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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 

 
FORM 10-Q
 


x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2012
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-33173
 
Moller International, Inc.
(Exact name of registrant as specified in its charter)
 
California
 
68-0006075
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
     
1222 Research Park Drive, Davis CA
 
95618
(Address of Principal Executive Office)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (530) 756-5086

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, and (2) has been subject to such filing requirements for the past 90 days.   Yes  No ¨
 
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. (Check one):
 
Large accelerated filer   ¨
Accelerated filer   ¨
 
     
Non-accelerated filer        ¨
(Do not check if a smaller reporting company)
Smaller reporting company  x
 
                                                                                                                 
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 February 12, 2013, there were 49,076,716 shares of common stock outstanding.
 
 
TABLE OF CONTENTS
 
 
Page
PART I - FINANCIAL INFORMATION
 
   
  1
1
2
3
4
6
6
6
   
PART II - OTHER INFORMATION
 
   
7
7
7
7
7
7
   
8
   
EXHIBITS
 
Exhibit 31.1                  Certification Pursuant to Section 302 of the Sarbanes Oxley Act
 
Exhibit 31.2                  Certification Pursuant to Section 302 of the Sarbanes Oxley Act
 
Exhibit 32.1                  Certification Pursuant to Section 906 of the Sarbanes Oxley Act
 
Exhibit 32.2                  Certification Pursuant to Section 906 of the Sarbanes Oxley Act
 

 
 PART I - FINANCIAL INFORMATION
 
ITEM 1 – FINANCIAL STATEMENTS
 
MOLLER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
 Unaudited
 
   
December 31, 2012
   
June 30, 2012
 
ASSETS
           
CURRENT ASSETS
           
Cash
 
$
513
   
$
2,123
 
Advances to employees
   
49
     
-
 
Prepaid Expenses
   
4,040
     
-
 
Total current assets
   
4,602
     
2,123
 
                 
PROPERTY AND EQUIPMENT, net
   
8,312
     
8,776
 
                 
OTHER NON-CURRENT ASSETS
   
-
     
319
 
Total other assets
   
-
     
319
 
                 
   
$
12,914
   
$
11,218
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
CURRENT LIABILITIES
               
Accounts payable, trade
 
$
699,026
   
$
710,417
 
Accrued liabilities
   
722,743
     
668,499
 
Accrued liabilities-majority shareholder
   
5,483,225
     
5,098,484
 
Notes payable-other
   
981,182
     
981,182
 
Note payable - majority shareholder
   
2,756,488
     
2,767,662
 
Convertible notes payable, net of discount of $0 and $64,347
   
231,380
     
163,033
 
Notes payable - minority shareholders
   
178,603
     
178,603
 
Derivative Liability
   
181,103
     
142,327
 
Deferred wages - employees
   
806,414
     
720,034
 
Customer deposits
   
389,767
     
389,767
 
Total current liabilities
   
12,429,931
     
11,820,008
 
LONG TERM LIABILITIES
               
Deferred wages and interest-majority shareholder
   
922,657
     
778,123
 
                 
Total liabilities
   
13,352,588
     
12,598,131
 
                 
DEFICIT IN STOCKHOLDERS' DEFICIT
               
Common stock, authorized, 150,000,000 shares, no par value
49,076,716 and 48,990,896 issued and outstanding respectively
   
38,038,144
     
38,018,888
 
Accumulated deficit
   
(51,377,818
)
   
(50,605,801
)
Total stockholders' deficit
   
(13,339,674
)
   
(12,586,913
)
   
$
12,914
   
$
11,218
 
 
See accompanying notes to unaudited consolidated financial statements.
 
