PFO Global, Inc. - FORM 10-Q

Attached files

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EX-31.2 - 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. - PFO Global, Inc.	energytelecom10qexh312.htm
EX-32.1 - 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. - PFO Global, Inc.	energytelecom10qexh321.htm
EX-31.1 - 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. - PFO Global, Inc.	energytelecom10qexh311.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, 2012

¨ 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 13, 2012, there were 8,618,581 and 600,000 shares of registrant’s class A and B common stock outstanding, respectively.

ENERGY TELECOM, INC.

INDEX
			Page
PART I.	FINANCIAL INFORMATION

	ITEM 1	Financial Statements

		Condensed balance sheets as of June 30, 2012 (unaudited) and December 31, 2011	3

		Condensed statements of operations for the three and six months ended June 30, 2012 and 2011 (unaudited)	4

		Condensed statement of changes in stockholders’ equity for the six months ended June 30, 2012 (unaudited)	5

		Condensed statements of cash flows for the six months ended June 30, 2012 and 2011 (unaudited)	6

		Notes to condensed financial statements (unaudited)	7-10

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-16

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	16

	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.	Mine Safety Disclosures	19

	ITEM 5.	Other Information	19

	ITEM 6.	Exhibits	19

	SIGNATURES		20

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENERGY TELECOM, INC.
CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2012			2011
	(unaudited)
ASSETS

CURRENT ASSETS
Cash	$	251,126		$	138,712
Accounts receivable, net		11,440			-
Prepaid expenses		31,000			-
Total current assets		293,566			138,712

Property and equipment, net		4,309			3,378

Total assets	$	297,875		$	142,090

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	61,339		$	40,481
Stockholder notes payable		13,486			18,486

Total current liabilities		74,825			58,967

STOCKHOLDERS' EQUITY
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 8,603,581 and 7,432,748 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively		860			743
Class B common stock, no par value, 10,000,000 shares authorized, 600,000 and 200,000 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively		300,000			-
Additional paid in capital		5,490,075			4,989,537
Accumulated deficit		(5,567,885	)		(4,907,157	)
Total stockholders' equity		223,050			83,123

Total liabilities and stockholders' equity	$	297,875		$	142,090

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

ENERGY TELECOM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
REVENUE:
Sales	$	-		$	-		$	13,719		$	950
Royalties		-			-			3,032			-
Total revenue		-			-			16,751			950

COST OF GOODS SOLD		-			-			11,217			-

Gross profit		-			-			5,534			950

OPERATING EXPENSES:
Selling, general and administrative expenses		491,714			139,608			663,145			232,900
Depreciation		401			-			711			-
Total operating expenses:		492,115			139,608			663,856			232,900

Loss from operations		(492,115	)		(139,608	)		(658,322	)		(231,950	)

OTHER INCOME (EXPENSE):
Interest income		121			252			191			332
Interest expense		(1,302	)		(1,202	)		(2,597	)		(2,557	)

Total other income (expense):		(1,181	)		(950	)		(2,406	)		(2,225	)

Net loss before provision for income taxes		(493,296	)		(140,558	)		(660,728	)		(234,175	)

PROVISION FOR INCOME TAXES
Income tax (benefit)		-			-			-			-

NET LOSS	$	(493,296	)	$	(140,558	)	$	(660,728	)	$	(234,175	)

Net loss per common share, basic and diluted	$	(0.06	)	$	(0.02	)	$	(0.08	)	$	(0.03	)

Weighted average number of common shares outstanding, basic and diluted		8,508,618			7,082,342			8,077,221			6,881,706

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

ENERGY TELECOM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(unaudited)


									Additional					Total
	Class A Common Stock				Class B Common Stock				Paid in		Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2011		7,432,748	$	743		200,000	$	-	$	4,989,537	$	(4,907,157	)	$	83,123
Sale of common stock		960,000		96		-		-		349,694		-			349,790
Common stock issued for services rendered		77,500		8		-		-		51,358		-			51,366
Common stock issuable as officer compensation		83,333		8		-		-		68,491		-			68,499
Common stock issued as prepaid compensation		50,000		5		-		-		30,995		-			31,000
Class B common stock issued as officer compensation		-		-		400,000		300,000		-		-			300,000
Net loss		-		-		-		-		-		(660,728	)		(660,728	)
Balance, June 30, 2012		8,603,581	$	860		600,000	$	300,000	$	5,490,075	$	(5,567,885	)	$	223,050

