Attached files
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EX-31.1 - EXHIBIT 31.1 - XZERES Corp. | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - XZERES Corp. | ex31_2.htm |
EX-32.1 - EXHIBIT 32.1 - XZERES Corp. | ex32_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q /A
[X]
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended May 31, 2010
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[ ]
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Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from __________ to__________
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Commission File Number: 333-91191
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XZERES Wind Corp
(Exact name of registrant as specified in its charter)
Nevada
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74-2329327
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(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
9025 SW Hillman Court, Building 31, Suite 3126 Wilsonville, OR 97070
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(Address of principal executive offices)
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503-388-7350
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(Registrant’s telephone number)
Cascade Wind Corp
1500 SW 1st Street, #910
Portland OR 97201
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___________________________________________________
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 [X] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
[ ] Large accelerated filer Accelerated filer
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[ ] Non-accelerated filer
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[X] Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 13,280,255 common shares as of January 10, 2011
Explanatory Note
The purpose of this amendment to our annual report on Form 10-Q/A is to incorporate the revised disclosures we made by in connection with comment letters we received from the Securities and Exchange Commission on August 13, 2010, September 21, 2010, November 2, 2010, and December 7, 2010.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our unaudited financial statements included in this Form 10-Q are as follows:
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These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended May 31, 2010 are not necessarily indicative of the results that can be expected for the full year.
3
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (UNAUDITED)
AS OF MAY 31, 2010 AND FEBRUARY 28, 2010
ASSETS
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May 31, 2010
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February 28, 2010
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|||
Current Assets
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|||||
Cash and cash equivalents
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$ | 2,849,758 | $ | 195,990 | |
Subscription receivable
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50,000 | - | |||
Inventories
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414,361 | - | |||
Prepaid expenses
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44,895 | - | |||
Total Current Assets
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3,359,014 | - | |||
Property and Equipment, net
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147,746 | - | |||
Other assets
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|||||
Intellectual property
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1,320,226 | - | |||
Deposit
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7,500 | - | |||
Total Other Assets
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1,327,726 | - | |||
TOTAL ASSETS
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$ | 4,834,486 | $ | 195,990 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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|||||
LIABILITIES
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|||||
Current Liabilities
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|||||
Accounts payable
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$ | 12,684 | $ | - | |
Accrued expenses
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50,009 | 337,578 | |||
Customer deposits
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54,754 | - | |||
Warranty reserve
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77,564 | - | |||
Loans from shareholder
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- | 90,740 | |||
Total Liabilities
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195,011 | 428,318 | |||
STOCKHOLDERS’ EQUITY (DEFICIT)
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|||||
Preferred stock, par $0.01, 5,000,000 shares authorized, no shares issued and outstanding
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- | - | |||
Common stock, par $0.001, 100,000,000 shares authorized, 13,280,255 and 4,682,602
shares issued and outstanding, respectively
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13,280 | 4,683 | |||
Stock warrants
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995,246 | - | |||
Additional paid in capital
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4,549,857 | 40,641 | |||
Deficit accumulated during the development stage
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(918,908) | (277,652) | |||
Total Stockholders’ Equity (Deficit)
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4,639,475 | (232,328) | |||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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$ | 4,834,486 | $ | 195,990 |
The accompanying notes are an integral part of the financial statements.
F-1
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, 2010 AND 2009
FOR THE PERIOD FROM OCTOBER 3, 2008 (INCEPTION) TO MAY 31, 2010
Three months ended May 31, 2010 (Unaudited)
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Three months ended May 31, 2009 (Unaudited)
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Inception of Development Stage through
May 31, 2010 (Unaudited)
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||||||
GROSS REVENUES
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$ | 4,385 | $ | 0 | $ | 4,385 | ||
COST OF GOODS SOLD
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1,709 | 0 | 1,709 | |||||
GROSS PROFIT
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2,676 | 0 | 2.676 | |||||
OPERATING EXPENSES
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||||||||
General and administrative expenses
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286,818 | 9,003 | 312,597 | |||||
Professional fees
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86,415 | - | 294,529 | |||||
Consulting | 135,190 | - | 179,940 | |||||
Marketing
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35,596 | - | 35,596 | |||||
Sales expense
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23,034 | - | 23,034 | |||||
Engineering/R&D expense
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77,953 | - | 77,953 | |||||
TOTAL OPERATING EXPENSES
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645,006 | 9,003 | 923,649 | |||||
LOSS FROM OPERATIONS
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(642,330) | (9,003) | (920,973) | |||||
OTHER INCOME (EXPENSE)
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1,074 | 0 | (164) | |||||
LOSS FROM CONTINUING OPERATIONS
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(641,256) | (9,003) | (921,137) | |||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF INCOME TAXES
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0 | 0 | 2,229 | |||||
LOSS BEFORE PROVISION FOR INCOME TAXES
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(641,256) | (9,003) | (918,908) | |||||
PROVISION FOR INCOME TAXES
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0 | 0 | 0 | |||||
NET LOSS
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$ | (641,256) | $ | (9,003) | $ | (918,908) | ||
NET LOSS PER SHARE:
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||||||||
BASIC AND DILUTED
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$ | (0.07) | $ | (0.00) | ||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
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9,486,919 | 4,651,978 |
The accompanying notes are an integral part of the financial statements.
