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EXCEL - IDEA: XBRL DOCUMENT - POWIN ENERGY CORPFinancial_Report.xls
EX-32 - SECTION 906 CERTIFICATION - CEO/CFO - POWIN ENERGY CORPexhibit321.htm
EX-31.2 - SECTION 302 CERTIFICATION - CFO - POWIN ENERGY CORPexhibit312.htm
EX-31.1 - SECTION 302 CERTIFICATION - CEO - POWIN ENERGY CORPexhibit311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended: March 31, 2011


OR


[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the transition period from _________ to _________


Commission File Number: 000-54015


POWIN CORPORATION

(Exact name of registrant as specified in its charter)


NEVADA

 

87-0455378

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification Number)


6975 SW Sandburg Road, Ste. 326

Tigard, OR 97223

(Address of principal executive offices)


T: (503) 598-6659

(Issuer’s telephone number)


(Former name, former address and former fiscal year, if changed since last report) N/A


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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [  ]  No [  ]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)  Large accelerated filer [  ]  Accelerated filer [  ]    Non-accelerated filer [  ]  Smaller reporting company [ X ]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]  No [ X ]


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of March 31, 2011, there were 162,075,879 shares of Common Stock, $0.001 par value, outstanding and 5,660 shares of Preferred Stock, $100 par value, outstanding.




POWIN CORPORATION

Index


PART I.  FINANCIAL INFORMATION


Item 1.

Financial Statements.

  3

Consolidated Balance Sheets

  3

Consolidated Statements of Operations

  4

Consolidated Statements of Comprehensive Income (Loss)

  5

Consolidated Statements of Cash Flows

  6

Notes to Consolidated Financial Statements

  7


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

11

Note Regarding Forward Looking Statements

11

Overview

11

Critical Accounting Policies

11

Results of Operations

12

Liquidity and Capital Resources

13

Off-Balance Sheet Arrangements

14


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

14


Item 4.  Controls and Procedures.

14




PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings.

15


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

15


Item 3.  Defaults Upon Senior Securities.

15


Item 4. [REMOVED AND RESERVED]

.

15


Item 5.  Other Information.

15


Item 6.  Exhibits.

16









PART I.  FINANCIAL INFORMATION


Item 1.

Financial Statements.


POWIN CORPORATION

Consolidated Balance Sheets


 

 

 

Mar 31, 2011

 

Dec 31, 2010

 

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

    Cash

$

      1,563,314

$

       3,356,460

 

 

    Trade accounts receivable, net of allowances for doubtful accounts of $308,195 and $347,744, respectively

 

    7,419,297

 

      5,032,531

 

 

    Other receivables

 

      274,503

 

      4,165

 

 

    Inventory

 

    3,402,719

 

   2,446,819

 

 

    Prepaid expenses

 

     276,159

 

       122,874

 

 

    Deposits

 

     349,981

 

      361,501

 

 

    Deferred tax asset

 

     629,083

 

     629,083

 

 

    Total current assets

 

       13,915,056

 

    11,953,433

 

 

Intangible assets

 

         12,491

 

      12,176

 

 

Property and equipment, net

 

     1,095,475

 

 1,082,346

 

 

TOTAL ASSETS

$

   15,023,022

$

    13,047,955

 

 

 

 

 

 

 

 

 

LIABILITIES and STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

    Trade accounts payable

 $

    6,951,703

 $

    4,852,819

 

 

    Accrued payroll and other accrued liabilities

 

      425,488

 

    616,560

 

 

    Total current liabilities

 

     7,377,191

 

   5,469,379

 

 

Stockholders' equity

 

 

 

 

 

 

    Preferred stock, $100 par value, 25,000,000 shares authorized; 5,660 and 5,660 shares issued and outstanding, respectively

 

    566,000

 

    566,000

 

 

    Common stock, $0.001 par value, 600,000,000 shares authorized; 162,075,879 and 161,980,879 shares issued and outstanding, respectively

 