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

ENERGY TELECOM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)

	Six months ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(660,728	)	$	(234,175	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		711			-
Common stock issued for services rendered		51,366			40,978
Common stock issuable for officer compensation		368,499			50,500
Changes in operating assets and liabilities:
Increase in accounts receivable		(11,440	)		-
Increase (decrease) in accounts payable and accrued liabilities		20,858			(8,415	)
Net cash used in operating activities		(230,734	)		(151,112	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,642	)		-
Net cash used in investing activities		(1,642	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock		349,790			329,958
Repayments of shareholder loans		(5,000	)		(20,000	)
Net cash provided by financing activities		344,790			309,958

Net increase in cash		112,414			158,846

Cash beginning of period		138,712			87,643
Cash end of period	$	251,126		$	246,489

Supplemental disclosures of cash flow information:
Interest paid	$	-		$	-
Taxes paid	$	-		$	-

Supplemental disclosure for non-cash investing and financing activities:
Common stock issued for prepaid compensation	$	31,000		$	-

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

ENERGY TELECOM, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

(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 year ended December 31, 2011, 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 recognizes 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 six month period 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, 2011 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, 2011.

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, 2012 totaling $5,567,885. 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.

The Company’s independent registered public accounting firm, in their report dated March 15, 2012 on the Company’s financial statements as of and for the year ended December 31, 2011, have included an emphasis of matter paragraph with respect to the Company’s ability to continue as a going concern. The existence of such a report may adversely affect the Company’s stock price and its 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 seeks to sell 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.

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.

ENERGY TELECOM, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

(unaudited)

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 or as royalties upon shipment by the manufacturer as third party sales.

Revenue recognized in the six months ended June 30, 2012 relates to sales of product of $13,719 and royalties earned of $3,032.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of three to five years.

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 months ended June 30, 2012 and 2011.

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

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.

ENERGY TELECOM, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

(unaudited)

NOTE 5 — STOCKHOLDER NOTES PAYABLE

The Company has received financing from the Company’s founder, Chief Executive Officer, President and majority stockholder. 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, 2012 (unaudited) and December 31, 2011:

	June 30, 2012		December 31, 2011
Loans payable, due on demand, interest at 10%	$	13,486	$	18,486
Accrued interest		36,038		33,441
	$	49,524	$	51,927

The Company recognized interest expense associated with the notes of $1,302 and $2,597 for the three and six months ended June 30, 2012, respectively; and $1,202 and $2,557 for the three and six months ended June 30, 2011, respectively.

NOTE 6 — STOCKHOLDERS’ EQUITY

PRIVATE PLACEMENTS

During the six months ended June 30, 2012, the Company completed private placements of 960,000 shares of Class A common stock and has received proceeds totaling $349,790.

SHARES ISSUED TO CONSULTANTS

During the six months ended June 30, 2012, the Company issued an aggregate of 77,500 shares of Class A common stock to consultants in exchange for services rendered with a fair value totaling $51,366.

SHARES ISSUABLE AS COMPENSATION

During the six months ended June 30, 2012, the Company was obligated under employment contracts to issue 83,333 shares of Class A common stock as officer compensation with a fair value totaling $68,500 and 400,000 shares of Class B common stock with a fair value totaling $300,000. The issuance of the Class B common stock represented a signing bonus, fully earned at the date of issuance. In addition, the Company issued 50,000 shares of Class A common stock as prepaid compensation due under employment contracts with a fair value totaling $31,000.

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 received an annual salary of $36,000. In addition, Mr. Rickards received 200,000 shares of series A common stock that was paid in equal installments at the end of each calendar quarter and a $600 per month car allowance. The employment agreement expired on May 31, 2012

On June 1, 2012, the Company entered into a one year employment agreement with Tom Rickards, Chief Executive Officer, director and founder whereby Mr. Rickards shall receive (i) an annual salary of $36,000 which may be increased up to $72,000 by mutual agreement by Mr. Rickards and the Board of Directors and dependent on the financial strength of the Company and (ii) 400,000 shares of class A common stock and (the “Stock Salary”), with the Cash Salary payable in equal installments at the end of such regular payroll accounting periods as are established by Employer, or in such other installments upon which the parties hereto shall mutually agree . In addition, Mr. Rickards received 400,000 shares of series B common stock as a signing bonus and was fully earned upon issuance and a $600 per month car allowance.