F-2
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
AS OF MAY 31, 2010
Common Stock
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Stock
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Additional
Paid in
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Retained
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Deficit Accumulated During the Development
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||||||||||||||||
Shares
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Amount
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Warrants
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Capital
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Earnings
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Stage
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Total
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Balance, October 3, 2008, Inception of Development Stage
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150,079 | $ | 150 | $ | - | $ | 1,458 | $ | 237,495 | $ | - | $ | 239,103 | |||||||
Common stock issued for cash at $,01 per share
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4,501,899 | 4,502 | - | 40,517 | - | - | 45,019 | |||||||||||||
Reduction in paid in capital for excess liabilities from discontinued operations
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- | - | - | (1,608) | - | - | (1,608) | |||||||||||||
Net loss for the year ended February 28, 2009
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- | - | - | - | (237,495) | (209,274) | (446,769) | |||||||||||||
Balance, February 28, 2009
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4,651,978 | 4,652 | - | 40,367 | - | (209,274) | (164,255) | |||||||||||||
Correction of shares outstanding
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79 | - | - | - | - | - | ||||||||||||||
Issuance of stock for cash
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30,545 | 31 | - | 274 | - | 305 | ||||||||||||||
Net loss for the year ended February 28, 2010
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- | - | - | - | (68,378) | (68,378) | ||||||||||||||
Balance, February 28, 2010
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4,682,602 | 4,683 | - | 40,641 | (277,652) | (232,328) | ||||||||||||||
Shares issued for consulting services
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200,000 | 200 | - | 1,800 | - | 2,000 | ||||||||||||||
Shares issued in payment of an accrued expense
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320,000 | 320 | - | 82,061 | - | 82,381 | ||||||||||||||
Shareholder loans converted to shares
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226,850 | 227 | - | 90,513 | - | 90,740 | ||||||||||||||
Shares issued to acquire assets
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3,192,150 | 3,192 | - | 1,273,669 | - | 1,276,861 | ||||||||||||||
Shares and warrants issued in connection with private placements
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4,658,650 | 4,658 | 995,246 | 3,269,855 | - | 4,269,759 | ||||||||||||||
Equity issuance costs
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(398,550) | (398,550) | ||||||||||||||||||
Correction of shares outstanding
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3 | - | - | - | - | - | ||||||||||||||
Stock options issued to employees
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- | - | - | 189,868 | - | 189,868 | ||||||||||||||
Net loss for the three months ended May 31, 2010
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- | - | - | - | (641,256) | (641,256) | ||||||||||||||
Balance, May 31, 2010
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13,280,255 | $ | 13,280 | $ | 995,246 | $ | 4,549,857 | $ | (918,908) | $ | 4,639,475 |
The accompanying notes are an integral part of the financial statements.
F-3
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, 2010 AND 2009
FOR THE PERIOD FROM OCTOBER 3, 2008 (INCEPTION) TO MAY 31, 2010
Three months ended May 31, 2010 (Unaudited)
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Three months ended May 31, 2009 (Unaudited)
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Inception of Development Stage through May 31, 2010 (Unaudited)
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Cash Flows from Operating Activities:
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Net loss for the period
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$ | (641,256) | $ | (9,003) | $ | (921,137) | ||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
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Depreciation expense
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2,824 | - | 2,824 | |||||
Share-based compensation expense
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189,868 | - | 189,868 | |||||
Issuance of common shares for services
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4,381 | - | 4,381 | |||||
Changes in Assets and Liabilities
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Inventories
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(414,361) | - | (414,361) | |||||
Prepaid expenses
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(44,895) | - | (44,895) | |||||
Accounts payable
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12,684 | - | 12,684 | |||||
Accrued expenses
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(210,069) | (387) | 127,509 | |||||
Customer deposits
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54,754 | - | 54,754 | |||||
Warranty reserve
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(22,436) | - | (22,436) | |||||
Net Cash Used in Operating Activities – Continuing Operations
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(1,068,506) | (9,390) | (1,010,809) | |||||
Net Cash Provided by Operating Activities – Discontinued Operations
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- | - | 2,229 | |||||
Net Cash Used in Operating Activities
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(1,068,506) | (9,390) | (1,008,580) | |||||
Cash Flows from Investing Activities:
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Purchase of property and equipment
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(93,935) | - | (93,935) | |||||
Deposit paid
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(7,500) | - | (7,500) | |||||
Net Cash Used in Investing Activities
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(101,435) | - | (101,435) | |||||
Cash Flows from Financing Activities:
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Proceeds from issuance of common shares
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3,823,709 | - | 3,869,033 | |||||
Loans from shareholder
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- | 10,000 | 90,740 | |||||
Net Cash Provided by Financing Activities
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3,823,709 | 10,000 | 3,959,773 | |||||
Net Increase in Cash and Cash Equivalents
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2,653,768 | 610 | 2,849,758 | |||||
Cash and Cash Equivalents – Beginning
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195,990 | 1,978 | 0 | |||||
Cash and Cash Equivalents – Ending
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$ | 2,849,758 | $ | 2,588 | $ | 2,849,758 | ||
Supplemental Cash Flow Information:
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Cash paid for interest
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$ | 0 | $ | 0 | $ | 0 | ||
Cash paid for income taxes
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$ | 0 | $ | 0 | $ | 0 | ||
Supplemental Non-Cash Investing and Financing Activities:
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Shares issued to acquire assets
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$ | 1,276,861 | $ | 0 | $ | 1,276,861 | ||
Shares issued in payment of accrued expense
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$ | 82,381 | $ | 0 | $ | 82,381 | ||
Loans from shareholder converted to common shares
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$ | 90,940 | $ | 0 | $ | 90,940 | ||
Warrants issued in connection with private placements
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$ | 995,246 | $ | 0 | $ | 995,246 | ||
Shares issued for subscription receivable
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$ | 50,000 | $ | 0 | $ | 50,000 |
The accompanying notes are an integral part of the financial statements.