     162,076

 

   161,981

 

 

    Additional paid-in capital

 

     8,894,785

 

   8,852,130

 

 

    Accumulated other comprehensive income

 

      13

 

               -   

 

 

    Accumulated deficit

 

  (1,970,204)

 

    (2,001,535)

 

 

    Minority interest in subsidiary

 

      (6,839)

 

               -   

 

 

    Total stockholders' equity

 

    7,645,831

 

   7,578,576

 

 

TOTAL LIABILITIES and STOCKHOLDERS' EQUITY

$

   15,023,022

$

   13,047,955

 





3





POWIN CORPORATION

Consolidated Statements of Operations


 

 

 

Three-months ended Mar 31, 2011

 

Three-months ended Mar 31, 2010

 

 

 

 

(Unaudited)

 

(Unaudited)

 

 

Sales revenue- net

$

   10,951,429

$

  9,856,086

 

 

Cost of sales

 

9,414,190

 

8,679,615

 

 

    Gross profit

 

1,537,239

 

1,176,471

 

 

Operating expenses

 

1,511,032

 

949,202

 

 

    Operating income

 

26,207

 

227,269

 

 

Other income (expense) non-operating

 

 

 

 

 

 

    Other income

 

14,975

 

    -   

 

 

    Interest – net

 

8

 

(4,121)

 

 

    Other expense

 

(9,498)

 

   (8,836)

 

 

Total other income (expense) non-operating

 

5,485

 

(12,957)

 

 

Income before income taxes

 

31,692

 

214,312

 

 

Income taxes

 

7,200

 

90,021

 

 

Net income

 

    24,492

 

  124,291

 

 

Net loss attributable to non-controlling interest in subsidiary

 

     (6,839)

 

      -   

 

 

Net income attributable to Powin Corporation

 

   31,331

 

   124,291

 

 

Earnings per share

 

 

 

 

 

 

    Basic

$

      0.00

$

    0.00

 

 

   Diluted

$

   0.00

$

   0.00

 

 

Weighted average shares

 

 

 

 

 

 

    Basic

 

  161,982,990

 

  160,585,879

 

 

    Diluted

 

  174,146,748

 

  172,623,037

 





4




POWIN CORPORATION

Consolidated Statements of Comprehensive Income (Loss)


 

 

 

Three-months ended Mar 31, 2011

 

Three-months ended Mar 31, 2010

 

 

 

 

(Unaudited)

 

(Unaudited)

 

 

Net income

$

     24,492

$

    124,291

 

 

 

 

 

 

 

 

 

Other Comprehensive income (loss)

 

 

 

 

 

 

    Foreign currency translation adjustment

 

13

 

        -   

 

 

 

 

 

 

 

 

 

Comprehensive income

 

24,479

 

     124,291

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to non-controlling interest in subsidiary

 

(6,839)

 

       -   

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Powin Corporation

$

  31,318

$

    124,291

 






5




POWIN CORPORATION

Consolidated Statements of Cash Flows


 

 

 

Three Months Ended Mar 31, 2011

 

Three Months Ended Mar 31, 2010

 

 

 

 

(Unaudited)

 

(Unaudited)

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

$

    31,331

$

  124,291

 

 

Adjustments to reconcile net income to net cash provided by (used) in operating activities

 

 

 

 

 

 

    Net loss attributable to non-controlling interest in subsidiary

 

   (6,839)

 

        -   

 

 

    Depreciation and amortization

 

   92,721

 

   86,377

 

 

    Shares issued for service

 

   33,750

 

       -   

 

 

    Share based compensation

 

    9,000

 

      -   

 

 

    Provision for income tax

 

         -   

 

    45,011

 

 

Changes in operating assets

 

 

 

 

 

 

    Increase in trade accounts receivable

 

   (2,386,766)

 

   (575,308)

 

 

    (Increase) decrease in other receivables

 

   (270,338)

 

    6,814

 

 

    Increase in inventories

 

   (955,900)

 

