UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-KSB





RANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For
the fiscal year ended June 30, 2008





oTRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
transition period from ______________ to________________





Commission
file number 000-33173





Moller
International, Inc.





California
            68-0006075(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





1222
Research Park Drive, Davis, CA 95618


(530)
756-5086





Securities
registered under Section 12(b) of the Exchange Act:  None





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, No Par Value





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o





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.





Yes R  No
o





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes o  No R





The
issuer’s revenues for its most recent fiscal year ended June 30, 2008 are
$552,317.





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates is $7,777,914 with a total of 19,444,785 shares owned by
non-affiliates as of October 6, 2008 and the closing price of such common equity
of $0.40 per share on the OTC Bulletin Board on such date.





As of
October 13, 2008, the Company had 45,747,469 common shares issued and
outstanding.





Transitional
Small Business Disclosure Format:  Yes o   No
R






-i-




PART IItem 1.
              Description of Business
              1Item 2.
              Description of Property
              25Item 3.
              Legal Proceedings
              25Item 4.
              Submission of Matters to a Vote of Security
      Holders
              26PART IIItem 5.
              Market for Registrant’s Common Equity, Related Stockholder
      Matters and Small Business Issuer Purchases of Equity
      Securities
              27Item 6.
              Management’s Discussion and Analysis
              28Item 7.
              Financial Statements
              30Item 8.
              Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure
              41Item 8A.
              Controls and Procedures
              41PART IIIItem 9.
              Directors and Executive Officers of the
      Registrant
              43Item 10.
              Executive Compensation
              44Item 11.
              Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
              44Item 12.
              Certain Relationships and Related
      Transactions
              45Item 13.
              Exhibits
              46Item 14.
              Principal Accountant Fees and Services
              47






-ii-




PART I


Item 1. DESCRIPTION OF BUSINESS
  OUR
COMPANY
 
 Moller
International, Inc. was incorporated April 19, 1983 in California for the
purpose of designing, developing, manufacturing and marketing a line of Vertical
Take-off and Landing ("VTOL") aircraft. Our flagship model, the M400 Skycar(R)
is currently under development and testing and is projected to be a 4-passenger
aircraft that will combine the cruise performance of an airplane with the
vertical-flight capabilities of a helicopter. It is designated the "M400
Skycar(R)." A related product we are developing is the Aerobot(R) line of
unmanned aerial vehicles. While certain engineering problems remain to be solved
before we can deliver a production aircraft meeting our design performance
specifications, we have been able to conduct flight tests on a production
prototype since 2002, including approximately 30 unmanned, tethered tests of the
vehicle’s vertical takeoff and landing capabilities.
 
 The M200X,
a vehicle that was developed in the 1970s and demonstrated in approximately 150
manned flights up until the early 1990s, is now being readied for
market.  Funding constraints have forced us to revise the estimated
number of units that will be completed this calendar year to 3 from the
previously targeted 12 to 40 units, but the Company continues to move forward
and anticipates that the M200-based products will be the first vehicles that the
company brings to market.
 
 Since our
inception, we have not been subject to a receivership, bankruptcy or similar
proceeding, nor have we been involved in any material reclassification, merger,
acquisition, or purchase or sale of a significant amount of our
assets.
 
 On March
31, 2001, Moller International distributed its 95% ownership of the shares of
its (former) subsidiary, Freedom Motors, Inc. to the shareholders of Moller
International in a tax-free reorganization.
 
 OUR
PRODUCTS
 
 We
currently have no products that are ready to go to market, although we
anticipate availability of M200-based products within the next 6-to-12
months.  We are in the latter stages of development of a number of
other innovative aviation products that we hope to launch in the coming
years.  Our founder, Dr. Paul S. Moller, has for more than thirty-five
years been engaged in research and development activities aimed at designing and
producing an aircraft that combines the speed and efficiency advantages of the
fixed-wing airplane with the vertical take-off and landing and hovering
capabilities of the helicopter. We believe that such an innovation will deliver
to a wide range of conventional aircraft operators a new level of utility and
economy for a variety of aerial applications. By-products of our aircraft
development activities, in particular the Moller Rotary Engine and the Aerobot
remotely-flown air-borne vehicle, should become important products in their own
right and could account for an important segment of our overall sales once
production commences. Except as noted above it remains uncertain when, if ever,
we will enter commercial production of any of our other products.
 
 The Skycar
and Aerobot are products we plan to offer in the future.  They are
based upon fundamental research and on earlier prototypes developed by Moller
International.  The Skycar concept is through the detail design stage
and we have a prototype undergoing testing at this point.  There are
significant technical issues that remain unproven and may preclude us from
meeting the design objectives for the Skycar. The Aerobot is a
limited-production vehicle, with twelve prototypes built, tested and delivered
to end-users.  Neither vehicle is ready for volume production at this
time, nor is there any guarantee that they will ever reach a point where they
are viable products.
  -1-




M400
Skycar
 
 Our
principal product will be the M400 Skycar vertical take-off and landing (“VTOL”)
aircraft. The concept of the Skycar as a personal transportation vehicle is that
it would be so practical and affordable that it could become a preferred mode of
transport, replacing at once the automobile and the private or commercial
airplane for many trips. Should we succeed in achieving a production aircraft
design meeting our target specifications, we believe the M400 will support such
a degree of usefulness.
  
 Moller
M400 “Skycar” prototype
 Following
are our current target design and performance specifications for the M400
4-passenger (including pilot) aircraft:
 Passengers
                  4
                  
                  Dimensions
      (LxWxH)  19.5'x 8.5'x 7.5'Cruise
      speed @ 20,000’
                  275
      mph
                  
                  Takeoff
      and landing area
                  35-ft
      diaTop
      speed @ 13,200’
                  375
      mph
                  
                  Noise
      level at 500 ft (goal)
                  65
      dbaMaximum
      rate of climb
                  6,000
      fpm
                  
                  Critical
      failure components
                  noneMaximum
      range
                  750
      mi
                  
                  Complex
      moving parts
                  fewPayload
      excluding fuel
                  750
      lbs
                  
                  Piloting
      difficulty
                  lowFuel
      consumption
                  20
      mpg
                  
                  Vertical
      takeoff and landing
                  yesOperational
      ceiling
                  36,000
      ft
                  
                  Garage
      parking/roadability
                  yesGross
      weight
                  2,400
      lbs
                  
                  Uses
      non-fossil fuel (ethanol)
                  yesEngine
      power (2 min rating)
                  1200
      hp
                  
                  Emergency
      parachutes
                  yes
  Earlier
performance numbers vary somewhat from the number shown above.  We
continuously revise the performance projections to reflect the results of
ongoing analysis and changes to the design characteristics of various
components.  Recent decreases in projected range were the result of a
change to ethanol fuel. Installed horsepower has changed due the projected use
of a multi-stage, compound rotary engines of our design, and the on-board
stabilization electronics have been redesigned to be faster and more
reliable.
  -2-




We believe
that if we succeed in achieving the above cruising speeds, altitudes, payloads,
and fuel economy per passenger mile in a production model aircraft, the Skycar
will compare favorably with today’s light twin-engine and turbo-prop airplanes.
But the M400 should offer the additional advantage of needing no runway for
take-off and landing, since it will be able to hover and take-off vertically
like a helicopter. But because the M400’s VTOL capability will be provided by
our proprietary “ducted fan” technology rather than ahelicopter-type system of
main and anti-torque rotors, maintenance and repair costs should be
significantly less and safety should be considerably enhanced.
 
 It is
important to recognize that the above design specifications are theoretical,
based on research, engineering, and flight- and wind tunnel-testing of various
components. They have not yet been demonstrated to be achievable in a production
model aircraft.
 
 The
following table compares certain of the target performance specifications of the
M400 to a current production model helicopter and fixed-wing airplane that we
believe might be potential competitors for production model M400
customers:
  Powered-Lift
                Helicopter
                AirplaneMoller
      International
                  M400 Skycar®
                McDonnell
      Douglas
                  MD
      520 N
                Socata
      TMB S.A.
                  TBM
      700PerformanceHigh
      Speed Cruise
                  Maximum
      Speed
                  Operational
      Ceiling (ft)
                  Maximum
      range
                  Rate
      of Climb
                  Vertical
      takeoff
                  and landing
                330
      mph
                  375
      mph
                  35,000
                  750
      mi
                  4,900
      fpm
                  yes
                155
      mph
                  175
      mph
                  16,300
                  267
      mi
                  2,069
      fpm
                  yes
                335
      mph
                  345
      mph
                  30,000
                  1,796
      mi
                  2,380
      fpm
                  noPayload
      and CapacityPassengers
                  Gross
      Weight
                  Maximum
      Net Payload
                4
                  2,400
      lbs
                  750
      lbs
                3 to
      4
                  1,591
      lbs
                  1,106
      lbs
                6
                  4,685
      lbs
                  805
      lbsSafetyCritical
      failure
                  components
                  Complex
      moving components
                None
                  Few
                Several
                  Many
                One
                  FewOtherMaintenance
      costs
                  Piloting
      difficulty
                  Garage
      parking / roadability
                Low
                  Low
                  Yes
                Very
      high
                  Very
      high
                  No
                Moderate
                  High
                  NoPrice
                $995,000
                $1,010,000
                $2,697,000




The above
figures represent the actual manufacturers’ performance specifications for the
helicopter and airplane models listed, and our theoretical specifications for
the Skycar M400.  They are presented here to illustrate the
comparative utility of the three types of aircraft. However, it is not yet
certain that we will indeed achieve our target specifications, nor will we know
the actual values for the Skycar until we have completed further development.
Also, the $995,000 selling price for the Skycar is estimated, based on numerous
assumptions that may or may not bear out over time. The actual selling price may
be more or less than $995,000.
  -3-




We believe
that certain specific design features of the Skycar® will
further facilitate its eventual acceptance as an alternative vehicle of mass
transportation. These features will include:
 
 ·
              Computer-augmented
      flight stabilization system
  ·
              Fly-by-wire
      control systems (electrical wires take the place of mechanical cables) and
      on-board computers which can interface with and be controlled by remote
      ATC system computer and navigation
resources
  ·
              High-speed
      capability, which maximizes the benefits of personalized air
      travel.
  ·
              Hover
      or low speed capability, which provides the ability to cue up for entry to
      or exit from highly controlled air
lanes.
  ·
              Ability
      to climb, descend, accelerate and decelerate rapidly to enter and exit
      air-lanes quickly
  ·
              Relative
      insensitivity to gusts and wind shear that makes tightly constrained
      flight possible
  ·
              VTOL
      ability to land anywhere which allows emergency exit from
      air-lanes
  ·
              Small
      size which reduces required vertiport infrastructure
      dimensions
   Notwithstanding
these design features, the utility of the Skycar in mass transportation will be
limited by existing laws and regulations. For example, Federal Aviation
Regulations (“FARs”) prohibit operation of civil aircraft within certain
airspace, and require minimum altitudes above, and horizontal separation from,
obstacles on the ground and in other airspace. In addition, much of the airspace
in and around major metropolitan areas requires that pilots operating in such
areas hold special qualifications. And although we intend that the Skycar have
the capability to travel from “garage to garage,” in urban and suburban areas
existing laws and regulations will preclude most such “off-airport”
operations.
 
 Moreover,
mass transportation using the Skycar would likely have to rely on some future
navigation system such as NASA’s (National Aeronautics and Space Administration,
an agency of the federal government) proposed Small Aircraft Transportation
System (“SATS”), which is funded with public funds. Demonstrations of a “Highway
in the Sky” technologies have been emerging for the past several years and the
Company continues to believe it can rely on these technologies for many of the
navigational requirements of the Skycar.
 
 Environmental
Noise Issues
 
 The
theoretically achievable noise level of the M400 Skycar with conventional
muffling and noise abatement technologies would allow it to fly with somewhat
lower noise levels than present fixed-wing aircraft.  It should be
considerably quieter than a helicopter because of the enclosed fans instead of
the open rotor blades. Use of urban area vertiports is unlikely due to city
noise abatement laws unless the Skycar were to employ some degree of mutual
noise cancellation.  Tests to date by other researchers suggest that a
15-decibel drop in noise is achievable with mutual noise
cancellation.  If so, it would be possible for the Skycar to operate
from most locations except the user’s home, where a 30-decibel drop in noise may
be required by noise abatement laws.  To achieve this reduction in
noise level as needed for such a flight originating from a residence,
three-dimensional mutual noise cancellation would be required.  There
is no assurance that such a reduced level of noise can be achieved for the noise
spectrum generated by the Skycar.
  -4-




Further
Skycar Development Stages
 
 The
company is currently preparing the M400 Skycar prototype, now designated the
M400X, for an anticipated manned, untethered flight test.   The
current configuration of the M400X is equipped with experimental single-rotor
rotary engines.  These single-rotor engines are being replaced with
more powerful twin-rotor engines.
 
 Since July
12, 2002, MI has been successfully conducting demonstration hover flights with
this Skycar prototype.  The aircraft has flown several times and at
altitudes up to forty feet above ground level in stable, controlled
flight.  While an overhead safety line is used during the flights, it
has remained slack during the majority of the flight and never used to support
or stabilize the vehicle.  The aircraft has been flown by remote
control from the ground and has flown without an onboard pilot through this
stage of the testing.  Success at this stage has depended upon
demonstration of a controlled hovering flight, which has now been achieved and
documented for the four-passenger M400 Skycar model as it was on several
occasions for an earlier 2-passenger model.  Success at the next stage
will be to demonstrate the same level of controlled flight while the aircraft is
under the control of an on-board pilot.  In addition, payload
objectives will be tested with an increasing payload weight, up to the full
payload of 750 pounds if possible.
 
 The
previous unmanned hover tests are complete, and many of the required components
for the engine upgrade are already fabricated.  The purpose of the
engine change is to allow the M400 Skycar to undertake “maneuvering” tests at
low speed with the safety of significantly higher reserve
power.  (“Maneuvering” in this context, means lateral and vertical
movement at a modest speed where lift remains entirely dependent upon the thrust
from the engines (non-aerodynamic lift.)) The cost for these extended tests is
expected to be between $1.5 and $2 million.  The risk at this stage
centers almost entirely around the reliability of the various aircraft
systems.  These flights are to be carried out over water at altitudes
up to 50 feet to lessen the damage to the Skycar should a system fail and to
reduce the risk of fire to the aircraft and injury to the pilot.
 