F-4
( FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Xzeres Wind Corp. (“Xzeres” and the “Company”), a development stage company located in Portland, Oregon, was originally incorporated in the state of New Mexico in January of 1984. The Company was engaged in the natural gas and asphalt businesses until 2007, at which time it liquidated its assets and operations and distributed the net proceeds to its shareholders after paying its debts. On October 2, 2008, the Company re-domiciled from New Mexico to Nevada in anticipation of pursuing the wind turbine business. The Company commenced operations in the wind turbine business in the fiscal quarter ended May 31, 2010.
The Company is in the business of designing, developing, and marketing small wind turbine systems and related equipment for electrical power generation, specifically for use in residential, small business, rural electric utility systems, other rural locations, and other infrastructure applications. The Company employs proprietary technology, including power electronics, alternator design, and blade design to increase performance, reliability, and sound suppression. The Company also works with manufacturers of inverters, lightning protection equipment and towers to integrate their equipment into the Company’s products.
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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Basis
The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted a February 28 fiscal year end.
Concentration of Credit Risks
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (FDIC). All deposit accounts at FDIC-insured institutions are insured up to at least $250,000 per depositor. At certain times the Company’s balances exceed the insured amount.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS 165 (ASC 855-10) entitled “Subsequent Events”. Companies are now required to disclose the date through which subsequent events have been evaluated by management. Public entities (as defined) must conduct the evaluation as of the date the financial statements are issued, and provide disclosure that such date was used for this evaluation. SFAS 165 (ASC 855-10) provides that financial statements are considered “issued” when they are widely distributed for general use and reliance in a form and format that complies with GAAP. SFAS 165 (ASC 855-10) is effective for interim and annual periods ending after June 15, 2009 and must be applied prospectively. The adoption of SFAS 165 (ASC 855-10) during the quarter ended September 30, 2009 did not have a significant effect on the Company’s financial statements as of that date or for the quarter or year-to-date period then ended. In connection with preparing the accompanying unaudited financial statements as of September 30, 2009 and for the quarter and nine month period ended September 30, 2009, management evaluated subsequent events through the date that such financial statements were issued (filed with the SEC).
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. (“SFAS 168” or ASC 105-10) SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively
F-5
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (continued)
effective for financial statements issued for fiscal years ending on or after September 15, 2009 and interim periods within
those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations or financial condition. The Codification did not change GAAP, however, it did change the way GAAP is organized and presented.
As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. The Company implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.
With the exception of the pronouncements noted above, no other accounting standards or interpretations issued or recently adopted are expected to have a material impact on the Company’s financial position, operations or cash flows.
Basis of Presentation
The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the period ended February 28, 2010. In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.
Revenue Recognition
The Company recognizes revenue when products are shipped from the factory and collection is reasonably assured.
Xzeres does not currently sell wind turbines to end users, or install the wind turbines. All wind turbines and associated products are sold to pre-qualified dealers, and the dealer and/or end user assume responsibility for the installation. Dealer agreements require the dealer to sell one unit the first year and three units per year, thereafter. Dealers receive dealer pricing, a discount to the suggested retail price of the product. To date, the Company has not offered any price concessions to its dealers, and has no post shipment obligations other than the warranty it provides (see Note 10).
Development Stage Company
The Company completed a reverse merger with a public shell corporation on October 2, 2008. The public company was formerly in the natural gas and asphalt business, which was liquidated prior to the merger. On March 25, 2010, the Company entered into an Asset Purchase Agreement to acquire assets in consideration for issuing the Sellers a total of 3,192,150 shares of our common stock. The Company is now in the business of designing, developing, marketing, and selling premium wind turbine systems and related equipment for electrical power generation, specifically for use in residential, small business, rural electric utility systems and other rural locations such as farms and wineries.
The Company has been reclassified as a development stage enterprise as of October 3, 2008. The accompanying financial statements have been prepared in accordance with the Statement of Financial Accounting Standards No. 7 ”Accounting and Reporting by Development-Stage Enterprises” (ASC 915-10). A development-stage enterprise is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. At May 31, 2010, the Company had $2,849,758 of cash.
F-6
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. Xzeres incurred advertising expense of $35,596 during the quarter ended May 31, 2010.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718).
The Company issued 1,080,000 stock options to its employees during the three months ended May 31, 2010.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, subscription receivable, inventories, prepaid expenses, property and equipment, intellectual property, deposit, accounts payable, accrued expenses, customer deposits, and warranty reserve. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Dividends
The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.
Income Taxes
Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
It is the Company’s policy to classify interest and penalties on income taxes as interest expense and penalties expense. As of May 31, 2010, there have been no interest or penalties incurred on income taxes.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Common share equivalents totaling 2,857,225 at May 31, 2010 representing outstanding warrants and options were not included in the computation of diluted earnings per share for the three month period ended May 31, 2010, as their effect would have been anti-dilutive.
There were no outstanding common stock equivalents at February 28, 2010.
