XZERES Corp. - FORM 10-Q/A - February 24, 2011

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EX-32.1 - EXHIBIT 32.1 - XZERES Corp.ex32_1.htm
EX-31.2 - EXHIBIT 31.2 - XZERES Corp.ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - XZERES Corp.ex31_1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q /A

[X]
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the quarterly period ended November 30, 2010
   
[  ]
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the transition period from __________  to __________
   
 
Commission File Number: 333-91191

XZERES Wind Corp
(Exact name of registrant as specified in its charter)

Nevada
74-2329327
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 
9025 SW Hillman Court, Suite 3126 Wilsonville, OR 97070
(Address of principal executive offices)

503-388-7350
(Registrant’s telephone number)
 
__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) 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 issuer 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
[ ] Non-accelerated filer
[X] Smaller reporting company
  

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.
 

 

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements



These 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 November 30, 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.)
BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2010 AND FEBRUARY 28, 2010
 
ASSETS
November 30, 2010
 
February 28, 2010
Current Assets
      
Cash and cash equivalents
 $ 350,584   $ 195,990
Accounts receivable
   200,953     -
Inventories
   267,841     -
Inventory deposit
   67,815     -
Prepaid expenses
   57,299     -
Total Current Assets
   944,492     -
           
Property and Equipment, net
   245,483     -
           
Other Assets
          
    Intellectual property
   1,320,226     -
    Deposit
   7,500     -
Total Other Assets
   1,327,726     -
           
TOTAL ASSETS
 $ 2,517,701   $ 195,990
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
          
LIABILITIES
          
Current Liabilities
          
Accounts payable
 $ 166,658   $ 0
Accrued expenses
   68,377     337,578
Customer deposits
   11,350     -
Warranty reserve
   39,315     -
Loans from shareholder
   -     90,740
Total Liabilities
   285,700     428,318
           
STOCKHOLDERS’ EQUITY (DEFICIT)
          
Preferred stock, par $0.01, 5,000,000 shares authorized, no shares issued and outstanding
   0     0
Common stock, par $0.001, 100,000,000 shares authorized, 13,280,255 and
4,682,602 shares issued and outstanding, respectively
   13,280     4,683
Stock warrants
   995,246     -
Additional paid in capital
   4,737,882     40,641
Accumulated deficit
   (3,514,407)     (277,652)
Total Stockholders’ Equity (Deficit)
   2,232,001     (232,328)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 $ 2,517,701   $ 195,990
 
The accompanying notes are an integral part of the financial statements.
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2010 AND 2009

 
Three Months Ended
    
Nine Months Ended
 
November 30, 2010 (Unaudited)
   
November 30, 2009 (Unaudited)
   
November 30, 2010 (Unaudited)
   
November 30, 2009 (Unaudited)
                     
GROSS REVENUES
 $ 471,534     $ 0     $ 837,403     $ 0
                             
COST OF GOODS SOLD
   352,832       0       630,850       0
                             
GROSS PROFIT
   118,702       0       206,553       0
                             
OPERATING EXPENSES
                           
    General and administrative expenses
  696,471       1,362       1,887,476       12,092
    Marketing
  41,173       -       149,457       -
    Sales expense
  232,885       -       408,244       -
    Engineering/R&D expense
  420,693       -       1,002,266       -
TOTAL OPERATING EXPENSES
   1,391,222       1,362       3,447,443       12,092
                             
LOSS FROM OPERATIONS
   (1,272,520 )     (1,362 )     (3,240,890 )     (12,092)
                             
OTHER INCOME
   918       0       4,135       0
                             
NET LOSS BEFORE PROVISION FOR INCOME TAXES
   (1,271,602 )     (1,362 )     (3,236,755 )     (12,092)
                             
PROVISION FOR INCOME TAXES
   0       0       0       0
                             
NET LOSS
 $ (1,271,602 )   $ (1,362 )   $ (3,236,755 )   $ (12,092)
                             
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
   13,280,255       4,651,978       12,015,809       4,651,978
                             
NET LOSS PER SHARE:
                            
   BASIC AND DILUTED
 $ (0.10 )   $ (0.00 )   $ (0.27 )   $ (0.00)
 
The accompanying notes are an integral part of the financial statements.
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
AS OF NOVEMBER 30, 2010
 
