existing and new investors, we are not aware of any material relationships between new and existing investors. We have not engaged in any sort of solicitation of potential investors. None of our advisors or consultants have been involved in any sort of fundraising activities on our behalf.

We do not currently have a sufficient amount of cash to cover our proposed operating costs. Our fixed operating expenses have been and are expected to continue to outpace revenue resulting in additional losses in the near term. By adjusting our operations to our current level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits for at least six months. However, if during that period, or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.
 
As of June 30, 2011, we had working capital of $184,742. At our current rate, we use about $25,200 per month for continuing operations, which includes general operating expenses (office lease, utilities, salary and insurance), promotion and marketing (travel, entertainment, meals and website development),  research and development (parts, engineering and testing), and professional services (accounting, legal, professional and state fees and intellectual property fees). We expect that our burn rate will increase to $30,000 per month by the end of the 2011, as we anticipate increased promotion and marketing expenses as we promote and market our products, including the attendance at approximately three to five industry trade shows and events.
 
If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, it could have a material adverse effect on our business, results of operations, liquidity and financial condition.

 
15

 
 
We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our history and historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to develop operations and become profitable. In order to obtain capital, we may need to sell additional shares of common stock or borrow funds from private lenders pursuant to instruments which are junior to our outstanding secured debt instruments. There can be no assurance that we will be successful in obtaining additional funding.
 
We will need additional financing in order to continue operations. Additional financings are being sought, but we cannot guarantee that we will be able to obtain such financings. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the low trading price of our common stock and a downturn in the U.S. stock and debt markets is likely to make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue 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 common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations
 
Our independent registered public accounting firm, in their report dated March 10, 2011 on our financial statements as of and for the year ended December 31, 2010, have included an emphasis of matter paragraph with respect to our ability to continue as a going concern. The existence of such a report may adversely affect our stock price and our ability to raise capital.

Stockholder Notes Payable
 
We previously received financing from Thomas Rickards, our Chief Executive Officer and sole Director. The outstanding stockholder loans bear interest of 10% per annum, compounding annually and are due on demand. We have not received any loans from Mr. Rickards since 2010 and do not have any agreement for or expectation of future loans.

Critical Accounting Policies

The accounting policies identified as critical are as follows:
 
 Revenue Recognition

We recognize revenue on four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (4) is based on management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectability of those fees. Revenue is earned for product shipped and sold by our distributor on a per unit basis.

Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Share-Based Compensation

Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. We measure the fair value of the share-based compensation issued to non-employees using the stock price observed in the arms-length private placement transaction nearest the measurement date (for stock transactions) or the fair value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

 
16

 
 
Net Loss per Common Share
 
Basic loss per share computed by dividing the net loss attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and warrants (using the “treasury stock” method), unless their effect on net loss per share is antidilutive. The effect of computing diluted loss per share is antidilutive and, as such, basic and diluted loss per share is the same for the three and six months ended June 30, 2011 and 2010.

Recently Issued Accounting Pronouncements
 
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on our financial position, results of operations or cash flows.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required under Regulation S-K for “smaller reporting companies.”

ITEM 4 - CONTROLS AND PROCEDURES

a) Evaluation of disclosure controls and procedures.
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of June 30, 2011. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
Based on our evaluation, our chief executive officer and chief financial officer concluded that, as a result of the material weaknesses described below, as of June 30, 2011, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are: 


 
17

 
 
a)
We did not have sufficient personnel in our accounting and financial reporting functions. As a result we were not able to achieve adequate separation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis; and
 
 
b)
We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of U.S. GAAP commensurate with out complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result.

We are committed to improving our accounting and financial reporting functions. As part of this commitment, we will create a segregation of duties consistent with control objectives and will look to increase our personnel resources and technical accounting expertise within the accounting function by the end of fiscal 2011 to appropriately address non-routine or complex accounting matters. In addition, we have engaged an outside consultant to provide additional knowledgeable personnel with technical accounting expertise to further support the current accounting personnel at the Company.
 
Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weaknesses: (A) lack of sufficient personnel in our accounting and financial reporting functions to achieve adequate segregation of duties; and (B) insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of US GAAP commensurate with our complexity and our financial accounting and reporting requirements. 

Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Chief Financial Officer and an accounting consultant, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

(b) Changes in internal control over financial reporting.
 
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
18

 
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
We are currently not a party to any material legal proceedings or claims.

Item 1A. Risk Factors
 
Not required under Regulation S-K for “smaller reporting companies.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 
 
On April 15, 2011, we issued 12,903 shares of our common stock to one accredited investor for $10,000. The securities were issued in a private placement transaction pursuant to Regulation D under the Securities Act of 1933, as amended.

On April 28, 2011, we issued 12,903 shares of our common stock to three accredited investors for $10,000. The securities were issued in a private placement transaction pursuant to Regulation D under the Securities Act of 1933, as amended.

On May 27, 2011, we issued 267,500 shares of our common stock to two accredited investors for $100,000. The securities were issued in a private placement transaction pursuant to Regulation D under the Securities Act of 1933, as amended.

During the three month period ended June 30, 2011, we issued an aggregate of 27,444 shares of Class A common stock to consultants and 50,000 shares of Class A common stock to our President in exchange for services rendered with an aggregate fair value of $75,878. The securities were issued in transactions pursuant to Section 4(2) and/or Regulation D under the Securities Act of 1933, as amended.

* All of the above offerings and sales were deemed to be exempt under either rule 506 of Regulation D and Section 4(2) or Rule 902 of Regulation S of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of Energy Telecom or executive officers of Energy Telecom, and transfer was restricted by Energy Telecom in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Except as expressly set forth above, the individuals and entities to whom we issued securities as indicated in this section are unaffiliated with us.
 
Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Reserved
 
 
19

 
 
Item 5. Other Information.
 
(a) Form 8-K Information
 
None.
 
(b) Director Nomination Procedures
 
We do not have a standing nominating committee nor are we required to have one. We do not have any established procedures by which security holders may recommend nominees to our Board of Directors, however, any suggestions on directors, and discussions of board nominees in general, is handled by the entire Board of Directors.

Item 6. Exhibits

31.01
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS
XBRL Instance Document*

101 SCH
XBRL Schema Document*

101 CAL
XBRL Calculation Linkbase Document*

101 LAB
XBRL Labels Linkbase Document*

101 PRE
XBRL Presentation Linkbase Document*

101 DEF
XBRL Definition Linkbase Document*

*
Submitted electronically herewith.  Attached as Exhibit 101 are the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) and tagged as blocks of text: (i) Condensed Balance Sheets at June 30, 2011 and December 31, 2010; (ii) Condensed Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010; (iii) Condensed Statements of Changes in Equity for the Six Months Ended June 30, 2011 and the Year Ended December 31, 2010; and (iv) Condensed Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010.  Pursuant to Rule 406T of Regulation S-T this data is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
 
 
20

 
 
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.
 
 
ENERGY TELECOM, INC.
     
Date: August 3, 2011
By:
/s/ THOMAS RICKARDS
   
Thomas Rickards
   
Chief Executive Officer (Principal Executive Officer)
     
     
Date: August 3,  2011
By:
 /s/ RONNY HALPERIN
   
Ronny Halperin
   
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
 
 
21