   (758,013)

 

 

    Increase in prepaid expenses

 

   (153,285)

 

    (229,324)

 

 

    (Increase) decrease in deposits

 

   11,520

 

    (6,198)

 

 

Changes in operating liabilities

 

 

 

 

 

 

    Increase in trade accounts payable

 

   2,098,884

 

   1,344,705

 

 

    Decrease in accrued payroll and other liabilities

 

    (191,072)

 

    (156,032)

 

 

Net cash used in operating activities

 

  (1,686,994)

 

   (117,677)

 

 

CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES

 

 

 

 

 

 

Acquisition of intangible assets

 

    (315)

 

    (2,274)

 

 

Capital expenditures

 

   (105,850)

 

   (26,091)

 

 

Total cash flows used in investing activities

 

   (106,165)

 

    (28,365)

 

 

CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES

 

 

 

 

 

 

Payments under line-of-credit

 

          -   

 

   (650,000)

 

 

Net cash flows used in financing activities

 

        -   

 

   (650,000)

 

 

Impact of foreign exchange on cash

 

         13

 

         -   

 

 

Net increase (decrease) in cash

 

   (1,793,146)

 

    (796,042)

 

 

Cash at beginning of period

 

   3,356,460

 

   1,340,441

 

 

Cash at end of period

$

    1,563,314

$

    544,399

 

 

SUPPLEMENTAL DISCLOURSE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Interest paid

$

      -   

$

   4,189

 

 

Income tax paid

$

   250,000

$

   140,000

 



6





POWIN CORPORATION

Notes to Condensed Consolidated Financial Statements


Note 1 – Description of Business and Summary of Significant Accounting Policies

 

The Company was originally named Powin Corporation (“Powin” or the “Company”) and was formed as an Oregon corporation on November 15, 1990 by Joseph Lu, a Chinese-American.  Since its incorporation, Powin has grown into a large original equipment manufacturer (“OEM”) utilizing six plants on two continents.  Powin provides manufacturing coordination and distribution support for companies throughout the United States (“U.S”).  More than 2,000 products and parts are supplied by Powin on a regular basis.


Basis of Preparation


The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation.


In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying condensed consolidated financial statements.  Operating results for the three-month period ended March 31, 2011, are not necessarily indicative of the results to be expected for other interim periods or for the full year then ended December 31, 2011.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities Exchange Commission.


Use of Estimates


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.


Cash and Cash Equivalents


For purposes of the condensed consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.  At March 31, 2011 and December 31, 2010, respectively, the Company had no cash equivalents.


Inventory


Inventory consists of parts and equipment including electronic parts and components, furniture, rubber products, plastic products and exercise equipment.  Inventory is valued at the lower of cost (first-in, first-out method) or market.  The Company capitalizes applicable direct and indirect costs incurred in the Company’s manufacturing operations to bring its products to a sellable state.  The following table represents the Company’s inventories at each of the indicated balance sheet dates.


 

 

 

Mar 31, 2011

 

Dec 31, 2010

 

 

Raw Materials

$

         157,945

$

              240,779

 

 

Work in Progress

 

         180,788

 

           245,358

 

 

Finished Goods

 

    3,063,986

 

       1,960,682

 

 

 

$

         3,402,719

$

         2,446,819

 








7




Note 1 – Description of Business and Summary of Significant Accounting Policies (Continued)


Property and Equipment


Property and equipment assets are recorded at cost.  Depreciation is on a straight-line basis over the estimated useful lives of the asset.  Leasehold improvements for space leased on a month-to-month basis are expensed when incurred.  Expenditures for renewals and betterments are capitalized.  Expenditures for minor items, repairs and maintenance are charged to operations as incurred.  Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.  Depreciation expense for the quarters ended March 31, 2011 and 2010 were $92,721 and $86,377, respectively.