 
MOLLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
 
   
Three Months Ended
   
Six Months Ended
 
   
December 31, 2012
   
December 31, 2011
   
December 31, 2012
   
December 31, 2011
 
REVENUE
                       
      Other revenue
 
$
-
   
$
10,163
   
$
-
   
$
9,652
 
                                 
OPERATING EXPENSES
                               
Selling, general and administrative
   
159,115
     
201,368
     
312,206
     
360,071
 
Rent expense to majority shareholder
   
91,252
     
115,617
     
121,304
     
132,459
 
Total expenses
   
250,367
     
316,985
     
433,510
     
492,530
 
                                 
Operating Loss
   
(250,367
)
   
(306,822
)
   
(433,510
)
   
(482,878
)
                                 
OTHER EXPENSE
                               
     Derivative loss
   
-
     
-
     
(38,776)
     
-
 
     Interest expense
   
(37,098
)
   
(28,687
)
   
(141,856
)
   
(56,650
)
     Interest expense- majority shareholder
   
(80,033
)
   
(78,912
)
   
(157,875
)
   
(157,717
)
                Total other expense
   
(117,131
)
   
(107,599
)
   
(338,507
)
   
(214,367
)
                                 
NET INCOME (LOSS)
 
$
(367,498
)
 
$
(414,421
)
 
$
(772,017
)
 
$
(697,245
)
                                 
Loss per common share, basic
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.01
)
Loss per common share, diluted
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.01
)
Weighted average common shares outstanding - Basic
   
49,074,522
     
48,648,930
     
49,057,799
     
48,573,656
 
Weighted average common shares outstanding - Diluted
   
49,074,522
     
48,648,930
     
49,057,799
     
48,573,656
 
       
 
See accompanying notes to unaudited consolidated financial statements.
 
 
MOLLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 
   
Six Months Ended
 
   
December 31
   
December 31
 
   
2012
   
2011
 
Cash Flows From Operating Activities
           
Net loss
 
$
(772,017
)
 
$
(697,245
)
Adjustments to reconcile net loss to net cash   
   Provided by (used in) operating activities:
               
    Depreciation expense
   
466
     
464
 
    Derivative (gain)/loss
   
38,776
     
-
 
    Stock based compensation
   
19,255
     
71,804
 
    Debt discount amortization
   
68,347
     
-
 
Change in assets and liabilities:
               
    Prepaid expenses
   
(4,088
)
   
-
 
    Other assets
   
319
     
4,202
 
    Accounts payable
   
(29,509
)
   
12,076
 
    Accrued liabilities - related parties
   
529,275
     
399,184
 
    Accrued liabilities and deferred wages
   
158,739
     
274,158
 
Net Cash Provided By (Used in) Operating Activities
 
$
9,563
   
$
64,643
 
                 
Cash Used in Investing Activities
               
   Repayment of advances to employees
 
$
-
   
$
814
 
Net Cash Provided by (Used in) Investing Activities
 
$
-
   
$
814
 
                 
Cash Flows Provided from Financing Activities
               
   Principal borrowing on debt
   
-
     
33,000
 
   Payments on related party note payable
   
(11,173
)
   
(116,594
)
Net Cash Provided by (Used in) Financing Activities
 
$
(11,173
)
 
$
(83,594
)
                 
Net Increase (Decrease) In Cash
 
$
(1,610
)
 
$
(18,137
)
Cash, Beginning of Year
 
$
2,123
   
$
24,217
 
Cash, End of Year
 
$
513
   
$
6,080
 
                 
Supplemental Cash Flow Information:
               
Interest paid
 
$
31,376
   
$
-
 
Income taxes paid
   
-
     
-
 
Supplemental Disclosure of Non-Cash
Financing Activities:
               
Shares issued as repayment customer deposit
   
-
     
5,500
 

See accompanying notes to unaudited consolidated financial statements.
 
 
Moller International, Inc.
Notes To Consolidated Financial Statements
Unaudited

NOTE A – ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited financial statements of Moller International, Inc. (“MI”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q.  Accordingly, these financial statements may not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended June 30, 2012 filed on Form 10-K. In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present MI’s financial position as of December 31, 2012, and its results of operations and its cash flows for the six months ended December 31, 2012 and 2011. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for 2012 as reported in the 10-K have been omitted.
 