 
Common Stock
  
Stock
  
Additional
Paid in
  
 
Accumulated
    
 
Shares
  
Amount
  
Warrants
  
Capital
  
Deficit
  
Total
                       
Balance, October 3, 2008, Inception of Development Stage
   150,079   $ 150   $ -   $ 1,458     -   $ 1,608
                                   
Common stock issued for cash at $.01 per share
   4,501,899     4,502     -     40,517     -     45,019
                                   
Reduction in paid in capital for excess liabilities from discontinued operations
   -     -     -     (1,608)     -     (1,608)
                                   
Net loss for the year ended February 28,2009
   -     -     -     -     (209,274)     (209,274)
                                   
Balance, February 28, 2009
   4,651,978     4,652     -     40,367     (209,274)     (164,255)
                                   
Correction of shares outstanding
   79     -     -     -     -     -
                                   
Issuance of stock for cash
   30,545     31     -     274     -     305
                                   
Net loss for the year ended February 28, 2010
   -     -     -     -     (68,378)     (68,378)
                                   
Balance, February 28, 2010
   4,682,602     4,683     -     40,641     (277,652)     (232,328)
                                   
Correction of shares outstanding
   3     -     -     -     -     -
                                   
Shares issued for consulting services
   200,000     200     -     1,800     -     2,000
                                   
Shares issued in payment of an accrued expense
   320,000     320     -     82,061     -     82,381
                                   
Shareholder loans converted to shares
   226,850     227     -     90,513     -     90,740
                                   
Shares issued to acquire assets
   3,192,150     3,192     -     1,273,669     -     1,276,861
                                   
Shares issued in connection with private placements
   4,658,650     4,658     995,246     3,269,855     -     4,269,759
                                   
Equity issuance costs
         -     -     (398,550)     -     (398,550)
                                   
Stock options issued to employees
   -     -     -     377,893     -     377,893
                                   
Net loss for the nine months ended November 30, 2010
   -     -     -     -     (3,236,755)     (3,236,755)
                                   
Balance, November  30, 2010
   13,280,255   $ 13,280   $ 995,246   $ 4,737,882   $ (3,514,407)   $ 2,232,001
 
The accompanying notes are an integral part of the financial statements.
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2010 AND 2009

 
Nine Months Ended November 30, 2010 (Unaudited)
    
Nine Months Ended November 30, 2009 (Unaudited)
Cash Flows from Operating Activities:
        
Net loss for the period
 $ (3,236,755 )   $ (12,092)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
            
Depreciation expense
   26,287       -
Share-based compensation
   377,892       -
Issuance of common shares for services
   4,381       -
Changes in Assets and Liabilities
            
Accounts receivable
   (200,953 )     -
Inventories
   (267,841 )     -
Inventory deposit
   (67,815 )     -
Prepaid expenses
   (57,299 )     -
Accounts payable
   166,658       (388)
Accrued expenses
   (186,820 )     -
Customer deposits
   11,350       -
Warranty reserve
   (32,977 )     -
Net Cash Used in Operating Activities
   (3,463,892 )     (12,480)
             
Cash Flows from Investing Activities:
            
Purchase of property and equipment
   (245,223 )     -
Deposit paid
   (7,500 )     -
Net Cash Used in Investing Activities
   (252,723 )     -
             
Cash Flows from Financing Activities:
            
Proceeds from issuance of common shares
   3,873,709       -
Loans from shareholder
   -       10,600
     Equity issuance costs paid
   (2,500 )     -
Net Cash Provided by Financing Activities
   3,871,209       10,600
             
Net Increase (Decrease) in Cash and Cash Equivalents
   154,594       (1,880)
             
Cash and Cash Equivalents – Beginning
   195,990       1,978
             
Cash and Cash Equivalents – Ending
 $ 350,584     $ 98
             
Supplemental Cash Flow Information:
            
Cash paid for interest
 $ -     $ -
Cash paid for income taxes
 $ -     $ -
             
Supplemental Non-Cash Investing and Financing Activities:
            
Shares issued to acquire assets
 $ 1,276,861     $ -
Shares issued in payment of accrued expense
 $ 82,381     $ -
Loans from shareholder converted to common shares
 $ 90,940     $ -
Warrants issued in connection with private placements
 $ 995,246     $ -
 
The accompanying notes are an integral part of the financial statements.
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
Xzeres Wind Corp. (“Xzeres” and the “Company”) is located in Portland, Oregon and 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.