Intangible Assets


Intangible assets consist of costs associated with the application and acquisition of the Company’s patents and trademarks.  Patent application costs are capitalized and amortized over the estimated useful life of the patent, which generally approximates its legal life.  The Company did not have any amortization expense for the quarters ended March 31, 2011 and 2010, respectively.


Impairment of Long-Lived and Intangible Assets


The Company periodically reviews the carrying amounts of its property, equipment and intangible assets to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable.  If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment adjustment is to be recognized.  Such adjustment is measured by the amount that the carrying value of such assets exceeds their fair value.  The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate.  Considerable management judgment is necessary to estimate the fair value of assets; accordingly, actual results could vary significantly from such estimates.  Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.  The Company determined that its long-lived assets as of March 31, 2011 and December 31, 2010 were not impaired.


Revenue Recognition


The Company will recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”.  In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.  Most of the Company’s products are imported from China and shipped directly to the customer either FOB Port of Origin or FOB Shipping Destination U.S.  If the product is shipped FOB Port of Origin revenue is recognized at time of delivery to the Company’s representative in China, when the proper bills-of-lading have been signed by the customer’s agent and ownership passed to the customer.  For product shipped FOB Shipping Destination U.S., revenue is recognized when product is off-loaded at the U.S. Port of Entry and delivered to the customer, when all delivery documents have been signed by the receiving customer, and ownership has passed to the customer.  For product shipped directly to the Company’s warehouse or manufactured by the Company in the U.S. then shipped to the customer, revenue is recognized at time of shipment as it is determined that ownership has passed to the customer at shipment and revenue is recognized.  The Company considers the terms of each arrangement to determine the appropriate accounting treatment.  Amounts billed to customers for freight and shipping is classified as revenue.


For orders placed by a customer needing customized manufacturing, the Company requires the customer to issue its signed Purchase Order with documentation identifying the specifics of the product to be manufactured.  Revenue is recognized on customized manufactured product at completion and shipment of the product.  If the customer cancels the Purchase Order after the manufacturing process has begun, the Company invoices the customer for any manufacturing costs incurred and revenue is recognized.  Orders canceled after shipment are fully invoiced to the customer and revenue is recognized.


Cost of Goods Sold


Cost of goods sold includes cost of inventory sold during the period net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.






8




Note 1: Description of Business and Summary of Significant Accounting Policies (Continued)


Advertising


The Company expenses the cost of advertising as incurred.  For the quarters ended March 31, 2011 and 2010, the amount charged to advertising expense was $53,262 and $18,896, respectively.


Income Taxes


The Company accounts for income taxes using the asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities.  This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment.  Deferred assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carry forwards.  Deferred income tax expense represents the change in net deferred assets and liability balances.


Earnings Per Common Share


Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during the period.  Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding and all dilutive potential common shares that were outstanding during the period.


As of March 31, 2011 and 2010, there were 11,031,758 and 11,031,758 warrants outstanding and 5,660 and 5,027 convertible Preferred shares, respectively (convertible to 1,132,000 and 1,005,000 Common Shares) that are included in the computation of diluted earnings per share however, the dilutive shares had no impact to earning per share.


Foreign Currency Transaction


In February 2011, the company entered into a joint venture establishing a new company in Mexico under which we will hold an 85% majority interest.  All transactions are translated into U.S. dollars for financial reporting purposes.  Balance Sheet accounts are translated at the end-of-month or historical rates while income and expenses are translated at the average of the beginning of the month rate and the end of the month rate.  Transaction gains or losses related to net assets are shown as a separate component of shareholders’ equity as accumulated other comprehensive income.  At March 31, 2011 and December 31, 2010, the cumulative translation adjustment was $13 and zero, respectively.  Gains and losses resulting from realized foreign currency transactions (transactions denominated in a currency other than the entities’ functional currency) are included in other comprehensive income.  For the three months ended March 31, 2011 and 2010, the foreign currency translation adjustment to other comprehensive income was $13 and zero, respectively.  


