MOLLER INTERNATIONAL INC - FORM 10-Q - May 20, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549 
 
 
FORM 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   Yes  x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer   ¨
Accelerated filer   ¨
  
     
Non-accelerated filer        ¨
(Do not check if a smaller reporting company)
Smaller reporting company  x
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨     No  x
 
As of May 20, 2014, there were 52,981,964 shares of common stock outstanding.
 
 
TABLE OF CONTENTS
 
 
Page
PART I - FINANCIAL INFORMATION
  
   
1
1
2
3
4
6
6
6
   
PART II - OTHER INFORMATION
  
   
7
7
7
7
7
7
   
8
   
EXHIBITS
  
Exhibit 31.1                  Certification Pursuant to Section 302 of the Sarbanes Oxley Act
  
Exhibit 31.2                  Certification Pursuant to Section 302 of the Sarbanes Oxley Act
  
Exhibit 32.1                  Certification Pursuant to Section 906 of the Sarbanes Oxley Act
  
Exhibit 32.2                  Certification Pursuant to Section 906 of the Sarbanes Oxley Act
  

 
PART I - FINANCIAL INFORMATION
 
ITEM 1 – FINANCIAL STATEMENTS
 
MOLLER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
 Unaudited
 
   
March 31, 2014
    
June 30, 2013
  
ASSETS
            
CURRENT ASSETS
            
Cash
  
$
31,694
    
$
5,015
  
Advances to employees
    
2,551
      
1,038
  
Prepaid Expenses
    
3,258
      
-
  
Total current assets
    
37,503
      
6,053
  
                 
PROPERTY AND EQUIPMENT, net
    
6,880
      
7,846
  
   
$
44,383
    
$
13,899
  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                
CURRENT LIABILITIES
                
Accounts payable, trade
  
$
640,849
    
$
701,798
  
Accrued liabilities
    
909,092
      
805,528
  
Accrued liabilities-majority shareholder
    
6,424,252
      
5,860,191
  
Notes payable-other
    
1,261,478
      
1,333,682
  
Note payable - majority shareholder
    
2,283,606
      
2,476,382
  
Convertible notes payable, net of discount of $79,518 and $46,575
    
326,140
      
234,805
  
Notes payable - minority shareholders
    
208,591
      
208,591
  
Derivative Liability
    
225,854
      
492,461
  
Deferred wages – employees
    
1,005,610
      
881,886
  
Customer deposits
    
409,389
      
387,767
  
Total current liabilities
    
13,694,861
      
13,383,091
  
LONG TERM LIABILITIES
                
Deferred wages and interest-majority shareholder
    
1,278,960
      
1,073,080
  
                 
Total liabilities
    
 14,973,821
      
14,456,171
  
                 
DEFICIT IN STOCKHOLDERS' DEFICIT
                
Common stock, authorized, 150,000,000 shares, no par value
52,352,108 and 49,094,675 issued and outstanding respectively
    
38,559,123
      
38,039,975
  
Accumulated deficit
    
(53,488,561
)
    
(52,482,247
)
Total stockholders' deficit
    
(14,929,438
)
    
(14,442,272
)
   
$
44,383
    
$
13,899
  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
MOLLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
 
   
Three Months Ended
    
Nine Months Ended
  
   
March 31, 2014
    
March 31, 2013
    
March 31, 2014
    
March 31, 2013
  
REVENUE
                        
      Other revenue
  
$
-
    
$
24
      
-
    
$
126
  
                                 
OPERATING EXPENSES
                                
Selling, general and administrative
    
117,963
      
131,742
      
393,813
      
443,585
  
Depreciation and Amortization Expense
    
366
      
  232
      
966
      
  698
  
Legal, Accounting, & Professional Fees
    
5,460
              
11,120
          
Research and Development
    
-
              
3,290
          
Rent expense to majority shareholder
    
132,651
      
108,794
      
252,652
      
230,098
  
Total expenses
    
256,440
      
240,768
      
661,841
      
674,381
  
                                 
Operating Loss
    
(256,440
)
    
(240,744
)
    
(661,841
)
    
(674,255
)
                                 
OTHER EXPENSE
                                
     Derivative gain (loss)
    
116,881
      
(114,928
)
    
169,090
      
(153,704
)
     Interest expense
    
(92,735
)
    
(43,118
)
    
(289,376
)
    
(184,974
)
     Interest expense- majority shareholder
    
(74,688
)
    
(77,379
)
    
(224,186
)
    
(235,253
)
                Total other expense
    
(50,542
)
    
(235,425
)
    
(344,472
)
    
(573,931
)
                                 
NET INCOME (LOSS)
  
$
(306,982
)
  
$
(476,169
)
  
$
(1,006,313
)
  
$
(1,248,186
)
                                 
Loss per common share, basic
  
$
(0.01
)
  
$
(0.01
)
  
$
(0.02
)
  
$
(0.03
)
Loss per common share, diluted
  
$
(0.01
)
  
$
(0.01
)
  
$
(0.02
)
  
