x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011 or
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
|
Nevada
|
20-4069588
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
13125 Danielson Street, Suite 104
|
|
Poway, California
|
92064
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company þ
|
Page
|
||
PART I - FINANCIAL INFORMATION
|
||
Item 1.
|
Condensed Consolidated Financial Statements
|
|
Condensed Consolidated Balance Sheets
|
3
|
|
Condensed Consolidated Statements of Operations
|
4
|
|
Condensed Consolidated Statements of Shareholders’ Deficit
|
5
|
|
Condensed Consolidated Statements of Cash Flows
|
6
|
|
Notes to Condensed Consolidated Financial Statements
|
8
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
27
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
37
|
Item 4.
|
Controls and Procedures.
|
38
|
PART II - OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings.
|
39
|
Item 1A.
|
Risk Factors.
|
47
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
47
|
Item 3.
|
Defaults Upon Senior Securities.
|
47
|
Item 4.
|
(Removed and Reserved)
|
47
|
Item 5.
|
Other Information.
|
47
|
Item 6.
|
Exhibits.
|
47
|
June 30, 2011
(unaudited)
|
December 31, 2010
(as restated)
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$
|
11,704
|
$
|
87,395
|
||||
Prepaid expenses and other current assets
|
6,341
|
2,475
|
||||||
Total current assets
|
18,045
|
89,870
|
||||||
Equipment, net
|
229,582
|
291,981
|
||||||
Patents
|
97,872
|
79,916
|
||||||
Total assets
|
$
|
345,499
|
$
|
461,767
|
||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
|
$
|
954,179
|
$
|
936,858
|
||||
Accrued compensation
|
191,117
|
291,117
|
||||||
Accrued interest
|
582,100
|
380,977
|
||||||
Other accrued liabilities
|
94,411
|
94,404
|
||||||
Accrued taxes
|
8,464
|
16,114
|
||||||
Deferred revenue
|
-
|
34,494
|
||||||
Short term debt
|
448,164
|
543,164
|
||||||
Convertible notes payable to related party
|
144,837
|
144,837
|
||||||
Convertible notes payable, net of discount
|
73,886
|
53,265
|
||||||
Derivative liability
|
5,332,759
|
4,120,046
|
||||||
$
|
7,829,917
|
$
|
6,615,276
|
|||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
SHAREHOLDERS’ DEFICIT
|
||||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 1,000,000 and zero shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively
|
100
|
-
|
||||||
Common stock, $0.0001 par value, 1,750,000,000 shares authorized, 1,750,000,000 and 1,021,482,054 issued and outstanding as of June 30, 2011 and December 31, 2010, respectively
|
175,000
|
102,148
|
||||||
Additional paid in capital
|
38,930,911
|
37,735,035
|
||||||
Accumulated deficit
|
(46,590,429
|
)
|
(43,990,692
|
)
|
||||
Total shareholders’ deficit
|
(7,484,418
|
)
|
(6,153,509
|
)
|
||||
Total liabilities and shareholders’ deficit
|
$
|
345,499
|
$
|
461,767
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30, 2011
|
June 30, 2010
|
June 30, 2011
|
June 30, 2010
|
|||||||||||||
REVENUES
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
5,637
|
||||||||
COST OF SALES
|
-
|
-
|
-
|
4,455
|
||||||||||||
GROSS MARGIN
|
-
|
-
|
-
|
1,182
|
||||||||||||
OPERATING COSTS AND EXPENSES
|
||||||||||||||||
Research and development
|
11,040
|
90,060
|
26,326
|
183,361
|
||||||||||||
Selling, general and administrative
|
344,638
|
872,004
|
651,005
|
1,480,172
|
||||||||||||
LOSS FROM OPERATIONS
|
(355,678
|
)
|
(962,064
|
)
|
(677,331
|
)
|
(1,662,351
|
)
|
||||||||
OTHER INCOME (EXPENSES)
|
||||||||||||||||
Other income (loss)
|
(13,002)
|
-
|
87,455
|
416
|
||||||||||||
Loss on acquisition agreement termination
|
-
|
(4,626
|
)
|
-
|
(2,158,591
|
)
|
||||||||||
Interest expense
|
(897,924
|
)
|
(1,411,509
|
)
|
(2,856,361
|
)
|
(6,195,618
|
)
|
||||||||
Loss on debt extinguishment
|
-
|
-
|
-
|
-
|
||||||||||||
Change in fair value of derivative liability
|
(676,081
|
)
|
(140,243
|
)
|
847,300
|
25,789,829
|
||||||||||
Total other income (expense)
|
(1,587,007
|
)
|
(1,556,378
|
)
|
(1,921,606
|
)
|
17,436,036
|
|||||||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
$
|
(1,942,685
|
)
|
$
|
(2,518,442
|
)
|
$
|
(2,598,937
|
)
|
$
|
15,773,685
|
|||||
PROVISION FOR INCOME TAXES
|
-
|
-
|
(800
|
)
|
(800
|
)
|
||||||||||
NET INCOME (LOSS)
|
$
|
(1,942,685
|
)
|
$
|
(2,518,442
|
)
|
$
|
(2,599,737
|
)
|
$
|
15,772,885
|
|||||
NET INCOME (LOSS) PER SHARE - BASIC
|
$
|
(0.00
|
)
|
$
|
(0.03
|
)
|
$
|
(0.00
|
)
|
$
|
0.26
|
|||||
NET INCOME (LOSS) PER SHARE – DILUTED
|
$
|
(0.00
|
)
|
$
|
(0.03
|
)
|
$
|
(0.00
|
)
|
$
|
0.02
|
|||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
|
1,750,000,000
|
77,621,636
|
1,664,884,201
|
61,516,085
|
||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
|
1,750,000,000
|
77,621,636
|
1,664,884,201
|
744,599,373
|
Additional
|
Total
|
|||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-in
|
Accumulated
|
Shareholders'
|
||||||||||||||||||||||||
Shares
|
Par Value
|
Shares
|
Par Value
|
Capital
|
Deficit
|
Deficit
|
||||||||||||||||||||||
BALANCE – December 31, 2010
|
- | - | 1,021,482,054 | 102,148 | 37,735,035 | (43,990,692 | ) | (6,153,509 | ) | |||||||||||||||||||
Share based payments
|
100,403 | 100,403 | ||||||||||||||||||||||||||
Stock issued upon note conversion
|
728,517,946 | 72,852 | 633,073 | 705,925 | ||||||||||||||||||||||||
Convertible preferred shares
|
1,000,000 | 100 | 462,400 | 462,500 | ||||||||||||||||||||||||
Net (loss)
|
(2,599,737 | ) | (2,599,737 | ) | ||||||||||||||||||||||||
BALANCE –June 30, 2011
|