Note 2:  Recently Issued and Adopted Accounting Pronouncements


In October 2010, the FASB issued authoritative guidance that amends earlier guidance addressing the accounting for contractual arrangements in which an entity provides multiple products or services (deliverables) to a customer. The amendments address the unit of accounting for arrangements involving multiple deliverables and how arrangement consideration should be allocated to the separate units of accounting, when applicable, by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available.  The amendments also require that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method.  The guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted.  The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.








9




Note 2:  Recently Issued and Adopted Accounting Pronouncements (Continued)


In October 2010, the FASB issued authoritative guidance that amends earlier guidance for revenue arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of guidance for recognizing

revenue from the sale of software, but would be accounted for in accordance with other authoritative guidance.  The guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted.  The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.


In January 2010, the FASB issued revised authoritative guidance that requires more robust disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2 and 3. This guidance is effective for interim and annual reporting periods beginning after December 15, 2010 (which is January 1, 2010 for the Company) except for the disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements.   


Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years (which is January 1, 2011 for the Company). Early application is encouraged. The revised guidance was adopted as of January 1, 2010.  The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.


Note 3:  Concentration of Credit Risk


At March 31, 2011, three customers accounted for 80% of the Company’s trade receivables, with no amounts in excess of 90 day past due.  At December 31, 2010, these same three customers accounted for 57% of the Company’s trade receivables with no amounts in excess of 90 days past due.  Trade accounts receivable past due over 90 days at March 30, 2011 and December 31, 2010, were $320,868 and $407,971 respectively.  Management does not normally require collateral for trade accounts receivable.  The Company’s allowance for doubtful accounts as of March 31, 2011 and December 31, 2010 was $308,195 and $347,744, respectively.


For the quarter ended March 31, 2011, the Company purchased a substantial portion of its supplies and raw materials from three suppliers, which accounted for approximately 83% of total purchases.  For the quarter ended March 31, 2010, these same three suppliers accounted for 74% of total purchases.  Further; in 2010, the Company was required to make deposit payments to vendors for products being imported from Europe.  For the quarter ended March 31, 2010, deposit payments paid were $369,409, no additional deposit payments have been paid during the quarter ended March 31, 2011.


The Company places its cash with high credit quality financial institutions but retains a certain amount of exposure as cash is held primarily with two financial institutions and deposits are only insured to the Federal Deposit Insurance Corporation limit of $250,000.


The Company maintains its cash in bank accounts, which, at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.


Note 4:  Bank Line-of-Credit


At December 31, 2010 the Company had a short-term line-of-credit with a bank with maximum borrowings available of $1,750,000, with a maturity date of March 1, 2011.  In February 2011 the Company requested an extension, which was granted, so it could renegotiate its banking facility’s terms and fees.  On March 24, 2011 the Company signed a new banking facility with the same bank for a two-year $2,000,000 line-of-credit with a maturity date of May 15, 2013 and, like the previous line-of-credit, the new line is not personally guaranteed by any board member or stockholder but is secured by all receivables, inventory and equipment.  Further, interest on the previous line-of-credit was indexed to the prime rate plus one-half point and was 3.75% at December 31, 2010, the new line-of-credit is indexed to the prime rate less three-fourth point and was 2.50% at March 31, 2011.  The Company’s line-of-credit outstanding balances as of March 31, 2011 and December 31, 2010 were zero, respectively.



10




Note 4:  Bank Line-of-Credit (Continued)


The Company’s line-of-credit is subject to negative and standard financial covenants.  The negative covenants restrict the Company from incurring any indebtedness and liens except for trade debt incurred in the normal course of doing business; such as, borrow money including capital leases; sell, mortgage, assign, pledge, lease, grant security interest in, or encumber any of the Company’s assets or accounts; engage in any business substantially different than in which the Company is currently engaged; loan, invest or advance money or assets to any other person, enterprise or entity.  Other standard financial covenants consist of; current ratio of 1.25 to 1.00 tested at the end of each quarter; total liabilities to capital ratio of 2.50 to 1.00 tested at the end of each year; operating cash flow to fixed charge ratio of not less than 1.25 to 1.00 tested at the end of each year.  As of March 31, 2011 and December 31, 2010, the Company was in compliance with all covenants.