Development Stage in Prior Periods
Xzeres Wind Corp. was in the development stage from October 3, 2008 to May 31, 2010. The fiscal year ending February 28, 2011 is the first fiscal year during which the Company is considered an operating company and is no longer in the development stage.

 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 November 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 November 30, 2009 and for the quarter and nine month period ended November 30, 2009, management evaluated subsequent events through the date that such financial statements were issued (filed with the SEC).
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (continued)
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 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 sells wind turbines to dealers and more recently, end users directly. All wind turbines and associated products sold in the November quarter were sold to pre-qualified dealers, and the dealer and/or end user assumed 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. The Company only recently began offering its products, direct to end users and as such anticipates selling to end users in future quarters.

Cash and Cash Equivalents
Xzeres considers all highly liquid investments with maturities of three months or less to be cash equivalents. The Company had cash of $350,584 and $195,990 at November 30, 2010 and February 28, 2010, respectively.

Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred.  Xzeres incurred advertising expense of $10,048 and $56,513 during the three and nine months ended November 30, 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 adopted its stock option plan in 2010. The Company issued 1,745,000 stock options to its employees during the nine months ended November 30, 2010. The Company recorded stock-based compensation expense of $43,769 and $377,893 during the three and nine months ended November 30, 2010.
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, note 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 or penalties expense. As of November 30, 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 3,522,225 at November 30, 2010 representing outstanding warrants and options were not included in the computation of diluted earnings per share for the nine month period ended November 30, 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.

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.
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 2 - SIGNIFICANT EVENTS – RELATED PARTY TRANSACTION (CONTINUED)

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:

 
November 30, 2010
  
February 28, 2010
Finished goods
 $ 44,417   $ 0
Parts and supplies
   223,424     0
Total Inventories
 $ 267,841   $ 0

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment are being depreciated over their estimated useful lives using the straight-line method of depreciation for book purposes.

 
November 30, 2010
  
February 28, 2010
Furniture
 $ 36,351   $ 0
Computer equipment
   116,253     0
Shop machinery and equipment
   88,893     0
Vehicles
   30,273     0
Subtotal
   271,770     0
  Less: accumulated depreciation
   (26,287)     (0)
Property and equipment, net
 $ 245,483   $ 0
 
Depreciation expense totaled $12,553 and $26,287 for the three and nine months ended November 30, 2010.
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 5 – 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 6 – ACCRUED EXPENSES

Accrued expenses consisted of the following:

 
November 30, 2010
  
February 28, 2010
Wages
 $ 59,401   $ 0
Taxes due former owners
   0     153,178
Professional fees
   0     183,162
Miscellaneous
   8,976     1,238
  Total Accrued Expenses
 $ 68,377   $ 337,578

NOTE 7 – CUSTOMER DEPOSITS

A customer deposit of 50% of the selling price is sometimes made at the time a wind turbine is ordered. Deposits are reclassified to revenue once the unit is completed and delivered. Customer deposits were $11,350 at November 30, 2010, for open orders taken in the nine months ended November 30, 2010.

NOTE 8 – 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 a shareholder 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 nine months ended November 30, 2010.

NOTE 9 – 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. The reserve was also increased $14,817 for new units sold during the nine months ended November 30, 2010.
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 10 – WARRANTY RESERVE (CONTINUED)

Warranty reserve activity for the nine months ended November 30, 2010 was as follows:

 
Nine Months Ended November 30, 2010
Reserve balance, February 28, 2010
 $ 0
Added to reserve
   114,817
Charges against reserve
   (75,503)
     Reserve balance, November 30, 2010
 $ 39,314

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 nine months ended November 30, 2010.

During the nine months ended November 30, 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 November 30, 2010 are 13,280,255.
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

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 1,745,000 stock options to employees. The Company has estimated the fair value of the options as of the grant dates at $1,564,647 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. Fifteen percent of total issued and outstanding common shares are available for stock options.

