This is what I don't like about Helix.
Risks Related to Our Financial Condition and Our Business
Our auditors have expressed substantial doubt amount our ability to continue as a “going concern”. Accordingly, there is significant doubt about our ability to continue as a going concern.
Our business began recording revenues in 2009 and we may never become profitable. As of September 30, 2010, we had an accumulated deficit of $41,693,361 and a negative working capital of $2,437,270 excluding the derivative liability of $3,244,280. A significant amount of capital will be necessary to advance the development of our products to the point at which they will become commercially viable and these conditions raise substantial doubt about our ability to continue as a going concern.
If we continue incurring losses and fail to achieve profitability, we may have to cease our operations. Our financial condition raises substantial doubt that we will be able to continue as a “going-concern”, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on our financial statements as of September 30, 2010. These financial statements do not include any adjustments that might result from the uncertainty as to whether we will continue as a “going-concern”. Our ability to continue status as a “going-concern” is dependent upon our generating cash flow sufficient to fund operations. Our business plans may not be successful in addressing these issues. If we cannot continue as a “going-concern”, you may lose your entire investment in us.
We do no have sufficient cash on hand. If we do not generate sufficient revenues form sale among other factors, we will be unable to continue our operations.
We estimate that within the next 12 months we will need $5,000,000 for operations, and we do not have sufficient cash on hand to meet this requirement. Although we are seeking additional sources of debt or equity financings, there can be no assurances that we will be able to obtain any additional financing. We recognize that if we are unable to generate sufficient revenues or obtain debt or equity financing, we will not be able to earn profits and may not be able to continue operations.
There is limited history upon which to base any assumption as to the likelihood that we will prove successful, and we may not be able to continue to generate enough operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
Additionally, as described in more detail below, the significant dilution to the current number of outstanding shares of Company common stock which is expected to occur from the conversion of the Company’s outstanding convertible promissory notes and warrants makes securing any additional financing very difficult.
We have numerous lawsuits pending against the Company and insufficient capital resources to retain legal counsel to respond to the lawsuits; we expect additional lawsuits to occur from unpaid creditors of the Company.
As described in Part II, Item 1 “Legal Proceedings” above, the Company has numerous lawsuits pending against it and reasonably expects additional lawsuits to be filed by creditors who outstanding unsatisfied debt obligations owed to them by the Company. The Company has insufficient capital to retain legal counsel to defend itself in these actions and/or may not have any defense against the legal actions claiming the Company owes the creditor for services provided. A judgment or default judgment in any of these pending lawsuits or future lawsuits could result in the seizure of all remaining assets of the Company which would have a material adverse effect on the Company. If the judgments remain unpaid, the Company may be forced to seek the protection afforded by Chapter 7 of the federal bankruptcy laws, or seek the protection of state insolvency laws, which would have a material adverse effect on the Company and its shareholders.
We have a limited operating history and if we are not successful in continuing to grow the business, then we may have to scale back or even cease ongoing business operations.
We have a very limited history of revenues from operations (approximately $1,300,000 from inception to date). We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to sign customer contracts or operate on a profitable basis. As we are in the early production stage, potential investors should be aware of the difficulties normally encountered in commercializing the product. If the business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in us.
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If we are unable to obtain additional funding, business operations will be harmed and if we do obtain additional financing then existing shareholders may suffer substantial dilution.
We anticipate that we will require up to $5,000,000 to fund continued operations for the next twelve months, depending on revenue, if any, from operations. Additional capital will be required to effectively support the operations and to otherwise implement overall business strategy. We currently do not have any contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.
We have significant debt obligations, and if we fail to restructure or repay or outstanding indebtedness, the lenders may take actions that would have a material adverse impact on the Company.