Embedded conversion features

The Company evaluates embedded conversion features within convertible debt and convertible preferred stock under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion features should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

NOTE B – GOING CONCERN

As of December 31, 2012, MI had an accumulated deficit of $51,377,818 and a working capital deficit of $12,425,329.  In addition, MI is currently in the development stage of the Skycar and Rotapower engine programs, and has no revenue producing products.  Successful completion of product development activities for either or both of these programs will require significant additional sources of capital. These conditions raise substantial doubt as to our ability to continue as a going concern. Historically, funding was provided by certain shareholders, including the majority shareholder, in the form of short-term notes payable. In addition, the majority shareholder granted us a deferral on the payment of rent for our building. There is no assurance that we will continue to receive funding from shareholders, particularly our major shareholder given he has filed for protection under the federal Chapter 11 reorganization provisions of the federal bankruptcy law. Consequently, we are evaluating several alternatives to raise the additional capital through debt or equity transactions.  There is no assurance that our efforts will be successful, however, and the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
NOTE C – NOTES PAYABLE & DERIVATIVE LIABILITIES

Notes Payable
 
During the six months ended December 30, 2012 and 2011 MI made repayments on related party notes payable of $11,173 and $116,594 respectively.

During the six months ended December 30, 2012 and 2011 MI received $0 and $33,000 related to promissory notes.

Convertible Notes Payable & Derivative Liabilities

At December 31, 2012 the Company has $231,380 outstanding related to convertible promissory notes.   The convertible notes accrue interest at 10% per annum and matured at various dates prior to September 30, 2012.  The notes were not repaid upon maturity and are convertible into shares of MI common stock at a conversion ratio of 15% below the market price of MI common stock at the time of conversion.  Discount amortization charged to interest expense during the six months ended December 31, 2012, totaled $68,347.
 
 
The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as liabilities due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion features were measured at fair value at inception with the change in fair value recorded to earnings. Additionally, because there is no explicit limit to the number of shares to be issued upon conversion of the above instruments, the Company cannot determine if it will have sufficient authorized shares to settle all other share-settleable instruments, including the warrants granted above.  As a result, all other share-settable instruments have also been classified as liabilities.

Derivative Liabilities
     
June 30, 2012
 
$
142,327
 
Change in fair value
   
38,776
 
December 31, 2012
 
$
181,103
 
 
NOTE D – STOCK-BASED COMPENSATION

During the six months ended December 31, 2012, MI issued 85,820 shares of common stock for settlement of services to outside consultants and certain employees.  We valued these shares at the fair market value on the dates of issuance of $9,412.

No warrants were issued or forfeited during the six months ended December 31, 2012.  A total of 437,760 warrants with a weighted average exercise price of $0.13 and a weighted average remaining life of 3.17 years were outstanding and exercisable as of December 31, 2012.
 
During the six months ended December 31, 2012, MI issued 100,000 common stock purchase options at $0.085 per share.  The options vested immediately and expire on November 29, 2017.  No options were forfeited during the six months ended December 31, 2012. A total of 32,197,740 options with a weighted average exercise price of $0.13 and a weighted average remaining life of 2.96 years were outstanding and exercisable as of December 31, 2012.  

NOTE E – FAIR VALUE MEASUREMENTS
 
The Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
 
 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
 
Level 2
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
 
 
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
The following table sets forth the Company's consolidated financial assets and liabilities measured at fair value by level within the fair value hierarchy as of December 31, 2012 and June 30, 2012. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
LIABILITIES:
                       
                         
Derivative liabilities- 12/31/2012
   
181,103
     
-
     
-
     
181,103
 
Derivative liabilities – 6/30/2012
   
142,327
                     
142,327
 
 

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations
 
Three months Ended December 31, 2012 and December 31, 2011:
 
For the three-months ended December 31, 2012, we had a net loss of $367,498 or $0.01 loss per share as compared to a net loss of $414,421 or $0.01 loss per share for the same period of 2011.  The decreased loss relates, primarily to decreased marketing costs and professional services costs.   We continue to pursue the development activities on the Skycar, Rotapower engine project, primarily in the areas of its flight control system (FCS) and the performance advantages of introducing a hybrid approach to generating the high power required to take off and land. Although there is no assurance that this vehicle will meet with success in the market place, the Company is actively seeking support for the program and, if found, may choose to move into the production of these vehicles.