Reclassifications
Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements.
F-7
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 2 – SIGNIFICANT EVENTS – RELATED PARTY TRANSACTION
On March 25, 2010, the Company acquired certain assets formerly owned by Abundant Renewable Energy, LLC, a privately held Oregon limited liability company (“ARE”), from ARE’s secured creditors (“Sellers”) in exchange for 3,192,152 shares of our common stock, par value $0.001 per share. Neither Core Fund nor the Company had any relationships or common ownership with Abundant Renewal Energy. The shares were valued at $.40 at the time of issuance based on a recent unrelated third party private placement. The assets acquired included intellectual property and other rights related to wind turbine systems formerly manufactured and sold by ARE. The Sellers had been secured creditors of ARE and obtained the assets via a Collateral Surrender Agreement dated February 8, 2010. One of the Sellers was Core Fund, L.P., which received 2,750,614 of the shares issued in connection with the Asset Purchase, 569,232 of which Core Fund, L.P. subsequently delivered to a non-affiliate third party. The Company’s CFO, Steve Shum is the Managing Principal of Core Fund Management, L.P. and the Fund Manager of Core Fund, L.P. David Baker, our majority shareholder and the other member of our board of directors effective as of March 26, 2010, is also a non-managing member of Core Fund Management, L.P. David Baker received 227,693 of the Shares issued in connection with the Asset Purchase.
The purchase price was allocated as follows:
Description
|
Amount
|
||
Equipment and vehicles
|
$ | 56,235 | |
Office supplies
|
400 | ||
Intellectual property
|
1,320,226 | ||
Warranty reserve
|
(100,000 | ) | |
Total
|
$ | 1,276,861 |
The transaction was accounted for as an asset acquisition. The assets were transferred from Core Fund at book value, which equals the fair value of the stock issued, since the transaction was between entities (Xzeres and Core Fund) under common control.
Intellectual property consists of product designs that management presently believes have an infinite life.
In order to maintain some existing dealer/distributor relationships, the Company determined it may make business sense to honor some warranties on previous installations and elected to set up an initial warranty reserve that estimated the total cost of honoring the warranties, even though it was under no obligation to do so. See Note 10.
NOTE 3 – INVENTORIES
Inventories consist of parts and supplies used in the development, manufacture and installation of wind turbines as well as finished goods. Inventories are stated at the lower of cost, computed using the first-in first-out method, or market.
Inventories consisted of the following:
May 31,
2010
|
February 28, 2010
|
||||
Finished goods
|
$ | 63, 114 | $ | 0 | |
Parts and supplies
|
351,247 | 0 | |||
Total Inventories
|
$ | 414,361 | $ | 0 |
F-8
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 4 – SUBSCRIPTION RECEIVABLE
The subscription receivable was collected on June 4, 2010.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment are being depreciated over their estimated useful lives using the straight-line method of depreciation for book purposes.
May 31, 2010
|
February 28, 2010
|
||||||
Furniture
|
$ | 23,801 | $ | 0 | |||
Computer equipment
|
62,720 | 0 | |||||
Shop machinery and equipment
|
44,774 | 0 | |||||
Vehicles
|
19,275 | 0 | |||||
Subtotal
|
150,570 | 0 | |||||
Less: accumulated depreciation
|
(2,824 | ) | (0 | ) | |||
Property and equipment, net
|
$ | 147,746 | $ | 0 |
Depreciation expense for the three months ended May 31, 2010 totaled $2,824.
NOTE 6 – INTELLECTUAL PROPERTY
Intellectual property consists of product designs with an infinite life.
The Company annually, or more frequently if events or changes indicate that the asset might be impaired, evaluates the fair value of the intellectual property to determine whether events and circumstances warrant a revision to the fair value of these assets.
NOTE 7 – ACCRUED EXPENSES
Accrued expenses consisted of the following:
May 31,
2010
|
February 28, 2010
|
||||||
Wages
|
$ | 25,490 | $ | 0 | |||
Taxes due former owners
|
0 | 153,178 | |||||
Professional fees
|
22,019 | 183,162 | |||||
Fees
|
2,500 | 0 | |||||
Interest
|
0 | 1,238 | |||||
Total Accrued Expenses
|
$ | 50,009 | $ | 337,578 |
NOTE 8 – CUSTOMER DEPOSITS
A customer deposit of 50% of the selling price is required at the time a wind turbine is ordered. Deposits are reclassified to revenue once the unit is completed and delivered. Customer deposits were $54,754 at May 31, 2010, for open orders taken in the three months ended May 31, 2010.
F-9
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 9 – LOANS FROM SHAREHOLDER
On October 14, 2008, the Company received a loan from a shareholder for $5,140. The loan is non-interest bearing and due on demand.
During the year ended February 28, 2010 the Company received additional loans from shareholders in the amount of $85,600. These loans bear 8% interest and are due on demand.
The loan balance was converted to 226,850 common shares during the three months ended May 31, 2010.