ENERGY TELECOM, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

(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 $2,750 on a month-to-month basis. Total rent expense for the three and six month periods ended June 30, 2012 was $8,250 and $16,500, respectively; and $5,250 and $10,500 for the three and six month periods ended June 30, 2011, respectively.

As discussed in Note 5, 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.

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

On July 24, 2012, the Company issued an aggregate of 15,000 shares of Class A common stock for services rendered.

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 2011, we 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, and other online retailers, such as Abe’s of Maine, through their own online retail channel and online stores at Amazon.com. As such, we began recognizing revenues from sales of our product in the third quarter of 2011.

In February 2012, we entered into a Distributor Agreement with Honeywell. Honeywell intends to start selling sell our eyewear under its branded ‘ICOM’ name in multiple European countries and UVEX branded ‘AcccoustiMaxx’ in the United States.

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.

We have another 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 standards tests.

In July 2012, after several months of development, we completed the research and development of our new model 2.1 eyewear, for both the PPE and recreational markets, and approved the model for sale by our distribution partners. It has a new internal engineering design, and used Eastman copolyester plastics, new thermoplastic elastomer softening sections, and nylon parts in strategic areas for maximum resistance to impact. It has passed the impact requirements described by ANSI Z-87.1, and is being tested to higher impact requirements described in CAN/CSA Z94.3.

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:

	●	In November 2011, Honeywell presented its ‘ICOM’ branded eyewear model at the A+A Safety, Security and Health at Work International Trade Fair in Dusseldorf, Germany and its ‘AcccoustiMaxx’ branded eyewear model at the National Safety Council Congress and Expo, in Philadelphia, Pennsylvania. With the recently executed distribution agreement with Honeywell, we anticipate that they will begin marketing and selling the eyewear in the near future;
	●	Qmadix presented our eyewear at the Consumer Electronics Show in Las Vegas, Nevada in January 2012. 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;
	●	In an effort to proactively protect our intellectual property rights and to explore the possibility of strategic relationships, earlier this year, we contacted several global entertainment and communication companies showing interest in music, voice communication and gaming eyewear. Our utility patents provide exclusive rights for the use of integrated telecommunication eyewear, and we believe that these companies will be unable to develop products without entering into some sort of cooperation or licensing agreement with us;
	●	400 pairs of the model 2.1 eyewear for use in the recreational markets were manufactured in early August 2012, and are being readied for shipment to Qmadix, so they may fulfill outstanding orders from current Qmadix customers;

	●	We have one patent application pending in the United States, which we have been advised will be issued by the Patent and Trademark Officer on August 14, 2012 as US Patent 8,243,973. To better protect the rights of Energy’s manufacturing and distribution partners, we have filed Patent Cooperation Treaty patent applications in Canada, Australia, Germany, Great Britain, France, Italy, Spain, Japan, The Republic of China, and South Korea; 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, 2012 compared to the three months ended June 30, 2011

Revenue

We did not generate any revenue for the three months ended June 30, 2012 and 2011.

Cost of goods sold

We did not incur any cost of goods sold for the three months ended June 30, 2012 and 2011.

Expenses

For the three months ended June 30, 2012 and 2011, selling, general and administrative expenses totaled $491,714 and $139,608, respectively.

A summary comparison for the three months ended June 30, 2012 and 2011 is as follows:

	2012		2011
Professional fees	$	48,882	$	51,175
Office and utilities		16,971		8,845
Travel and promotion		1,939		8,127
Salaries and related taxes		9,681		9,688
Equity based compensation		318,000		50,500
Patents, trademarks and product develop		95,472		10,580
Other		769		693
Total	$	491,714	$	139,608

The primary increase in selling, general and administrative is due to share based compensation for the three months ended June 30, 2012 of $318,000 as compared to $50,500 for the same period last year, an increase of $267,500. During the three months ended June 30, 2012, we issued 400,000 shares of Class B common stock as a signing bonus to our Chief Executive Officer in connection with a new employment agreement, which was valued at $300,000 and 33,333 shares of Class A common stock in connection with the previous old employment agreement, which was valued at $18,000. In addition, our patent and trademark expenses increased $84,892 to $95,472 for the three months ended June 30, 2012 as compared to $10,580 for the same period last year, primarily due to product development cost payment of $49,595 and patent related legal costs of $45,465.