1,000,000 | 100 | 1,750,000,000 | 175,000 | 38,930,911 | (46,590,429 | ) | (7,484,418 | ) |
Six Months Ended
|
||||||||
June 30, 2011
|
June 30, 2010
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net income (loss)
|
$
|
(2,599,737
|
)
|
$
|
15,772,885
|
|||
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
49,495
|
60,068
|
||||||
Share based payments
|
100,403
|
(462,500
|
)
|
|||||
Change in fair value of derivative liability
|
(847,300
|
)
|
(25,789,830
|
)
|
||||
Interest in connection with derivative liability
|
2,096,632
|
2,343,929
|
||||||
Net loss on disposition of equipment
|
14,544
|
-
|
||||||
Write off of debt discount on converted debt
|
225,752
|
1,791,257
|
||||||
Amortization of debt discount
|
249,628
|
27,556
|
||||||
Loss on acquisition agreement termination
|
-
|
2,158,591
|
||||||
Gain on issuance of stock for company expenses
|
-
|
(416
|
)
|
|||||
Issuance of preferred stock for accrued compensation
|
100,000
|
-
|
||||||
Issuance of preferred stock for short term debt
|
95,000
|
-
|
||||||
Issuance of stock for consulting services
|
-
|
250,000
|
||||||
Issuance of stock for fundraising
|
-
|
577,000
|
||||||
Issuance of stock for payment of debt
|
-
|
1,887,000
|
||||||
Issuance of stock for note amendment
|
-
|
4,000
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
-
|
875
|
||||||
Inventory
|
-
|
42,605
|
||||||
Other current assets
|
(3,450
|
)
|
(8
|
)
|
||||
Accounts payable
|
17,322
|
135,185
|
||||||
Accrued compensation
|
(100,000
|
)
|
22,907
|
|||||
Accrued interest
|
283,177
|
132,939
|
||||||
Related party payable
|
-
|
(59,042
|
)
|
|||||
Deferred revenue
|
(34,494
|
)
|
83,920
|
|||||
Short term debt
|
(95,000
|
)
|
-
|
|||||
Accrued liabilities
|
(7,650
|
)
|
(1,838
|
)
|
||||
Net cash used in operating activities
|
(455,678
|
)
|
(1,022,917
|
)
|
||||
INVESTING ACTIVITIES
|
||||||||
Purchase of equipment
|
(1,640
|
)
|
-
|
|||||
Patents
|
(18,373
|
)
|
-
|
|||||
Net cash used in investing activities
|
(20,013
|
)
|
-
|
|||||
FINANCING ACTIVITIES
|
||||||||
Proceeds from convertible notes payable
|
400,000
|
892,000
|
||||||
Proceeds from short term notes payable
|
-
|
715,000
|
||||||
Principal payments on short term notes payable
|
-
|
(459,621
|
)
|
|||||
Net cash provided by financing activities
|
400,000
|
1,147,379
|
||||||
Net increase (decrease) in cash
|
(75,691
|
)
|
124,462
|
|||||
Cash – beginning of period
|
87,395
|
-
|
||||||
Cash – end of period
|
$
|
11,704
|
$
|
124,462
|
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Derivative liability on warrants issued with convertible notes payable
|
$
|
-
|
$
|
4,194,944
|
||||
Conversion of accrued interest to convertible preferred stock
|
$
|
38,500
|
$
|
-
|
||||
Convertible preferred stock issued to holders of convertible notes payable for satisfaction of convertible notes payable
|
$
|
229,000
|
$
|
-
|
||||
Accrued interest on convertible notes payable converted to additional paid in capital
|
$
|
43,554
|
$
|
191,206
|
||||
Discount on St. George notes at issuance
|
$
|
(127,500
|
)
|
$
|
-
|
|||
Financing charge for violation of St. George note
|
$
|
1,113,464
|
$
|
877,215
|
||||
Issuance of convertible note in lieu of liabilities owed to former CEO
|
$
|
-
|
$
|
144,837
|
||||
Interest charge for penalty in violation of short term debt
|
$
|
-
|
$
|
20,000
|
||||
Conversion of derivative liability to additional paid in capital due to conversion of convertible notes payable
|
$
|
436,619
|
$
|
2,468,520
|
||||
Escrow of shares for former employee related to St. George bridge financing
|
$
|
-
|
$
|
480
|
||||
Conversion of convertible notes payable to additional paid in capital
|
$
|
225,752
|
$
|
2,383,257
|
||||
Conversion of warrants to additional paid in capital
|
$
|
-
|
$
|
738,112
|
||||
Conversion of convertible notes payable and warrants into common stock and new issues
|
$
|
72,852
|
$
|
7,662
|
||||
Issuance of convertible preferred stock
|
$
|
100
|
$
|
-
|
1.
|
ORGANIZATION
|
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
·
|
Level 1: Observable inputs such as quoted prices in active markets;
|
|
·
|
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
|
|
·
|
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
3.
|
EQUIPMENT
|
June 30,
2011
|
December 31,
2010
|
|||||||
Equipment
|
$
|
47,897
|
$
|
49,260
|
||||
NRE tooling
|
424,903
|
424,903
|
||||||
Test facility
|
-
|
83,477
|
||||||
Leasehold improvements
|
10,254
|
10,254
|
||||||
Web site development costs
|
13,566
|
13,566
|
||||||
496,620
|
581,460
|
|||||||
Accumulated depreciation
|
(267,038
|
)
|
(289,479
|
)
|
||||
$
|
229,582
|
$
|
291,981
|
4.
|
DEBT
|
Amount
|
Discount
|
Convertible
Notes
Payable,
net of
discount
|
Convertible
Notes
Payable
Related Party,
net of
discount
|
|||||||||||||
Exchange Notes
|
$
|
619,705
|
$
|
(619,516
|
)
|
$
|
189
|
$
|
-
|
|||||||
Reverse Merger Notes
|
-
|
-
|
-
|
-
|
||||||||||||
New Convertible Notes
|
3,765,120
|
(3,546,586
|
)
|
73,697
|
144,837
|
|||||||||||
$
|
4,384,825
|
$
|
(4,166,102
|
)
|
$
|
73,886
|
$
|
144,837
|
5.
|
DERIVATIVE LIABILITIES
|
December 31, 2010 (as restated)
|
$
|
4,120,046
|
||
Issuance of derivative financial instruments
|
2,507,125
|
|||
Conversion or cancellation of derivative financial instruments
|
(447,112
|
)
|
||
Mark-to-market adjustment to fair value at June 30, 2011
|
(847,300
|
)
|
||
June 30, 2011
|
$
|
5,332,759
|
Weighted- average volatility
|
63.6% - 70.1%
|
|||
Expected dividends
|
0.0%
|
|||
Expected term
|
0.5 to 1 year
|
|||
Risk-free rate
|
0.10% to 0.29%
|
6.
