Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
|
22-3337365
(I.R.S. Employer Identification No.)
|
|
5744 Pacific Center Blvd. Suite 311
San Diego, CA 92121
(Address of Principal Executive Offices)
|
(858) 750-3875
(Issuer's Telephone Number,
Including Area Code)
|
PART I - FINANCIAL INFORMATION
|
|
ITEM 1. Financial Statements (Unaudited)
|
|
Condensed Balance Sheets as of June 30, 2011 and December 31, 2010
|
3
|
Condensed Statements of Operations for the three and six months
|
|
ended June 30, 2011 and 2010
|
4
|
Condensed Statements of Cash Flows for the six months
|
|
ended June 30, 2011 and 2010
|
5
|
Notes to Condensed Financial Statements
|
6-10
|
ITEM 2. Management's Discussion and Analysis
|
|
Of Financial Condition and Results of Operations
|
11-22
|
ITEM 3. Quantitative and Qualitative
|
|
Disclosure About Market Risk
|
23
|
ITEM 4. Controls and Procedures
|
23
|
Part II — OTHER INFORMATION
|
|
ITEM 1. Legal Proceedings
|
24
|
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
24
|
ITEM 3. Defaults Upon Senior Securities
|
24
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ITEM 4. Reserved
|
24
|
ITEM 5. Other Information
|
24
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ITEM 6. Exhibits
|
24
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Signatures
|
25
|
Certification of Chief Executive Officer as Adopted
|
26 |
Certification of Chief Financial Officer as Adopted
|
28 |
June 30, 2011
|
December 31, 2010
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash
|
$ | 856,383 | $ | 2,567,607 | ||||
Accounts receivable, net
|
41,540 | 106,066 | ||||||
Inventory
|
185,056 | 217,119 | ||||||
Prepaid expenses and other current assets
|
53,267 | 22,550 | ||||||
Total Current Assets
|
1,136,246 | 2,913,342 | ||||||
PROPERTY AND EQUIPMENT, Net
|
112,705 | 64,847 | ||||||
OTHER ASSETS:
|
||||||||
Patents, net
|
146,380 | 141,907 | ||||||
Deposits
|
91,104 | 36,971 | ||||||
Goodwill
|
1,929,963 | 1,929,963 | ||||||
Total Other Assets
|
2,167,447 | 2,108,841 | ||||||
Total Assets
|
$ | 3,416,398 | $ | 5,087,030 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable and accrued expenses
|
$ | 710,771 | $ | 687,168 | ||||
Total Current Liabilities
|
710,771 | 687,168 | ||||||
LONG TERM LIABILITIES
|
||||||||
Deferred rent
|
41,388 | 11,282 | ||||||
Deferred tax liability
|
474,486 | 449,513 | ||||||
Total Long Term Liabilities
|
515,874 | 460,795 | ||||||
Total Liabilities
|
1,226,645 | 1,147,963 | ||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
STOCKHOLDERS' EQUITY:
|
||||||||
Series B, C-1 and D Convertible Preferred Stock, $.001 par
|
||||||||
value, 10,000,000 shares authorized, 488,377 and
|
||||||||
500,877 issued and outstanding in 2011 and
|
||||||||
2010, respectively
|
488 | 501 | ||||||
Common stock, $.001 par value, 350,000,000 shares
|
||||||||
authorized, 54,346,832 and 49,005,733
|
||||||||
issued and outstanding in 2011 and 2010,
|
||||||||
respectively
|
54,347 | 49,006 | ||||||
Additional paid-in capital
|
47,372,726 | 46,737,632 | ||||||
Accumulated deficit
|
(45,237,808 | ) | (42,848,072 | ) | ||||
Total Stockholders' Equity
|
2,189,753 | 3,939,067 | ||||||
Total Liabilities and Stockholders' Equity
|
$ | 3,416,398 | $ | 5,087,030 |
For the three months ended
June 30,
|
For the six months ended
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
REVENUES
|
$ | 112,165 | $ | 125,575 | $ | 270,771 | $ | 235,605 | ||||||||
COST OF REVENUES
|
||||||||||||||||
Materials, labor and overhead
|
82,890 | 108,752 | 191,404 | 201,022 | ||||||||||||
Inventory obsolescence
|
24,239 | - | 44,633 | - | ||||||||||||
Total Cost of Revenues
|
107,129 | 108,752 | 236,037 | 201,022 | ||||||||||||
