MOLLER INTERNATIONAL INC - FORM 10-Q - November 24, 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 September 30, 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 November 14, 2014, there were 57,663,843 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.
BALANCE SHEETS
 Unaudited
 
   
September 30, 2014
    
June 30, 2014
  
ASSETS
            
CURRENT ASSETS
            
Cash
  
$
      
$
97,846
  
Prepaid and other current assets
    
1,851
      
3,613
  
Total current assets
    
1,851
      
101,459
  
                 
PROPERTY AND EQUIPMENT, net
    
8,053
      
7,076
  
                 
                 
           Total assets
  
$
9,904
    
$
108,535
  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                
CURRENT LIABILITIES
                
Accounts payable, trade
  
$
638,514
    
$
643,090
  
Accrued liabilities
    
969,376
      
935,966
  
Accrued liabilities-majority shareholder
    
6,795,034
      
6,615,469
  
Notes payable-other
    
1,354,182
      
1,383,682
  
Note payable - majority shareholder
    
2,139,918
      
2,188,947
  
Convertible notes payable, net of discount of $177,534 and $123,640
    
254,771
      
213,240
  
Notes payable - minority shareholders
    
207,709
      
208,068
  
Derivative Liability
    
290,443
      
281,251
  
Deferred wages – employees
    
1,051,671
      
1,035,335
  
Deferred other income
    
24,598
      
24,598
  
Customer deposits
    
384,767
      
384,767
  
Total current liabilities
    
14,110,983
      
13,914,413
  
LONG TERM LIABILITIES
                
Deferred wages and interest-majority shareholder
    
1,379,480
      
1,328,830
  
                 
Total liabilities
    
15,490,463
      
15,243,243
  
                 
STOCKHOLDERS' DEFICIT
                
Common stock, authorized, 150,000,000 shares, no par value
56,262,767 and 54,876,990 issued and outstanding respectively
    
39,207,306
      
39,082,892
  
Accumulated deficit
    
(54,687,865
)
    
(54,217,600
)
Total stockholders' deficit
    
(15,480,559
)
    
(15,134,708
)
   
$
9,904
    
$
108,535
  
 
See accompanying notes to unaudited financial statements.
 
 
MOLLER INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Unaudited
 
   
Three Months Ended
  
   
September 30, 2014
    
September 30, 2013
  
REVENUE
            
      Other revenue
  
$
-
    
$
-
  
                 
                 
OPERATING EXPENSES
                
Selling, general and administrative
    
177,211
      
125,416
  
Rent expense to majority shareholder
    
132,652
      
-
  
Depreciation and amortization
    
144
      
233
  
Total expenses
    
310,007
      
125,649
  
                 
Operating Loss
    
(310,007
)
    
(125,649
 )
                 
OTHER INCOME (EXPENSE)
                
     Interest expense
    
(102,048
)
    
(81,203
)
     Interest expense- majority shareholder
    
(76,313
)
    
(74,888
)
     Derivative (loss) income
    
        18,103
      
        253,412
  
                Total other income (expense)
    
(160,258
)
    
97,321
  
                 
NET LOSS
  
$
(470,265
)
  
$
(28,328
)
                 
                 
Loss per common share - Basic and diluted
  
$
(0.01
)
  
$
(0.00
)
                 
Weighted average common shares outstanding
- Basic and diluted
    
54,675,829
      
48,751,811
  
 
See accompanying notes to unaudited financial statements.
 
 
MOLLER INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Unaudited
 
   
Three Months Ended
  
   
September 30,
    
September 30,
  
   
2014
    
2013
  
Cash Flows From Operating Activities
            
Net loss
  
$
(470,265
)
  
$
(28,328
)
Adjustments to reconcile net loss to net cash   
   Provided by (used in) operating activities:
                
    Depreciation expense
    
144
      
233
  
    Derivative (gain)/loss
    
(18,103
)
    
(253,412)
  
    Stock based compensation
    
2,460
      
76,933
  
    Debt discount amortization
    
46,280
      
31,577
  
Change in assets and liabilities:
                
    Prepaid expenses
    
1,761
      
(6,517
)
    Other assets
            
487
  
    Accounts payable
    
(4,576)
      
(59,706
)
    Accrued liabilities - related parties
    
230,215
      
261,588
  
    Accrued liabilities and deferred wages
    
49,746
      
77,443
  
Net Cash Provided By (Used in) Operating Activities
  
$
(162,338
)
  
$
100,298
  
                 
Cash Flows Provided from Investing Activities
                
   Purchase of Fixed Assets
    
  (1,120
)
    