|
INCOME TAXES
|
7.
|
STOCK BASED COMPENSATION
|
Annual dividends | 0 |
Expected volatility | 59% - 75% |
Risk-free interest rate | 1.76% - 2.70% |
Expected life | 5 years |
Weighted
|
||||||||
Average
|
||||||||
Number
|
Exercise
|
|||||||
Shares
|
Price
|
|||||||
Options outstanding at December 31, 2009
|
11,051,240
|
$
|
0.58
|
|||||
Granted
|
3,000,000
|
0.01
|
||||||
Exercised
|
-
|
-
|
||||||
Forfeited
|
(4,603,740
|
)
|
0.50
|
|||||
Options outstanding at June 30, 2010
|
9,447,500
|
$
|
0.01
|
|||||
Options outstanding at December 31, 2010
|
7,700,000
|
$
|
0.03
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Forfeited
|
(4,990,000
|
)
|
0.01
|
|||||
Options outstanding at June 30, 2011
|
2,710,000
|
$
|
0.05
|
June 30, 2011
|
June 30, 2010
|
|||||||||||||||
Outstanding
|
Exercisable
|
Outstanding
|
Exercisable
|
|||||||||||||
Number of shares
|
2,710,000 | 2,017,580 | 9,447,500 | 6,224,376 | ||||||||||||
Weighted average remaining contractual life
|
3.86 | 3.84 | 4.04 | 3.74 | ||||||||||||
Weighted average exercise price per share
|
$ | 0.05 | $ | 0.05 | $ | 0.01 | $ | 0.50 | ||||||||
Aggregate intrinsic value
|
$ | - | $ | - | $ | - | $ | - |
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||
Weighted
|
Weighted
|
||||||||||||||||||
Average
|
Average
|
||||||||||||||||||
Weighted
|
Remaining
|
Weighted
|
Remaining
|
||||||||||||||||
Number of
|
Average
|
Contractual
|
Number of
|
Average
|
Contractual
|
||||||||||||||
Exercise
|
Options
|
Exercise
|
Life of Options
|
Options
|
Exercise
|
Life of Options
|
|||||||||||||
Price
|
Outstanding
|
Price
|
Outstanding
|
Exercisable
|
Price
|
Exercisable
|
|||||||||||||
$0.01
|
2,510,000
|
$
|
0.01
|
3.96 yrs
|
1,846,722
|
$
|
0.01
|
3.96 yrs
|
|||||||||||
$0.50
|
200,000
|
$
|
0.50
|
2.62 yrs
|
170,858
|
$
|
0.50
|
2.62 yrs
|
|||||||||||
2,710,000
|
$
|
0.05
|
3.86 yrs
|
2,017,580
|
$
|
0.05
|
3.84 yrs
|
8.
|
CAPITAL STOCK
|
9.
|
COMMITMENTS AND CONTINGENCIES
|
9.
|
COMMITMENTS AND CONTINGENCIES (Continued)
|
9.
|
COMMITMENTS AND CONTINGENCIES (Continued)
|
10.
|
SUBSEQUENT EVENTS
|
●
|
new competitors are likely to emerge and new technologies may further increase competition;
|
|
●
|
our operating costs may increase beyond our current expectations and we may be unable to fully implement our current business plan;
|
|
●
|
our ability to obtain future financing or funds when needed;
|
|
●
|
our ability to successfully obtain a diverse customer base;
|
|
●
|
our ability to protect our intellectual property through patents, trademarks, copyrights and confidentiality agreements;
|
|
●
|
our ability to attract and retain a qualified employee base;
|
|
●
|
our ability to respond to new developments in technology and new applications of existing technology before our competitors;
|
|
●
|
acquisitions, business combinations, strategic partnerships, divestures, and other significant transactions may involve additional uncertainties; and
|
|
●
|
our ability to maintain and execute a successful business strategy.
|
|
Six Months Ended
June 30,
|
Twelve Months Ended
June 30,
|
||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
|
||||||||||||||||
Operating activities
|
|
$
|
(456
|
)
|
$
|
(1,023
|
)
|
$
|
(1,089
|
)
|
$
|
(2,359
|
)
|
|||
Investing activities
|
|
$
|
(20
|
)
|
$
|
-
|
$
|
(33
|
)
|
$
|
(119
|
)
|
||||
Financing activities
|
|
$
|
400
|
|
$
|
1,147
|
$
|
1,010
|
|
$
|
2,412
|
|
●
|
We identified a lack of sufficient segregation of duties. Specifically, this material weakness is such that the design over these areas relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard company assets.
|
|
●
|
Management has identified a lack of sufficient personnel in the accounting function due to our limited resources with appropriate skills, training and experience to perform certain tasks as it relates to valuation of share based payments, the valuation of warrants, and other complex debt / equity transactions. Specifically, this material weakness lead to segregation of duties issues and resulted in adjustments to the condensed consolidated financial statements and disclosures, share based payments, valuation of warrants and other equity transactions.
|
|
●
|
Improve the effectiveness of the accounting group by continuing to augment our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions. We plan to mitigate the segregation of duties issues by hiring additional personnel in the accounting department once we generate significantly more revenue, or raise significant additional working capital.
|
|
●
|
Improve segregation procedures by strengthening cross approval of various functions including quarterly internal audit procedures where appropriate.
|
•
|
diluting the voting or other rights of the proposed acquirer or insurgent stockholder group;
|
|
•
|
putting a substantial voting block in institutional or other hands that might undertake to support the incumbent board of directors; or
|
|
•
|
effecting an acquisition that might complicate or preclude the takeover
|
Exhibit
No.
|
Description
|
|
31.1*
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
||
31.2*
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
32.1*
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS* |
XBRL Instance Document
|
|
101.SCH* |
XBRL Schema Document
|
|
101.CAL* |
XBRL Calculation Linkbase Document
|
|
101.DEF* |
XBRL Definition Linkbase Document
|
|
101.LAB*
|
XBRL Label Linkbase Document
|
|
101.PRE* | XBRL Presentation Linkbase Document |
HELIX WIND, CORP.