GROSS PROFIT
|
5,036 | 16,823 | 34,734 | 34,583 | ||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||
Research and development
|
284,913 | 145,939 | 577,921 | 315,618 | ||||||||||||
Selling, general and administrative
|
680,011 | 652,388 | 1,269,768 | 1,270,552 | ||||||||||||
Depreciation and amortization
|
9,489 | 11,826 | 19,960 | 26,263 | ||||||||||||
Total Costs and Expenses
|
974,413 | 810,153 | 1,867,649 | 1,612,433 | ||||||||||||
LOSS FROM OPERATIONS
|
(969,377 | ) | (793,330 | ) | (1,832,915 | ) | (1,577,850 | ) | ||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||
Interest income
|
1,756 | 1,652 | 5,596 | 1,657 | ||||||||||||
Interest expense
|
- | (934,649 | ) | - | (934,649 | ) | ||||||||||
Change in fair value of warrant liability
|
- | 309,200 | - | 824,082 | ||||||||||||
Total Other Income (Expense)
|
1,756 | (623,797 | ) | 5,596 | (108,910 | ) | ||||||||||
LOSS BEFORE PROVISION FOR INCOME TAXES
|
(967,621 | ) | (1,417,127 | ) | (1,827,319 | ) | (1,686,760 | ) | ||||||||
PROVISION FOR INCOME TAXES
|
12,486 | 14,384 | 24,973 | 27,120 | ||||||||||||
NET LOSS
|
(980,107 | ) | (1,431,511 | ) | (1,852,292 | ) | (1,713,880 | ) | ||||||||
DIVIDENDS PAID OR PAYABLE ON SERIES B, C-1 AND D PREFERED STOCK
|
265,344 | 2,692,641 | 537,444 | 2,900,751 | ||||||||||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$ | (1,245,451 | ) | $ | (4,124,152 | ) | $ | (2,389,736 | ) | $ | (4,614,631 | ) | ||||
BASIC AND FULLY DILUTED LOSS PER
|
||||||||||||||||
COMMON SHARE
|
$ | (0.02 | ) | $ | (0.09 | ) | $ | (0.05 | ) | $ | (0.10 | ) | ||||
WEIGHTED AVERAGE COMMON
|
||||||||||||||||
SHARES OUTSTANDING, BASIC
|
||||||||||||||||
AND DILUTED
|
50,301,690 | 45,091,830 | 50,065,247 | 44,959,591 |
For the six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$ | (1,852,292 | ) | $ | (1,713,880 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
23,761 | 26,263 | ||||||
Warrants and options issued to employees and consultants
|
102,978 | 134,974 | ||||||
Change in fair value of warrant liability
|
- | (824,082 | ) | |||||
Noncash interest expense related to debt discount
|
- | 818,542 | ||||||
Loss on sale of equipment
|
1,653 | - | ||||||
Inventory obsolescence
|
44,633 | - | ||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable, net
|
64,526 | (25,958 | ) | |||||
Inventory
|
(12,570 | ) | 80,352 | |||||
Prepaid expenses and other current assets
|
(30,717 | ) | (53,967 | ) | ||||
Deposits
|
(54,133 | ) | - | |||||
Accounts payable and accrued expenses
|
23,603 | 464,402 | ||||||
Deferred tax liability
|
24,973 | 24,973 | ||||||
Deferred rent
|
30,106 | (4,102 | ) | |||||
Net Cash Used in Operating Activities
|
(1,633,479 | ) | (1,072,483 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Costs related to patent applications
|
(5,745 | ) | (12,716 | ) | ||||
Purchases of property and equipment
|
(80,500 | ) | - | |||||
Sale of property and equipment
|
8,500 | - | ||||||
Net Cash Used in Investing Activities
|
(77,745 | ) | (12,716 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from issuance of equity securities
|
- | 3,766,200 | ||||||
Proceeds from issuance of notes payable
|
- | 1,687,083 | ||||||
Repayment of notes payable
|
- | (450,000 | ) | |||||
Fees paid to investment banks for equity financing
|
- | (113,270 | ) | |||||
Net Cash Provided by Financing Activities
|
- | 4,890,013 | ||||||
Increase (Decrease) in cash
|
(1,711,224 | ) | 3,804,814 | |||||
Cash at beginning of period
|
2,567,607 | 247,564 | ||||||
Cash at end of period
|
$ | 856,383 | $ | 4,052,378 |
June 30, 2011
|
December 31, 2010
|
|||||||
Raw materials
|
$ | 179,684 | $ | 170,251 | ||||
Finished goods
|
5,372 | 46,868 | ||||||
Inventories
|