-
  
Net Cash Provided by (Used in) Investing Activities
    
(1,120
)
    
-
  
                 
Cash Flows Provided from Financing Activities
                
   Proceeds from convertible notes payable
    
115,000
      
25,000
  
   Payment on note payable
    
  (359
)
    
-
  
   Payments on related party note payable
    
(49,029
)
    
(104,452
)
Net Cash Provided by (Used in) Financing Activities
  
$
65,612
    
$
(79,452
)
                 
Net Increase (Decrease) In Cash
  
$
(97,846
)
  
$
20,846
  
Cash, Beginning of Year
  
$
97,846
    
$
5,015
  
Cash, End of Year
  
$
   -    
$
25,861
  
                 
Supplemental Cash Flow Information:
                
Interest paid
  
$
-
    
$
2,217
  
Supplemental Disclosure of Non-Cash Financing Activities:
                
Reclass of derivative liability to additional paid-in capital
    
72,879
      
11,462
  
Note payable converted to common stock
    
49,075
      
15,000
  
Debt discount for derivative liability
    
100,174
      
38,722
  
 
See accompanying notes to unaudited financial statements.
 
 
MOLLER INTERNATIONAL, INC.
NOTES TO 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, 2014 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 September 30, 2014, and its results of operations and its cash flows for the three months ended September 30, 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 2014 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 September 30, 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

We lease our facility from our majority shareholder.  Rent expense to our majority shareholder was $132,652 during the three months ended September 30, 2014.  During the three months ended September 30, 2013 our rent expense was completely offset by billings to our affiliate, Freedom Motors and as a result our expense was $0.
 
As of September 30, 2014, MI had outstanding accrued liabilities consisting of accrued rent and accrued interest to our majority shareholder totaling $6,795,034.
 
NOTE D – NOTES PAYABLE & DERIVATIVE LIABILITIES
 
Majority Shareholder
During the three months ended September 30, 2014 and 2013 the Company made repayments on majority shareholder notes payable of $49,029 and $104,452, respectively. The total debt outstanding to majority shareholder at September 30, 2014 is $2,139,918. The debt is unsecured, payable upon demand and bears an annual interest rate of 10%.

Minority Shareholder
During the three months ended September 30, 2014 and 2013 MI made repayments on related party notes payable of $359 and $0, respectively. The total due to minority shareholder at September 30, 2014 is $207,709. The debt is unsecured, payable upon demand and bears an annual interest rate of 10%.

Non-Related Party


Convertible Notes Payable & Derivative Liabilities
During the three months ended September 30, 2014 and 2013 MI received $115,000 and $25,000 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. A debt discount of $100,174 was recorded as a result of these convertible notes during the three months ended September 30, 2014. A total of $46,280 of the debt discount was amortized during the period to interest expense. During the three months ended September 30, 2014, promissory notes totaling $49,075 were converted to 1,359,783 shares of MI common stock as a result $72,879 of the derivative liability was reclassed to additional paid in capital. The change in fair value of the derivative liability at September 30, 2014 is $18,103 and is recorded as derivative income.

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, 2014
  
$
281,251
  
Debt discount due to derivative liability
    
100,174
 
Reclass of derivative liability to additional paid-in capital due to conversion of related notes payable
    
(72,879)
 
Change in fair value
    
(18,103
) 
September 30, 2014
  
$
290,443
  
 
NOTE E – STOCK-BASED COMPENSATION
 
During the three months ended September 30, 2014, MI issued 25,994 shares of common stock for settlement of services to outside consultants and certain employees.  We valued these shares at the fair market value on the dates of issuance of $2,460.
 
MI also issued 1,359,783 shares of commons stock in settlement of $49,075 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 – 6/30/2014
    
281,251
      
-
      
-
      
281,251
  
Derivative liabilities – 9/30/2014
    
290,443
                      
290,443
  

NOTE G – SUBSEQUENT EVENTS

Subsequent to September 30, 2014, the Company issued a total of 1,379,727 shares of common stock to convert loans with a principal and interest balance of $47,684.  Additionally 21,349 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 September 30, 2014 and September 30, 2013:
 
For the three-months ended September 30, 2014, we had a net loss of $470,265 or $0.01 loss per share as compared to a net loss of $28,328 or $0.00 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.
 
Going Concern and Liquidity
 
As of September 30, 2014, MI had an accumulated deficit of $54,687,865 and a working capital deficit of $14,109,132.  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, 2014, 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:  November 24, 2014
By:
/s/ Paul S. Moller 
  
   
Paul S. Moller, Ph.D.
  
   
President, CEO, Chairman of the Board
  
       
 
 
 
 
 
 
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