 The third
phase of the Skycar test program involves flight speeds sufficiently high so
that direct lift from the ducts is replaced by aerodynamic lift generated on the
wing surfaces, referred to as “transition” testing.  This segment of
the flight where the aircraft transitions from one mode of flight to the other
is considered the most technically challenging, and historically is the most
dangerous. Wind-tunnel tests indicate that the Skycar is capable of completing
this transition, however a number of factors are present in free flight that
cannot be accounted for in a wind tunnel.  Therefore there is no
assurance that these tests will be successful without incidents that risk both
the aircraft and the pilot.  Achieving even one successful
transitioning flight would establish the overall viability of the Skycar
approach to this historically difficult aspect of VTOL aircraft
design.
 
 Near-term
Objectives
 
 With over
150 manned and unmanned flight demonstrations of the M200X volantor since 1989
we recognize that these successful and extensive test flights of the Neuera may
provide the Company with a more easily achieved, nearer term
product.  We also see an opportunity to offer derivatives of this
basic aircraft design for various utilitarian and recreational applications.
While the Skycar is designed for much higher speed it is also expected to
require a lengthy and expensive FAA certification program.  The
M200-based products may provide a less expensive and shorter time to market
opportunity.  Since the Company is experiencing shortfalls in
available funding which have slowed production plans for the Skycar, we are now
looking to other potential Moller products and their potential ability to
generate near-term revenue.
 
 The
Company feels that the initial market for M200-based products will be for
derivatives that appear exempt from FAA certification
requirements.  FAA certification is a detailed analysis, documentation
and test process that applies to most aircraft that operate in the US National
air space. It can require over two years to complete. However there are a number
of exceptions to this requirement. For example, if the user completes 50% of the
construction, the aircraft falls into a category of a “home built” and other
rules apply. The Company estimates there are presently over 35,000 aircraft
under construction in this category.
  -5-




Building
aircraft for the “home built” market has been a milestone on the path to a
manufacturer’s FAA certified aircraft production while mitigating some of the
legal liabilities to the manufacturer during this startup period. In the case of
the M200E Neuera volantor we anticipate that the builder will not be required to
participate in the construction of the vehicle’s powerplants or computer
controls, and since the airframe is composed of two halves bolted together, the
user’s assembly time is estimated at less that 50 hours and will require only
rudimentary technical skills.  From the Company’s perspective the
lower product liability and minimal assembly labor requirements make the M200E
Neuera an attractive and achievable product to bring to market.
 
 Another
variation to the basic M200 series is the M200G.  The M200G Neuera is
intended to operate within ground effect, and thereby may also be exempt from
FAA certification requirements.  This low-level of flight allows the
craft to operate below what is commonly considered to be the National Air Space
and therefore appears to not to fall under the jurisdiction of the
FAA.
  The
following is a list of potential models that could be derived from the
M200-class volantor:
  • As
demonstrators for marketing purposes and use over one’s own property
(M200D)
  • For
operation within ground effect (up to 10 ft altitude) (M200G)
  • As a
rescue vehicle from side of skyscrapers (Firefly)
  • As a
military aircraft (M200M, M200R)
  • Under
the EAA category (home built) (M200E)
  The
Company has extensive hard tooling in place to rapidly produce the airframe and
engines for M200-class vehicles. We intend to replace the analog artificial
stability system used in the original M200X with the latest digital system
originally developed for the M400 Skycar. The most significant differences
between various models involve engine horsepower and seating
arrangement.
  The
various models will emphasize safety as the number one design criteria. The
following design elements will be incorporated in the vehicles to achieve
this:
  • Fueled
by a mixture of 70% ethanol – 30% water. This combination will barely ignite
outside the engine. It then burns very slowly for a short time before
extinguishing itself as the ethanol reduces and the water remains.
  • Air-bags
will be used extensively throughout the cockpit.
  • The
artificial stability system will be highly redundant with at least four
identical computers providing stability control.
  • Able to
tolerate one engine failure during hover. A second failure will lead to a
survivable hard landing.
  • Racecar
impact-resistant fuel tanks will be used.
  •
Redundant fuel level warning system will be incorporated.
  • Vehicle
parachutes will be available on all models.
  • Damage
resistant composite fan blades will be used based on the Company’s proven
experience.
  Vehicle
prices will vary depending on the model and use. The goal is to take orders for
a sufficient number that economy of scale can apply. The minimum quantity sought
is 1,000 vehicles to be delivered over a three-year period. Beyond the first 40
M200G models sold, the Company believes the prices will vary from approx.
$95,000 for a single passenger M200G model to approximately $350,000 for the
Firefly 3, a high-performance model intended for missions requiring a payload of
three people or less.


-6-




Our goal
is to complete the construction of a minimum of a up to 6 demonstrators,
followed by 40 vehicles in the first year of production, 270 in the second year,
and 650 in the third year. The plan requires that sufficient capital be raised
and the projections are dependant on this funding being available, demand for
the product develops as expected and that the anticipated production schedule
can be kept.
  There is a
continuing potential market for other products that have been designed,
developed and tested by the Company but these are not being immediate pursued
due to the focus on the M200 Neuera volantor and variations on that
design.
  The
Company believes the M400 Skycar and their derivative are capable of much higher
speed and range and anticipates that they will enter the civilian market
following a successful FAA certification effort. As stated earlier, the funding
required for this effort is significant and while it remains the long-term
objective of the Company, we do not expect to enter into this program before
2011 at the earliest.
  Aerobot
Remotely-operated Aerial Vehicles
 
 Aerobot®
is our design for a line of remotely piloted VTOL vehicles. The principal
advantage of these craft is the ability to hover at a fixed point in space,
which we believe makes them suitable for payloads such as video cameras and
other sensors for data acquisition and inspection.  The Aerobot is
intended to carry a wide variety of customer supplied mission specific payload
packages. Payload requirements are model-specific and there are restrictions on
weight, size and location. We have incorporated video camera technology, and
believe other technologies such as sensors and transmitters are within the
Aerobot’s payload capabilities, although we cannot guarantee that any payload
within weight and size limitations will perform as desired or allow the Aerobot
to function properly. Moller has developed and demonstrated both electric- and
fuel-powered Aerobots® for commercial and military applications, although we
have not commenced commercial marketing of them.
 
 The
electric-powered Aerobot®, which employs an umbilical cord to transmit power,
data and control signals, can stay aloft for extended periods (8-12 hours or to
the limitation of ground-supplied electrical power) at heights of up to 250
feet.  The fuel-powered Aerobot® utilizes Moller’s rotary engines,
which produce greater than 2 horsepower per pound of engine weight.  A
high power-to-weight ratio, a lightweight airframe, and a patented system for
automatic stabilization and control are key design elements of both types of
Aerobot®.
 
 The
demonstrated performance specifications for the two Aerobot models are set forth
in the following table:
  Electric-Powered
                  ES20-9
                Fuel-Powered
                  FS24-50Payload
      (including fuel)
                15
      lbs
                65
      lbsEmpty
      weight
                40
      lbs
                90
      lbsHover
      time
                8-12
      hours*
                1.5
      hrsHover
      ceiling
                250
      ft
                2,500
      ftForward
      speed
                —
                50
      mphSize
                26”L
      x 26” W x 14” H
                30”L
      x 30”W x 16”H


* Flight
duration is calculated based on estimated run-time of ground-based electrical
generator.




-7-




We expect
to continue to solicit and execute contracts for government use of our
Aerobots.  As in the past and for the next 18 months, these contracts
are expected to be for one-off demonstration vehicles.  The $200,000
to $300,000 price of these one-off Aerobots will remain 200-to-300% higher than
the desired target price of approximately $100,000 as long as volume is
insufficient to establish quantity discounts for its components. This may
restrict initial sales to those clients, if any, to whom price is less important
than the functional characteristics of the Aerobot.  However, if
expressed interest translates into increased sales, the production price could
reduce to a point where civilian, paramilitary and military use could be
broadened, resulting in increased sales.  However at this time there
is no assurance that volume sales of the company’s Aerobots can be
achieved.
 
 Moller
Rotary Engine
 
 Moller has
acquired and developed proprietary technology enabling the Company to
manufacture a high performance, low-cost rotary engine that produces more than 2
horsepower per pound of engine weight.  Key design characteristics and
the resulting attributes of Moller’s engines are outlined below and are applied
to its intended use as a ducted fan power plant:
  Design
      Feature
                AttributesAir-cooled
      or charge-cooled rotor
                Light
      WeightAluminum
      housingsSimplified
      Lubrication SystemFew
      moving parts
                Low
      cost + ReliabilityPerfect
      dynamic balance
                High
      propulsiveLow
      vibration
                efficiencySolid
      engine mountsSmall
      fan tip clearanceFour-stroke
      combustion cycle
                Good
      fuel economy + Low emissions +Low noise
  We believe
that Moller’s rotary engine, called the Rotapower engine, will be advantageous
for ducted fan VTOL applications such as those required by the Skycar® and
Aerobot® product lines.  The engine’s round shape and small size will
allow it to be hidden in the center of the duct behind the fan
hub.  Furthermore, the engine’s power-to-weight ratio should enhance
performance in VTOL applications, where all of the required lift must be
provided by the engine/fan unit without benefit of a wing surface as in a
rolling take-off or landing.
 
 Moller
International granted Freedom Motors a license to manufacture, market and
distribute the Rotapower engine for all applications except for aviation and use
in ducted fans. In return for this license, Freedom Motors agreed to pay Moller
International a 5% royalty on all sales of the Rotapower engine.  See
Note G and Note K for additional details.
 
 Moller’s
unique engine design is based on a rotary engine that was mass-produced by
Outboard Marine Corporation (“OMC”) from 1972 to 1976.  In 1985,
Moller purchased the OMC drawings, production routing sheets and engineering
support man-hours.  The Company subsequently hired the key OMC
engineers who had developed the engine, participated in the production
engineering process and contributed to the establishment of the service
organization.
 
 Using the
OMC single-rotor engine as a starting point, Moller created a high-performance,
modular design engine.  The Company added electronic fuel injection
and thermal barrier coatings, and introduced unique seal, lubrication and
cooling systems.  In all, Moller has made more than 25 major engine
design improvements, of which eight are deemed patentable and two are patented
and one is patent pending.  Prior to entering production, Moller
expects to have applied for patents on all key elements.
  -8-











Specifications
of Moller’s high-performance engines are as follows:
  High
      PerformanceSingle-Rotor
                Two-RotorSpecifications
                  Weight
                  Dimensions
      (L, Diameter)
                  Displacement
                55
      lb
                  14
      in, 11 in
                  530cc
                85
      lb
                  19
      in, 11 in
                  1060ccPerformance
                  Rated
      Power
                  Rated
      Speed
                  Maximum
      Speed
                  Idle
      Speed
                  Porting
                80
      hp
                  7000
      RPM
                  7500
      RPM
                  1800
      RPM
                  Radial
                160
      hp
                  7000
      RPM
                  7500
      RPM
                  1800
      RPM
                  RadialGeneral
                All
      engines can operate on regular grade gasoline






-9-




To
demonstrate the significance of Moller’s rotary engine technology for aircraft
applications, the following table and graphs compare the high performance
two-rotor engine to a standard piston engine of similar horsepower.
  MOLLER
      ROTARY(1)
                STANDARD
      PISTON(2)POWER
                160
      hp
                180
      hpWEIGHT
                85
      lbs
                260
      lbsVOLUME
                1.0
      ft3
                8.6
      ft3FRONTAL
      AREA
                0.8
      ft2
                3
      ft2
   Horsepower
      per Poundof Engine Weight
                
                Horsepower
      per Cubic Footof Engine Volume
                
                Horsepower
      per Square Footof Engine Frontal Area2001602.00.74015MollerRotary(1)
                
                StandardPiston(2)
                
                
                
                Moller
      Rotary(1)
                
                StandardPiston(2)
                
                
                
                Moller
      Rotary(1)
                
                StandardPiston(2)
  Moller
Advantage:  3:1   Moller
Advantage:  11:1   Moller
Advantage:  5:1
 
 (1)Two
rotor, 530cc/rotor
 (2)Avco
Lycoming 0-360-A
  Comparison
of Moller rotary and Standard Piston Engines
 
 Our
Rotapower engine is in very limited production. It has been installed in a
number of non-aircraft products for field-testing.  The company is
presently under contract to develop a diesel-fueled version of its
engine.  To date the company has demonstrated the ability to operate
its engine on diesel fuel at about 60% of the power it can generate on
gasoline.
 
 Because of
the military’s interest in lightweight engine running on diesel or jet fuel the
company has previously received government support to achieve its present level
of success.  Presently the company is testing its engine for long-term
durability that means establishing a time between overhauls of at least 1000
hours.  It has successfully completed an FAA-type engine durability
test of running the engine on gasoline for 150 hours at maximum
power.  If a 1000-hour-plus test can be achieved with diesel fuel the
potential for military and civilian sales of an aircraft Rotapower engine is
likely to increase.  There is no assurance at this time that this
endurance test will be successful.  The company intends to license the
production of the engines to a firm with the resources it believes will be
adequate for the task.  As part of these negotiations, the company
hopes to retain a favorable position for the procurement of these engines for
its own incorporation into potential products as well as continued testing and
development.
  -10-




Liability
Insurance
 
 Frank
Crystal & Co. has provided us with a comprehensive insurance plan dated July
20, 2000. This plan outlines a Product Liability Proposal for an estimated
initial product exposure of $6,250,000 in annual engine sales. (We estimated our
annual sales for the purpose of obtaining the insurance quote and planning our
operating costs – we have no particular basis for projecting such volume of
sales as of any specific date in the future.) The cost identified in this
proposal was an initial deposit of $25,000 per annum with an audit adjustable
rate of $4.00 per $1,000 of sales below $6,250,000 and $3.00 per $1,000 of sales
above $6,250,000. We did not accept the insurance proposal, but believe the
premiums quoted (adjusted for inflation) to be representative of our costs to
insure ourselves against product liability issued in the near-term. There is no
guarantee that these rates will remain effective or apply to the Rotapower
engine when actually needed. Higher costs could adversely impact our ability to
produce and market an economically competitive engine.
  Regulation
of Aerobots and Engines
 
 The
Aerobot’s use is controlled by the FAA if it is untethered, except for military
use.  No federal, state or local approval is required at this time
regarding the design or construction of either the engine or the
Aerobot.  However there is no assurance that such regulations will not
come into existence in the future.
 