|
|||
By:
|
/s/ Kevin Claudio
|
||
Kevin Claudio
|
|||
Chief Financial Officer
|
|||
(Principal Financial Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Helix Wind, Corp.;
|
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 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 cause 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/ James Tilton
|
James Tilton, Chief Operating Officer
|
|
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Helix Wind, Corp.;
|
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 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 cause 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/ Kevin Claudio
|
Kevin Claudio, Chief Financial Officer
|
|
(Principal Accounting Officer)
|
(a)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(b)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 15, 2011
|
/s/ James Tilton
|
James Tilton, Chief Operating Officer
|
|
(Principal Executive Officer)
|
(a)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(b)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 15, 2011
|
/s/ Kevin Claudio
|
Kevin Claudio, Chief Financial Officer
|
|
(Principal Accounting Officer)
|
Condensed Consolidaed Balance Sheets (Parentheticals) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 1,000,000 | 0 |
Preferred stock, shares outstanding | 1,000,000 | 0 |
Common stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 1,750,000,000 | 1,750,000,000 |
Common stock, shares issued | 1,750,000,000 | 1,021,482,054 |
Common stock, shares outstanding | 1,750,000,000 | 1,021,482,054 |
Condensed Consolidated Statements of Operations (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
REVENUES | Â | Â | Â | $ 5,637 |
COST OF SALES | Â | Â | Â | 4,455 |
GROSS MARGIN | Â | Â | Â | 1,182 |
OPERATING COSTS AND EXPENSES | Â | Â | Â | Â |
Research and development | 11,040 | 90,060 | 26,326 | 183,361 |
Selling, general and administrative | 344,638 | 872,004 | 651,005 | 1,480,172 |
LOSS FROM OPERATIONS | (355,678) | (962,064) | (677,331) | (1,662,351) |
OTHER INCOME (EXPENSES) | Â | Â | Â | Â |
Other income (loss) | (13,002) | Â | 87,455 | 416 |
Loss on acquisition agreement termination | Â | (4,626) | Â | (2,158,591) |
Interest expense | (897,924) | (1,411,509) | (2,856,361) | (6,195,618) |
Loss on debt extinguishment | 0 | 0 | 0 | 0 |
Change in fair value of derivative liability | (676,081) | (140,243) | 847,300 | 25,789,829 |
Total other income (expense) | (1,587,007) | (1,556,378) | (1,921,606) | 17,436,036 |
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | (1,942,685) | (2,518,442) | (2,598,937) | 15,773,685 |
PROVISION FOR INCOME TAXES | Â | Â | (800) | (800) |
NET INCOME (LOSS) | $ (1,942,685) | $ (2,518,442) | $ (2,599,737) | $ 15,772,885 |
NET INCOME (LOSS) PER SHARE - BASIC (in Dollars per share) | $ 0.00 | $ (0.03) | $ 0.00 | $ 0.26 |
NET INCOME (LOSS) PER SHARE – DILUTED (in Dollars per share) | $ 0.00 | $ (0.03) | $ 0.00 | $ 0.02 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC (in Shares) | 1,750,000,000 | 77,621,636 | 1,664,884,201 | 61,516,085 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED (in Shares) | 1,750,000,000 | 77,621,636 | 1,664,884,201 | 744,599,373 |
Document And Entity Information (USD $)
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
Aug. 15, 2011
|
Aug. 12, 2011
|
|
Document and Entity Information [Abstract] | Â | Â | Â |
Entity Registrant Name | Helix Wind, Corp. | Â | Â |
Document Type | 10-Q | Â | Â |
Current Fiscal Year End Date | --12-31 | Â | Â |
Entity Common Stock, Shares Outstanding | Â | 1,922,000,000 | Â |
Entity Public Float | Â | Â | $ 1,896,078,113 |
Amendment Flag | false | Â | Â |
Entity Central Index Key | 0001364560 | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Document Period End Date | Jun. 30, 2011 | ||
Document Fiscal Year Focus | 2011 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
"+ text.join( "
\n" ) +"
" + text[p] + "
\n"; } } }else{ formatted = '' + raw + '
'; } html = ''+ "\n"+''+ "\n"+''+ "\n"+' formatted: '+ ( this.Default == 'raw' ? 'as Filed' : 'with Text Wrapped' ) +''+ "\n"+' | '+ "\n"+'
'+ "\n"+' | '+ "\n"+' '+ "\n"+'
'+ "\n"+' | '+ "\n"+' '+ "\n"+'
6. INCOME TAXES
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Income Tax Disclosure [Text Block] |
There
was no income tax expense recorded for the six months ended
June 30, 2011 due to the Company’s net losses and a
100% valuation allowance on deferred tax assets.
|
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
6 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||
Significant Accounting Policies [Text Block] |
The
summary of significant accounting policies presented below is
designed to assist in understanding the company’s
condensed consolidated financial statements. Such
financial statements and accompanying notes are the
representation of the Company’s management, who is
responsible for their integrity and objectivity.
Reverse
Merger Accounting
Since
former Subsidiary security holders owned, after the Merger,
approximately 80% of Helix Wind’s shares of common
stock, and as a result of certain other factors, including
that all members of the Company’s executive management
are from Subsidiary, Subsidiary is deemed to be the
acquiring company for accounting purposes and the Merger was
accounted for as a reverse merger and a recapitalization in
accordance with generally accepted accounting principles in
the United States (“GAAP”). These condensed
consolidated financial statements reflect the historical
results of Subsidiary prior to the Merger and that of the
combined Company following the Merger, and do not include the
historical financial results of Helix Wind prior to the
completion of the Merger. Common stock and the corresponding
capital amounts of the Company pre-Merger have been
retroactively restated as capital stock shares reflecting the
exchange ratio in the Merger. In conjunction with the Merger,
the Company received cash of $270,229 and assumed net
liabilities of $66,414.
Condensed
Consolidated Financial
Statements
The
accompanying unaudited condensed consolidated financial
statements primarily reflect the financial position, results
of operations and cash flows of Subsidiary (as discussed
above). The accompanying unaudited condensed consolidated
financial statements of Subsidiary have been prepared in
accordance with GAAP for interim financial information and
pursuant to the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission.
Accordingly, these interim financial statements do not
include all of the information and footnotes required by GAAP
for annual financial statements. In the opinion of
management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the
three and six months ended June 30, 2011 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2011, or for any other period. Amounts
related to disclosures of December 31, 2010 balances within
these interim condensed consolidated financial statements
were derived from the audited 2010 consolidated financial
statements and notes thereto filed on amended Form 10-K/A on
July 26, 2011 as restated.
Use
of Estimates
These
unaudited condensed consolidated financial statements should
be read in conjunction with the audited financial statements
and notes thereto for Subsidiary included in Helix
Wind’s Current Report on amended Form 10-Q/A on July
27, 2011 as restated with the SEC. In preparing these
condensed consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of
the condensed consolidated financial statements and the
reported amount of revenues and expenses during the reporting
periods. Actual results could differ from those
estimates.