$ | 185,056 | $ | 217,119 |
Six Months Ended June 30, 2011
|
Six Months Ended June 30, 2010
|
|||||||
Net loss attributable to common shareholders
|
$ | (2,389,736 | ) | $ | (4,614,631 | ) | ||
Basic weighted average number of common shares outstanding
|
50,065,247 | 44,929,591 | ||||||
Dilutive effect of stock options
|
- | - | ||||||
Diluted weighted average number of common shares outstanding
|
50,065,247 | 44,929,591 | ||||||
Basic and diluted loss per share
|
$ | (0.05 | ) | $ | (0.10 | ) |
2011
|
2010
|
|||||||
Income/franchise taxes
|
$ | 14,697 | $ | 9,239 |
2011
|
2010
|
|||||||
Common stock issued to vendors
|
$ | - | $ | 60,000 | ||||
Senior secured notes converted into Series D preferred stock
|
$ | - | $ | 1,237,083 | ||||
Accrued interest and accrued wages converted into Series D preferred stock
|
$ | - | $ | 181,718 | ||||
Preferred stock dividend recognized for beneficial conversion features of preferred stock issuances
|
$ | - | $ | 2,556,165 | ||||
Preferred stock dividends paid or payable in common stock
|
$ | 537,444 | $ | 344,586 | ||||
Three Months Ended June 30, 2011
|
Three Months Ended June 30, 2010
|
Six Months Ended June 30, 2011
|
Six Months
Ended June 30, 2010
|
|||||||||||||
Revenues
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues
|
95.5 | 86.6 | 87.2 | 85.3 | ||||||||||||
Gross profit
|
4.5 | 13.4 | 12.8 | 14.7 | ||||||||||||
Costs and expenses:
|
||||||||||||||||
Research and development
|
254.0 | 116.2 | 213.4 | 134.0 | ||||||||||||
Selling, general and administrative
|
606.3 | 519.5 | 468.9 | 539.3 | ||||||||||||
Depreciation and amortization
|
8.5 | 9.5 | 7.4 | 11.1 | ||||||||||||
Total expenses
|
868.8 | 645.2 | 689.7 | 684.4 | ||||||||||||
Loss from operations
|
(864.3 | ) | (631.8 | ) | (676.9 | ) | (669.7 | ) | ||||||||
Other income (expense)
|
1.6 | (496.7 | ) | 2.1 | (46.6 | ) | ||||||||||
Loss before provision for income taxes
|
(862.7 | ) | (1,128.5 | ) | (674.8 | ) | (715.9 | ) | ||||||||
Provision for income taxes
|
11.1 | 11.5 | 9.2 | 11.5 | ||||||||||||
Net loss
|
(873.8 | ) | (1,140.0 | ) | (684.0 | ) | (727.4 | ) | ||||||||
Dividends paid or payable on Series B, C-1 and D Preferred Stock
|
236.6 | 2,144.2 | 198.5 | 1,231.2 | ||||||||||||
Net loss attributable to common shareholders
|
(1,110.4 | ) | (3,284.2 | ) | (882.5 | ) | (1,958.6 | ) |
Balance, January 1, 2010
|
$ | 2,648 | ||
Additions
|
6,327 | |||
Deductions
|
(6,895 | ) | ||
Balance, December 31, 2010
|
$ | 2,080 | ||
Additions
|
9,876 | |||
Deductions
|
(8,760 | ) | ||
Balance, June 30, 2011
|
$ | 3,196 |
31.1
|
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification by the Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification by the Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
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
|
Date: August 15, 2011
|
POWER EFFICIENCY CORPORATION
(Company)
By: /s/ Steven Strasser
|
Chief Executive Officer (principal executive officer)
|
|
Date: August 15, 2011
|
By: /s/ John Lackland
|
Chief Financial Officer (principal financial and accounting officer)
|
|
I have reviewed this Quarterly Report on Form 10-Q for the period ending June 30, 2011 of Power Efficiency Corporation;
|
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: August 15, 2011
|
|
/s/ Steven Z. Strasser
|
|
Steven Z. Strasser
|
|
Chief Executive Officer
|
|
(principal executive officer)
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q for the period ending June 30, 2011 of Power Efficiency Corporation;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: August 15, 2011
|
|
/s/ John (BJ) Lackland
|
|
John (BJ) Lackland
|
|
Chief Financial Officer
|
|
(principal financial officer)
|
1.