Six months Ended December 31, 2012 and December 31, 2011:
 
For the six-months ended December 31, 2012, we had a net loss of $772,017 or $0.02 loss per share as compared to a net loss of $697,245 or $0.01 loss per share for the same period of 2011.  The increased loss relates, primarily to interest expense on the companies promissory notes, and other interest bearing agreements.  Also, we incurred a derivative loss associated with our convertible notes payables (see Note C to the Consolidated Financial Statements).  We continue to pursue the development activities on the Skycar, Rotapower engine project, primarily in the areas of its flight control system (FCS) and the performance advantages of introducing a hybrid approach to generating the high power required to take off and land. Although there is no assurance that this vehicle will meet with success in the market place, the Company is actively seeking support for the program and, if found, may choose to move into the production of these vehicles.
Going Concern and Liquidity

As of December 31, 2012, MI had an accumulated deficit of $51,377,818  and a working capital deficit of $12,425,329.  In addition, MI is currently in the development stage of the Skycar and Rotapower engine programs, and has no revenue producing products.  Successful completion of product development activities for either or both of these programs will require significant additional sources of capital. These conditions raise substantial doubt as to our ability to continue as a going concern. Historically, funding was provided by certain shareholders, including the majority shareholder, in the form of short-term notes payable. In addition, the majority shareholder granted us a deferral on the payment of rent for our building. There is no assurance that we will continue to receive funding from shareholders, particularly our major shareholder given he has filed for protection under the federal Chapter 11 reorganization provisions of the federal bankruptcy law. Consequently, we are evaluating several alternatives to raise the additional capital through debt or equity transactions.  There is no assurance that our efforts will be successful, however, and the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
ITEM 3 – QUALITATIVE AND QUANTITATIVE CONCERNS ABOUT MARKET RISK

As a smaller reporting company we are not required to report items under this section.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our President, Paul Moller, acts as the "Certifying Officer" for the Company and is responsible for establishing and maintaining disclosure controls and procedures. The Certifying Officer has designed such disclosure controls and procedures to ensure that material information is made known to him, particularly during the period in which this report was prepared. The Certifying Officer has evaluated the effectiveness of our disclosure controls and procedures as of the date of this report and believes that the disclosure controls and procedures are not effective based on the required evaluation. We believe this is due to the limited resources devoted to accounting and financial reporting during this reporting period and the Company will continue to remedy the shortfall by hiring additional personnel to address its accounting and financial reporting functions as soon as possible and when funding becomes available.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the company’s internal controls over Financial Reporting since the year ended June 30, 2012, although the Company has reviewed its internal controls relative to the Sarbanes-Oxley Act provisions and expects that there will be revisions to some of its existing processes and controls during the current fiscal year. 
 

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS
 
None.
 
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS; PURCHASES OF EQUITY SECURITIES

Not applicable

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 – OTHER MATTERS

(a.) Reports on Form 8-K

The following reports were filed on Form 8-K during the period subsequent to December 31, 2012.

January 15, 2013 reported that Moller International had entered into a material agreement Athena Technologies Inc. of Harbor City, California (Athena).  The parties agreed to form a joint venture with to produce Moller International’s vertical take-off and landing (VTOL) aircraft.  The agreement states that the newly formed Joint Venture (JV) is to provide Moller International with funding for US operations and paid consulting services for an as yet undetermined amount.  Furthermore the objective of the JV is to seek out and establish agreements for aircraft production and assembly facilities in the Public’s Republic of China. In addition to the paid services and support for US operations, Athena and/or additional JV partners will provide Moller International with a minority position in any new venture which might be established in the People’s Republic that assembles or distributes Moller International’s aircraft.
 
None
 
ITEM 6 – EXHIBITS
 
(a.)  Exhibits
 
Exhibit No.
 
Description
 
       
31.1
   
31.2
   
32.1
   
32.2
   
101.INS
 
XBRL Instance Document
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
MOLLER INTERNATIONAL, INC.
 
       
Date:  February 14, 2013
By:
/s/ Paul S. Moller 
 
   
Paul S. Moller, Ph.D.
 
   
President, CEO, Chairman of the Board