Depreciation

Deprecation for the three months ended June 30, 2012 was $401 as compared to $nil for the same period last year. Subsequent to June 30, 2011, we acquired office furniture and equipment.

Other Income and Expenses

For the three months ended June 30, 2012, we incurred $1,302 in interest expense which was offset by $121 in interest income compared to $1,202 in interest expense which was offset by $252 in interest income for the three months ended June 30, 2011.

Interest expense increased by $100, primarily due to compounding interest on notes payable.

Net Loss

For the three months ended June 30, 2012, we incurred a net loss of $493,296 ($0.06 per share of common stock) as a result of the foregoing, compared to a net loss of $140,558 ($0.02 per share of common stock) for the three months ended June 30, 2011.

Six months ended June 30, 2012 compared to the six months ended June 30, 2011

Revenue

We generated $16,751 in revenues for the six months ended June 30, 2012 as compared to $950 for the six months ended June 30, 2011. Revenue for six months ended June 30, 2012 was comprised of sales of $13,719 and earned royalties of $3,032 as compared to $950 in sales made to customers on a limited basis for the same period last year. The primary increase in revenue was the result of our sales by a distribution partner in the PPE market. We did not receive any revenue during the three months ended June 30, 2012, as we were working on finalizing the latest version of our eyewear. Several hundred eyewear have been produced for deliver to a distribution partner for further delivery to its customers. With the new version of the eyewear ready for production, we expect to see further increases in revenue in 2012 and even greater revenue in 2013. as our primary research and development is completed, the product is ready for sale, and we have entered into two distribution agreements and have requests about our product from other national marketers that have expressed interest in making purchase orders.

Cost of goods sold

Cost of goods sold for the six months ended June 30, 2012 were $11,217 as compared to $-0- for the same period last year. Sales for the six months ended June 30, 2011 were from sample inventories previously expensed in prior periods. Gross profit for the six months ended June 30, 2012 was $5,534 compared to $950 for the same period last year.

Expenses

For the six months ended June 30, 2012 and 2011, selling, general and administrative expenses totaled $663,145 and $232,900, respectively.

A summary comparison for the six months ended June 30, 2012 and 2011 is as follows:

	2012		2011
Professional fees	$	127,641	$	106,428
Office and utilities		31,718		21,415
Travel and promotion		6,456		14,098
Salaries and related taxes		19,583		19,505
Equity based compensation		368,500		50,500
Patents and trademarks		108,443		17,231
Other		804		3,723
Total	$	663,145	$	232,900

The primary increase in selling, general and administrative is due to share based compensation for the six months ended June 30, 2012 of $368,500 as compared to $50,500 for the same period last year, an increase of $318,000. During the six months ended June 30, 2012, we issued 400,000 shares of Class B common stock as a signing bonus to our Chief Executive Officer in connection with a new employment agreement, which was valued at $300,000 and 83,333 shares of Class A common stock in connection with the previous old employment agreement which was valued at $68,500 compared to 50,000 Class A common stock, which was valued at $50,500 or the same period last year. In addition, our patent and trademark expenses increased $91,212 to $108,443 for the six months ended June 30, 2012 as compared to $17,231 for the same period last year, primarily due to product development cost payment of $49,595 and patent related legal costs of $58,015.

Depreciation

Deprecation for the six months ended June 30, 2012 as $711 as compared to $nil for the same period last year. Subsequent to June 30, 2011, we acquired office furniture and equipment.

Other Income and Expenses

For the six months ended June 30, 2012, we incurred $2,597 in interest expense which was offset by $191 in interest income compared to $2,557 in interest expense which was offset by $332 in interest income for the six months ended June 30, 2011.

Interest expense increased by $40, primarily due to compounding interest on notes payable.