Note 5:  Subsequent Events


In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through May 12, 2011, the date the financial statements were issued.


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.


Note Regarding Forward Looking Statements


This information should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on March 18, 2011, and the unaudited condensed interim consolidated financial statements and notes thereto included in this Quarterly Report.


References to “Powin,” the “Company,” “we,” “our” and “us” refer to Powin Corporation and its wholly owned and majority-owned subsidiaries, unless the context otherwise specifically defines.


Overview


Powin Corporation has relationships with various manufacturers in China and Taiwan that manufacture a variety of products for the Company’s U.S. customers which they sell and distributed throughout the U.S.  The Company’s customer base includes distributors in the transportation, medical, sports, camping, fitness, packaging and furniture industries.  


Critical Accounting Policies


Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the three-months ended March 31, 2011 and 2010, which have been prepared in accordance with GAAP.


The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities.  We base our estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may materially differ from our estimates.



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Results of Operations


The following tables set forth key components of the Company’s results of operations (unaudited), for the three-month periods ended March 31, 2011 and 2010, in dollars of sales revenue and its key segments of revenue.


For the three-months ended March 31, 2011


 

 

OEM

QBF

Mexico

Wooden

Maco

CPP

PRER

Gladiator

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

  9,195,657

 1,488,067

         -   

105,488

    81,545

   4,392

  76,280

           -   

     10,951,429

 

 

Cost of Sales

   7,909,085

 1,393,102

         -   

       -   

    63,005

      260

  48,738

         -   

      9,414,190

 

 

Gross Profit

   1,286,572

      94,965

         -   

 105,488

    18,540

   4,132

  27,542

        -   

      1,537,239

 

 

Operating Expense

     786,632

    331,594

  45,590

  91,174

   87,547

  49,529

106,060

   12,906

      1,511,032

 

 

Other Income (Expense)

      (9,489)

    11,545

         -   

         -   

     3,429

        -   

      -   

         -   

         5,485

 

 

Income (Loss) before Income Tax

           490,451

 (225,084)

 (45,590)

  14,314

  (65,578)

(45,397)

(78,518)

   (12,906)

        31,692

 

 

Income Tax on Consolidated Income

 

 

 

 

 

 

 

 

         7,200

 

 

Consolidated Net Income

 

 

 

 

 

 

 

 

           24,492

 

 

Net loss attributable to non-controlling interest in subsidiary

 

 

 

 

 

       (6,839)

 

 

Net income attributable to Powin Corporation

 

 

 

 

 

 

        31,331

 


For the three-months ended March 31, 2010


 

 

OEM

QBF

Mexico

Wooden

Maco

CPP

PRER

Gladiator

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

8,982,152

712,620

-

55,298

106,016

-

-

-

9,856,086

 

 

Cost of Sales

7,876,091

735,797

-

-

67,727

-

-

-

8,679,615

 

 

Gross Profit

1,106,061

(23,177)

-

55,298

38,289

-

-

-

1,176,471

 

 

Operating Expense

689,135

69,876

-

68,222

121,969

-

-

-

949,202

 

 

Other Income (Expense)

(3,532)

(9,425)

-

-

-

-

-

-

(12,957)

 

 

Income (Loss) before Income Tax

413,394

(102,478)

-

(12,924)

(83,680)

-

-

-

214,312

 

 

Income Tax on Consolidated Income

 

 

 

 

 

 

 

 

90,021

 

 

Consolidated Net Income

 

 

 

 

 

 

 

 

124,291

 