Key assumptions used by the Company are summarized as follows:

 
Private Placement Warrants
Employee Stock Options
Stock Price
$1.00
$1.00-$1.20
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%
2.0-3.37%
Vesting period
-
0-4 years
Expected term (in years)
3
7

A Stock Price of $1.00 was used in valuing the warrants and a range of $1.00-$1.20 for valuing the options. The stock price was based on the per share issuance prices from a recent unrelated third party private placements. 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.

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 nine months ended November 30, 2010. Stock option expense recognized in net earnings amounted to $43,769 and $377,893 for the three and nine months ended November 30, 2010. As of November 30, 2010, there was $1,186,754 of unrecognized compensation expense related to non-vested share awards that we expect to recognize over a weighted average period of 3.5 years.

The Company granted 1,970,000 options during the nine months ended November 30, 2010, of which 225,000 were forfeited by terminated employees. The weighted average exercise price of the options issued is $1.05. There were no options issued prior to the nine months ended November 30, 2010.
 
XZERES WIND CORP.
(FORMERLY CASCADE WIND CORP., INC.)
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2010

NOTE 13 – INCOME TAXES

For the period ended November 30, 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 $3,514,000 at November 30, 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:

 
November 30, 2010
  
November 30, 2009
Federal income tax attributable to:
      
Current operations
 $ 1,100,000   $ 3,060
Less: valuation allowance
   (1,100,000)     (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:

 
November 30, 2010
  
November 30, 2009
Deferred tax asset attributable to:
      
Net operating loss carryover
 $ 1,195,000   $ 75,300
Less: valuation allowance
   (1,195,000)     (75,300)
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 $3,514,000 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.

Aggregate minimum annual rental payments under the non-cancelable operating lease are as follows:

Year ended February 28, 2011
   $ 15,480
2012
     70,448
2013
     72,564
2014
     37,152
Total
   $ 211,124

Rent expense totaled $22,131 and $42,814 for the three and nine months ended November 30, 2010.

NOTE 15 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date on which the financial statements were issued, January 14, 2011, and has determined it does not have any material subsequent events to disclose.
 

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.

Business of Company

We are in the business of designing, developing, and marketing distributed generation, wind power systems for the small wind (2.5kW-100kW) market.  Our grid-connected and off grid wind turbine systems, which consist of our 2.5kW and 10kW devices and related equipment, are utilized for electrical power generation for applications and markets such as residential, micro-grid based rural electrification, agricultural, small business, rural electric utility systems, as well as other private, corporate infrastructure and government applications.  Our wind power systems are focused on distributed energy, where a specific machine's energy output is largely or entirely used on-site where the equipment is installed, as well as grid connected applications.  We employ proprietary technology, including power electronics, alternator design, and blade design to increase performance and reliability.  While many of our customers take advantage of their local net-metering rules within the United States and Feed In Tariffs that are often available in Europe and Internationally to sell power back to the grid, our wind power systems are not dependent on transmission needs to carry the energy produced to another location.
 

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 engineer the turbine and controller, but contract the manufacturing of the turbine and controller through an outside party. 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 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 intend to develop new equipment, designed for ease of installation and to certification standards which cover standard testing procedures, power ratings, and structural designs of small wind systems.
 
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” – 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.  Moreover, our power curve has been independently validated by the National Renewable Energy Laboratory, and currently exceeds those available by our competitors.

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 and nine month periods ended November 30, 2010 and 2009

Overview.  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.  Upon closing the May financing, we began to aggressively expand operations, including the hiring of sales and marketing personnel to begin selling our products.  Such sales and marketing efforts enabled us to generate initial revenue during the August 31, 2010 quarter, which further expanded by 30% in the November 30, 2010 quarter.  Since the closing of the November 2010 period, the company has also announced key strategic initiatives that include new selling methods, such as direct-to-end users, and its new Micro-Generation utility sales model.  The results of these new selling efforts has already resulted in initial direct sales and contracts under the micro-generation model since the closing of the November 30 quarter.
 