|
The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and
|
2.
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
BY:
|
/s/ Steven Strasser
|
Steven Strasser
|
|
Chief Executive Officer
|
|
(principal executive officer)
|
1.
|
The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and
|
2.
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
BY:
|
/s/ John Lackland
|
John Lackland
|
|
Chief Financial Officer
|
|
(principal financial officer)
|
CONDENSED BALANCE SHEETS (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Series B, C-1 and D Convertible Preferred Stock, par value | $ 0.001 | $ 0.001 |
Series B, C-1 and D Convertible Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Series B, C-1 and D Convertible Preferred Stock, issued | 488,377 | 500,877 |
Series B, C-1 and D Convertible Preferred Stock, outstanding | 488,377 | 500,877 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 350,000,000 | 350,000,000 |
Common stock, issued | 54,346,832 | 49,005,733 |
Common stock, outstanding | 54,346,832 | 49,005,733 |
CONDENSED STATEMENTS OF OPERATIONS (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
REVENUES | $ 112,165 | $ 125,575 | $ 270,771 | $ 235,605 |
COST OF REVENUES | Â | Â | Â | Â |
Materials, labor and overhead | 82,890 | 108,752 | 191,404 | 201,022 |
Inventory obsolescence | 24,239 | Â | 44,633 | Â |
Total Cost of Revenues | 107,129 | 108,752 | 236,037 | 201,022 |
GROSS PROFIT | 5,036 | 16,823 | 34,734 | 34,583 |
COSTS AND EXPENSES: | Â | Â | Â | Â |
Research and development | 284,913 | 145,939 | 577,921 | 315,618 |
Selling, general and administrative | 680,011 | 652,388 | 1,269,768 | 1,270,552 |
Depreciation and amortization | 9,489 | 11,826 | 19,960 | 26,263 |
Total Costs and Expenses | 974,413 | 810,153 | 1,867,649 | 1,612,433 |
LOSS FROM OPERATIONS | (969,377) | (793,330) | (1,832,915) | (1,577,850) |
OTHER INCOME (EXPENSE): | Â | Â | Â | Â |
Interest income | 1,756 | 1,652 | 5,596 | 1,657 |
Interest expense | Â | (934,649) | Â | (934,649) |
Change in fair value of warrant liability | Â | 309,200 | Â | 824,082 |
Total Other Income (Expense) | 1,756 | (623,797) | 5,596 | (108,910) |
LOSS BEFORE PROVISION FOR INCOME TAXES | (967,621) | (1,417,127) | (1,827,319) | (1,686,760) |
PROVISION FOR INCOME TAXES | 12,486 | 14,384 | 24,973 | 27,120 |
NET LOSS | (980,107) | (1,431,511) | (1,852,292) | (1,713,880) |
DIVIDENDS PAID OR PAYABLE ON SERIES B, C-1 AND D PREFERED STOCK | 265,344 | 2,692,641 | 537,444 | 2,900,751 |
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ (1,245,451) | $ (4,124,152) | $ (2,389,736) | $ (4,614,631) |
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE | $ (0.02) | $ (0.09) | $ (0.05) | $ (0.10) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED | 50,301,690 | 45,091,830 | 50,065,247 | 44,959,591 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 10, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Trading Symbol | PEFF | Â |
Entity Registrant Name | POWER EFFICIENCY CORP | Â |
Entity Central Index Key | 0001024075 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 54,346,832 |
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EARNINGS PER SHARE
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Jun. 30, 2011
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EARNINGS PER SHARE |
NOTE 7 – EARNINGS PER SHARE
The
Company accounts for its earnings per share in accordance with ASC
260, Earnings Per
Share, which requires presentation of basic and diluted
earnings per share. Basic earnings per share is computed by
dividing income or loss attributable to common shareholders by the
weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflect the
potential dilution that could occur if securities or other
contracts, such as stock options, to issue common stock were
exercised or converted into common stock.