Going
Concern
The
accompanying condensed consolidated financial statements have
been prepared under the assumption that the Company will
continue as a going concern. Such assumption contemplates the
realization of assets and satisfaction of liabilities in the
normal course of business. The Company has a
working capital deficit of $2,479,113 excluding the
derivative liability of $5,332,759, an accumulated deficit of
$46,590,429 at June 30, 2011, recurring losses from
operations of $677,331 and negative cash flow from operating
activities of $455,678 for the six months ended June 30,
2011. These factors, among others, raise
substantial doubt about the Company’s ability to
continue as a going concern. The condensed consolidated
financial statements do not include any adjustments that
might be necessary should the Company be unable to continue
as a going concern.
The
Company’s continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing
as may be required, and ultimately to attain profitability.
During 2010 and the first six months of 2011, the Company
raised funds through the issuance of convertible notes
payable to investors and through a private placement of the
Company’s securities to investors to provide additional
working capital. The Company plans to obtain additional
financing through the sale of debt or equity
securities.
The
company currently has insufficient capital and personnel to
fulfill potential orders for its products and has had to
severely curtail its operations beginning February
2010. The Company is seeking additional capital to
be able to restart operations and is exploring other
alternatives for its intellectual property and other
assets. There can be no assurances that the
Company will be able to obtain sufficient capital for its
operations, or that there will be other alternatives for its
intellectual property and other assets.
Principles
of Consolidation
The
condensed consolidated financial statements include the
accounts of the Company and wholly-owned Subsidiary. All
intercompany transactions and balances have been eliminated
in consolidation.
Patents
Patents
represent external legal costs incurred for filing patent
applications and their maintenance, and purchased patents.
Amortization for patents is recorded using the straight-line
method over the lesser of the life of the patent or its
estimated useful life. No amortization has been recorded on
these expenditures in accordance with Company policy not to
depreciate patents until the patent has been approved and
issued by the United States Patent Office or by the various
international patent authorities.
Impairment
of Long-Lived Assets
Long-lived
assets must be reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amounts
may not be recoverable. If the cost basis of a long-lived
asset is greater than the projected future undiscounted net
cash flows from such asset, an impairment loss is recognized.
Impairment losses are calculated as the difference between
the cost basis of an asset and its estimated fair value. No
impairment losses were recognized at June 30, 2011 or
December 31, 2010.
Equipment
Equipment
is stated at cost, and is being depreciated using the
straight-line method over the estimated useful lives of the
related assets ranging from three to five years. Non
Recurring Equipment (NRE) tooling that was placed in service
and paid in full as of June 30, 2011 and December 31, 2010 is
capitalized and is being depreciated over 5 years. Tooling
that has been partially paid for as of June 30, 2011 and
December 31, 2010 was recognized as a prepaid noncurrent
asset. Costs and expenses incurred during the planning and
operating stages of the Company’s website are expensed
as incurred. Costs incurred in the website application and
infrastructure development stages are capitalized by the
Company and amortized to expense over the website’s
estimated useful life or period of benefit. Expenditures for
repairs and maintenance are charged to expense in the period
incurred. At the time of retirement or other disposition of
equipment and website development, the cost and related
accumulated depreciation are removed from the accounts and
any resulting gain or loss is recorded in results of
operations. During the three and six months ended
June 20, 2011, loss on disposal of test equipment no longer
used amounted to $14,544.
Advertising
The
Company expenses advertising costs as incurred. During the
six months ended June 30, 2011 and 2010, the Company incurred
and expensed $2,210 and $5,040, respectively, in advertising
expenses, which are included in selling, general and
administrative expenses in the accompanying condensed
consolidated statements of operations.
Research
and Development Costs
Costs
incurred for research and development are expensed as
incurred. Purchased materials that do not have an alternative
future use and the cost to develop prototypes of production
equipment are also expensed. Costs incurred after the
production process is viable and a working model of the
equipment has been completed will be capitalized as
long-lived assets. For the three months ended June 20, 2011
and 2010, research and development costs incurred were
$11,040 and $90,060, respectively. For the six
months ended June 30, 2011 and 2010, research and development
costs incurred were $26,326 and $183,361,
respectively.
Deferred
Revenue
The
Company receives a deposit for up to 50% of the sales price
when the purchase order is received from a customer, which is
recorded as deferred revenue until the product is shipped.
The Company did not receive any purchase orders from domestic
and international customers to purchase company product
during the quarter ended June 30, 2011. The Company had
deferred revenue of $0 and $34,494 as of June 30, 2011 and
December 31, 2010, respectively. The balance from
December 31, 2010 was reclassified to accounts payable as
production of units has currently been suspended.
Income
Taxes
In
July 2009, ASC 740, Income Taxes, (formally FIN 48,
Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109) establishes
a single model to address accounting for uncertain tax
positions. ASC 740 clarifies the accounting for income taxes
by prescribing a minimum recognition threshold a tax position
is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The
Company adopted the provisions of ASC-740. Upon adoption, the
Company recognized no adjustment in the amount of
unrecognized tax benefits.
Share
Based Compensation
The
Company accounts for its share-based compensation in
accordance with ASC 718-20. Stock-based compensation cost is
measured at the date of grant, based on the calculated fair
value of the stock-based award, and is recognized as expense
over the employee’s requisite service period (generally
the vesting period of the award).
The
Company estimates the fair value of employee stock options
granted using the Black-Scholes Option Pricing
Model. Key assumptions used to estimate the fair
value of stock options include the exercise price of the
award, the fair value of the Company’s common stock on
the date of grant, the expected option term, the risk free
interest rate at the date of grant, the expected volatility
and the expected annual dividend yield on the Company’s
common stock.
Revenue
Recognition
The
Company’s revenues are recorded in accordance with the
FASB ASC No. 605, “Revenue Recognition” The
Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed
or determinable, and collectability is reasonably
assured. In instances where final acceptance of
the product is specified by the customer or is uncertain,
revenue is deferred until all acceptance criteria have been
met.
Fair
Value of Financial Instruments
The
fair value accounting guidance defines fair value that
“the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction
between market participants at the measurement
date”. The definition is based on an exit
price rather than an entry price, regardless of whether the
entity plans to hold or sell the asset. This
guidance also establishes a fair value hierarchy to
prioritize inputs used in measuring the fair value as
follows:
The
carrying value of the derivative liability is based on
valuation comprised of Level 2 inputs and assumptions, which
are based on significant other observable inputs of variable
reference rates and volatilities.
Basic
and Diluted Net Income (Loss) per Common Share
The
Company calculates basic and diluted net income (loss) per
common share used the weighted average number of common
shares outstanding during the periods presented.
Potentially
dilutive common stock equivalents include the common stock
issuable upon the exercise of warrants, stock options and
convertible debt. As of June 30, 2011, the
weighted average number of common shares outstanding totaled
1,664,884,201, and the total diluted common stock equivalents
at June 30, 2011 totaled 1,750,000,000 which equals the total
authorized common shares of the Company.