$
(0.03
)
Weighted average common shares outstanding - Basic
    
52,273,516
      
49,076,716
      
50,894,049
      
49,064,036
  
Weighted average common shares outstanding - Diluted
    
52,273,516
      
49,076,716
      
50,894,049
      
49,064,036
  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
MOLLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 
   
Nine Months Ended
  
   
March 31
    
March 31
  
   
2014
    
2013
  
Cash Flows From Operating Activities
            
Net loss
  
$
(1,006,313
)
  
$
(1,248,186
)
Adjustments to reconcile net loss to net cash   
   Provided by (used in) operating activities:
                
    Depreciation expense
    
966
      
698
  
    Derivative (gain)/loss
    
(169,090
)
    
153,704
  
    Stock based compensation
    
123,739
      
19,256
  
    Debt discount amortization
    
125,177
      
71,406
  
Change in assets and liabilities:
                
    Prepaid expenses
    
(3,258
)
    
(2,571
)
    Other assets
    
(1,513
)
    
319
  
    Accounts payable
    
(58,128
)
    
(40,849
)
    Accrued liabilities - related parties
    
769,940
      
793,353
  
    Accrued liabilities and deferred wages
    
245,935
      
228,149
  
Net Cash Provided By (Used in) Operating Activities
  
$
27,455
    
$
(24,721
)
                 
                 
Cash Flows Provided from Financing Activities
                
   Proceeds from convertible notes payable
    
192,000
      
-
  
   Proceeds from notes payable
            
272,500
  
   Additions on related party note payable
            
2,037
  
   Payments on related party note payable
    
(192,776
)
    
(212,500
)
Net Cash Provided by (Used in) Financing Activities
  
$
(776
)
  
$
62,037
  
                 
Net Increase (Decrease) In Cash
  
$
26,679
    
$
37,316
  
Cash, Beginning of Year
  
$
5,015
    
$
2,123
  
Cash, End of Year
  
$
31,694
    
$
39,439
  
                 
Supplemental Cash Flow Information:
                
Interest paid
  
$
1,715
    
$
2,217
  
Supplemental Disclosure of Non-Cash Financing Activities:
                
Write off of derivative liability to additional paid-in capital
    
272,739
      
-
  
Shares issued as repayment customer deposit
    
-
      
772,017
  
Note payable converted to common stock
    
147,222
      
-
  
Debt discount for derivative liability
    
175,222
      
99,454
  
Shares issued to settle accounts payable
    
47,538
      
-
  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
MOLLER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

NOTE A – ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited financial statements of Moller International, Inc. (“MI”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q.  Accordingly, these financial statements may not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended June 30, 2013 filed on Form 10-K. In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present MI’s financial position as of March 31, 2014, and its results of operations and its cash flows for the nine months ended March 31, 2014 and 2013. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for 2013 as reported in the 10-K have been omitted.
 
Embedded conversion features

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

NOTE B – GOING CONCERN

As of March 31, 2014, MI had an accumulated deficit and a working capital deficit.  In addition, MI is currently in the development stage of the Skycar and Rotapower engine programs, and has no revenue producing products.  Successful completion of product development activities for either or both of these programs will require significant additional sources of capital. These conditions raise substantial doubt as to our ability to continue as a going concern. Historically, funding was provided by certain shareholders, including the majority shareholder, in the form of short-term notes payable. In addition, the majority shareholder granted us a deferral on the payment of rent for our building. There is no assurance that we will continue to receive funding from shareholders, particularly our major shareholder given he has filed for protection under the federal Chapter 11 reorganization provisions of the federal bankruptcy law. Consequently, we are evaluating several alternatives to raise the additional capital through debt or equity transactions.  There is no assurance that our efforts will be successful, however, and the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
NOTE C – ACCRUED LIABILITIES – MAJORITY SHAREHOLDER

As of March 31, 2014, MI had outstanding accrued liabilities consisting of accrued rent and accrued interest to our majority shareholder totaling $6,424,252.
 
NOTE D – NOTES PAYABLE & DERIVATIVE LIABILITIES

Notes Payable
 
During the nine months ended March 31, 2014 and 2013 MI made repayments on related party notes payable of $192,776 and $212,500, respectively.

Convertible Notes Payable & Derivative Liabilities
 
During the nine months ended March 31, 2014 and 2013 MI received $192,000 related to convertible promissory notes.  The borrowings are due nine to twelve months after issuance, carry an interest rate of 0% to 8% for 90 days, then increases to 12%, and is convertible into common stock at the lesser of $0.24 or 60% of the lowest trading price in the 25 trading days prior to conversion and for some instruments 53% and 58% of the average of the three lowest days in the ten trading days prior to conversion. During the nine months ended March 31, 2014, promissory notes totaling $147,222 were converted to 2,691,978 shares of MI common stock.
 
The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that for the instruments immediately convertible, the embedded conversion features should be classified as liabilities due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion features were measured at fair value at inception with the change in fair value recorded to earnings. Additionally, because there is no explicit limit to the number of shares to be issued upon conversion of the above instruments, the Company cannot determine if it will have sufficient authorized shares to settle all other share-settleable instruments, including the warrants granted above.  As a result, all other share-settable instruments have also been classified as liabilities.
 
