UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
September 30, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File No.: 000-33173
MOLLER INTERNATIONAL, INC.
(Name of small business issuer in its charter)
CALIFORNIA 68-0006075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1222 RESEARCH PARK DRIVE
DAVIS, CALIFORNIA 95618
(Address of principal executive offices)
Issuer's telephone number (530) 756-5086
Issuer's Facsimile number (530) 756-5179
__________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [_] No
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [_] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
As of November 3, 2006 a total of 45,611,218 shares of our common stock have
been issued and are outstanding.
Transitional Small Business Disclosure Format (Check one): [_] Yes [X] No
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MOLLER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, June 30,
CURRENT ASSETS 2006 2006
------------ ------------
Cash $ 63,891 $ 1,431
Accounts receivable - employees 77,473 79,945
Prepaid expenses 29,032 --
------------ ------------
Total current assets 170,396 81,376
PROPERTY AND EQUIPMENT, net of accumulated depreciation 10,799 11,186
OTHER ASSETS
Patent costs 59,333 51,548
Advance to Freedom Motors 18,592 --
Workers' compensation deposit 1,059 --
------------ ------------
Total other assets $ 78,984 $ 51,548
------------ ------------
$ 260,179 $ 144,110
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade $ 319,227 $ 270,176
Accrued liabilities 311,783 285,544
Accrued liabilities-related parties 170,660 135,324
Accrued liabilities-majority shareholder 1,815,067 1,798,968
Notes payable-other 521,112 544,968
Note payable - majority shareholder 2,042,090 2,037,238
Notes payable - minority shareholders 318,715 318,729
Notes payable - related parties 1,242,065 647,065
Deferred wages - employees 251,035 293,866
Customer deposits 399,767 442,267
------------ ------------
Total current liabilities 7,391,521 $ 6,774,145
LONG TERM LIABILITIES
Deferred wages and interest-majority shareholder 254,422 1,640,987
------------ ------------
Total liabilities 7,645,943 8,415,132
DEFICIT IN STOCKHOLDERS' EQUITY
Common stock, authorized, 150,000,000 shares, no par
value, issued and outstanding, 45,585,788 and 45,526,82
shares at September 30, 2006 and June 30, 2006 31,055,760 29,538,873
Accumulated deficit (38,441,524) (37,809,895)
------------ ------------
Total deficit in stockholders' deficit (7,385,764) (8,271,022)
------------ ------------
$ 260,179 $ 144,110
============ ============
See accompanying notes to consolidated financial statements.
MOLLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
2006 2005
------------ ------------
INCOME:
Miscellaneous $ 4,269 $ 44,762
------------ ------------
Total income 4,269 44,762
EXPENSES:
Administrative salaries and wages 171,883 82,680
Building expenses 13,532 16,769
Depreciation expense 387 2,445
Direct project expenses 69,571 107,779
Employee benefits and payroll taxes 40,483 20,185
Legal, accounting, and professional fees 62,161 31,832
Office supplies and expense 30,410 7,502
Other expenses 7,521 17,977
Patent expense -- 10,711
Rent expense to majority shareholder 133,186 124,200
------------ ------------
Total expenses 529,134 422,080
------------ ------------
Loss from operations (524,865) (377,318)
OTHER EXPENSE
Interest (106,764) (61,557)
------------ ------------
Total other expense (106,764) (61,557)
------------ ------------
NET LOSS $ (631,629) $ (438,875)
============ ============
Loss per common share, basic and diluted $ (0.01) $ (0.01)
Weighted average common shares outstanding 45,554,661 45,235,570
============ ============
See accompanying notes to consolidated financial statements.
MOLLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2006 2005
----------- -----------
Net loss $ (631,629) $ (438,875)
Adjustments to reconcile net loss to net cash
used in operating activities
Stock based compensation 67,639 606,785
Depreciation and amortization 387 2,447
Deferred wages -- (280,843)
Changes in:
Accounts receivable 2,472 18,678
Prepaid expenses (29,032) --
Other assets (19,651) --
Accounts payable 49,051 47,505
Customer deposits (42,500) --
Accrued expenses 76,670 184,091
Due from affiliate -- 700
----------- -----------
Net cash used in operating activities (526,593) 140,488
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of other assets (7,785) --
----------- -----------
Net cash used in investing activities
(7,785) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 618,926 000
Payments on notes payable (22,088) (166,343)
----------- -----------
Net cash provided by financing activities 596,838 (166,343)
----------- -----------
NET INCREASE (DECREASE) IN CASH 62,460 (25,855)
CASH, BEGINNING OF PERIOD 1,431 27,013
----------- -----------
CASH, END OF PERIOD $ 63,891 $ 1,158
=========== ===========
CASH PAID DURING THE PERIOD FOR:
INTEREST $ -- $ 1,206
SUPPLENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Contributed capital in the form of debt forgiveness $ 1,449,248 $ --
=========== ===========
See accompanying notes to consolidated financial statements.