The Company has significant outstanding indebtedness. As of September 30, 2010, the Company had an aggregate outstanding balance of $3,398,134 in convertible debt obligations (excluding accrued interest). If the lenders under these convertible notes do not convert and demand repayment, the Company does not have the cash to pay its debt obligations. Our failure to repay this debt could result in events of default under the convertible notes which provide the lenders with certain rights, including the right to institute an involuntary bankruptcy proceeding against the Company. If the debt remains unpaid past the due dates and the lenders choose to exercise their rights of default, the Company may be forced to seek the protection afforded by Chapter 7 of the federal bankruptcy laws which would have a material adverse effect on the Company. The Company’s default on its debt obligations or potential need to seek protection under the federal bankruptcy laws raise substantial doubt about our ability to continue as a going concern.
Because we are small and have insufficient capital, we may have to limit business activity which may result in a loss of your investment.
Because we are small and do not have much capital, we must limit our business activity. As such we may not be able to complete the sales and marketing efforts required to drive our sales. In that event, if we cannot generate revenues, you will lose your investment.
If we are unable to continue to retain the services of Messrs. Scott Weinbrandt or Kevin Claudio, or if we are unable to successfully recruit qualified Board members and managerial and company personnel having experience in the small wind turbine industry, we may not be able to continue operations.
Our success depends to a significant extent upon the continued services of Mr. Scott Weinbrandt, Chairman, CEO and President, and Kevin Claudio, Chief Financial Officer. The loss of the services of Messrs. Weinbrandt or Claudio could have a material adverse effect on our growth, revenues, and prospective business. Both of these individuals are committed to devoting substantially all of their time and energy to us through their respective employment agreements. Any of these employees could leave us with little or no prior notice. We do not have “key person” life insurance policies covering any of our employees. Additionally, there are a limited number of qualified technical personnel with significant experience in the design, development, manufacture, and sale of our wind turbines, and we may face challenges hiring and retaining these types of employees.
In order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and company personnel having experience in the small wind turbine business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms. Additionally, the Company has made efforts to identify and recruit additional members for its board of directors. However, to date, the Company has been unable to retain any additional board members, and the board members it has identified have expressed a reluctance to join the board until the Company is better capitalized.
We are a new entrant into the small wind turbine industry without profitable operating history.
As of September 30, 2010, we had an accumulated deficit of $41,693,361. We expect to derive our future revenues from sales of our systems, however, these revenues are highly uncertain. We continue to devote substantial resources to expand our sales and marketing activities, further increase manufacturing capacity, and expand our research and development activities. As a result, we expect that our operating losses will increase and that we may incur operating losses for the foreseeable future.
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If we are unable to successfully achieve broad market acceptance of our systems, we may not be able to generate enough revenues in the future to achieve or sustain profitability.
We are dependent on the successful commercialization of our systems. The market for small wind turbines is at an early stage of development. The market for our systems is unproven. The technology may not gain adequate commercial acceptance or success for our business plan to succeed.
If we cannot establish and maintain relationships with distributors, we may not be able to increase revenues.
In order to increase our revenues and successfully commercialize our systems, we must establish and maintain relationships with our existing and potential distributors. A reduction, delay or cancellation of orders from one or more significant customers could significantly reduce our revenues and could damage our reputation among our current and potential customers. We currently have approximately 33 signed distribution agreements throughout the United States and international locations, however, the agreements have no termination penalties.
We were recently sued by one of our distributors and may face additional lawsuits in the future.
We were recently named in a lawsuit by one of our distributors for claims which include misrepresentation, breach of contact, breach of warranties and unfair practices under consumer protection statutes relating to our products and performance under the distribution agreement. While we believe we have defenses to these claims, there is a potential that the claims could be decided against us, which could result on our obligation to pay damages to the distributor, which would have an adverse effect on our financial condition. Additionally, we could face similar lawsuits from distributors or customers in the future.
If we can not assemble a large number of our systems, we may not meet anticipated market demand or we may not meet our product commercialization schedule.