Recent
Accounting Pronouncements
In
January 2010, the FASB issued revised authoritative
guidance that requires more robust disclosures about the
different classes of assets and liabilities measured at fair
value, the valuation techniques and inputs used, the activity
in Level 3 fair value measurements, and the transfers between
Levels 1, 2 and 3. This guidance is effective for
interim and annual reporting periods beginning after December
15, 2009 (which is January 1, 2010 for the Company) except
for the disclosures about purchases, sales, issuances, and
settlements in the roll forward activity in Level 3 fair
value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010,
and the interim periods within those fiscal years (which is
January 1, 2011 for the Company). Early
application is encouraged. The revised guidance
was adopted as of January 1, 2010. The adoption of
this guidance did not have a material impact on the
Company’s condensed consolidated financial position,
results of operations and cash flows.
In
May 2011, the Financial Accounting Standards Board ("FASB")
issued a new accounting standard on fair value measurements
that clarifies the application of existing guidance and
disclosure requirements, changes certain fair value
measurement principles and requires additional disclosures
about fair value measurements. The standard is effective for
interim and annual periods beginning after December 15, 2011.
Early adoption is not permitted. The Company does not expect
the adoption of this accounting guidance to have a material
impact on its consolidated financial statements and related
disclosures.
|
8. CAPITAL STOCK
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Conversion of Stock, Description |
Common
Stock Issued
We
are authorized to issue up to 1,750,000,000 shares of common
stock, par value $0.0001 per share. Although the
Company does not know the exact amount of dilution which may
occur, the number of common shares outstanding on a diluted
basis which would result from the conversion or exercise of
all outstanding convertible notes, warrants and options is
1,750,000,000. As of July 6, 2011, the Company
amended its Articles of Incorporation and is now authorized
to issue up to 100,000,000,000 shares of the Company’s
common stock.
Preferred
Stock Issued
We
are authorized to issue up to 5,000,000 shares of preferred
stock, par value $0.0001 per share. During the
second quarter of 2011, the Company issued 1,000,000 shares
of its convertible preferred stock. The fair value
of the preferred shares issued was valued at $462,500.
The preferred stock is designated as Series A Preferred
Stock. The Series A Preferred Stock shall not be
entitled to receive any cash dividends or any other form of
dividends. The conversion rights are the same as the
Company's existing convertible notes payable.
|
9. COMMITMENTS AND CONTINGENCIES
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Commitments and Contingencies Disclosure [Text Block] |
Operating
Leases
The
Company signed a revocable license agreement with Apex
Telecom, LLC to rent office space at 13125 Danielson Street,
Suite 101 Poway, CA, 92064. The license period is
on a month to month basis beginning effective April 19, 2010
through March 31, 2011, subject to certain provisions, at a
current rate of $3,230 per month. The Company
extended the license period on a month to month basis at the
same rate through June 30, 2011 with the
landlord. This license agreement expired on June
30, 2011. The Company then signed a revocable
license agreement with Pomerado Leasing No. 9 LP to rent
office space at 13125 Danielson Street, Suite 104, Poway, CA
92064. The license period is on a month to month
basis effective July 1, 2011, subject to certain provisions,
at a current rate of $1,650 per month.
The
Company leased a test facility in California for $300 per
month under a lease which expired on October 31, 2008. Under
a new lease effective November 1, 2008, the rent increased to
$450 per month. The initial term of this lease is
November 1, 2008 through October 31, 2009, with a one-year
renewal option for each of the next five years which calls
for no increase in rent during the renewal periods. The
lease was renewed November 1, 2009. The company
terminated this lease effective April 30, 2011.
Manufacturing
Agreement
The
East West accounts payable was $0 and $ 187,105 at June 30,
2011 and 2010 respectively and the Company had a commitment
to pay East West $237,505 for cost related to the prospective
manufacturing of inventory and tooling. The Company will
record the $237,505 as part of its inventory, tooling and
other expenses when legal title transfers from East West to
the Company consistent with the Company’s policy for
inventory as described in Note 2. On January 25,
2011, the Company received notice from East West that East
West deems the Professional Services Agreement dated June 14,
2008 between the Company and East West to be “null and
void” due to the Company’s past due amounts owed
to East West and not being able to resolve the outstanding
balance at this time.
Legal
Matters
From
time to time, claims are made against the Company in the
ordinary course of business, which could result in
litigation. Claims and associated litigation are subject to
inherent uncertainties and unfavorable outcomes could occur,
such as monetary damages, fines, penalties or injunctions
prohibiting the Company from selling one or more products or
engaging in other activities. The occurrence of an
unfavorable outcome in any specific period could have a
material adverse effect on the Company’s results of
operations for that period or future periods.
On
March 5, 2010, the Company received a summons to appear in
the Supreme Court of the State of New York, County of New
York, in a lawsuit filed by Crystal Research Associates, LLC
(“Crystal”) alleging the Company failed to pay
for services rendered by Crystal in the amount of $33,750,
which is recorded in accounts payable as of June 30,
2011. On July 19, 2010 the Company
received notice that it had defaulted in responding to the
lawsuit.
On
March 23, 2010, the Company received a Writ of Summons issued
from the Superior Court of the State of New Hampshire,
Rockingham County, to respond to a lawsuit filed by
Alternative Energies, LLC (“Waterline”) relating
to claims against the Company under its distribution contract
with Waterline. The lawsuit does not specify an
amount of damages claimed. As previously
announced, the Company did receive a claim from Waterline
seeking damages of approximately
$250,000. The Company’s legal
counsel responded to the Writ of Summons on May 4,
2010 and the Company is defending itself in the
lawsuit. Waterline is currently a distributor of
the Company’s products. The Company has not accrued any
amount as it expects that it will not have any obligation to
pay any amounts under this lawsuit.
Effective
April 1, 2010, the Company completed a Settlement Agreement
and Mutual Release with Kenneth O. Morgan pursuant to which
the Company paid Kenneth O. Morgan the amount of $150,000 in
settlement of the previously announced litigation between the
parties. Pursuant to the terms of the Settlement
Agreement, Kenneth O. Morgan agreed to dismiss his lawsuit
against the Company and Scott Weinbrandt, and the Company
agreed to dismiss its counterclaims against Kenneth O.
Morgan.
On
May 21, 2011, a complaint was filed by Ian Gardner, the
Company’s former CEO and a director, against the
Company and a director and officer of the Company asserting
causes of action against the defendants for breach of certain
contracts, breach of the covenants of good faith and fair
dealing, fraud in the inducement, intentional and negligent
misrepresentation, alter ego and declaratory
relief. Mr. Gardner’s suit seeks
approximately $150,000 in stated damages as well as
additional unstated damages. The Company has
accrued its anticipated obligation of approximately $95,000
in the financial statements as of December 31,
2010. The company has denied these
allegations. On June 20, 2011 all parties to the
lawsuit entered into a Settlement Agreement and Mutual
General Release providing for the settlement of the
litigation and mutual release of all claims whereby the
Company agreed to reimburse Mr. Gardner $20,000 in legal
costs, accrued in the financials as of June 30,
2011. Payment terms will be over a four month
period, with an additional one time contingent payment of
approximately $95,000 based on a successful financing for the
Company of a minimum of $2,500,000.