 PATENTS
 
 The
current status of Moller International’s U.S. and Foreign Patents and Trademarks
is listed below:
  Patent
      or Application Number
                Name
                Country266288
                Vertical
      Takeoff & Landing
                France279391
                Robotic
      or Remotely
                Europe303730
                Improved
      Vertical Takeoff & Landing
                International326,708
                Trademark
      Aerobot
                Canada512345
                VTOL
      Aircraft
                Europe1144249
                Stabilizing
      Control
                Europe1,367,510
                Trademark
      Aerobot
                US1,739,687
                Trademark
      Skycar
                US1,964,355
                Trademark
      Skycar
                US2,101,936
                Trademark
      Rotapower
                US2514777
                Improved
      Vertical Takeoff & Landing
                Canada
  -11-
  3385273
                Rotary
      Engine Having
                Japan3709001.6
                Vertical
      Takeoff & Landing
                Europe4795111
                Robotic
      or Remotely
                US5115996
                VTOL
      Aircraft
                US6164942
                Rotary
      Engine Having
                US6325603
                Rotary
      Engine Having
                US6,450,445
                Stabilizing
      Control
                US6808140
                Improved
      Vertical Takeoff & Landing
                US9827045
                Rotary
      Engine Having
                International76,066,387
                Trademark
      Skycar
                US999630924
                Rotary
      Engine Having
                Europe/France/GB/Italy/Nether000243464-0001/0004
                Vertical
      Takeoff & Landing
                Europe2000/14454
                Trademark
      Skycar
                South
      Africa2000/14455
                Trademark
      Skycar
                South
      Africa2004/002796
                Improved
      Vertical Takeoff & Landing
                International2004/254553
                Improved
      Vertical Takeoff & Landing
                Australia2006/532279
                Improved
      Vertical Takeoff & Landing
                Japan60/874,398
                Diesel/Otto
      Cycle Multi-Fuel
                US60/918,130
                Diesel/Otto
      Cycle
                US91/00247
                VTOL
      Aircraft
                International99/29821
                Rotary
      Engine Having
                International99/30392
                Stabilizing
      Control
                InternationalD498201
                Vertical
      Takeoff & Landing
                US






-12-




OUR
MARKETS
 
 Due to the
innovative nature of the Moller Skycar, we cannot be certain of any level of
market acceptance for the product. The following discussion of potential markets
for our Skycar, Neuera and Aerobot products is based upon: 1) our observations
and understanding of the ways various owners and operators of conventional
fixed-wing and rotary-wing aircraft have used those vehicles; 2) our assumptions
as to how the proposed design capabilities of our products may prove more
efficient, utilitarian, or cost-effective features in those same or similar
applications; and 3) anecdotal data from a small number of potential customers
who have visited our facilities and expressed interest in the Skycar. However,
until we can manufacture and deliver production model aircraft, we cannot be
certain that operators will indeed realize benefits by employing our products in
place of conventional aircraft employing significantly dissimilar technologies.
Our ability to successfully market our Skycar and Aerobot products will depend
in large part on the ability of those products to deliver a realizable benefit
to users.
 
 In October
1993 Moller International obtained general, infrastructure, environmental,
public safety and communications statistical data that we combined with our own
research to aid in producing our marketing forecasts. We have continued to
develop, update and maintain this data with input from Shephard’s Unmanned
Vehicles and other publications from the public domain.
 
 Skycar
 
 Prior to
full FAA certification (See “Regulation – Airworthiness Certificate
Requirements” below), we hope to be able to sell our products to certain
operators who are exempt from the civil aviation certification
requirements.  These may include:
 
 ·
              military
      and para-military (rescue, drug enforcement, and border
      patrol)
 ·
              wealthy
      individuals, for use within their own property in the U.S., Australia,
      Canada, etc.
 ·
              foreign
      countries where FAA certification is not
  mandatory
 
 No such
customers have made any binding commitments with regard to our
products.
 
 Market
Segments
 
 Although
there is no assurance we will be successful, we will attempt to develop markets
for the Skycar® within
the following aircraft operator segments:
  General
      Aviation
                MilitaryPrivate
      Individuals
                SurveillanceCorporations
                Air
      utility vehicleCharter
      and Rental Services
                RescueAviation
      Schools
                Medical
      EvacuationUtilitiesNews
      GatheringPolice/Fire/Rescue/AmbulanceDrug
      EnforcementExpress
      DeliveryBorder
      Patrol
  We have
relied upon our own research and anecdotal data from a small number of potential
customers who have visited our facilities and expressed interest in the Skycar
to support our belief that operators in the above categories will be interested
in purchasing Skycars.  Individual fixed- and winged-aircraft owners,
charter and rental service owners, corporate officers, and a variety of other
interested parties have given us their input on the suitability and desirability
of the aircraft within these fields of use.  However, such subjective
input does not necessarily indicate that an economically viable market exists
for the Skycar.  Further, the above listing of potential market
segments does not imply that Moller has contacted or received an expression of
interest from each such market segment.
  -13-




Competition
 
 Today,
there is no company that we are aware of offering a vehicle that is
substantially similar to the Skycar®.  Companies
periodically emerge with preliminary designs, but to date none has succeeded in
demonstrating a working model, owing presumably to the high cost of developing
the required technologies.  Moller has test-flown an experimental
vehicle and is completing the construction of a production
prototype.  Moreover, we have applied for and obtained patents on many
key aspects of the Skycar, which we expect will stave off direct competition to
some extent, although there can be no assurance of our ability to successfully
defend our patents against infringement.  The nearest competition,
insofar as we are aware, appears to be the six to nine passenger tilt-rotor BA
609 (Bell-Augusta) which is in development.  Its announced price of
$10 million, however, will likely constrain it to a different market than the
target market for the Skycar®.
 
 If we are
able to successfully demonstrate the Skycar’s flight characteristics, we expect
that such success will generate renewed competitive interest.  Primary
competition is expected to come from large aircraft manufacturers because they
have the resources necessary to enter the personal VTOL market.  Given
adequate financing, however, any of a number of existing small and large
aircraft manufacturers could develop competitive products. We believe we have
one advantage that will prove difficult for potential competitors to overcome,
however, and that is our rotary engine and ducted fan propulsion
technology.  The advantage, however, may depend upon our future
ability to successfully defend our intellectual property rights against
infringement, of which we cannot be certain.
 
 It is
difficult for us to predict the precise sources of competition for our products,
or our competitive position in the marketplace, owing to the fundamental
dissimilarities between our products and the products that historically have
been used in the roles for which our products are intended. Although we may
surmise significant benefits to customers in switching to our products, because
they represent a unique and innovative technology there is no historical basis
for believing that customers will in fact switch.
 
 In
marketing the Skycar as a vehicle for personal transportation, we will have to
compete against the sundry existing forms of transportation with which people
are already familiar and comfortable.  These include the automobile,
railroads, buses, commercial aviation, and general aviation, among others. Each
mode of transportation offers a unique set of advantages and disadvantages,
relating to cost, convenience, comfort, safety, and perhaps other
considerations.  In order for the Skycar to gain acceptance as a mode
of personal transportation, prospective users will have to conclude that its
particular advantages justify its cost. There is no assurance that sufficient
numbers of people will perceive such advantages as to create a viable market for
Skycar.
 
 NEUERATM
 
 Based on
the M200X, the Neuera is both old and new.  Originally conceived as a
stepping-stone on the path to the development of the M400 Skycar®, the NeueraTM
is now seen as a potential product that can stand on its own
merits.  Potentially a low cost, easy to operate and uniquely agile
aircraft, the Company views the Neuera as a product that it can produce in the
near-term that might gain wide acceptance as a recreational and/or utility
vehicle.  With the anticipated software and computer hardware
implementations the Company also believes it can constrain specific versions of
the M200-class vehicle to operational speeds and altitudes that would exclude it
from the necessity of obtaining FAA approvals and inspections as well as allow
it to be operated by persons with little to no formal flight training. The
Company feels that under these conditions, the cost to produce and operate a
Neuera would be significantly less than other types of aircraft, and make it
even more attractive to own.
  -14-




AEROBOTS®
 
 Many of
the potential markets for air-borne remotely flown vehicles (Aerobot®) are
currently addressed by manned helicopters and airplanes, both of which in our
opinion represent significantly less economical solutions.  In
addition, the unmanned Aerobot® can
operate in areas that are prohibitively dangerous for manned
aircraft.  Furthermore, the Aerobot®’s ducted
fan design is well suited for operation in confined quarters where the exposed
propeller or rotor blades of alternative solutions (both manned and unmanned)
pose significant risks to people nearby and to the aircraft itself.
 
 Market
Segments
 
 We believe
the Aerobot® is
suitable for a variety of commercial and military applications:
  Commercial
                MilitaryBridge
      and utility line inspection
                Battle
      damage assessmentBuilding
      heat loss detection
                Electronic
      counter measuresSmoke
      stack air quality testing
                Target
      acquisitionElectronic
      news gathering
                SurveillanceSports
      event reporting
                Communications
      relayHazardous
      waste detection
                Decoy
      operationsNatural
      disaster damage assessmentLaw
      enforcementFire
      surveillance
   COMPETITION
 
 To date
there are three fundamentally different aircraft design approaches to providing
this vertical take off and landing (VTOL) capability:
 ·
                Helicopters
 ·
                Tilt-rotor
      aircraft
 ·
                Ducted
      fan aircraft
 
 Helicopters
 Capable of
lifting heavy loads with modest horsepower, the helicopter is capable of
hovering for extended periods and its top speed is low, but adequate in most
paramilitary roles.  However, the helicopter is very complicated with
over 100 critical drive train moving parts and over 40 engine moving parts even
when powered by a single engine.  Failure of any one of the critical
drive train or engine’s moving parts while hovering below 200 feet of altitude
above the ground is likely to be fatal for all aboard.  Above 200 feet
the failure of any one of these moving components could be fatal.  As
a result of the helicopter’s complexity and potential consequences of a
component failure the operating maintenance and insurance costs are very
high.
  -15-










Tilt-rotor
      Aircraft

              The
      tilt-rotor configuration is in reality a helicopter with added capability,
      which makes it more complicated and expensive to operate.  By
      rotating the helicopter’s rotors into a vertical rotating plane, the
      tilt-rotor aircraft is able to translate at approximately twice the speed
      of the high performance light helicopter.  The purchase price of
      the Bell Augusta BA-609 tilt-rotor is approximately $1 million per
      passenger seat versus $200,000 for a high performance light helicopter
      like those made by Hughes.
            
            page 16a graphic






Ducted
Fan Aircraft
 There are
two design directions to duct fan aircraft:
 ·
              Enclose
      the twin rotors of a helicopter-like aircraft within protective
      ducts.  The aircraft is often referred to as an “aerial
      jeep.”
 ·
              Use
      many ducted fans with each fan driven directly by an engine, generally
      referred to as a volantor.
 
 Aerial
Jeep Approach
 There have
been a number of vehicles developed beginning in the 1950’s that attempted to
use two large ducted fans driven by a central powerplant.  A few of
these are shown below along with the date of their introduction.
   page 16b graphic
  Upper
left:  Piasecki VZ-8 (1958), Upper right: Chrysler VZ-6 (1959), Lower
left: Piasecki 59H (1962); Lower right:  X-Hawk (2006)
   -16-




The
limitations of this design (and that ultimately led to its termination after one
or two prototypes) are as follows:
 ·
              The
      design involved a large number of critical components in which the failure
      of any one and at any altitude was likely to be
  fatal.
 ·
              Large
      ducted fans have inherently adverse reactions to airflow over the duct’s
      leading edge as they begin to translate.  The instabilities
      created greatly limit the forward speed since the airflow can stall at the
      leading edge of the duct.  Once this occurs the aircraft is
      lost.  The Chrysler VZ-6 and Piasecki VZ-8 never attempted to
      exceed 50 mph in forward speed.
 ·
              The
      large fans made it difficult to locate a significant and/or bulky payload
      in a practical location.
 ·
              Their
      complex drive train with many of the elements of the helicopter meant that
      the vehicle’s initial cost would be high, and it would have result in
      maintenance and insurance costs.
 
 Clearly if
this approach had any merit further development would have
occurred.  It would seem that the recent X-Hawk, which is very similar
to the previous “aerial jeep” concepts is relying on the adage “we repeat what
we choose to forget.”
 
 Volantors
 The
volantor uses enough ducted fans driven directly by individual engines to ensure
that it can continue to hover on a hot day at altitude following the failure of
an engine.  This requires a minimum of five engines with eight chosen
to minimize installed power.
 
 Since
hover stability and control are achieved only through engine control no added
mechanical complexity is needed.  This reduces cost and does not
compromise the inherent statistical reliability of the
volantor.  Since the engines directly drive the fans a drive train is
also eliminated.
 
 The
Company believes the volantor’s simplicity will allow it to achieve the lowest
cost per seat for an aircraft with both VTOL-capability and a reasonably
fail-safe design.
 
 REGULATION
 
 Airworthiness
Certification Requirements
 
 The
Federal Aviation Act of 1958, as amended, vests in the Federal Aviation
Administration (commonly, the “FAA”) the authority to regulate virtually all
aspects of civil (i.e., non-military) aviation within the United States,
including pilot certification, airspace usage, and the certification of
aircraft. The FAA exercises its authority primarily through the issue and
enforcement of regulations, known as the Federal Aviation Regulations (or
“FAR”s), which are codified in Title 14 of the Code of Federal Regulations.
Among other things, the FARs set forth the type certification requirements
(known as “airworthiness standards”) for aircraft designs, the requirements for
manufacturers’ production quality control systems, the requirements for
airworthiness certification of individual aircraft, and the operations and
maintenance rules for air carriers and repair facilities.
 