For
the six months ended June 30, 2011, warrants and options to
purchase 65,374,324 shares of common stock at per share exercise
prices ranging from $0.09 to $19.25 were not included in the
computation of diluted loss per share because inclusion would have
been anti-dilutive. For the six months ended June 30, 2010,
warrants and options to purchase 68,128,307 shares of common stock
at per share exercise prices ranging from $0.11 to $19.25 were not
included in the computation of diluted loss per share because
inclusion would have been anti-dilutive.
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SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
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Jun. 30, 2011
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SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION |
NOTE 12 – SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION
Cash
paid during the six months ended June 30, for:
Non-cash
investing and financing activities during the six months ended June
30, for:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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6 Months Ended |
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Jun. 30, 2011
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
There
were no significant changes to the Company’s significant
accounting policies as disclosed in Note 3 of the Company’s
financial statements included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2010.
New Accounting Pronouncements:
In
May 2011, the FASB issued Accounting Standards Update
(“ASU”) 2011-04, “Fair Value Measurement
– Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs,”
addressing how to measure fair value and what disclosures to
provide about fair value measurements. This amendment is
largely consistent with the existing GAAP guidance, but aligned the
international guidance and eliminated unnecessary wording
differences between GAAP and International Financial Reporting
Standards (“IFRS”). The amendment is
effective for interim and annual periods beginning after December
15, 2011, and should be applied prospectively. The
implementation of this standard will not affect the Company’s
financial condition, results of operations, or cash
flows.
In
June 2011, the FASB issued ASU 2011-05, “Statement of
Comprehensive Income,” which revises the manner in
which entities present comprehensive income in their financial
statements, requiring entities to report components of
comprehensive income in either (1) a continuous statement of
comprehensive income or (2) two separate but consecutive
statements. The amendments are effective for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2011 and should be applied
retrospectively. The implementation of this standard
will not affect the Company’s financial condition, results of
operations or cash flows.
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MATERIAL AGREEMENTS
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6 Months Ended |
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Jun. 30, 2011
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MATERIAL AGREEMENTS |
NOTE 9 – MATERIAL AGREEMENTS
In
March 2011, the Company entered into a lease for office space,
engineering and manufacturing facilities. The new lease
calls for an initial base rent of $9,298 per month, plus operating
costs, and annual increases equal to 3% of the base
rent. For the first 11 months of the lease term, the
company is only required to pay one-half of the initial base rent
per month. The term of the lease is 48 months and
commenced on April 1, 2011. Total rent expense was
$77,755 and $55,010 for the three months and $131,932 and $108,499
for the six months ended June 30, 2011 and 2010,
respectively.