NOTE 10 – WARRANTY RESERVE
The Company accrues for estimated future warranty costs associated with products sold. The Company provides a ten year limited warranty for defects in materials and workmanship. In order to maintain some existing dealer/distributor relationships, the Company elected to set up an initial reserve to estimate its future costs of honoring warranties on previous installations. An initial reserve was created based on 100 installed units with estimated warranty costs of $1,000 per unit, creating an initial reserve of $100,000. Warranty reserve activity for the three months ended May 31, 2010 was as follows:
Three Months Ended May 31, 2010
|
||
Reserve balance, December 31, 2010
|
$ | 0 |
Added to reserve
|
100,000 | |
Charges against reserve
|
(22,436) | |
Reserve balance, May 31, 2010
|
$ | 77,564 |
NOTE 11 – STOCKHOLDERS’ EQUITY
In October, 2008, the Company amended its Articles of Incorporation to increase the authorized common stock from 10,000,000 to 100,000,000 shares, and changed the par value of the common stock from no par to $0.001 par value. The Company also reverse split the outstanding shares of common stock at a ratio of 7.7 to 1, leaving a total of 150,079 shares of common stock issued and outstanding following the split.
During the period ended February 28, 2009, the Company issued 4,501,899 shares of our common stock at a price of $0.01 per share. The Company conducted the offering as a private placement, exempt from the registration requirements of the Securities Act of 1933 under Section 4(2) and/or Rule 506 of Regulation D there under.
During the year ended February 28, 2010 an additional 30,545 shares of common stock were issued for cash totaling $305. There was also a correction to the shares outstanding of 79 additional shares, and an additional correction of 3 additional shares during the three months ended May 31, 2010.
F-10
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 11 – STOCKHOLDERS’ EQUITY (CONTINUED)
During the three months ended May 31, 2010, the following transactions equity-related transactions occurred:
200,000 common shares were issued for consulting services. The shares were valued at $.01 per share, which in the opinion of management, approximates the value of the services rendered.
320,000 common shares were issued to an unrelated third party in payment of an accrued expense. The shares were valued at $82,381, representing the fair value of the accrued expense.
226,850 common shares were issued in exchange for $90,740 of shareholder loans. The shares were issued at $.40 per share.
3,192,150 common shares were issued to acquire assets with a total cost of $1,276,864. The shares were issued at $.40 per share.
648,150 common shares were sold in a private placement at $.40 per share for total proceeds of $259,260.
4,010,500 common shares were sold in a private placement at $1.00 per share for net proceeds of $3,611,949.
Total common shares issued and outstanding at May 31, 2010 are 13,280,255.
NOTE 12 – STOCK WARRANTS AND OPTIONS
The Company granted 1,777,225 stock warrants in connection with private placements. The Company has accounted for these warrants as equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and as such, were classified in stockholders’ equity. The Company has estimated the fair value of the warrants issued in connection with the private placements at $995,246 as of the grant date using the Black-Scholes option pricing model.
The Company also granted 1,080,000 stock options to employees. The Company has estimated the fair value of the options as of the grant dates at $880,766 using the Black-Scholes option pricing model. Compensation expense is being recognized over the vesting periods of the options which range from immediate vesting to vesting over four years.
Key assumptions used by the Company are summarized as follows:
Private Placement Warrants
|
Employee Stock Options
|
||||||
Stock Price
|
$ | 1.00 | $ | 1.00 | |||
Exercise Price
|
$ | 1.25 | $ | .80-$1.00 | |||
Expected volatility
|
97.24 | % | 97.24 | % | |||
Expected dividend yield
|
0.00 | % | 0.00 | % | |||
Risk-free rate
|
2.62 | % | 2.69-3.37 | % | |||
Vesting period
|
- |
0-4 years
|
|||||
Expected term (in years)
|
3 | 7 |
A Stock Price of $1.00 was used in valuing the warrants and options. The stock price was based on the per share issuance price from a recent unrelated third party private placement. Volatility was computed based on the average volatility of similar companies in the wind turbine business. The risk-free interest rate is the Treasury Constant Maturity Rate on the date of grant for a period equivalent to the expected term of the instrument. The expected term is the same as the contractual term for the above valuations.
F-11
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 12 – STOCK WARRANTS AND OPTIONS (CONTINUED)
The warrants issued in connection with the private placement were valued at $995,246 and have been accounted for as an equity transaction. Options issued to employees were classified as compensation expense for the three months ended May 31, 2010. Stock option expense recognized in net earnings amounted to $189,868 for the quarter. As of May 31, 2010, there was $680,898 of unrecognized compensation expense related to non-vested share awards that we expect to recognize over a weighted average period of 3.25 years.
The Company granted 1,080,000 options during the three months ended May 31, 2010. The weighted average exercise price of these options is $.91. There were no options issued prior to this quarter.
NOTE 13 – INCOME TAXES
For the period ended May 31, 2010, Xzeres has incurred net losses from continuing operations and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $921,000 at May 31, 2010, and will expire beginning in the year 2029. The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
The provision for Federal income tax consists of the following:
May 31,
2010
|
May 31,
2009
|
||||||
Refundable Federal income tax attributable to:
|
|||||||
Current Operations
|
$ | 218,000 | $ | 3,060 | |||
Less: valuation allowance
|
(218,000 | ) | (3,060 | ) | |||
Net provision for Federal income taxes
|
$ | 0 | $ | 0 |
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
May 31,
2010
|
May 31,
2009
|
||||||
Deferred tax asset attributable to:
|
|||||||
Net operating loss carryover
|
$ | 313,000 | $ | 74,100 | |||
Less: valuation allowance
|
(313,000 | ) | (74,100 | ) | |||
Net deferred tax asset
|
$ | 0 | $ | 0 |
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $921,000 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
NOTE 14 – COMMITMENTS
Operating Leases
The Company leases its office and manufacturing facilities under a lease which expires in July, 2013. The lease provides for the payment of taxes and operating costs, such as insurance and maintenance in addition to the base rental payments. The lease is renewable for an additional three year term.