 The
Aircraft Certification Service (designated “AIR” by FAA) is the department
within the FAA that develops and administers safety standards for aircraft and
related products that are manufactured in the United States or are used by
operators of aircraft registered in the United States. Related products include
engines, propellers, equipment, and replacement parts. As a regulatory function,
AIR’s mission priorities are:
  -17-




1.
              Continued
      airworthiness and other activities related to continued operational
      safety;
 2.
              Rulemaking
      and policy development; and
 3.
              Certification.
 
 Continued
airworthiness is given the highest priority because these activities have the
greatest impact on the safety of operating aircraft and because they promote the
continued satisfactory performance of approved systems, such as manufacturers’
approved quality control systems. Rulemaking and policy development are
considered to be a higher priority than issuing new certificates because the
integrity of the certification program depends on the currency of applicable
rules and policies.
 
 One of the
key goals of the certification and continued airworthiness standards is that
each safety-critical system have a reliability of at least 0.999999999 per
flight hour, which is another way of saying that a particular safety-critical
component or system should have no more than a one-in-one-billion chance of
failure for each flight hour. In pursuit of this goal, the regulations address a
combination of requirements for design, analysis, test, inspection, maintenance,
and operations. To permit design innovation, the regulations for the most part
avoid specifying details such as materials, structural concepts, etc.; instead,
designers are given a free hand as long as they accept the responsibility for
showing that systems with innovative design features meet the FAA’s stringent
reliability standards.
 
 The
cornerstone of AIR’s certification process is the “airworthiness certificate,”
issued for each individual aircraft. Generally, regulations prohibit operating
an aircraft without an airworthiness certificate, or in violation of any
limitation or restriction of its airworthiness
certificate.  Certificates may be issued as either “standard” or
“special.” Aircraft certificated in the Standard category are subject only to
the same operating restrictions as most other production aircraft, that is, that
they be operated within the manufacturers’ approved design limitations for the
particular type. “Special” category aircraft might include experimental designs
or homebuilt aircraft, for example, and may be subject to various operational
restrictions, such as a prohibition against carrying non-crewmember passengers,
or operating over densely populated areas.
 
 For a
civil aircraft to receive an airworthiness certificate, the FAA must determine
that the aircraft conforms in detail to an FAA-approved type design and is in
safe operating condition. Similar requirements exist for engines, propellers,
and certain materials, parts and equipment installed on certificated
aircraft.  The first step in the certification of a new design is to
establish which body of standards will apply. Because the original aircraft
classifications of “airplane,” “airship,” “rotorcraft,” etc. would not
accommodate the radical design of the Moller 400 Skycar® (and a
couple of other VTOL designs in development by other companies), the FAA in the
early 1990s established a new category and class of
aircraft:  “Powered-lift  -- Normal Category,” and set about
developing an airworthiness criteria manual that would serve as the basis for
certification.  As of this filing, the manual has not been finalized,
but we expect that the draft will suffice for us to proceed with initial testing
toward certification. In fact, the FAA has indicated to us that because of the
uniqueness of the Skycar®, they
expect to develop the final airworthiness criteria as we progress through the
test program.
 
 Once the
company has been issued a “Type Certificate” for a particular design, each
production aircraft we manufacture to those same specifications will be entitled
to a “standard” airworthiness certificate. Even after the Type Certificate is
issued, however, AIR has the authority to order us to make design changes if it
determines that safety so requires.




-18-




Establishment
of Skycar Certification Criteria
 
 In 1990
Mr. Jack Allison, formerly a vice president and a director of Moller
International, began working with the FAA with the goal of identifying the
appropriate airworthiness criteria for certification in a newly-established
aircraft category designated “powered lift – normal category,” in which the M400
Skycar is classified. The first meeting was to organize the effort to complete
the airworthiness criteria manual, and was attended by about 75 representatives
from seven foreign and domestic aircraft and aerospace manufacturing companies,
and members of the press. As a result of that meeting, Mr. Allison was appointed
to the “technical issues panel” charged with responsibility for the primary
flight systems. Other panels handled powerplants, avionics, and the airframe. A
draft of the manual was issued and is now available.
 
 The FAA
has recently informed us that of the original seven firms involved in the
effort, Moller appears to be the only one moving toward certification. The FAA
has displayed what we regard as a very cooperative attitude through all of our
preparatory work.
 
 On May 19,
1999, Mr. Allison provided an informational briefing at Edwards Air Force Base
on the Skycar. In attendance were a consortium of (1) test pilots from the Air
Force stationed at Edwards AFB, (2) scientists and engineers from NASA Dryden,
and (3) flight instructors and aircraft inspectors from the National Test Pilots
School. As a consequence of this meeting, Moller received a proposal from this
consortium that outlined a combined certification and airworthiness program for
the Skycar, whereby the flight certification documentation would be written in
parallel with the flight-testing. This procedure would accelerate the process of
identifying certification criteria and reduce the time necessary to achieve
production-oriented procedures and processes. The consortium estimates that the
proposal would require Moller to budget $1.2 million for the program with a time
frame of approximately three years to define the requirements for FAA
certification. The FAA has not approved or disapproved the proposal, nor is it
the agency’s function to do so. The objective of this activity is to provide
suggested appropriate additions to what we feel is the currently immature
language of the FAA’s regulations regarding the issuance of Airworthiness
Criteria for Powered Lift Normal Category aircraft.
 
 Effect
of Certification Requirements On Our Operations
 
 An
aircraft’s airworthiness certification bears on its usefulness to its owner or
operator. In particular, the value to a prospective purchaser of an
un-certificated or “special” certificated aircraft may be affected to some
extent by the corresponding operational restrictions, which can prevent them
from taking full advantage of the aircraft’s design
capabilities.  Certain operators, however, are exempt from the
airworthiness requirements to varying degrees, and we expect that such operators
may provide a market for our products prior to final FAA
certification.  See “Marketing Strategy” below.
 
 Certification
testing will be a recurring expense for us as we bring our products to market,
and incorporate design improvements into previously certificated
models.  The initial type certification testing on each aircraft
design will encompass design approvals for materials, spare parts, and other
equipment to be installed. Therefore, if we or any of our potential strategic
partners should choose to make a major modification in a model, such as an
airframe re-design or changing a safety-related onboard system, the change may
have to undergo additional testing to prove the new system’s
reliability.
 
 As a
future aircraft manufacturer, we will undertake an ongoing obligation to monitor
the serviceability and safety of the aircraft we expect to build and
sell.  We intend to establish and maintain, at our expense, a system
of feedback and reporting whereby maintenance mechanics and inspectors can
report back to us any and all failures, excessive or unpredicted wear,
malfunctions, and flight safety issues of any kind that arise or are detected
during maintenance and repair activities. Where appropriate, we will issue
“service bulletins” to owners and operators of the affected model, detailing the
problem and our recommendation for correction.  Where the problem may
potentially affect the safety of flight operations, we may recommend to the FAA
that they issue an Airworthiness Directive (commonly called an “AD”) making the
correction mandatory for every operator.
  -19-




It is
impossible to predict the future costs to us of ongoing compliance with federal
airworthiness regulations; however, we expect that the costs will be manageable
and that we will be able to absorb them in our pricing structure.
 
 Pre-production
Test Flight Program
 
 Tethered
flight tests have been conducted with the M200X aircraft using the same number
of rotary engines (eight) and a forerunner of the type of electronic control and
stabilization system as is employed on the M400 Skycar®. We have
conducted extensive ground tests of all of the M400’s systems and have now
completed the initial tethered flight tests and hover
demonstration.
 
 We began
test flying the pre-production model of the M400 in late 2002. The aircraft was
flown tethered so we could test and de-bug the stabilization and control
electronics. These flight tests first explored systems functions in the safest
portions of the flight envelope then expanded the envelope. We expect the entire
test program, involving many hours of powered tests on the ground and in
tethered flight, and several hundred hours of free flight tests, to extend until
we achieve FAA “Experimental” certification, hopefully within the next 12
months. However, this forecast is based upon the assumptions that (a) the
Company will succeed in raising sufficient capital to cover the costs of flight
testing, (b) a number of remaining engineering problems will be resolved through
further development, and (c) that the FAA will establish certification criteria
for the Skycar that are within our technical capabilities. All of these
assumptions remain highly uncertain as of the date of filing of this
registration statement.
 
 Pilot
Requirements
 
 Initially,
a private pilot’s license will be required to pilot the Skycar®,
primarily to ensure adequate flight management and navigational
skills.  To obtain a license, the prospective pilot must pass a flight
test administered by a licensed flight instructor in order to demonstrate
familiarity with its simplified controls.  The Skycar® is not
piloted like a traditional fixed-wing airplane and has only two hand control
sticks that the pilot uses to inform the redundant computer control systems of
his or her desired flight maneuvers.  The Company plans to have its
own pilot training program until the Skycar® is FAA
certified.  Once the Skycar® is
certified, it is expected that all training programs will be provided by private
and/or military aircraft flight training schools.  The FAA has begun
awarding “Powered Lift” pilot’s licenses.
 
 MARKETING
STRATEGY
 
 In the
early stages of sales development, we plan to market primarily through direct
selling by Company sales specialists to individual customers within our target
markets. Brand exposure may be accomplished through displays at trade shows and
industry exhibitions, direct mail, advertisements in aviation publications, and
cooperation with the news media. For at least three decades the news media has
followed the progress of Paul Moller’s VTOL research and experimentation,
underscoring the public’s perennial fascination with the promise of convenient
and affordable air travel made as personal and individualized as automobile
travel has been.  We expect, but cannot be certain, that the Skycar
will continue to receive periodic media coverage as we approach our first
delivery schedules.
  -20-




M400
Skycar®
 
 Although
sales of the Skycar® into
most civilian markets will require that we be able to deliver an FAA
certificated aircraft, the regulations permit certain types of operations by
certain defined operators to be conducted without the standard airworthiness
certification requirement.  These markets include:
 
 Government  --
domestic and foreign agencies including:
 
 Police
departments
 Border
Patrol
 Forest
Service
 Drug
Enforcement agencies
 Medical
services
 
 Initially,
we anticipate that most sales to this segment will consist of Skycars® for test
and evaluation. The craft’s capabilities should make drug enforcement agencies
and Border Patrol viable candidates for early purchases. However, we have not
received any commitments from those agencies to make any such
purchases.
 
 Military  --
Initial sales to domestic and foreign military organizations will likely be for
test and evaluation purposes.  We anticipate that military
organizations will utilize the Skycar® in
critical applications for which competing aircraft are ill
suited.  For example, the Skycar® is
expected to have superior speed, range and VTOL capability for the rescue of
crews of downed aircraft with minimal risks.  In addition, military
subcontractors may wish to use the Skycar® as a
platform for autonomous aircraft programs, one of the fastest growing areas of
military spending. Autonomous aircraft applications currently utilize un-manned
aircraft piloted by infrequent remote control commands or under the control of a
monitoring computer. Such aircraft are currently in use by the military as
remote data gathering platforms that feed information via radio or other
communication links back to a flight control center. Moller expects that
military organizations will wish to use Skycars® in a
broader range of applications if volume production reduces manufacturing costs
and overall pricing.  Eventually, we believe the Skycar® has the
potential to become the aerial counterpart of the “HMMWV,” the military’s
current ground utility vehicle.
 
 Corporations — Moller intends
to sell the M400 Skycar® to
corporations for use in the airspace above their property and we plan to
specifically target companies in industries such as timber and oil that have
survey and exploration needs.  The Company also expects that it will
be able to address a broader range of commercial applications in some foreign
markets due to fewer legal restrictions than in the United States.
 
 Assuming
that the Skycar eventually receives full airworthiness certification, we will
consider augmenting our sales efforts with retail dealerships, either existing
or newly-franchised.  Further, we intend to establish a network of
regional maintenance and repair facilities, either Company-owned or partnered
with existing service facilities, to handle routine maintenance and repair
services for non-military Skycars.
 
 NeueraTM
 
 The Neuera
is a directed-thrust vertical take off and landing aircraft in the late stages
of production design.  The design relies on thrust generated by the
eight ducted fans to lift the vehicle, as well as provide for forward movement
up to about 100 miles per hour.  The eight ducted fans are located in
a circular pattern around the vehicle and embedded into the saucer-like
fuselage.  Four of the ducted fans have moving vanes at the exit of
the duct, which are designed to deflect the thrust to provide forward movement
and directional control.  Each of the individual engines directly
drives a fan, with engine speed being the determining factor for the amount of
thrust produced.  The Company has developed a flight control system
that maintains stability through the use of precise throttle commands to each
engine.  Any un-commanded change in the attitude of the aircraft will
be detected and the system will issue multiple commands per second until it is
corrected.
  -21-




The Neuera
volantors are intended for use "off-road" somewhat like an ATV or hovercraft
would be used.  The Neuera is meant as an alternative to a trail bike,
boat, jeep, airboat or other off-road vehicle to access remote areas that would
otherwise not be open for travel.  It is not intended for use above roads,
trails, walkways, etc. and especially not within an urban area where there are
lots of other alternatives.  The exception to this would be for emergency
services like fire fighting, search and rescue, and emergency medical evacuation
from high-rise buildings and such.
 
 It is the
Company’s intent to directly market the Neuera to end-users initially, and then
if demand is sufficient, solicit distributors from the among existing high-end
recreational product distributors such as boat, snowmobile and ATV
dealers.
 
 MANUFACTURING
 
 Skycars®
 
 We believe
that the long-term success of any aircraft manufacturer is dependent on the
quality of the vehicle produced.  The quality of both the design and
manufacturing processes is important.  Moller expects to purchase or
contract out the major Skycar®
components that require capital intensive equipment, subject to Moller’s rigid
specifications and stringent quality assurances and testing
requirements.  We expect that some components and parts will be
finish-machined in Moller' s facilities when they have proprietary technological
content, require special finishing, or are small custom parts with little
tooling required.  Moller plans to perform quality control, assembly
and final test work at its own facilities.  During 2002 and 2003, any
manufacturing work will necessarily be executed using low volume
techniques.  Special tooling and manufacturing processes are expected
to be developed for higher volume production in the future.
 
 Airframe
manufacture encompasses the assembly of the major airframe components (fuselage,
wing and nacelles) and installation of fuel and oil tanks, parachutes, seats,
canopy, landing gear, and the vertical thrust vane system.  Moller
anticipates that a key strategic partner will be required in order to complete
composite airframe construction. Moller will require a complete test of all
systems through an extensive flight test program before final
release.
 