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WARRANT LIABILITY
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6 Months Ended |
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Jun. 30, 2011
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WARRANT LIABILITY |
NOTE 10 – WARRANT LIABILITY
The
Company issued 5,696,591 warrants in connection with a private
offering of its common stock on July 8, 2005 and August 31,
2005. The proceeds attributable to the warrants, based
on the fair value of the warrants at the date of issuance, amounted
to $1,433,954 and were accounted for as a liability and valued in
accordance with ASC 815 Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s
Own Stock based on an evaluation of the terms and conditions
related to the warrant agreements, which provide that the exercise
price of these warrants shall be reduced if, through a subsequent
financing, the Company issues common stock below the lowest per
share purchase price of the offering. In each subsequent
period, the Company adjusted the warrant liability to equal the
fair value of the warrants at the balance sheet
date. Changes in the fair value of warrants classified
as a liability are recognized in earnings. The warrant liability,
including the effect of the anti-dilution provision, was valued at
$4,745, $313,945 and $828,827 as of June 30, 2010, March 31, 2010
and December 31, 2009, respectively, resulting in non-cash gains in
the statement of operations of $309,200 and $824,082 for the three
and six months ended June 30, 2010, respectively. All
the liability warrants had expired as of December 31,
2010.
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STOCK-BASED COMPENSATION
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6 Months Ended |
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Jun. 30, 2011
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STOCK-BASED COMPENSATION |
NOTE 8 – STOCK-BASED COMPENSATION
At
June 30, 2011, the Company had two stock-based compensation
plans. There were 2,750,000 options granted in the six
months ended June 30, 2011. The fair value of these
options was approximately $326,000 at issuance. There
were 1,325,000 options granted in the six months ended June 30,
2010. The fair value of these options was approximately
$310,000 at issuance. No stock options were exercised in
the periods ending June 30, 2011 and 2010. The Company
accounts for stock option grants in accordance with ASC 718,
Compensation
– Stock Compensation. Compensation costs
related to share-based payments recognized in the Condensed
Statements of Income were $102,978 and $134,974 for the periods
ended June 30, 2011 and 2010, respectively.
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BASIS OF PRESENTATION
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6 Months Ended |
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Jun. 30, 2011
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BASIS OF PRESENTATION |
NOTE 1 - BASIS OF PRESENTATION
The
accompanying financial statements have been prepared by the
Company, without an audit. In the opinion of management, all
adjustments have been made, which include normal recurring
adjustments necessary to present fairly the condensed financial
statements. Operating results for the three six months ended June
30, 2011 are not necessarily indicative of the operating results
for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States
of America have been condensed or omitted. The Company believes
that the disclosures provided are adequate to make the information
presented not misleading. These unaudited condensed financial
statements should be read in conjunction with the audited financial
statements and related notes included in the Company’s Annual
Report for the year ended December 31, 2010 on Form
10-K.
The
preparation of 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 the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates.
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CONCENTRATIONS OF CREDIT RISK
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6 Months Ended |
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Jun. 30, 2011
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CONCENTRATIONS OF CREDIT RISK |
NOTE 4 – CONCENTRATIONS OF CREDIT RISK
Financial
instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash and temporary cash
investments and accounts receivable.
Cash
is maintained at financial institutions and, at times, balances may
exceed federally insured limits. We have never experienced any
losses related to these balances. All of our non-interest bearing
cash balances were fully insured at June 30, 2011 and December 31,
2010 due to a temporary federal program in effect from December 31,
2010 through December 31, 2012. Under the program, there is no
limit to the amount of insurance for eligible accounts. Beginning
2013, insurance coverage will revert to $250,000 per depositor at
each financial institution, and our non-interest bearing cash
balances may again exceed federally insured limits.
Interest-bearing amounts on deposit in
excess of federally
insured limits at June 30,
2011 and December 31, 2010 approximated $500,000 and $2.1 million,
respectively.
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INVENTORIES
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Jun. 30, 2011
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INVENTORIES |
NOTE 5 – INVENTORIES
Inventories
are valued at the lower of cost (first-in, first-out) or
market. The Company reviews inventory for impairments to
net realizable value whenever circumstances arise. Such
circumstances may include, but are not limited to, the
discontinuation of a product line or re-engineering certain
components making certain parts obsolete. Management
recorded an inventory obsolescence charge of $44,633 during the six
months ended June 30, 2011. Management has determined a
reserve for inventory obsolescence is not necessary at June 30,
2011 or December 31, 2010.