MOLLER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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-QSB. 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 ending June 30, 2006 filed on Form 10-KSB. 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, 2006, and its results of operations and its cash flows for the three months
ended September 30, 2006 and 2005.
NOTE B - GOING CONCERN
As of September 30, 2006, MI has accumulated deficits of $38,441,524. MI
currently has no revenue-producing products and is continuing its development of
products in both the Skycar and Rotary engine programs. Successful completion of
product development activities for either or both of these programs will require
significant additional sources of capital. Continuation as a going concern is
dependent upon the Company's ability to obtain additional financing sufficient
to complete product development activities and provide working capital to fund
the manufacture and sale of MI's products. These factors raise substantial doubt
as to MI's ability to continue as a going concern.
Management is currently pursuing additional sources of capital in quantities
sufficient to fund product development and manufacturing and sales activities.
The majority shareholder of MI is providing funds received from the refinance of
both real property owned by him personally and real property owned by a limited
partnership of which he is the general partner, in the form of short-term,
interest-bearing demand loans to MI. As of September 30, 2006, a total of
$3,284,155 has been loaned to MI from these transactions. In addition, he has
deferred payment of current year building rent owed by MI of approximately
$124,200. The total deferred rent owing to Dr. Moller at September 30, 2006 is
$1,386,157.
There can be no assurance that this majority shareholder will continue to have
the ability to continue to make such short-term loans to MI in the future. Dr.
Moller is under no legal obligation to provide additional loans to the company.
In the event that he cannot continue to make such loans, or that MI does not
receive funds from other sources, MI may be unable to continue to operate as a
going concern.
There is no assurance that the funds generated from these activities or other
sources will be sufficient to provide MI with the capital needed to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
NOTE C - NOTES PAYABLE
In August and September 2006, MI borrowed an additional $595,000 from a related
party. The total owed to this party is $1,242,065 at September 30, 2006. The
amounts are due upon demand and interest is accrued at the stated rate of 10%.
NOTE D - STOCK-BASED COMPENSATION
Prior to December 31, 2005, MI accounted for stock-based compensation under
Statement of Financial Accounting Standards No. 123. As permitted under this
standard, compensation cost was recognized using the intrinsic value method
described in Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations in determining
compensation cost for options issued to employees. Accordingly, no compensation
cost had been recognized upon issuance of the options prior to January 1, 2006.
Effective January 1, 2006, MI adopted Statement of Financial Accounting Standard
No. 123(R) and applied the provisions of the Securities and Exchange Commission
Staff Accounting Bulletin No. 107 using the modified - prospective transition
method. During the three months ended September 30, 2006, MI did not issue
options to any employees. However, there were portions of previously granted
options which vested during the quarter ended September 30, 2006. The fair value
of these options were estimated at the grant date with terms ranging from five
to ten years and exercise prices ranging from $0.86 to $1.03 to employees,. As
such, total compensation expense of $34,299 was recognized during the three
months ended September 30, 2006. The following table illustrates the effect on
net loss and net loss per share if MI had applied the fair value provisions of
SFAS 123R, Accounting for Stock-Based Compensation, to stock-based employee
compensation relating to stock options for the prior periods presented.
2005
------------
Net loss as reported $(438,875)
Add: stock based compensation determined under
intrinsic value -
Less: stock based compensation determined under
fair value-based method (24,170)
-------------
Pro forma net loss $(463,045)
=============
Basic and diluted net loss per common share: $(0.01)
As reported
Pro forma $(0.01)
The pro forma compensation cost was recognized for the fair value of the stock
options granted, which was estimated using the Black Scholes method, based on
assumptions including (1) risk-free interest rates of 3.98%%, (2) an estimated
life of the options of five years, (3) no dividend rate and (4) computed
volatility rates of 187.48 % on the underlying stock.
During the three months ended September 30, 2006, MI issued 58,967 shares for
services to outside consultants and estimated the value of these shares at the
market value on the date of issuance of $33,340.
NOTE E - Debt Forgiveness
As of June 30, 2006, Dr. Moller was owed $1,640,987 in deferred wages along with
accrued interest. During the quarter ended September 30, 2006, Dr. Moller waived
the payment of $1,449,248. This amount was treated as a capital contribution and
was included as an increase in common stock.
NOTE E - STOCK OPTION PLANS
On January 21, 2004, MI adopted its 2004 Stock, Option and Restricted Stock
Benefit Plan. The total shares available for grant under the plan aggregate
7,500,000 of which 1,158,507 are outstanding and 1,408,416 are reserved for
issued options to purchase shares as of September 7, 2006.
Previously, MI had its 1991 Stock Option Plan that allowed for the granting of
Nonqualified Stock Options (NSO's) to employees and consultants and Incentive
Stock Options (ISO's) to employees.
Neither plan includes either 6,000,000 share options granted to Dr. Moller, or
2,463,829 share options granted to certain non-employees.
Options shall vest and become exercisable at such time or times and on such
terms as the Plan Administrators may determine at the time of the grant of the
Option. The Plan Administrators shall establish the exercise price payable to MI
for shares to be obtained pursuant to Options, which exercise price may be
amended from time to time as the Plan Administrators shall determine.