 Important
electronic systems include computer stabilization, pilot controls, display,
power regulation and engine controls.  Electronics manufacture will
include the following activities:
 
 -
              Assembly
      of electronic sub-systems
 -
              Burn-in
      of electronic components
 -
              Mounting
      of printed circuit boards
 -
              Fabrication
      of electronic enclosures
 -
              Interconnection
      of components and wiring
 -
              Installation
      of equipment in airframe
 
 While no
specific firm has been identified at this point, we expect to work with one or
two key strategic partners to provide electronics and avionics systems for the
Skycar®.
 
 The
quality control department will be an autonomous organization carefully
integrated into every aspect of the production operation.  Every
employee will play a part in assuring the highest possible level of quality and
performance.
 
 -22-




NeueraTM
 
 The Neuera
is remarkably simple to manufacture.  The complete airframe is
composed of two halves with tooling in place for their
manufacture.  This allows the production of approximately one airframe
per workday with the existing molds.  The Company believes this is
sufficient to address the near-term production requirements through our third
year of production.  With present facilities of only 35,000 square
feet, high-volume airframe production would have to occur elsewhere and we have
not evaluated the cost associated with expanding production
capacity.  All electronics will be subcontracted, as will the engines
and their support structure.  Assembly of the first year’s production
is projected to be accomplished within the present facility but lower cost
facilities may be available or, if necessary, our operations might be
cost-effectively expanded (space available for additional 50,000 square
feet).  Alternatively assembly could be moved to facilities nearby.
Engine components may be subcontracted with assembly and inspection occurring
within the present facility, but the simplicity of the Rotapower engine makes
its assembly and test operations elsewhere feasible.
 
 In the
simplest of terms, the volantor is basically made up of a number of computers
coupled through algorithms to a number of engines.  Both of these
components lend themselves to volume production in which economy of scale can
have a dramatic effect on cost.
 
 Aerobots®
 
 Both
electric-powered and fuel-powered Aerobots can be produced in the present Moller
facility in volumes of up to four per week, which is sufficient for currently
projected production.  The electric-powered Aerobots consists of
off-the-shelf components and high performance motors, electronic control boards,
and a composite frame manufactured by Moller.  Both individual
components and final assembly are inspected to assure product
quality.  The fuel-powered Aerobots utilizes the Moller rotary engine
(single-rotor) and thus requires more extensive facilities.  The frame
of the fuel-powered Aerobots is of welded construction; the fuel tank, duct and
cowling are composites.  Some component and subassembly tests will
supplement the basic assembly quality control.  Costs of manufacture
are expected to decrease for both Aerobots as production volumes increase.
However, no specific amount or rate of decrease can be projected at this
time.
 
 In most
cases, customers require a complete operating system, not just a
vehicle.  Moller plans to supply the radio control system and, in some
cases, install the interface for the payload sensor system.
 
 Engine
 
 We expect
that our Freedom Motors affiliate will supply most of the primary engine
components necessary to generate a FAA certified Rotapower®
engine.  For that reason various elements are already incorporated
into the basic engine design to satisfy future requirement for FAA
certification.  For example, dual spark plugs and an appropriate
thrust load carrying bearing are already part of the basic
design.  Moller will inspect, assemble, and test completed engines
prior to their sale or incorporation in Skycars® and Aerobots®.
 
 EMPLOYEES
 
 We
currently have 4 full-time employees and 7 part-time employees, including 3
management and executive management personnel. We have no specific plans for a
significant increase or decrease in the number of our
employees.  Future staffing needs will depend in large part on any
partnering or out-sourcing arrangements we may make for manufacturing of
components and sub-systems.
  -23-




NEED
TO RAISE ADDITIONAL CAPITAL TO COMPLETE DEVELOPMENT AND FLIGHT
TESTING
 
 We
estimate a cost of $26 million to demonstrate a flight worthy pre-production
model of the M400 Skycar.  Likewise, $24 million is the estimated
start up cost for the production of the Neuera volantor.  The
Company’s current plan assumes that the required funds will be raised through
the sale of equity, although no offer has been made nor are talks underway with
any potential purchasers.
 
 RISK
FACTORS
 
 Business
Viability
 
 We are
still in the process of developing our products, and have yet to produce any
meaningful level of sales or any profits from these products. There is no clear
basis for judging our viability as a business enterprise, or our management’s
ability to develop the company to profitability.
 
 Limited
Experience
 
 Our
management has limited experience in aircraft manufacturing.  While
our management has considerable general business and management experience, and
some specialized knowledge and experience in the in the aircraft industry, none
of our current management has significant experience managing a business that
manufactures and markets aircraft. Accordingly, our success will depend in large
part on our ability to recruit or to contract individuals with specialized
skills and knowledge relating to aircraft manufacturing and marketing without
adversely impacting the overall budget for employee compensation. There is no
assurance that we will be successful in retaining such specialists.
 
 Need for
Additional Capital
 
 We will
have to raise substantial amounts of capital before we can produce meaningful
revenues from sales of our products with no assurance as to when or at what
level revenues will commence. We estimate that we will need $26 million to
demonstrate a fully-functional, pre-production prototype Skycar, and an
additional $40 - $90 million to complete FAA certification and begin initial
production of certified aircraft. Alternatively we believe we would require $24
million to fund the production startup of the Neuera.  Should we be
unsuccessful in raising the needed capital, we may never develop into a viable
business enterprise. At this time, we have no specific arrangements with any
underwriters for the placement of our shares, nor any binding commitments from
any person to invest in the Company.
 
 Dilution
of Share Value
 
 We will
likely sell shares of our stock to raise capital needed to fund future
operations. Any such sales will have the effect of reducing the proportionate
ownership of existing shareholders.
 
 Impact of
Emerging Technologies
 
 Evolving
technologies may force us to alter or even abandon our product designs, or may
render our proprietary technologies obsolete or
non-competitive.  Although we believe strongly in the existence of a
substantial market for our products, new technologies are being developed and
deployed at a rapid rate.  It is possible that as time goes on,
technological advances in such areas as power plants, propulsion systems,
airframe materials, manufacturing systems, and perhaps others, will require us
to make costly changes in our strategy or additional investments in equipment
and in research and development in order to become or remain
competitive.
  -24-




Impact of
Potential Product Liability Claims
 
 The
Company may expend an inordinate amount of its resources in litigating product
liability claims.  Historically, manufacturers of aircraft have been
held by the courts to be liable for injuries suffered by crewmembers,
passengers, and others where some design deficiency or manufacturing defect was
found to have contributed to the injury. Although we intend to take all
reasonable precautions in the design and manufacture of our products to ensure
that they can be operated safely and without undue risk to life, health, or
property, and we intend to purchase insurance against potential product
liability claims, it is nevertheless possible that our operations could be
adversely affected by the costs and disruptions of answering such
claims.
 
 Impacts
related to Sarbanes-Oxley Act of 2002
 
 We may be
exposed to potential risks relating to our disclosure controls including our
internal controls over financial reporting. Section 404a of the Sarbanes-Oxley
Act of 2002 ("SOX 404") requires public companies to include a report of
management on the company's internal controls over financial reporting in their
annual reports, including Form 10-KSB.
 
 Effective
with this annual report for the fiscal year ended June 30, 2008, we have been
required to evaluate our internal control systems in order to allow our
management to report on our internal controls.
 
 In the
event we have identified significant deficiencies or material weaknesses in our
internal controls that we cannot correct in a timely manner with respect to our
internal controls, investors and others may lose confidence in the reliability
of our financial statements and our ability to obtain equity or debt financing
could suffer.
 
 Item 2. DESCRIPTION OF PROPERTY
 
 We
currently lease and occupy a 34,500 square foot building located in Davis,
California, which is owned by Dr. Paul S. Moller, the majority shareholder of
Moller International. (see Note I to the financial statements)
 
 Item 3. LEGAL PROCEEDINGS
 
 J.F.
Wilson & Associates Ltd. v. Estate of Percy Symens, et al.
 
 Moller
International (MI) is named as a defendant in a lawsuit pending in Yolo County,
California Superior Court - J.F. Wilson & Associates Ltd. v. Estate of Percy
Symens, et al. 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.  On December
20, 2006, defendant and cross-complainant Donald M. Miller died; and on January
7, 2008, the court ordered a stay of proceedings until the court’s Probate
Department rules on an application for letters of instruction in connection with
Mr. Miller’s estate.  The court’s Probate Department has not yet
issued a ruling, and the stay remains in place.
  -25-




In a
related administrative proceeding initiated on September 26, 2006, the
California Central Valley Regional Water Quality Control Board (RWQCB) 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
RWQCB.  MI and other parties have submitted comments regarding the
draft cleanup and abatement order.  The draft CAO has not been
finalized.  The property owner is proceeding with work to investigate,
characterize and remediate the soil and groundwater contamination at this
property, with RWQCB oversight.
 
 MI’s
probable loss has been estimated at this time in the range of $200,000 to
$1,000,000 and has accrued $200,000.  It is reasonably possible that
these estimates may be significantly revised as the site investigation and other
research and analysis proceeds. MI will continue to assess its potential loss in
the future as more information is available.
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 During the
2007 Annual Shareholders meeting held on November 10, 2007, the following
individuals were elected to the MI Board of Directors by unanimous vote of
shareholders present:  Paul S. Moller, Faulkner White, Jim Toreson,
and Mike Shanley.
  -26-




PART II
 
 Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
 Moller
International common stock is being publicly traded on the OTC-BB stock market.
According to NASDAQ Financial data, the average adjusted closing price has
ranged from a low of $0.40 to a high of $1.25 per share during this reporting
period with a trading volume of 24,451 shares per trading day.
 
 The
following table is a summary of Moller International stock performance by
calendar quarter since being listed by the OTC market in August
2002.
  High
                Low2002-Q3
      (28 Aug to 30 Sep 2002)
                $7.50
                $4.152002-Q4
      (1 Oct 2002 to 31 Dec, 2002)
                $6.50
                $2.002003-Q1
      (1 Jan 2003 to 31 Mar 2003)
                $2.20
                $0.702003-Q2
      (1 Apr 2003 to 27 Jun 2003)
                $1.00
                $0.342003-Q3
      (1 Jul 2003 to 30 Sep 2003)
                $0.90
                $0.502003-Q4
      (1 Oct 2003 to 30 Dec 2003)
                $2.30
                $0.652004-Q1
      (1 Jan 2004 to 31 Mar 2004)
                $1.50
                $0.952004-Q2
      (1 Apr 2004 to 30 Jun 2004)
                $1.45
                $1.302004-Q3
      (1 July 2004 to 30 Sep 2004)
                $2.12
                $0.952004-Q4
      (1 Oct 2004 to 31 Dec 2004)
                $1.50
                $1.252005-Q1
      (1 Jan 2005 to 31 Mar 2005)
                $1.30
                $0.782005-Q2
      (1 Apr 2005 to 30 Jun 2005)
                $1.20
                $0.822005-Q3
      (1 July 2005 to 30 Sep 2005)
                $1.15
                $0.932005-Q4
      (1 Oct 2005 to 30 Dec 2005)
                $1.40
                $0.602006-Q1
      (1 Jan 2006 to 31 Mar 2006)
                $1.01
                $0.752006-Q2
      (1 Apr 2006 to 30 Jun 2006)
                $1.00
                $0.532006-Q3
      (1 Jul 2006 to 30 Sep 2006)
                $0.75
                $0.382006-Q4
      (1 Oct 2006 to 31 Dec 2006)
                $0.65
                $0.322007-Q1
      (1 Jan 2007 to 31 Mar 2007)
                $0.48
                $0.312007-Q2
      (1 Apr 2007 to 30 Jun 2007)
                $1.01
                $0.372007-Q3
      (1 Jul 2007 to 30 Sep 2007)
                $1.25
                $0.402007-Q4
      (1 Oct 2007 to 30 Dec 2007)
                $1.05
                $0.512008-Q1
      (1 Jan 2008 to 31 Mar 2008)
                $0.80
                $0.462008-Q2
      (1 Apr 2008 to 30 Jun 2008)
                $0.76
                $0.55
  Shareholders
of Record
 
 As of
October 13, 2008 there are 612 shareholders of record for common shares of
Moller International.
 
 Dividends
 
 The
holders of our common stock have equal ratable rights to dividends from funds
legally available for dividend payments when, as and if declared by the Board of
Directors of the Company.
 
 To date we
have not paid or declared any dividends and we have no intention of declaring or
paying any dividends in the foreseeable future.
  -27-




If we
decide to pay dividends, that decision will be made by our Board of Directors,
which will likely consider, among other things, our earnings, our capital
requirements and our financial condition, as well as other relevant
factors.  Our Board of Directors may declare and pay dividends to the
Company's shareholders in the form of bonus shares.  The shareholders
would receive bonus shares in lieu of cash dividends, if any, declared and paid
by the Company.
 
 Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
 
 Year Ended
June 30, 2008
 
 Moller
International continues its research and development activities on the Skycar
project with the objective of improving flight duration and range of the
aircraft. These efforts are an extension of successful flights throughout the
previous years and extensive ongoing engine tests, which we believe, will result
in incremental improvements to the existing prototype, future prototypes and/or
production aircraft, should we continue to operate. Staffing levels remained
constant as the company continues to control labor costs in an effort to
conserve available operating funds.  Management was successful in
keeping Administrative salaries and wages consistent with last year’s
level.  Seeking additional funding remains a top priority for the
company. The Company continues with its initial stages of low-volume production
for variations of its M200X, an earlier prototype volantor.  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 more rapidly into the production of these
vehicles.
 
 Fiscal
2008 compared to 2007
 
 Results of
operations for the 2008 fiscal year varied from 2007. We incurred net losses of
$2,004,555 and $2,676,261 in fiscal 2008 and 2007 respectively.
 
 Consolidated
loss per share was $.04 and $.06 for the 2008 and 2007 fiscal years,
respectively. We generated no significant amount of revenue in either fiscal
year. We are currently using cash to fund operations at an approximate rate of
$117,000 per month, net of engineering revenue received, the deferral of certain
executive salaries at an annual rate of $250,000, the deferral of building rent
of $496,800 per year and the recognition of compensation expense related to the
fair market value of stock issued for services and stock options granted to our
employees of $257,406 and $267,777 in fiscal 2008 and 2007,
respectively.
 