Inventories
are comprised as follows:
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SUBSEQUENT EVENTS
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6 Months Ended |
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Jun. 30, 2011
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SUBSEQUENT EVENTS |
NOTE 13 – SUBSEQUENT EVENTS
In July 2011, the Company entered into a sublease agreement for its
Las Vegas office facilities. Under the sublease, the
Company will receive rents of $8,098 per month. The term
of the sublease is for 16 months, expiring on November 30,
2012.
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GOODWILL
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6 Months Ended |
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Jun. 30, 2011
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GOODWILL |
NOTE 6 – GOODWILL
On January 1, 2011, the Company adopted FASB ASU No. 2010-28,
Intangibles (Topic 350): When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts. The Guidance calls for reporting units with
zero or negative carrying amounts to perform Step 2 of the goodwill
impairment test. As of June 30, 2011, the
Company’s fair value exceeded its carrying value, which was
positive; therefore, the Company is not required to perform Step
2.
In
accordance with ASC 350, Goodwill and Other Intangible
Assets, previously recognized goodwill was tested by
management for impairment during 2011 and 2010 utilizing a two-step
test. At a minimum, an annual goodwill impairment test
is required, or when certain events indicate a possible
impairment.
The
first part of the test is to compare the Company’s fair
market value to the book value of the Company. If the
fair market value of the Company is greater than the book value, no
impairment exists as of the date of the test. However,
if book value exceeds fair market value, the Company must perform
part two of the test, which involves recalculating the implied fair
value of goodwill by repeating the acquisition analysis that was
originally used to calculate goodwill, using purchase accounting as
if the acquisition happened on the date of the test, to calculate
the implied fair value of goodwill as of the date of the
test.
The
Company has no accumulated impairment losses on
goodwill. The Company’s impairment analysis is
performed on December 31 each year, on the Company’s single
reporting unit. Using the Company’s market
capitalization (a Level 1 input), management determined that the
estimated fair market value exceeded the company’s book value
as of June 30, 2011 and December 31, 2010. Based on
this, no impairment exists as of June 30, 2011 and December 31,
2010.
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GOING CONCERN
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6 Months Ended |
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Jun. 30, 2011
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GOING CONCERN |
NOTE 2 - GOING CONCERN:
The
accompanying financial statements have been prepared assuming the
Company is a going concern, which assumption contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. The Company experienced a $1,633,479
deficiency of cash from operations for the six months ended June
30, 2011, and expects significant cash deficiencies from operations
until the Company’s sales and gross profit grow to exceed its
expenses.
These
factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount of
liabilities that might be necessary should the Company be unable to
continue in existence. Continuation of the Company as a
going concern is dependent upon achieving profitable operations or
accessing sufficient operating capital. Management's
plans to achieve profitability include developing new products,
obtaining new customers and increasing sales to existing
customers. Management is seeking to raise additional
capital through equity issuance, debt financing or other types of
financing. However, there are no assurances that
sufficient capital will be raised. If we are unable to
obtain it on reasonable terms, we would be forced to restructure,
file for bankruptcy or significantly curtail
operations.
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INCOME TAXES
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6 Months Ended |
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Jun. 30, 2011
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INCOME TAXES |
NOTE 11 – INCOME TAXES
The
Company utilizes the asset and liability method of accounting for
income taxes pursuant to ASC 740, Accounting for Income
Taxes (“ASC 740”). ASC 740 requires
the recognition of deferred tax assets and liabilities for both the
expected future tax impact of differences between the financial
statement and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss and tax
credit carryforwards. ASC 740 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has
evaluated the net deferred tax asset, taking into consideration
operating results, and determined that a full valuation allowance
should be maintained.
The
Company accounts for uncertain tax positions under the provisions
of ASC 740-10. The Company has not identified any
uncertain tax positions, nor does it believe it will have any
material changes over the next 12 months. Any interest
or penalties resulting from examinations will be recognized as a
component of the income tax provision. However, since
there are no unrecognized tax benefits as a result of the tax
positions taken, there are no accrued interest and
penalties.
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