F-12
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MAY 31, 2010
NOTE 15 – COMMITMENTS (CONTINUED)
Aggregate minimum annual rental payments under the non-cancelable operating lease are as follows:
Year ended February 28, 2011
|
$ | 30,960 | ||
2012
|
70,448 | |||
2013
|
72,564 | |||
2014
|
37,152 | |||
Total
|
$ | 211,124 |
Rent expense for the three months ended May 31, 2010 totaled $4,001.
NOTE 16 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date on which the financial statements were submitted, August 31, 2010, to the Securities and Exchange Commission and has determined it does not have any material subsequent events to disclose.
F-13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Company Overview
We were originally incorporated in the state of New Mexico in January of 1984. We were engaged in the natural gas and asphalt businesses until 2007, at which time we liquidated our assets and operations and distributed the net proceeds to our shareholders after paying our debts. On October 2, 2008, we re-domiciled from New Mexico to Nevada in anticipation of pursuing the wind turbine business. Our former management resigned on October 21, 2008 after spending years in the oil and gas industry. Mr. Steven Shum, our current director and CFO, replaced former management in order to start a new business direction into alternative energy. On May 17, 2010, we changed our name to “XZERES Wind Corp.”
On March 25, 2010, we acquired certain assets formerly owned by Abundant Renewable Energy, LLC, a privately held Oregon limited liability company (“ARE”) that filed bankruptcy on March 26, 2009, from ARE’s secured creditors in exchange for 3,192,152 shares of our common stock, par value $0.001 per share. The bankruptcy was later dismissed and the secured creditors subsequently acquired the assets of ARE under a Collateral Surrender Agreement signed February 8, 2010. The secured creditors then conveyed the surrendered assets to us in exchange for stock on March 25, 2010 pursuant to an Asset Purchase Agreement.
The assets acquired included intellectual property and other rights related to wind turbine systems formerly manufactured and sold by ARE. We have rebranded these products with our name and logo. Our products are presently commercially available and we are actively marketing our products to potential customers.
On May 14, 2010, we closed on a private offering of common stock and warrants with total gross proceeds to us of $4,010,500, which capital allowed us to commence operation of our wind turbine business during the fiscal quarter ended May 31, 2010 by providing us with working capital. We have been and will continue to use this working capital to acquire components to build products, to lease and outfit our leased space, and to hire staff for general administration, sales and marketing, engineering, and for test and assembly roles.
Our principal offices are located at 9025 SW Hillman, Suite 3126, Wilsonville, OR 97070. Our phone number is (503) 388-7350.
4
Business of Company
We are in the business of designing, developing, and marketing small wind turbine systems and related equipment for electrical power generation, specifically for use in residential, small business, rural electric utility systems, other rural locations, and other infrastructure applications. We employ proprietary technology, including power electronics, alternator design, and blade design to increase performance, reliability, and sound suppression.
Our products integrate with currently available complementary products from other manufacturers, such as inverters, lightning protection equipment and towers. We do not have any written agreements with these other manufacturers. Our systems comprise several major components including the turbine sub-system (which converts wind energy into electricity), the tower (which holds the turbine high in the wind), a turbine controller (which controls the turbine subsystem and contains monitoring hardware and software), and an inverter (which converts the electricity generated from DC to AC to connect to a customer’s electrical load or to the grid). We currently design and contract the manufacturing for the turbine and controller, but the tower while designed to specifications suitable to our turbine requirements is made and sold by separate companies depending on the style that the customer orders. Similarly, the inverter, which converts the energy generated to a form suitable to connect into the electric grid, is manufactured by another company and is in fact a commercial off-the-shelf product. We sell a “system” with all of these parts included in the selling price. The system will not operate as designed without these complementary products. In the case of the inverter, there are other commercially available products that will integrate with our components, but we perform the system integration design to sell the entire system as a package to the customer.
Going forward, we expect to seek feedback on our products from top renewable energy (“RE”) consultants, manufacturers of complementary equipment, the National Renewable Energy Laboratory, and the U.S. Department of Energy (“DOE”) which, in turn, will help us to develop new innovative, attractive, quiet, and durable small wind equipment, designed for ease of installation and to certification standards which cover standard testing procedures, power ratings, and structural designs of small wind systems.
We believe that having outside evaluations of our products can lead to overall improvement in the quality of our product line. Independent reviews also provide useful support or validation in our marketing and sales effort. For example, the National Renewable Energy Laboratory (NREL) installed and tested our 10kW machine at their testing facility in Colorado. (The testing report notes that the test was performed on an ARE 442 turbine product, which is the exact product that we now sell branded under our name.)