With the combination of the additional sales channels and larger number of sales personnel, the company is experiencing a rapid increase in both completed sales and the pipeline of potential customers.  We will also continue to initiate key marketing efforts such as promotion of our new website, the creation of online user tools, and targeted email campaigns.  While it can be difficult to predict when a potential customer may purchase one of our turbine systems or when a newly closed customer will have their site ready for product delivery, we believe that the growing sales backlog and potential pipeline along with the greater overall interest in our products may contribute to higher revenues in future quarters.  Potential risks to this outlook include: closed customers taking longer to prepare their sites for installation (since we do not recognize revenue until we deliver the system to the customer), negative changes in available federal and state incentives for renewable energy such as tax credits, rebates, etc.; increased restrictions on obtaining permits; and a reduction in sentiment toward wind energy.  While we are unaware of any significant changes to any of these factors, if such were to occur, it could have a material impact on our current growth opportunities.  Fortunately, recent trends have been positive, including the recent extension of the federal grant program for renewable energy.

Income.  For the three months ended November 30, 2010 and 2009, we generated gross revenue of $471,534 and $0, respectively.  Our revenue during the period ended November 30, 2010 was attributable to our recent efforts to begin selling our wind turbine systems.  Our initial selling efforts began toward the end of our first quarter (ending May 31, 2010) and resulted in completed sales during the second quarter, ending August 31 and continuing in the recently completed quarter ending November 30, 2010.
 
Operating Expenses. Our Operating Expenses during the three month period ended November 30, 2010 equaled $1,391,222, consisting of $232,885 in sales expense, $41,173 in marketing costs, $420,693 in R&D/Engineering expenses,  and $696,471 in general and administrative expenses. We had other income of $918 for the period.  Therefore, we recorded a net loss of $1,271,602 for the three months ended November 30, 2010. Our Operating Expenses during the three month period ended November 30, 2009 equaled $1,362, consisting solely of general and administrative costs. We therefore, recorded a net loss of $1,362 for the three months ended November 30, 2009.  The substantial increase in our net loss for the period ended November 30, 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 November 30, 2009.

Net Loss.  We recorded a net loss of $1,271,602 for the three months ended November 30, 2010 as compared to a net loss of $1,362 for the three months ended November 30, 2009.  We recorded a net loss of $3,236,755 for the nine months ended November 30, 2010 as compared to a net loss of $12,092 for the nine months ended November 30, 2009.  The substantial increase in our net loss for the period ended November 30, 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 November 30, 2009.

We expect further net losses in the near future as a result of increased operating expenses until we are able to increase the sale of our products and achieve higher revenues.
 

Liquidity and Capital Resources

As of November 30, 2010, we had total current assets of $944,492, consisting primarily of $350,584 in cash and cash equivalents, $200,953 in accounts receivable, $267,841 in inventories, $67,815 in inventory deposits, and $57,299 in prepaid expenses.  Our total current liabilities as of November 30, 2010 were $285,700.  Thus, we have working capital of $658,792 as of November 30, 2010.   As of November 30, 2010, we had total assets of $2,517,701.

Operating activities used $3,463,892 and $12,480 in cash for the nine months ended November 30, 2010 and November 30, 2009, respectively. Our net loss of $3,236,755, our inventory purchasing of $267,841, an increase in accounts receivable of $200,953, and a decrease in accrued expenses of $186,820 were the primary components of our negative operating cash flow for the nine months ended November 30, 2010.

Investing Activities used $252,723 in cash during the nine month period ending November 30, 2010, as a result of the purchase of computer, machinery and equipment.  Investing activities did not use or generate cash for the nine months ended November 30, 2009.

Financing Activities generated $3,871,209 and $10,600 in cash for the nine months ended November 30, 2010 and 2009, respectively, consisting entirely of proceeds from the issuance of new common shares and related party note payable.

As of November 30, 2010, the ability to continue the implementation of our business plan over 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.

We are attempting to obtain capital through the use of private equity fundraising and shareholders loans. As of November 30, 2010, we did not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds. 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 November 30, 2010, there were no off balance sheet arrangements.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.
 

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 November 30, 2010.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. Frank Greco and our Chief Financial Officer, Mr. Steven Shum.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of November 30, 2010, our disclosure controls and procedures are effective.  There have been no changes in our internal controls over financial reporting during the quarter ended November 30, 2010

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 Chief 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 Chief 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

None

Item 3.     Defaults upon Senior Securities

None

Item 4.    (Removed and Reserved)

Item 5.     Other Information

Item 6.      Exhibits


 
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.
   
Date:
February 24, 2011
   
 
By:       /s/ Frank Greco                                                                 
             Frank Greco
Title:    Chief Executive Officer
 

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