COMPENSATION OF DIRECTORS
Our employee directors do not receive any compensation for their services as
directors. Non-employee directors are entitled to standardized stock option
grants on the first day of a directorship year which begins on the date of
election to the board. It is pro-rated for a new director appointed after a
board year has begun. Non-employee directors receive a grant of 5,000 options to
purchase common stock at an exercise price equal to the closing price on the
date of appointment.
Option activity for the three months ended September 30, 2006 and 2005 is as
follows:
Weighted
Range of Average
Total Option Total Exercise
Granted Prices vested Price
------- ------ ------ -----
Balance at June 30, 2006 13,074,212
Vested at June 30, 2006 13,074,212 $1.57
Granted -
Exercised -
Forfeited -
Balance September 30, 2006 13,074,212 $1.57
Vested at September 30, 2006 13,074,212 $1.57
Additional option information as of September 30, 2006, is as follows:
Weighted
Average
Weighted Remaining Weighted
Average Life in Average
Price Range Outstanding Price Years Exercisable Price
=======================================================================================================================
$.81 to $1.35 6,141,880 $1.15 3.17 6,116,880 $1.15
$1.72 to $2.67 2,459,644 $2.16 0.75 2,459,644 $2.15
$3.24 to $5.50 483,769 $3.94 9.17 483,769 $3.94
$.86 to $1.03 3,998,919 $0.85 7.53 3,988,919
- -----------------------------------------------------------------------------------------------------------------------
13,074,212 $1.57 13,074,212 $1.57
NOTE F - LEGAL PROCEEDINGS
HOULIHAN V. MOLLER INTERNATIONAL, INC., ET AL.
MI is named as a defendant in this lawsuit pending in Yolo County, California
Superior Court. The complaint, filed in January 2004, alleges that MI violated
certain federal and state securities laws and failed to disclose pertinent
information at the time the plaintiff purchased his shares of MI common stock,
and later breached a contract when MI offered to repurchase those shares. The
plaintiff alleges damages of $490,000 plus interest. Currently the company is
contesting these allegations and has determined that it is too soon to estimate
its losses if any.
The case has been set for trial in November 2006.
J.F. WILSON & ASSOCIATES LTD. V. ESTATE OF PERCY SYMENS, ET AL.
MI is named as a defendant in this lawsuit pending in Yolo County, California
Superior Court. The complaint, filed in April 2005, alleges that MI unlawfully
discharged solvents into the environment while doing business at 203 J Street
and 920 Third Street in Davis, California during 1968 to 1980. The complaint
seeks injunctive relief and damages of an unspecified amount. The Company's
Answer, which denies the allegations in the complaint, was filed in June of
2005, and initial discovery commenced in August of 2005.
The case has not been set for trial.
Subsequent to June 30, 2006, in a related administrative proceeding on September
26, 2006, the California Central Valley Regional Water Quality Control Board
issued a draft Cleanup and Abatement Order (CAO) in connection with the property
at 920 Third Street. MI was named as one of the responsible parties in the draft
CAO, and intends to challenge the characterization of MI as a discharger of
environmental contaminants, while also complying with the orders of the Central
Valley Regional Water Quality Control Board. MI's probable loss has been
estimated at this time in the range of $200,000 to $1,000,000. MI has accrued
its minimal estimated cleanup obligation of $200,000. It is reasonably possible
that these estimates may be revised in the near term as the site investigation
and other research and analysis proceeds. There was no change during the quarter
ended September 30, 2006 to MI's analysis of this contingency.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS FOR PLAN OF OPERATION Three Months
Ended September 30, 2006 vs. September 30, 2005
We had a net loss of $631,629 or $0.01 loss per share compared to a net loss of
$438,875 or $0.01 per share for the three months ended September 30, 2005. These
losses would be consistent with expectations since we were unable to secure the
same level of contracts as the prior year, which resulted in a decline in
revenue. Lower contract revenues combined with continued labor and material
expenses on non-revenue generating projects (product research and development
activities), additional legal expense, increases in costs incurred for
accounting related activities, and higher interest accounted for a $192,754
increase in our net loss. We continue to pursue the development of the Skycar,
Rotapower engine and Aerobot products.
Our majority shareholder waived payment associated with $1,449,248 of previously
accrued compensation. We accounted for this waiver as additional contributed
capital during the three months ended September 30, 2006.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Financial Officer (the "Certifying Officer"), is responsible for
establishing and maintaining disclosure controls and procedures for the Company.
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 activities during this reporting period
and the Company has taken steps to remedy the shortfall by hiring additional
personnel to address its accounting functions.
There have been no significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
----------- -----------
31.1 Certification of CEO
31.2 Certification of CFO
32.1 Certification of CEO
32.2 Certification of CFO
SIGNATURES
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.
/s/ Paul S. Moller
11/17/06 -------------------------------------
--------
Date Dr. Paul S. Moller
President, CEO, Chairman of the Board