This test was conducted as part of the U.S. Department of Energy’s (DOE) Independent Testing project. This project was established to help reduce the barriers of wind energy expansion by providing independent testing results for small turbines. In total, four turbines were tested at the National Wind Technology Center (NWTC) as a part of this project. Five tests were included in the evaluation on the ARE442: safety and function, power performance, duration, noise, and power quality tests. Test results provide manufacturers with reports that can be used for small wind turbine certification. The system was installed by the NWTC Site Operations group with guidance and assistance from Abundant Renewable Energy. We will use the tests reports for small wind turbine certification. The report is available on the NREL website. http://www.nrel.gov/wind/smallwind/abundant_renewable_energy.html
We were then able to use this independent data from NREL to engage an outside consulting firm to seek Underwriters Laboratories listing for our 10kW system. UL is a product safety certification and compliance solution that we believe may enhance the sales and marketing appeal of our systems. We have not yet obtained UL listing for any of our products. At this time, there is no approved UL standard governing wind turbine systems. There is a draft UL standard (UL Subject 6140) which we anticipate being widely used within the United States following its approval. Because we are anticipating the wide adoption of this standard by local authorities within the United States, we are currently designing our products for compliance with it. When this standard is approved we intend to pursue listing of our wind turbine systems under it.
Dramatic increases in state and federal incentives, high energy costs, and environmental consciousness are driving unprecedented growth in the small wind turbine market. Our current products compare as technology leaders in this market, and we will work to advance this leadership position through the continual development of performance improvements. For example, the power curve, which is a measure of performance of a system, on our 10kW system exceeds the claimed power curves on similar sized machines from competitors in the field. Every manufacturer states the specifications on performance of its turbines, known as a “power curve” which plots power output vs wind speed,based on product testing. Those specifications are published by each manufacturer in much of the same way a manufacturer details the specifications of an automobile. We are then able to compare the specifications of other manufactured turbines to our own turbines. Our power curve for our Model 442 has been independently validated by the National Renewable Energy Laboratory, while many manufacturer curves are only based on internal testing. Using this published data, we can plot our curve on the same graph as competitor curves and can show that our products produce more power at a given wind speed than some other competitors with the same nominal rating. We can also use the same data to predict the annual energy production of competing machines assuming a standard distribution of wind resource availability. This energy production, calculated based on published power curves by multiple manufacturers, is used in conjunction with published pricing of competing machines to show that our product has a superior return on investment. Much of the published data comes from Home Power Magazine which has an annual buyer’s guide issue showing specifications of many of the competing products available on the market.
There can be no assurance that we will be able to maintain any technological leadership or successfully exploit that leadership position to the benefit of our shareholders.
Results of Operations for the three month periods ended May 31, 2010 and 2009, and for the period from October 3, 2008 (inception) through May 31, 2010.
For the three months ended May 31, 2010 and 2009, we generated gross revenue of $4,385 and $0, respectively. Our revenue during the period ended May 31, 2010 was attributable to replacement and tower parts sales.
Our Operating Expenses during the three month period ended May 31, 2010 equalled $645,006, consisting of $35,596 in marketing, $23,034 in sales, $77,953 in R&D/Engineering fees, $221,605 in Consulting and Professional fees, and $ 286,818 in General and Administrative Expenses. We had other income of $1,074 for the period. Therefore, we recorded a net loss of $641,256 for the three months ended May 31, 2010. Our Operating Expenses during the three month period ended May 31, 2009 equaled $9,003, consisting primarily of legal and accounting costs. We therefore, recorded a net loss of $9,003 for the three months ended May 31, 2009. The substantial increase in our net loss for the period ended May 31, 2010 over the same period in 2009 is attributable to the costs attributable to commencing our business operations as a small wind turbine manufacturing and sales company. By contrast, we did not have any active business operations in the fiscal quarter ended May 31, 2009.
For the period from October 3, 2008 (Inception) until May 31, 2010, we generated gross revenue of $4,385. Our Operating Expenses during the period from October 3, 2008 (Inception) until May 31, 2010 equaled $923,649, consisting of $35,596 in marketing, $23,034 in sales, $77,953 in R&D/Engineering fees, $474,469 in Consulting and Professional fees and $312,597 in General and Administrative Expenses. We had other expenses of $164 for the period. We therefore, recorded a net loss of $921,137 for the period from October 3, 2008 (Inception) until May 31, 2010.
Liquidity and Capital Resources
As of May 31, 2010, we had total current assets of $3,359,014, and total assets of $4,834,486. Our total current liabilities as of May 31, 2010 were $195,011, consisting primarily of $62,693 in Accounts Payable and Accrued Expenses, $77,564 in warranty reserve, and $54,754 in customer deposits. Thus, we have working capital of $3,164,003 as of May 31, 2010.
Operating activities used $1,068,506 and $9,390 in cash for the three months ended May 31, 2010 and May 31, 2009, respectively, and $1,008,580 for the period from October 3, 2008 (Inception) until May 31, 2010. Our net loss of $641,256, our initial inventory purchasing of $414,361, and our reduction in accrued expenses of $210,069 were the primary components of our negative operating cash flow for the three months ended May 31, 2010.
Investing Activities used $101,435 in cash during the period from October 3, 2008 (Inception) until May 31, 2010, mainly as a result of the purchase of computer, machinery and equipment. Investing activities did not use or generate cash for the three months ended May 31, 2009.
Financing Activities generated $3,823,709 and $10,000 in cash for the three months ended May 31, 2010 and 2009, respectively, consisting entirely of proceeds from the issuance of new common shares and related party note payable. Financing activities generated $3,959,773 in cash during the period from October 3, 2008 (Inception) until May 31, 2010, due to proceeds of $3,869,033 from the issuance of new commons shares and $ 90,740 from notes payable (which were later converted to common shares).