On
September 29, 2010, the Company received a summons to appear
in the Superior Court in the State of California, County of
San Diego, in a lawsuit filed by Gordon & Rees LLP
alleging the Company failed to pay for legal services
rendered in the amount of $107,110. The
Company did not respond to the lawsuit within the 30 day
period required to respond. On March 8, 2011, the
Superior Court of California, County of San Diego granted
Gordon & Rees LLP’s request for a default judgment
in the amount of $110,938 in the previously announced lawsuit
against the Company. The total outstanding balance
is recorded in accounts payable as of June 30,
2011. On August 1, 2011, the Company received a
Notice of Levy/Enforcement of Judgment from Gordon & Rees
LLP in connection with their default judgment against the
Company in the amount of $110,938 pursuant to which Gordon
& Rees LLP seized $62,485 in cash from the
Company’s bank account. The Company does not have the
cash to pay the remainder amounts due from the judgment and
expects the default judgment and Notice of Levy/Enforcement
of Judgment to have a material adverse effect on the Company
and its assets.
On
October 6, 2010, the Company received notice issued from the
Superior Court of the State of California, County of Orange,
of a lawsuit filed by Bluewater Partners, S.A.
(“Bluewater”) against the Company
seeking damages in the amount of $647,254 relating to
allegations that the Company breached its obligations to
repay Bluewater under promissory notes issued by the
Company. The Company has promissory notes due
to Bluewater recorded in short term debt on the balance sheet
in the amount of $348,164 (before accrued interest), but does
not believe any additional amounts are owed to
Bluewater. The Company does not have sufficient
capital resources as of the date of this report to repay any
amounts to Bluewater, and the Company has not responded to
the lawsuit as of the date of this report. On
March 2, 2011, the Company received notice that the Superior
Court of the State of California, County of Orange (the
“Court”) had granted Bluewater Partners, S.A.
(“Bluewater”) request for a default judgment in
the amount of $647,254 in the previously announced litigation
involving the Bluewater promissory notes with the
Company. Management
does not believe the Company owes any amounts over what has
been recorded however, the Company does not have the cash to
pay the judgment and expects the default judgment to have a
material adverse effect on the Company and its
assets.
On
January 21, 2011, the Company received notice from legal
counsel for Squar, Milner, Peterson, Miranda &
Williamson, LLP (“Squar Milner”), the
Company’s former independent auditor, that Squar Milner
has requested a default judgment in its lawsuit against the
Company. Squar Milner filed a lawsuit in Orange County
Superior Court regarding the alleged unpaid balanced owed by
the Company to Squar Milner in the amount of approximately
$73,000. On May 2, 2011, the Company
confirmed that the Orange County Superior Court has entered a
default judgment against the Company. Any judgment
against the Company resulting from the lawsuit would have a
material adverse effect on the Company. The total
outstanding balance is recorded in accounts payable as of
June 30, 2011.
On
March 18, 2011, the Company received notice that on March 11,
2011 East West Consulting, Ltd. and Steve Polaski (the
“East West Parties”) filed a complaint in the
Superior Court of the State of California, County of San
Diego, against the Company and Kevin Claudio relating to a
professional services agreement and employment agreement
between the parties, and the conversion of certain accounts
receivable into shares of Company stock. The East
West Parties are seeking damages in the sum of over
$4,000,000. Management does not believe the
Company is obligated to East West for this claim, however any
judgment against the Company resulting from the lawsuit would
have a material adverse effect on the Company and its
assets.
On
July 19, 2011, the Company received notice that Scott
Weinbrandt filed a lawsuit against the Company in the
Superior Court of the State of California, County of San
Diego (the “Court”), alleging breach of contract
and seeking an unspecified amount of damages (but in excess
of $25,000) against the Company relating to the employment
agreement he had with the Company. Scott
Weinbrandt is a former officer and director of the
Company. As of June 30, 2011, the Company has
included in accrued compensation portions owed to Mr.
Weinbrandt. Any judgment against the Company
resulting from the lawsuit could have a material adverse
effect on the Company and its assets.
The
Company is not presently a party to any other pending or
threatened legal proceedings.
Executive
Compensation
An
employment agreement executed with the Company’s Chief
Financial Officer (CFO) on April 22, 2010 calls for a base
salary of $200,000 per annum May 1, 2010 through December 31,
2010; $225,000 per annum January 1, 2011 through December 31,
2011; and $250,000 per annum beginning January 1,
2012. During the period ended June 30, 2011,
$100,000 of accrued officers' compensation was converted to
shares of the Company’s convertible preferred
stock.
|
7. STOCK BASED COMPENSATION
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation Related Costs, General [Text Block] |
Stock-based
compensation cost is measured at the date of grant, based on
the calculated fair value of the stock-based award, and is
recognized as expense over the employee’s requisite
service period (generally the vesting period of the
award).
On
February 9, 2009, the Company’s Board of Directors
adopted the 2009 Equity Incentive Plan authorizing the Board
of Directors or a committee to issue options exercisable for
up to an aggregate of 13,700,000 shares of common stock. The
Company's Share Employee Incentive Stock Option Plan was
approved by the shareholders of the Company and the
definitive Schedule 14C Information Statement was filed with
the SEC on July 14, 2009.
The
Company estimates the fair value of employee stock options
granted using the Black-Scholes Option Pricing Model. Key
assumptions used to estimate the fair value of stock options
include the exercise price of the award, the fair value of
the Company’s common stock on the date of grant, the
expected option term, the risk free interest rate at the date
of grant, the expected volatility and the expected annual
dividend yield on the Company’s common
stock.
The
following weighted average assumptions were used in
estimating the fair value of share-based payment arrangements
as of June 30, 2011 and June 30, 2010:
Since
there is insufficient stock price history that is at least
equal to the expected or contractual terms of the
Company’s options, the Company has calculated
volatility using the historical volatility of similar public
entities in the Company’s industry. In
making this determination and identifying a similar public
company, the Company considered the industry, stage, life
cycle, size and financial leverage of such other
entities. This resulted in an expected
volatility of 59% to 75%.
The
expected option term in years is calculated using an average
of the vesting period and the option term, in accordance with
the “simplified method” for “plain
vanilla” stock options allowed under GAAP.
The
risk free interest rate is the rate on a zero-coupon U.S.
Treasury bond with a remaining term equal to the expected
option term. The expected volatility is derived
from an industry-based index, in accordance with the
calculated value method.