To be successful, we will have to assemble our systems in large quantities at acceptable costs while preserving high product quality and reliability. If we cannot maintain high product quality on a large scale, our business will be adversely affected. We may encounter difficulties in scaling up production of our systems, including problems with the supply of key components, even if we are successful in developing our assembly capability, we do not know whether we will do so in time to meet our product commercialization schedule or satisfy the requirements of our customers. In addition, product enhancements need to be implemented to various components of the platform to provide better overall quality and uptime in high wind regimes. The system is now rated to support 100 mph sustained winds. The implementation of the enhancements to our system may also delay significant production by requiring additional manufacturing changes and technical support to facilitate the manufacturing process.
If we are unable to raise sufficient capital, we may not be able to pay our key suppliers.
Our ability to pay key suppliers on time will allow us to effectively manage our business. Currently we have a large outstanding liability with our product manufacturer that is inhibiting us from receiving additional units at this time. In addition, we have other large outstanding accounts payable with key suppliers that may inhibit the Company from receiving system product in the future.
If we experience quality control problems or supplier shortages from component suppliers, our revenues and profit margins may suffer.
Our dependence on third-party suppliers for components of our systems involves several risks, including limited control over pricing, availability of materials, quality and delivery schedules. Any quality control problems or interruptions in supply with respect to one or more components or increases in component costs could materially adversely affect our customer relationships, revenues and profit margins.
International expansion will subject us to risks associated with international operations that could increase our costs and decrease our profit margins.
International operations are subject to several inherent risks that could increase our costs and decrease our profit margins including:
- reduced protection of intellectual property rights;
- changes in foreign currency exchange rates;
- changes in a specific country’s economic conditions;
- trade protective measures and import or export requirements or other restrictive actions by foreign governments; and
- changes in tax laws.
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If we cannot effectively manage our internal growth, our business prospects, revenues and profit margins may suffer.
If we fail to effectively manage our internal growth in a manner that minimizes strains on our resources, we could experience disruptions in our operations and ultimately be unable to generate revenues or profits. We expect that we will need to significantly expand our operations to successfully implement our business strategy. As we add marketing, sales and build our infrastructure, we expect that our operating expenses and capital requirements will increase. To effectively manage our growth, we must continue to expend funds to improve our operational, financial and management controls, and our reporting systems and procedures. In addition, we must effectively expand, train and manage our employee base. If we fail in our efforts to manage our internal growth, our prospects, revenue and profit margins may suffer.
Our technology competes against other small wind turbine technologies. Competition in our market may result in pricing pressures, reduced margins or the inability of our systems to achieve market acceptance.
We compete against several companies seeking to address the small wind turbine market. We may be unable to compete successfully against our current and potential competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance. The current level of market penetration for small wind turbines is relatively low and as the market increases, we expect competition to grow significantly. Our competition may have significantly more capital than we do and as a result, they may be able to devote greater resources to take advantage of acquisition or other opportunities more readily.
Our inability to protect our patents and proprietary rights in the United States and foreign countries could materially adversely affect our business prospects and competitive position.
Our success depends on our ability to obtain and maintain patent and other proprietary-right protection for our technology and systems in the United Stated and other countries. If we are unable to obtain or maintain these protections, we may not be able to prevent third parties from using our proprietary rights.
If we cannot effectively increase and enhance our sales and marketing capabilities, we may not be able to increase our revenues.
We need to further develop our sales and marketing capabilities to support our commercialization efforts. If we fail to increase and enhance our marketing and sales force, we may not be able to enter new or existing markets. Failure to recruit, train and retain new sales personnel, or the inability of our new sales personnel to effectively market and sell our systems, could impair our ability to gain market acceptance of our systems.
If we encounter unforeseen problems with our current technology offering, it may inhibit our sales and early adoption of our product.
We are in the process of shipping our third production run of units and continue to improve on the products performance capabilities, but any unforeseen problems relating to the units operating effectively in the field could have a negative impact on adoption, future shipments and our operating results.