As of May 31, 2010, our management believes that we have sufficient cash to operate our business at the current level for the next twelve months. Whether we will have sufficient cash to continue the implementation of our business plan beyond the next twelve months is contingent upon us either generating sufficient revenues from our ongoing operations to fund our business, obtaining additional financing, or some combination of revenues and additional financing.
Should we need additional financing, we would attempt to obtain capital through the use of private equity fundraising or shareholders loans. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.
Off Balance Sheet Arrangements
As of May 31, 2010, there were no off balance sheet arrangements.
Going Concern
Our financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our auditors have indicated that our ability to continue as a going concern is dependent on our obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations.
In order to continue as a going concern, we will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet our minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that will be successful in accomplishing any of our plans.
Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Item 4T. Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2010. This evaluation was carried out under the supervision and with the participation of our principal executive officer and Chief Operating Officer, Mr. Frank Greco and our Chief Financial Officer, Steven Shum. Based upon that evaluation, our Principal Executive Officer and Chief Financial Officer concluded that, as of May 31, 2010, our disclosure controls and procedures are effective. Our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 31, 2010 despite the fact that we identified a material weakness in our February 28, 2010 annual report because we added additional employees to oversee bank reconciliations, posting payables, and so forth, so there are now checks and balances on internal controls.
There have been no changes in our internal controls over financial reporting during the quarter ended May 31, 2010.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. This rule defines internal control over financial reporting as a process designed by, or under the supervision of, the Company’s Principal Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three month period ended May 31, 2010, we issued 1,080,000 stock options to employees. The options were issued pursuant to section 4(2) of the securities act of 1933, as amended.
We conducted a private placement of common stock and warrants during the fiscal quarter ended May 31, 2010. We commenced the private offering on or about March 29, 2010 and conducted two closings, on April 28 and May 14, 2010. We sold a total of 4,010,500 shares of common stock and 1,403,675 warrants to purchase our common stock, exerciseable for three years from the date of issuance at a strike price of $1.25 per share. We received total gross proceeds of $4,010,500 from this offering from 58 purchasers, each of whom is and a Selling Shareholder in this registration statement. The shares of common stock and warrants were sold pursuant to the exemption from registration provided by Rule 506 of Regulation D, promulgated pursuant to Section 4(2) of the Securities Act of 1933, as amended. The shares and warrants were sold to accredited investors as defined in Regulation D. No general solicitation or advertising was used in connection with the offering. All securities sold are “restricted securities” within the meaning of Regulation D.
We paid commissions and other related fees in the total amount of $398,550 and issued warrants to purchase 373,550 shares of common stock to our placement agent, Jesup & Lamont Securities Corp., in connection with this private placement . The terms and conditions of the warrants issued to our placement agent are identical to the terms and conditions of the warrants issued to the purchasers in our private placement.
On March 25, 2010, 3,192,150 common shares were issued to acquire assets with a total cost of $1,276,864. The shares were issued at $.40 per share. The shares were issued pursuant to section 4(2) of the securities act of 1933, as amended.
On March 23, 2010, we sold 875,000 shares of our restricted common stock in a private placement to Core Fund, L.P. and to our former CEO, William Hagler, at $0.40 per share for a total purchase price of $350,000. The total purchase price consisted of new investment of $159,260 from Core Fund, the conversion of prior cash advances in the amount of $90,000, plus accrued interest of $740, and new investment of $100,000 from Mr. Hagler. The shares of common stock were sold pursuant to the exemption from registration provided by Rule 506 of Regulation D, promulgated pursuant to Section 4(2) of the Securities Act of 1933, as amended. The shares were sold to persons who represented to us that they were accredited investors as defined in Regulation D. No general solicitation or advertising was used in connection with the offering. All securities sold are “restricted securities” within the meaning of Regulation D. None of the shares sold in this unregistered offering are being registered for resale pursuant to this registration statement.
On March 19, 2010, we issued a total of 200,000 shares of our restricted common stock to three consultants in exchange for their general management support services, including assistance in facilities management, equipment and insurance plan set up as well as integrating recently acquired assets into our operations and otherwise providing general business and administrative assistance at the direction of our board. We issued 75,000 shares to Blake Goud, 75,000 shares to Hans Powers and 50,000 shares to Eric Richardson. We issued the shares pursuant to an exemption from registration provided by Rule 506 of Regulation D, promulgated pursuant to Section 4(2) of the Securities Act of 1933, as amended. Each recipient represented to us that he or she was an accredied investor. No general solicitation or advertising was used in connection with the issuance. All securities issued are “restricted securities” within the meaning of Regulation D. We did not pay any commission to any person in connection with any of these issuances. None of the shares sold in this unregistered offering are being registered for resale pursuant to this registration statement.
On March 1, 2010, we agreed to pay our attorneys 320,000 shares of our restricted common stock for $0.01 per share in satisfaction of past due professional fees totaling $82,381. The shares were issued pursuant to an exemption from registration provided by Rule 506 of Regulation D, promulgated pursuant to Section 4(2) of the Securities Act of 1933, as amended. Each recipient represented to us that he or she was an accredited investor. No general solicitation or advertising was used in connection with the issuance. All securities issued are “restricted securities” within the meaning of Regulation D. We did not pay any commission to any person in connection with this issuance.
Item 6. Exhibits
Exhibit Number
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Description of Exhibit
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
XZERES Wind Corp.
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Date:
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February 22, 2011
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By: /s/ Frank Greco
Frank Greco
Title: Principal Executive Officer, Chief Executive Officer
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