The
Company is required to estimate the number of forfeitures
expected to occur and record expense based upon the number of
awards expected to vest. At June 30, 2011, the Company
expects all remaining awards issued will be fully vested over
the expected life of the awards. For the six
months ended June 30, 2011, 4,990,000 employee options were
forfeited. The Company made no adjustment for compensation
previously recognized on these forfeitures as these awards
were vested on the forfeiture date.
Stock
Option Activity
A
summary of stock option activity for the period ended June
30, 2011 and June 30, 2010 is as follows:
The
following table summarizes information about stock options
outstanding and exercisable as of June 30, 2011 and June 30,
2010:
The
closing price at June 30, 2011 and June 30, 2010 was $0.0005
and $0.01, respectively.
The
aggregate intrinsic value in the preceding table represents
the total pre-tax intrinsic value (the difference between the
Company’s closing stock price as of June 30, 2011 and
the weighted average exercise price multiplied by the number
of shares) that would have been received by the option
holders had all option holders exercised their options on
June 30, 2011. This intrinsic value will vary as the
Company’s stock price fluctuates.
Compensation
expense arising from stock option grants was $100,403 and
$462,500 for the six months ended June 30, 2011 and 2010,
respectively.
The
amount of unrecognized compensation cost related to
non-vested awards at June 30, 2011 was
$239,998. The weighted average period in which
this amount is expected to be recognized is 1.16
years.
Stock
options outstanding and exercisable at June 30, 2011, and the
related exercise price and remaining contractual life are as
follows:
|
3. EQUIPMENT
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment Disclosure [Text Block] |
Equipment
consisted of the following as of June 30, 2011 and December
31, 2010:
During
the three and six months ended June 20, 2011, loss on
disposal of test equipment no longer used amounted to
$14,544.
|
+GUJJG#3A!:A`)#<+`GHR,$8J`.@V.6,BE^
M5VRC-&8'K-N'R([`THGHQKF#^A7ZA8DME9R@W+5 ].ZNV>&KQU.+I
M$TN6;=QAP@I\>QVX+W3<7.68!AF5E^:QQM5>G';9A]N4 :V/A0]'<4$0W$!&(;^(%Q6OXZ*MAQAT:.7[2%+^&%!8
M6_EI(T6]2CBZU&)`X(#'9Q0:ZRJPA-\V1RB[&1E^3Z(<)#QC+*'M]YE44*L*
ME]I)^;9!ZSD!)/V"<$H\#Y-;17B-R=->CR5=]IS^R;';[XU0XTEKIVH\,-,'
MOXLV(::H%EQ40+?B7]7([HP@AGM%3*V6P8$9*!/;&QP>NR-X-\*&%\-?$EY/
MA%_EH=I8ODU?WESE(A8MCJ[AC7$B9A7'0-#I@:/:2C=!&.KC)&"_)WP5Q70(
MDBK)9`RZ&-F5P^(K:K+%`ZJ@;=!R09P$PRRD4P1U#,LZ64*B=$(!0EE^KR2#
M5!JEH5U.V0/;)$BSPF1K2&XY"YB7MT1"UN:E$(:%I[TD&&-"+@(L!;MF8$30
MCV"7`H4)/#48N;4QZT%]$7#V,9*+-J*^QAGP%_Y:UQGL 3R\&"O2FGN@`OWKG3I4D/!-#C(1*4%#_F"
M-8S1)ZQBXT>%Q5Y5G(L:$*WEBA8?U-[AYP9(`J$O)Z [MAD)'-E98"!\,;'GBY58<^B*T?/2EX-I
M%&Y@E#Q/T:HD2,*&OVV]S1K!'<-6Q$*(S[RNX1/#D9?=)T<@@(E=IUV%=T5U
M(IFNOAA=>(&7P"OO`;I3)T$@X\LHC%NQ5CQ4IH6'0P?/1J6?6#]"2QA%BXMH
M@G4-3WL6I_GSH)J9$=J7#MD5OD&A_-;JI_HKS[GU?"_Q8(PTR_S>B>!]Z+OH
M+#V`*V_I)95.^NK0S)[^E>GB2,/5J'<^NAHM1L,YZ(T'8/Y];S;\?G(U&,[F
M?_GS-Z_/WOX-#(87H_YH82\P6YF5NS-MM>4Q&%6H1!@KTE"!<>PPQ'\J%[6B
M%70`A,:F$0QD#;<2$600(@D+4C)E/S8H8$,Y9,6;J?DH(8<24:B0WLC=BA?6
MYT"]JZ[E,MPB'V_J/#NW/FPS,L#&9$9\Q$3PKK^RC\$F_=JV(R=D5<&QX\^R
MZMU-#A+9`(B@N#A7"08Q2!O6*+M8#T>HZ`(\L,?8-Y5L^,SG>;\X()SN?^?(H567K^!SY]+58)*,4BQ
M1O.@1J8SMCR@<+AT<9"4&A:F4)"K^.ILI+Y'ZU-,12,%$"S.N&.;4#0'T8E?
M,EKJ]&:6713E%0M!<;=1!^(;XD40<0-`8T75\<49D;)BVGF&+!.PL_).'(4L
M[!#A1,/JBA*D)+-9E:>?,X8+P%5@BM*C:8IH..HEJPEB^0=.
MT
QX,!-/O.8D95EAA@0<)(G!WL%[L$5G)7H;
MI-AL"2`=GDSXJ=K8XWD%`:04SX*#^W:KUVF!K>531+^`]4S@5HD7LS.1\N@]
M,U+PGE;XAHYD*;.5C*KD(F*-*463/78^$_W'4/3&%N?2]2W4HZSBGJCBR(2,
M?K*C(VGI=]?=0$G:0(GH\D@N:^=83@+<:98&U%LSEQ9A9J-[#^%CO5'L"#FO
M?TMU7_0"=BY8>U-#^]].A/P>4[T9(%*QJ90X21&?P;8[$58IEE\K6[$4
%6P!C\>>ER<,V7AM6I%JYIO/.+DRLC$Q
MG%;&1-@\<,ZT:U:J*
['EYXK)GHWP^ACD5"RE6EF=I1B(T31SX*^
M`H=5@&Y,TB`5K[F)\]!WX-D\S)P)(!,;WRLL)B=.8*8T\8*4PONJ`Y$PK+R2
M/Y8%:"7!6FGJ.C=P>IG87V$ZV%GF?`
M+KQ'SVBX34!8GY/Q^V1*Z
4])$H[0M4A0M%>6*
MBHUU3K@83)5)6'DAZK3DV@?43'IK*FB-IT=)25(*\RK[:)9CK%7\,]6UT3:;
M%`(3CID(G?FL!@XE2M(F