 Cash
salaries and wages, including benefits, remained relatively constant,
representing 35% and 28% of total expenses for the 2008 and 2007 fiscal years,
respectively.  With the company continuing to conserve cash on hand,
some employees voluntarily consented to defer pay, resulting in a total of
$155,921 of accumulated short-term deferred payroll excluding accrued interest
as of June 30, 2008.  Interest expense increased by $79,532 over the
prior year primarily as a result of the accrual of interest on our loans from
Milk Farm Associates and from Dr. Moller.  Milk Farm is a related
entity because Dr. Moller is the general partner in Milk Farm and has a 32%
ownership interest.  The loan from Milk Farm is unsecured. It is due
on demand and accrues interest at 7%.  At the fiscal year-end 2008,
the outstanding principal amount was $1,737,596.  Loans from Dr.
Moller are also unsecured and carry a 10% annual interest rate.  At
June 30, 2008, the outstanding principal amount was $2,897,399.
 
 As of June
30, 2008, Dr. Moller had a balance of $761,333 in deferred wages along with
accrued interest.
 
 Revenues
increased by $470,056 in 2008.  Contract revenues from our affiliated
entity, Freedom Motors increased $456,598. Only the amounts received in cash
from this affiliated entity are recognized in
revenue.   Miscellaneous revenues remained relatively constant.
These increases are not indicative of any meaningful revenue
trends.
   -28-




Going
Concern
 
 MI has a
net loss of $ 2,004,555 for fiscal 2008 and has an equity deficit of
$10,999,643.  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.
 
 
 Liquidity
and Capital Resources
 
 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 June 30, 2008, a total of
$2,897,339 has been loaned to MI from these transactions. In addition, he has
deferred payment of current year building rent owed by MI of approximately
$496,800.  The total deferred rent owing to Dr. Moller at June 30,
2008 is $1,585,380.
 
 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.
 
 CRITICAL
ACCOUNTING POLICIES
 
 Our
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principals generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of any contingent assets and liabilities. On an on-going
basis, we evaluate our estimates. We base our estimates on various assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
 
 We believe
the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our financial statements:
 
 Revenue
Recognition
  We
recognize revenue based on the four principles established in GAAP. Those
principles state that revenue generally is realized or realizable and earned
when all of the following criteria are met:
  -29-




1.
Persuasive evidence of an arrangement exists,
  2.
Delivery has occurred or services have been rendered,
  3. The
seller's price to the buyer is fixed or determinable, and,
  4.
Collectibility is reasonably assured.
 
 Revenue
generated from our former subsidiary, Freedom Motors, under the Technology
agreement is only recognized to the extent amounts are collected.
  Stock
Based Compensation
 
 In
December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” SFAS No.
123R establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services.
 
 MI
recognizes stock based compensation for options granted to its employees in
accordance with SFAS 123R.  MI estimates the fair market value of the
awards issued to employees using a Black Scholes pricing model.  The
model is based on assumptions including (1) fair market value of its common
stock on the date of grant; (2) volatility of its common stock ranging from
147.71 to 149.79 (3) discount rate ranging from 1.74 to 3.11 and (3) expected
dividend of zero.  As a result of these assumptions, MI recognized
total stock based compensation of $ 72,867 and $54,856 during the fiscal years
ended June 30, 2008 and 2007.
   -30-




Item 7. FINANCIAL STATEMENTS
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Shareholders of
 Moller
International, Inc.
 Davis,
California
 
 We have
audited the accompanying consolidated balance sheets of Moller International,
Inc. as of June 30,2008 and 2007, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the
years ended June 30, 2008 and 2007. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform an audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. Moller
International, Inc. is not required to have, nor were we engaged to perform an
audit of internal control over financial reporting.  Our audits
included the consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of Moller
International Inc.’s internal control over financial
reporting.  Accordingly, we express no such
opinion.   An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Moller International, Inc.
as of June 30, 2008 and 2007, and the results of operations and cash flows
for the years ended June 30, 2008 and 2007, in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that
Moller International, Inc. will continue as a going concern. As discussed
in Note B to the financial statements, Moller International, Inc. suffered
recurring losses from operations and has a working capital deficiency,
which raises substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in
Note B. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 MALONE
& BAILEY, PC
 www.malone-bailey.com
 Houston,
Texas
 October
13, 2008
   -31-




MOLLER
      INTERNATIONAL, INC.CONSOLIDATED
      BALANCE SHEETS
                As
      of June 30, 2008 and 2007June
      30, 2008
              
              
              June
      30, 2007ASSETSCURRENT
      ASSETSCash
              
              $
              -
              
              
              $
              5,715Accounts
      receivable
              
              
              13,563
              
              
              
              42,513Prepaid
      expenses
              
              
              -
              
              
              
              -Total
      Current Assets
              
              
              13,563
              
              
              
              48,228PROPERTY
      AND EQUIPMENT, net of accumulated depreciation
              
              
              11,933
              
              
              
              11,863OTHER
      ASSETSPatent
      costs
              
              
              72,529
              
              
              
              72,529Advance
      to Freedom Motors
              
              
              -
              
              
              
              23,957Workers'
      compensation deposit
              
              
              1,167
              
              
              
              1,059Total
      other assets
              
              
              73,696
              
              
              
              97,545$
              99,192
              
              
              $
              157,636LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable, trade
              
              $
              545,171
              
              
              $
              349,192Accrued
      liabilities
              
              
              433,448
              
              
              
              408,716Accrued
      liabilities-related parties
              
              
              413,290
              
              
              
              288,626Accrued
      liabilities-majority shareholder
              
              
              2,453,161
              
              
              
              2,108,357Notes
      payable-other
              
              
              958,078
              
              
              
              532,968Note
      payable - majority shareholder
              
              
              2,897,399
              
              
              
              2,574,804Notes
      payable - minority shareholders
              
              
              348,671
              
              
              
              318,730Notes
      payable - related parties
              
              
              1,737,596
              
              
              
              1,783,472Deferred
      wages - employees
              
              
              155,921
              
              
              
              173,080Customer
      deposits
              
              
              394,767
              
              
              
              409,767Total
      current liabilities
              
              
              10,337,502
              
              
              
              8,947,712LONG
      TERM LIABILITIESDeferred
      wages and interest-majority shareholder
              
              
              761,333
              
              
              
              462,418Total
      long term liabilities
              
              
              761,333
              
              
              
              462,418Total
      liabilities
              
              
              11,098,835
              
              
              
              9,410,130




STOCKHOLDERS'
      DEFICITCommon
      stock, authorized, 150,000,000 shares, no par value,
issuedand
      outstanding, 45,736,914 and 45,725,979 shares at June 30, 2008 and
      2007
              
              
              31,491,068
              
              
              
              31,233,662Accumulated
      deficit
              
              
              (42,490,711
              )
              
              
              (40,486,156
              )Total
      deficit in stockholders' equity
              
              
              (10,999,643
              )
              
              
              (9,252,494
              )$
              99,192
              
              
              $
              157,636




See
summary of significant accounting policies and notes to financial
statements.


-32-




MOLLER
      INTERNATIONAL, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONS
                For
      the Years Ended June 30, 2008 and 20072008
              
              
              2007REVENUERevenues
      from affiliate
              
              $
              543,533
              
              
              $
              73,726Miscellaneous
              
              
              8,784
              
              
              
              8,573TOTAL
      REVENUE
              
              
              552,317
              
              
              
              82,299EXPENSESAdministrative
      salaries and wages
              
              
              666,506
              
              
              
              691,136Building
      expenses
              
              
              60,842
              
              
              
              50,537Depreciation
      expense
              
              
              1,437
              
              
              
              1,545Direct
      project expenses
              
              
              285,922
              
              
              
              251,540Employee
      benefits and payroll taxes
              
              
              165,336
              
              
              
              139,949Legal,
      accounting, and professional fees
              
              
              166,368
              
              
              
              186,452Office
      supplies and expense
              
              
              36,451
              
              
              
              152,318Other
      expenses
              
              
              47,503
              
              
              
              53,878Patent
      expense
              
              
              55,654
              
              
              
              8,815Settlement
      expense
              
              
              -
              
              
              
              225,714Rent
      expense to majority shareholder
              
              
              527,389
              
              
              
              532,743Total
      expenses
              
              
              2,013,408
              
              
              
              2,294,627Loss
      from operations
              
              
              (1,461,091
              )
              
              
              (2,212,328
              )OTHER
      EXPENSEInterest
              
              
              543,464
              
              
              
              463,933Total
      other expense
              
              
              543,464
              
              
              
              463,933NET
      LOSS
              
              $
              (2,004,555
              )
              
              $
              (2,676,261
              )Loss
      per common share, basic and diluted
              
              $
              (0.04
              )
              
              $
              (0.06
              )Weighted
      average common shares outstanding
              
              
              45,712,315
              
              
              
              45,634,698




.


-33-




MOLLER
      INTERNATIONAL, INC.CONSOLIDATED
      STATEMENTS STOCKHOLDERS' DEFICITFor
      the Years ended June 30, 2008 and 2007Common
      Stock
              
              
              AccumulatedShares
              
              
              Amount
              
              
              Deficit
              
              
              TotalBalances
      at June 30, 2006
              
              
              45,526,821
              
              
              $
              29,538,873
              
              
              $
              (37,809,895
              )
              
              $
              (8,271,022
              )Shares
      issued for Services
              
              
              197,344
              
              
              
              85,070
              
              
              
              
              
              
              
              85,070Fair
      value of employee stock options
              
              
              
              
              
              
              178,106
              
              
              
              
              
              
              
              178,106Fair
      value of executive stock options
              
              
              
              
              
              
              4,601
              
              
              
              
              
              
              
              4,601Debt
      Forgiveness
              
              
              
              
              
              
              1,449,248
              
              
              
              
              
              
              
              1,449,248Canceled
      Shares
              
              
              (3,186.00
              )
              
              
              -
              
              
              
              
              
              
              
              -Stock
      Options Exercised
              
              
              5,000
              
              
              
              2,050
              
              
              
              
              
              
              
              2,050Repurchase
      of Shares
              
              
              
              
              
              
              (24,286
              )
              
              
              
              
              
              
              (24,286
              )Net
      Loss
              
              
              
              
              
              
              
              
              
              $
              (2,676,261
              )
              
              $
              (2,676,261
              )Balances
      at June 30, 2007
              
              
              45,725,979
              
              
              
              31,233,662
              
              
              $
              (40,486,156
              )
              
              $
              (9,252,494
              )Shares
      issued for Services
              
              
              71,650
              
              
              
              46,767
              
              
              
              
              
              
              
              46,767Fair
      value of employee stock options
              
              
              
              
              
              
              202,105
              
              
              
              
              
              
              
              202,105Fair
      value of executive stock options
              
              
              
              
              
              
              8,534
              
              
              
              
              
              
              
              8,534Canceled
      Shares
              
              
              (60,715
              )Net
      Loss
              
              
              
              
              
              
              
              
              
              $
              (2,004,555
              )
              
              $
              (2,004,555
              )Balance
      at June 30, 2008
              
              
              45,736,914
              
              
              $
              31,491,068
              
              
              $
              (42,490,711
              )
              
              $
              (10,999,643
              )




.
 -34-




MOLLER
      INTERNATIONAL, INC.Consolidated
      Statement of Cash FlowsFor
      the Years ended June 30, 2008 and 20072008
              
              
              2007Cash
      Flows From Operating ActivitiesNet
      Loss
              
              $
              (2,004,555
              )
              
              $
              (2,676,261
              )Adjustments
      to Reconcile Net Lossto
      Net Cash Used:Depreciation
      expense
              
              
              1,437
              
              
              
              1,545Stock
      based compensation
              
              
              257,406
              
              
              
              267,777Change
      in assets and liabilities:Accounts
      receivable
              
              
              52,907
              
              
              
              37,432Accounts
      payable
              
              
              195,979
              
              
              
              79,017Accrued
      liabilities
              
              
              775,954
              
              
              
              665,791Customer
      deposits
              
              
              (15,000
              )
              
              
              (32,500
              )Prepaid
      expenses
              
              
              -
              
              
              
              (25,016
              )Other
      assets
              
              
              (108
              )
              
              
              -Net
      Cash Used in Operating Activities
              
              
              (735,980
              )
              
              
              (1,411,536
              )Cash
      Used in Investing ActivitiesPurchase
      of equipment
              
              
              (1,856
              )
              
              
              (2,222
              )Proceeds
      from sale of equipment
              
              
              350
              
              
              
              -Purchase
      of other assets
              
              
              -
              
              
              
              (20,981
              )Net
      Cash Used in investing Activities
              
              
              (1,506
              )
              
              
              (23,203
              )Cash
      Flows Provided from Financing ActivitiesExercise
      of stock options
              
              
              -
              
              
              
              2,050Borrowing
      from related party debt
              
              
              521,375
              
              
              
              1,809,007Payment
      on accrued settlement
              
              
              -
              
              
              
              (225,000
              )Payments
      related party note payable
              
              
              (214,714
              )
              
              
              (135,033
              )Borrowing
      from non-related party
              
              
              433,110
              
              
              
              -Principal
      payments on long term debt
              
              
              -
              
              
              
              (12,000.00
              )Payments
      of notes Payable
              
              
              (8,000
              )
              
              
              -Net
      Cash Provided from Financing Activities
              
              
              731,771
              
              
              
              1,439,024Net
      decrease In Cash
              
              
              (5,715
              )
              
              
              4,285Cash
      Balance at End of Period
              
              
              -
              
              
              
              5,715Cash
      Balance at Beginning of Period
              
              $
              5,715
              
              
              $
              1,430




.
 -35-




MOLLER
INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 NOTE
A – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
 MI has
historically entered into several lines of revenue-producing business activities
including the design and development of rotary engines, remotely controlled
flying vehicles, automotive mufflers and vertical takeoff and landing aircraft.
MI has for the past fifteen years devoted most of its efforts to the design and
development of a Vertical Takeoff and Landing (VTOL) vehicle known as the
Skycar.  The Skycar program is still in the development stage at this
point.
 