Derivative Liabilities
      
June 30, 2013
  
$
492,461
  
Additions to derivatives
    
175,222
  
Write off of derivative liability to additional paid-in capital due to conversion of related notes payable
    
(272,739
 ) 
Change in fair value
    
(169,090
 ) 
March 31, 2014
  
$
225,854
  
 
Discount amortization charged to interest expense during the nine months ended March 31, 2014, totaled $125,177.
 
NOTE E – STOCK-BASED COMPENSATION
 
During the nine months ended March 31, 2014, MI issued 499,836 shares of common stock for settlement of services and liabilities to outside consultants and certain employees.  We valued these shares at the fair market value on the dates of issuance of $92,973 for the services and $47,538 for the accounts payable.
 
MI also issued 2,691,978 shares of commons stock in settlement of $147,222 convertible promissory notes.
 
NOTE F – FAIR VALUE MEASUREMENTS
 
The Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
 
 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
 
Level 2
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
 
 
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
The following table sets forth the Company's consolidated financial assets and liabilities measured at fair value by level within the fair value hierarchy as of September 30, 2013 and June 30, 2013. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
   
Total
    
Level 1
    
Level 2
    
Level 3
  
LIABILITIES:
                        
                         
Derivative liabilities – 3/31/2014
    
225,854
      
-
      
-
      
225,854
  
Derivative liabilities – 6/30/2013
    
492,461
                      
492,461
  

NOTE G – SUBSEQUENT EVENTS

Subsequent to March 31, 2014, the Company issued a total of 583,019 shares of common stock to convert loans with a principal balance of $32,500.  Additionally 46,838 shares were issued for services.


ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations
 
Three months Ended March 31, 2014 and March 31, 2013:
 
For the three-months ended March 31, 2014, we had a net loss of $306,982 or $0.01 loss per share as compared to a net loss of $476,169 or $0.01 loss per share for the same period of 2013.   We continue to pursue the development activities on the Skycar, Rotapower engine project, primarily in the areas of its flight control system (FCS) and the performance advantages of introducing a hybrid approach to generating the high power required to take off and land. Although there is no assurance that this vehicle will meet with success in the market place, the Company is actively seeking support for the program and, if found, may choose to move into the production of these vehicles.
 
Nine months Ended March 31, 2014 and March 31, 2013:
 
For the nine-months ended March 31, 2014, we had a net loss of $1,006,313 or $0.02 loss per share as compared to a net loss of $1,248,186 or $0.03 loss per share for the same period of 2013.   The decreased loss primarily relates to Derivative Gain recognized in nine months ended March 31, 2014.  We continue to pursue the development activities on the Skycar, Rotapower engine project, primarily in the areas of its flight control system (FCS) and the performance advantages of introducing a hybrid approach to generating the high power required to take off and land. Although there is no assurance that this vehicle will meet with success in the market place, the Company is actively seeking support for the program and, if found, may choose to move into the production of these vehicles.
 
Going Concern and Liquidity
 
As of March 31, 2014, MI had an accumulated deficit of $53,488,561 and a working capital deficit of $13,657,338.  In addition, MI is currently in the development stage of the Skycar and Rotapower engine programs, and has no revenue producing products.  Successful completion of product development activities for either or both of these programs will require significant additional sources of capital. These conditions raise substantial doubt as to our ability to continue as a going concern. Historically, funding was provided by certain shareholders, including the majority shareholder, in the form of short-term notes payable. In addition, the majority shareholder granted us a deferral on the payment of rent for our building. There is no assurance that we will continue to receive funding from shareholders, particularly our major shareholder given he has filed for protection under the federal Chapter 11 reorganization provisions of the federal bankruptcy law. Consequently, we are evaluating several alternatives to raise the additional capital through debt or equity transactions.  There is no assurance that our efforts will be successful, however, and the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
ITEM 3 – QUALITATIVE AND QUANTITATIVE CONCERNS ABOUT MARKET RISK

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

ITEM 4 – CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls Over Financial Reporting

There have been no changes in the company’s internal controls over Financial Reporting since the year ended June 30, 2013, although the Company has reviewed its internal controls relative to the Sarbanes-Oxley Act provisions and expects that there will be revisions to some of its existing processes and controls during the current fiscal year. 
 

PART II - OTHER INFORMATION

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

Not applicable

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5 – OTHER MATTERS

None

ITEM 6 – EXHIBITS
 
(a.)  Exhibits
 
Exhibit No.
  
Description
  
       
31.1
    
31.2
    
32.1
    
32.2
    
101.INS
  
XBRL Instance Document
  
101.SCH
  
XBRL Taxonomy Extension Schema Document
  
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
  
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
  
 
 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
MOLLER INTERNATIONAL, INC.
  
       
Date:  May 20, 2014
By:
/s/ Paul S. Moller 
  
   
Paul S. Moller, Ph.D.
  
   
President, CEO, Chairman of the Board
  
       
 
 
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