Net Loss

For the six months ended June 30, 2012, we incurred a net loss of $660,728 ($0.08 per share of common stock) as a result of the foregoing, compared to a net loss of $234,175 ($0.03 per share of common stock) for the six months ended June 30, 2011.

Liquidity and Capital Resources

As of June 30, 2012, we had working capital of $218,741. For the six months ended June 30, 2012, we generated a net cash flow deficit from operating activities of $230,734 consisting primarily of a year to date loss of $660,728. Non cash adjustments included $711 for depreciation, $368,499 for share based compensation and $51,366 for common stock issued for services and an increase in accounts payable and accrued liabilities of $20,858 offset by an increase in accounts receivable of $11,440. Cash used in investing activities totaled $1,642 from the purchase of property and equipment. Cash provided by financing activities totaled $344,790, primarily from the sale of common stock of $349,790, net with repayment of shareholder loan of $5,000. 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, 2012, we sold an aggregate of 960,000 shares of our class A common stock for $349,790 in two 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 capital expenditures during the next 12 months, contingent upon raising capital. These anticipated expenditures are for marketing, advertising, inventory, 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.

On March 12, 2012, we sold 960,000 shares of our common stock for cash proceeds of approximately $350,000. During the year ended December 31, 2011, we raised $329,958 from the sale of securities compared with $294,100 for the year ended December 31, 2010. 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. 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 and recent trading activity and price of our common stock. Other than one significant investor who received anti-dilution protection (which protection terminated in 2010) and the purchase price per share, we have not granted any investors any sort of different terms in our private placements.

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, 2012, we had working capital of $218,741. During the quarter ended June 30, 2012, we incurred significant one-time costs such as patent registration fees of approximately $47,000, moving costs of $5,000 and product development costs of approximately $50,000, which costs decreased our working capital and resulted in a temporary increase in our monthly burn rate. Other than product development costs of approximately $50,000 that we anticipate will be payable within the next six months, we currently do not anticipate a significant additional increase in spending. Without these added costs, our cash usage was $21,500 per month for continuing operations. We anticipate that we will use about $23,500 per month for continuing operations for the next quarter, 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 anticipate that our burn rate will increase to $30,000 per month by the end of the 2012 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. As a result, we currently have sufficient capital resources to continue operations for six to nine months, but not 12 months.

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.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We may seek 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

Loans Payable to Related Party

From time to time, we have received financing from Thomas Rickards, our Chief Executive Officer and sole Director. The stockholder loans bear interest of 10% per annum, compounding annually and are due on demand.

The following table summarizes stockholder notes payable as of June 30, 2012 (unaudited) and December 31, 2011:

	June 30, 2012		December 31, 2011
Loans payable, due on demand, interest at 10%	$	13,486	$	18,486
Accrued interest		36,038		33,441
	$	49,524	$	51,927

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 or as royalties upon shipment by the manufacturer as third party sales.

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.

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, 2012 and 2011.

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 the end of the period covered by this Quarterly Report on Form 10-Q. 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, 2012, 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:

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 as soon as our finances allow for additional personnel 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.

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2012 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

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

During the quarter ended June 30, 2012, we issued 400,000 shares of Class B common stock to Thomas Rickards, our Chief Executive Officer, as a signing bonus pursuant to his employment agreement. The securities were issued in an exempt transaction pursuant to Rule 4(2) and/or Regulation D under the Securities Act.

During the quarter ended June 30, 2012, we issued 133,333 shares of Class A common stock to Thomas Rickards, our Chief Executive Officer, as compensation pursuant to his employment agreement. The securities were issued in an exempt transaction pursuant to Rule 4(2) and/or Regulation D under the Securities Act.

During the quarter ended June 30, 2012, we issued an aggregate of 37,500 shares of Class A common stock to consultants in exchange for services rendered with an aggregate fair value of $23,501. 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. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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*

* Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive Data Files with detailed footnote tagging as Exhibit 101 in an amendment to this Form 10-Q within the permitted 30-day grace period granted for the first quarterly period in which detailed footnote tagging is required.

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 14, 2012	By:	/s/ THOMAS RICKARDS
		Thomas Rickards
		Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

PFO Global, Inc. - FORM 10-Q - August 14, 2012

Attached files

PFO Global, Inc. Reports