 Moller
International Inc., (MI) consolidates the accounts of its wholly owned, inactive
subsidiaries, Aerobotics Inc. (AI) and Moller Corporation (MC). All intercompany
transactions and balances have been eliminated.
 
 Dr. Paul
S. Moller the majority shareholder of MI.
 
 Cash
and Cash Equivalents
 
 MI
considers all highly liquid debt instruments with an initial maturity date of 90
days or less to be cash equivalents.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenditures/expenses during the reporting
periods.  Actual results could differ from those
estimates.
 
 Loss
Per Share (LPS)
 
 Basic LPS
excludes dilution and is computed by dividing the loss attributable to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted LPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
shared in the earnings of the entity. Diluted LPS is the same as basic LPS for
all periods presented because all potentially dilutive securities have an
anti-dilutive effect on LPS due to the net losses incurred.  At June
30, 2008, the total number of shares of common stock relating to outstanding
stock options and other potentially dilutive securities that have been excluded
from the LPS calculation because their effect would be anti-dilutive
approximated 13,429,408 shares.
 
 Revenue
Recognition
  MI
recognizes revenue when persuasive evidence of an arrangement exists, services
have been rendered, the sales price is fixed or determinable, and collectibility
is reasonably assured
  In the
case of MI’s recognition of revenue from engineering services provided to
Freedom Motors, an affiliated entity and former subsidiary, which shares common
ownership with some of the existing shareholders of MI, the arrangement is the
Technology Development and License Agreement entered into between Freedom Motors
and Moller International in 1998 (previously filed as Exhibit 10 to the
Company's Form 10-SB, filed on EDGAR September 21, 2001).  Under this
agreement, Moller International committed to providing engineering services, as
deemed reasonable, to perform scientific and engineering technical support for
the rotary engine. The support is generally in the form of labor using the
expertise of MI’s employees, and temporary use of a portion of MI’s facilities
or equipment.
  -36-




Delivery
is considered complete when a specific defined task or milestone is completed,
as demonstrated by the issuance of engineering documents (procedures, drawings,
models, prototypes, etc.) and provided to Freedom Motors or its
assigns.  The date the information or material is provided to Freedom
Motors is considered the delivery date.
 
 The final
criterion, Collectibility, is determined by Freedom Motors’ ability and
willingness to pay its debts. Since Freedom Motors is itself a startup company,
it has not been in a position to pay until it acquired contracts and received
revenue from those contracts.  When Freedom Motors received revenue
during this reporting period, they notified Moller International and stated
their intent to pay a portion of fees accumulated for services
rendered.  When Moller International receives the payment for
services, then management recognizes and records revenue that is equal to the
fees received.
 
 The
company performs contract services for its former subsidiary, Freedom Motors
(FM).  In accordance with the Technology Development and License
Agreement between MI and FM dated October 28, 1999, MI provides FM the personnel
and facilities as required to adapt its Rotapower engine to applications where
the potential exists for high volume production.  MI also handles FM's
bookkeeping and other administrative functions.    From the
date of the spin-off, April 1, 2001, forward, due to the uncertainty of FM’s
ability to pay amounts owed, MI does not recognize any revenue related to these
transactions with until it receives payment from FM. Accumulated billings to FM
for the period from April 1, 2001 to June 30, 2007 totaled
$7,322,199.  For the year ended June 30, 2008, contract services
billed to FM totaled $1,610,588, resulting in accumulated billings of
$8,068,632.  The amounts of these billings have been fully
reserved.
 
 For the
year ended June 30, 2008, FM remitted a total of $530,420 in payments to MI,
which has been recognized as contract revenues in the statement of operations
for the year ended June 30, 2008.  In addition, in prior years, FM had
remitted a total of $1,017,643 in payments to MI.  Those amounts had
been previously classified as a reduction in the A/R from affiliate receivable
between the two companies.
 
 Miscellaneous
revenue derived from the sale of t-shirts, model cars, information packets and
other items is recognized at the time of sale.
  Research
and Development Costs
 
 All
research and development costs are expensed as incurred.
 
 NOTE
B – GOING CONCERN
 
 MI has a
net loss of $2,004,555 for fiscal 2008 and has an accumulated
deficit.  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.
  -37-




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 June 30, 2008, a total of
$2,959,179 has been loaned to MI from these transactions. In addition, he has
deferred payment of current year building rent owed by MI of approximately
$496,800.  The total deferred rent owing to Dr. Moller at June 30,
2008 is $1,585,380. In addition, during the fiscal year ended June 30, 2008, MI
received funds from a non-related party of $433,110.
 
 There can
be no assurance that this majority shareholder or others 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 - Property and Equipment
 
 Property
and Equipment is recorded at cost and is depreciated over its estimated service
life on a straight-line basis.  Estimated service lives range from
five to fifteen years.
  June
      30, 2007
                
                
                June
      30, 2008Production
      and R&D Equipment
                
                $
                393,158
                
                
                $
                394,664Computer
      equipment and software
                
                
                420,099
                
                
                
                420,099Furniture
      and fixtures
                
                
                75,650
                
                
                
                75,650888,907
                
                
                
                890,413Less
      accumulated depreciation
                
                
                (877,044
                )
                
                
                (878,480
                )$
                11,863
                
                
                $
                11,933
  NOTE
D - Stock-Based Compensation
 
 During the
years ended June 30, 2008 and 2007, MI issued 201,819 and 189,577 options to
employees with contract terms ranging from one to two years and exercise prices
ranging from $0.60 to $0.88 and 15,000 options to board
members.  Compensation expense of $83,143 and $85,069  was
recognized during the years ended June 30, 2008 and 2007,
respectively.  There was no unamortized compensation amount at June
30, 2008.
 
 The 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 ranging from 1.74% to 3.11%,
(2) an estimated expected term approximately one year based on the “plain
vanilla” method allowed under SAB 107 and SFAS 123R, (3) no dividend rate and
(4) computed volatility rates ranging from 149.43% to 259.44% on the underlying
stock.
 
 During
June 30, 2006, MI granted 3,988,914 options to employees and the majority
shareholder with contract terms ranging from three months to ten years and
exercise prices ranging from $0.86 to $1.03.  Of these options,
3,194,762 were granted to the majority shareholder.  During June 30,
2008, amortization of these stock options totaled $127,496.
  -38-




During the
years ended June 30, 2008 and 2007, MI issued 71,650 and 197,344 shares for
services to outside consultants and estimated the value of these shares at the
market value on the date of issuance of $46,767 and $85,069,
respectively.
 
 NOTE
E – CUSTOMER DEPOSITS
 
 Customer
deposits are payments made to MI, generally at $10,000 per unit, for the purpose
of reserving specific delivery positions for Skycars when they become available
for sale to the public.  Deposits are refundable at any time upon
request.  During the year ended June 30, 2008, MI paid $15,000 in
refunds to its customers.
 
 NOTE
F – DEFERRED WAGES
 
 The annual
salary of the president $250,000 is being deferred until MI has reached a
consistent level of profitability.
 
 The
president is aware and has expressly agreed to defer any accrued wages until
such time that the company becomes profitable.  The President expects
profitability of MI to be greater than a one-year time frame.  As of
June 30, 2008 and 2007, respectively, as a result of these expectations, has
classified the accrued wages of $625,000 along with the accrued interest of
$136,333 and $375,000 and $87,418 as non-current.
 
 At June
30, 2008 and 2007, members of management and other employees have deferred
$110,826 and $141,458 of wages along with accrued interest of $45,095 and
$31,622.
 
 NOTE
G – NOTES PAYABLE
 
 MAJORITY
SHAREHOLDER
 
 At June
30, 2008 and 2007, notes payable to the majority shareholder, Dr. Paul S.
Moller, are unsecured, and due on demand. There are two separate notes, one for
$2,616,599 and $2,294,004 which bears interest at $10% per annum, and another
note for $280,800 that is non-interest bearing.  During fiscal 2008,
Moller loaned MI an additional $384,375, representing an increase in the
interest bearing loan balance. Accrued interest on this loan aggregated $867,781
and $589,248 at June 30, 2008and
2007.
 
 MINORITY
SHAREHOLDER
 
 Notes
payable to minority shareholders, at June 30, 2008 and 2007, consisted of
short-term borrowings, all due on demand with an interest rate of 10% per
annum.  The aggregate balance outstanding at June 30, 2008 and 2007
was $348,671 and $318,730.
 
 RELATED
PARTY
 
 During the
year ended June 30, 2008 and 2007, MI repaid $222,714 and $50,093 in loans and
borrowed an additional $954,485 had a $1,737,596 balance owed to Milk Farm and a
related entity.  The note is unsecured and bears a 7% interest
rate.  Accrued interest on this loan totaled $413,290 and 288,626at
June 30, 2008 and 2007.
 
 Non-Related
Party
 
 During the
year ended June 30, 2008, MI entered a guarantee agreement for the
repayments of a pledged $433,110 advance payment made by Barry Malizia, Chairman
of Rotapower Engine Systems Limited (RES), to MI. The advanced funds are
interest free and to be repaid by Dr. Paul S. Moller within 90 days on demand.
As of June 30, 2008, MI has not yet repaid any of the amounts. Mr. Malizia is
forming RES, which is a potential licensee of the Rotapower engine
technology.
  -39-




OTHER
NOTES - Pelican Ventures
 
 In 2001,
Pelican Ventures LLC loaned $500,000 to MI for the development of a
diesel-powered rotary engine.  The loan carries interest at 9%, is
secured by substantially all assets, and was originally due in
2002.
 
 Pelican
canceled the agreement in June 2002 and the dispute has not been
resolved.  MI ceased accruing interest in August 2002.
 
 NOTE
H – COMMON STOCK TRANSACTIONS
 
 During the
year ended June 30, 2008 and 2007, MI issued 71,650 and 197,344 shares of common
stock to certain individuals in recognition of various services provided MI
recorded compensation expense of $46,767 and 85,070 based on a fair market value
per share of $0.53 to $0.93 and $0.32 to $0.56, determined by taking the closing
price for the stock at the dates the services were provided.
 
 NOTE
I– LEASE COMMITMENT
 
 MI’s
operations are housed in one 34,500 square foot building, which is leased from
Dr. Moller.  The term of the current lease is for ten years ending
June 30, 2013, at $41,400 per month with a provision for an adjustment in the
monthly rent in 2008.  MI remains liable for all property taxes and
insurance on the leased property.  The minimum rental commitment
remaining on the leased property is $496,800 per year.
 
 Rent
expense charged to operations under this lease, including property taxes,
aggregated $527,389 and $532,743 for fiscal 2008 and 2007,
respectively.
 
 NOTE
J – 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.
 
 Previously,
MI had its 1991 Stock Option Plan that allowed for the granting of Non-qualified
Stock Options to employees and consultants and Incentive Stock Options to
employees.  The total shares available for grant under that plan were
7,500,000.
 
 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.
  -40-




Option
activity for the years ended June 30, 2008 and 2007 is as
follows:




WeightedRange
      of
              
              
              
              
              
              AverageTotal
              
              
              Option
              
              
              Total
              
              
              ExerciseGranted
              
              
              Prices
              
              
              vested
              
              
              PriceBalance
      at June 30, 2006
              
              
              13,074,212
              
              
              
              
              
              
              
              
              
              $1.3513,074,212
              
              
              
              -Granted
              
              
              189,577
              
              
              
              $0.38
      to $1.00
              
              
              
              
              
              
              
              $0.48Exercised
              
              
              (5,000
              )Forfeited
              
              
              (31,200
              )Balance
      at June 30, 2007
              
              
              13,227,58913,227,589Granted
              
              
              201,819
              
              
              
              $0.60
      to $088
              
              
              
              
              
              
              
              $0.75Balance
      at June 30, 2008
              
              
              13,429,408Vested
      at June 30, 2008
              
              
              
              
              
              
              
              
              
              
              13,429,408
  Additional
option information for the year ended June 30, 2008, is as follows:
  WeightedAverageWeighted
              
              
              Remaining
              
              
              
              
              
              WeightedAverage
              
              
              Life
      in
              
              
              
              
              
              AveragePrice
      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
              
              
              
              3,967,719
              
              
              
              $0.86
              
              
              
              7.53
              
              
              
              3,967,719
              
              
              
              $0.86$.38
      to $1.00
              
              
              
              184,577
              
              
              
              $0.48
              
              
              
              
              
              
              
              184,577
              
              
              
              $0.48$.60
      to $.88
              
              
              
              201,819
              
              
              
              $0.75
              
              
              
              
              
              
              
              201,819
              
              
              
              $0.7513,439,408
              
              
              
              $1.33
              
              
              
              
              
              
              
              13,414,408
              
              
              
              $1.33




NOTE
K – INCOME TAXES
 
 At June
30, 2008, MI had $15,283,751 in net operating loss (NOL) carryforwards to offset
future federal taxable income, resulting in a deferred tax asset of
$5,196,475.  In view of the uncertainty over MI’s ability to generate
sufficient taxable income in future years to utilize the NOLs, a full valuation
allowance of $5,196,475 million has been recorded to offset the deferred tax
asset, resulting in no net deferred tax asset or liability. The cumulative net
operating losses are scheduled to expire through 2028.
  -41-




NOTE
L – LEGAL PROCEEDINGS
 
 J.F. Wilson & Associates Ltd. v.
Estate of Percy Symens, et al.
 
 Moller
International (MI) is named as a defendant in a lawsuit pending in Yolo County,
California Superior Court - J.F. Wilson & Associates Ltd. v. Estate of Percy
Symens, et al. 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.  On December
20, 2006, defendant and cross-complainant Donald M. Miller died; and on January
7, 2008, the court ordered a stay of proceedings until the court’s Probate
Department rules on an application for letters of instruction in connection with
Mr. Miller’s estate.  The court’s Probate Department has not yet
issued a ruling, and the stay remains in place.
 
 In a
related administrative proceeding initiated on September 26, 2006, the
California Central Valley Regional Water Quality Control Board (RWQCB) 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
RWQCB.  MI and other parties have submitted comments regarding the
draft cleanup and abatement order.  The draft CAO has not been
finalized.  The property owner is proceeding with work to investigate,
characterize and remediate the soil and groundwater contamination at this
property, with RWQCB oversight.
 
 MI’s
probable loss has been estimated at this time in the range of $200,000 to
$1,000,000.  It is reasonably possible that these estimates may be
significantly revised as the site investigation and other research and analysis
proceeds.
 
 NOTE
M – DEBT FORGIVENESS
 
 During the
year ended June 30, 2007, Dr. Moller forfeited his right to collect payment of
$1,449,248 of the total amount shown as payable to him. This amount was treated
as a capital contribution and was included as an increase in capital during
2007.
 
 NOTE
N – SUBSEQUENT EVENTS
 
 Subsequent
to June 30, 2008 MI has issued 10,555 shares of stock for
services.  These shares where issued under the Moller International
Stock, Restricted Stock, Options Benefit Plan of 2004.
  Item 8.  Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure




None.
  Item 8A. Controls and Procedures
 
 Evaluation
of Disclosure 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.  Our auditors discovered
various accounting adjustments during their audit of these financial
statements.    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.
  -42-




Management’s Report on Internal
Control Over Financial Reporting.
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. Our internal control system was designed 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. Because of inherent limitations,
a system of internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate due to
change in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 Our
management, including our CEO, conducted an evaluation of the effectiveness of
our internal control over financial reporting. Based on its evaluation, our
management concluded that there is a material weakness in our internal control
over financial reporting. A material weakness is a deficiency, or a combination
of control deficiencies, in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected on a
timely basis.
 
 The
material weakness relates to the monitoring and review of work performed by our
Chief Financial Officer and lack of segregation of duties. Our CEO and CFO are
the same person, Dr. Paul Moller.  In the preparation of audited
financial statements, footnotes and financial data all of our financial
reporting is carried out by our contract accountant.  The lack of
segregation of duties results from lack of accounting staff with accounting
technical expertise necessary for an effective system of internal control. In
order to mitigate this material weakness to the fullest extent possible, all
financial reports are reviewed by the Chief Executive Officer and General
Manager. All unexpected results are investigated. At any time, if it appears
that any control can be implemented to continue to mitigate such weaknesses, it
is immediately implemented. As soon as our finances allow, we will hire
sufficient accounting staff and implement appropriate procedures for monitoring
and review of work performed by our contract accountant.
 
 This
annual report does not include an attestation report of the Company s registered
public accounting firm regarding internal control over financial reporting.
Management s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management s report in this Annual Report on Form 10-KSB.
 
 Changes
in Internal Control over Financial Reporting.
 
 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.
 
 Audit
Committee
 
 We have an
audit committee consisting of a representative of the Board of Directors and two
others that meets the definition of “audit committee” set forth in Section
3a(58)(A) of the Exchange Act. The Audit Committee maintains an active role in
communication with the Company’s independent auditors and with the management of
the Company and performs its duties and responsibilities. The Audit Committee
for this report period consisted of the following non-employees: Faulkner White
and Charles Guenther, and the Moller International General Manager, Bruce
Calkins. The members currently serving on the Audit Committee are expected to
continue to serve on the Audit Committee until the next annual meeting of the
Board of Directors following our Annual Meeting of Shareholders.
  -43-




PART III
  Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
  The
following information is provided for current members of the Board of Directors
who served during this reporting period:
  Director
                Age
                Current
      Term of Office
                Director/Officer
      in any other SEC-reporting CompanyPaul
      Moller
                71
                10/2007
      – 10/2008
                NoFaulkner
      White
                57
                10/2007
      – 10/2008
                NoJim
      Toreson
                66
                10/2007
      – 10/2008
                NoMike
      Shanley
                59
                10/2007
      – 10/2008
                No
 Resumes of
Board of Directors
 
 Paul
Moller, Chairman of the Board--Dr. Moller founded the Company and has served as
the company's President since its formation. He holds a Masters in Engineering
and Ph.D. from McGill University. Dr. Moller was a professor of Mechanical and
Aeronautical Engineering at the University of California, Davis, from 1963 to
1975, where he developed the Aeronautical Engineering program. In 1972 he
founded SuperTrapp Industries and was Chief Executive Officer as SuperTrapp
became the most recognized international name in high-performance engine
silencing systems. SuperTrapp Industries was sold in 1988. In 1983 he founded
Moller International to develop powered lift aircraft. Under his direction
Moller International completed contracts with NASA, NOSC, DARPA, NRL, Harry
Diamond Labs, Hughes Aircraft Company, California Department of Transportation
and the U.S. Army, Navy, and Air force. These contracts included the development
and deployment of numerous unmanned aerial vehicles and Wankel based engines.
Dr. Moller has received 43 patents including the first U.S. patent on a
fundamentally new form of powered lift aircraft. In 1980 he developed the Davis
Research Park, a 38-acre industrial-research complex within the city of Davis,
CA in which Moller International is located.
 
 Faulkner
White, Director--Mr. White received his B.A. in Psychology (Distinction) with a
minor in Computer Science from Dartmouth College in 1972. He has consulted for
Apple Computer, Motorola and McDonnell Douglas. In 1995 Mr. White collaborated
in the development of a new type of breast biopsy gun for Biopsys Medical Inc.,
developing software to track the efficacy of the new design for the FDA, and
subsequently for the customers themselves. He is currently developing Customer
Relationship Management software for the laser eye surgery and cosmetic surgery
markets. Mr. White is also a certified DBA in Oracle database
technology.
 
 Jim
Toreson, Director--Dr. Toreson has over 16 years experience as a chief
executive, and over 20 years experience in manufacturing, including quality
control, materials management, JIT production, process control, and
manufacturing engineering.  Eight years of experience in flexible
automation, statistical process control (SPC), and quality system including ISO
9000 and Six Sigma programs.  More recently as the founder of ONSHORE,
a management consulting firm specializing in technology-intensive products and
services he has acted as the CEO of Chineseinvestors.com, an Internet portal
serving the world-wide ethnic Chinese marketplace for financial services; VP of
Marketing and Sales of APPIANT Technology, Inc., a NASDAQ company providing ASP
services for speech recognition; and VP of Business Development for eSpaces, a
company providing physically secure and cyber-secure work spaces.  Dr.
Toreson has a BSEE and MSEE from the University of Michigan, a Dr. of Science
from the University of Nevada, and has completed coursework for his PhD EE at
the University of Pennsylvania.
  -44-




Mike
Shanley, Director—Mr. Shanley has been a pilot since 1969, serving with the
Royal Australian Air Force in Vietnam in 1971 and has been an enthusiastic
supporter of the Skycar project since 1987. Mr. Shanley has a BA in English
Literature from the University of Queensland, Australia, is the author of the
novel “Strela” and was a magazine publisher and editor from 1987 to 1996. He is
presently co-director of a security company based in the United Kingdom
providing security at Heathrow, Gatwick, Manchester and Stansted airports, with
company revenue in excess of $3m US. Mr. Shanley is also Chairman of Shanley
International Ltd., a company set up specifically to facilitate trade with
China.
 
 Item 10. EXECUTIVE COMPENSATION
 
 The
following table sets forth a summary of compensation received by each of our
officers and directors who received compensation from the Company during the
past fiscal year.
  Name
      & Principal Position
                Year
                Salary
      ($)
                Bonus
      ($)
                Stock
      Awards ($)
                Option
      Awards ($)
                Non-equity
      Incentive Plan Compensation ($)
                Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings ($)
                All
      Other Compensation ($)
                Total
      ($)Paul
      Moller, President
                2008
                $250,000(1)
                $0
                $0
                $0
                $0
                
                $0
                $250,000(1)Faulkner
      White
                2008
                $0
                $0
                $0
                $4,400
                $0
                
                $0
                $4,400Jim
      Toreson
                2008
                $0
                $0
                $0
                $4,400
                $0
                
                $0
                $4,400Mike
      Shanley
                2008
                $0
                $0
                $0
                $4,400
                $0
                
                $0
                $4,400
  (1)
$250,000 of this amount shown is deferred at the election of the Executive, not
as part of any plan.
 (2) Each
member of the Board of Directors (with the exclusion of Paul Moller) was issued
options for 5,000 shares of Moller International stock as compensation for
service on the Board for the 12-month term of office.
 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 The
following are all of the individuals or groups known by the company to be the
beneficial owner of more than five (5) percent of any class of the issuer's
securities as of September 1, 2008:
  Title
      of Class
                
                Name
      and Address of

                    Beneficial
      Owner
                
                Amount
      & Nature of

                    Beneficial
      Ownership
                
                Percent

                    of
      ClassCommon
      Stock(1)
                
                Paul
      S. Moller (1)
      (2)

                    9350
      Currey Rd

                      Dixon,
      CA  95620
                
                24,889,415
                
                48.53%
      (3)
  (1)
                  Has
      options to purchase 9,194,762
shares.
 (2)
                  Total
      includes 25,819,909 shares beneficially owned by Moller Corp., a
      California corporation controlled by Paul S.
  Moller.
 (3)
                  63.98%
      of class if all existing options are
exercised.






-45-




Paul S.
Moller, President, Director and Chairman of the Board of Directors is the sole
shareholder of Moller Corp. Moller Corporation holds legal title to 25,319,909
of the shares of Common stock listed above as beneficially owned by Paul S.
Moller. Rosa Maria Moller, the spouse of Paul S. Moller, owns 547,848 shares of
Common stock, which are included in the figure above, although she holds them as
separate property in her name alone.
 
 The
following are all of our officers and directors who held office during the
fiscal year ending June 30, 2008 and who are beneficial owners of our
securities:
  Title
      of Class
                Name
      and Address of Beneficial Owner
                Amount
      & Nature of Beneficial Ownership
                Percent
      of Class (3)Common
      Stock
                Paul
      S. Moller  (1) (2)
                34,084,177
      (D,I)
                58%9350
      Currey RdDixon,
      CA  95620Common
      Stock
                Faulkner
      White
                187,280
      (D)
                00.003%51
      PinewoodIrvine,
      CA 92604Common
      Stock
                Jim
      Toreson
                25,000
      (D)
                00.00%HCR61
      Box 51Alamo,
      NV 89001Common
      Stock
                Mike
      Shanley
                7,583  (D)
                00.00%Bradfield
      Close WorkingSurrey
      GU22 7RE, UK




(1)
              Total
      include options to purchase 9,194,762
shares.
 (2)
              Total
      includes 25,819,909 shares beneficially owned by Moller Corp., a
      California corporation controlled by Paul S.
  Moller
 (3)
              Percentage
      of class based on 59,166,322 potential shares
  outstanding.






ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
 
 We
currently lease and occupy a 34,500 square foot building located in Davis,
California, which is owned by Dr. Paul S. Moller, the majority shareholder of
Moller International. (see Note I to the financial statements)
 
 Notes
payable to the majority shareholder, Dr. Paul S. Moller (Moller) are unsecured,
and due on demand. There are two separate notes, one for $2,616,599 which bears
interest at $10% per annum, and another note for $280,800 that is non-interest
bearing. (see Note E to the financial statements)
 
 During the
year ended June 30, 2008, the Company repaid $112,876 in loans and had a
$1,737,596 balance owed to the Milk Farm Associates (Milk Farm), a limited
partnership, and a related entity.  Dr. Moller is the general partner
in Milk Farm and has a 32% ownership interest. (see Note F to the financial
statements)
 
 -46-




ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
 
 (a.)
              Exhibits




Exhibit
No.                            
Description
  Exhibit
31.1                            Certification
of CEO / CFO
 
 Exhibit
32.1                            Certification
of CEO / CFO






(b.)
              Reports
      on Form 8-K
 
 The
following reports were filed on Form 8-K during the period ending 30 June
2008:
 
 The
Company filed:
 (1)
              Form
      8-K accepted on 22 January 2008 stating that the Audit Committee approved
      the engagement of The Reznick Group PC (“Reznick Group ”) as the
      independent registered public accountants of the Company for the fiscal
      year ending June 30, 2008, and dismissed the firm of Malone & Bailey,
      P.C (“ M&B ”) as auditors.
  (2)
              Form
      8-K accepted on 19 February 2008 stating the Company was not able to file
      its Form 10-QSB by the prescribed extended filing date for the period
      ended December 31, 2007 without unreasonable effort and
      expense.
  (3)
              Form
      8-K accepted on 4 April 2008 stating the Company had terminated its
      service agreement with The Reznick Group PC (“Reznick Group ”), and
      dismissed the firm effective April 3, 2008.  Furthermore it
      stated that the Company had re-engaged the services of Malone &
      Bailey, P.C (“M&B”) as the Company’s independent auditors, effective
      April 3, 2008 for fiscal year end June 30,
2008.
  (4)
              Form
      8-K accepted on 7 May 2008 stating that on April 30, 2008 the Company
      received correspondence from the Securities Exchange Commission stating
      the Company’s April 4, 2008 Form 8-K failed to provide the necessary
      disclosures of Item 304 of Regulation S-B, and specifically that a
      confirmation from the accounting firm acknowledging there were no issues
      pending resolution or any unresolved disagreements on any matter of
      accounting principles or practices, financial statement disclosure, or
      auditing scope or procedure as of the date of dismissal. The filing
      provided materials to address these issues and no subsequent
      communications from the SEC have been received on this
    topic.






-47-




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year
      ended June 30,2008
                
                
                2007Audit
      and Quarterly Review Fees
                
                $
                79,619
                
                
                $
                54,949Audit-related
      Fees
                
                
                
                
                
                
                0Tax
      Fees
                
                
                0
                
                
                
                11,783All
      Other Fees
                
                
                0
                
                
                
                0Total
      Fees
                
                $
                79,619
                
                
                $
                102,482
    SIGNATURES
 
 Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
   MOLLER
      INTERNATIONAL, INC.October
      14, 2008
                  /s/
      Dr. Paul S. MollerDate
                  President,
      Director




Pursuant
to the requirements of the Securities Exchange Act of 1934 this report is signed
below by the following persons on behalf of the Company and in the capacities
and on the dates indicated.
 
    SIGNATURE
              
              TITLE
              DATE/s/
      Dr. Paul S. Moller
              
              CEO,
      President, Director
              10/14/08/s/
      Faulkner White
              
              Director
              10/14/08/s/
      Jim Toreson
              
              Director
              10/14/08/s/
      Mike Shanley
              
              Director
              10/14/08
     -48-