Consolidated net revenues for the three-month period ended March 31, 2011, were up 11% or approximately $1.1 million dollars from the same period of 2010.  The Company’s OEM segment net revenues increased 2.4% or approximately $213 thousand dollars, the QBF segment net revenues increased 109% or approximately $775 thousand dollars, the Maco segment net revenues decreased 23% or approximately $25 thousand dollars and the Wooden segment net revenues increased 91% or approximately $50 thousand dollars.  The Company’s QBF segment’s very favorable increase in net revenues is related to a new product it manufactured for a new customer that was sold throughout Costco stores during the month of January 2011, bringing new sales of $775 thousand dollars to the segment.  However, QBF’s primary customer has not increased its orders to the levels expected in this first quarter of 2011 and, has also taken a 25% reduction in its pricing, which had a negative impact to QBF’s sales by approximately $225 thousand dollars for the quarter, leaving the core sales of this segment flat when compared to 2011.  The Company’s management is negotiating with QBF and its primary customer to return pricing back to 2010 levels, but if the Company’s management is not successful, QBF will continue to experience negative impacts to its sales in 2011 by approximately $225 thousand dollars per quarter.  The Maco segment’s net revenue decrease is primarily due to continued slow demand for the MACO furniture line on the west coast; therefore, the Company’s



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management entered into an agreement to have the MACO furniture line sold and distributed through furniture distributors on the east coast, where management believes 75% of all U.S, furniture is sold.  


Results of Operations (Continued)


However, the MACO segment continues to show net losses in its operations and management cannot assure that this segment can continue to be a going concern.


Consolidated cost of sales are up 8.5% or approximately $735 thousand dollars for the three-month period ended March 31, 2011, when compared with the same period in 2010.  As a percent of net revenue, consolidated cost of sales was 86% for the three-month period ended March 31, 2011, compared to 88.1% for the same period in 2010.


Consolidated gross profits increased $361 thousand dollars ending at 14% of net revenues for the three-month period ended March 31, 2011, compared to 11.9% for the same period in 2010.


In February 2011, the Company entered into a joint venture establishing a corporation in Mexico whereby Powin Corporation owns 85% of the corporation, with organizational operations and general management processes started.  The Mexico segment serves as a metal manufacturer to support the Freightliner Corporation’s Mexico operations.  For the quarter ended March 31, 2011, there have been no sales or cost of sales and all operating cost are included in operating expense.

 

Consolidated operating expenses for the three-month period ended March 31, 2011, increased 59.2% or approximately $562 thousand dollars from the same period in 2010, primarily due to the Company now accruing for certain annual costs, which previously was not a practice of the company; such as bonus compensation accruals of $166 thousand dollars and, the Company recorded royalty expenses of $170 thousand dollars and commissions of $43 thousand dollars related to the QBF segment’s new customer mentioned above.  As a percent of net revenues, operating expenses for the three-month period ended March 31, 2011, was 13.6%; however, allowing for the bonus accrual, royalty and commission expense as discussed, operating expenses as a percent of revenues would have been 10.1%, compared to 9.1% for the same period in 2010.  The following table is reflective of the changes in operating expenses in dollars and percentage of change for the three-month periods ended March 31.


 

 

 

2011

 

2010

 

Change

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries & Related

$

757,354

$

489,586

$

267,768

 

54.7%

 

 

Advertising

 

53,262

 

18,896

 

34,366

 

181.9%

 

 

Professional Services

 

317,988

 

225,007

 

92,981

 

41.3%

 

 

All Other

 

382,4288

 

215,713

 

166,715

 

77.3%

 

 

   TOTAL

$

1,511,032

$

949,202

$

561,830

 

59.2%

 



Liquidity and Capital Resources


The Company finances its operations primarily through cash flows generated from operations and borrowings from the Company’s line-of-credit.  For the three-month period ended March 31, 2011, cash used by operating activities was $1.7 million dollars compared to $117 thousand dollars used during the same period in 2010.  Cash used in investing activities was $106 thousand dollars in the three-month period ended March 31, 2011, to replace manufacturing equipment, compared to $28 thousand dollars used in investing activities in the same period of 2010, to replace equipment.  The Company did not require and did not use cash from financing activities in the three-month period ended March 31, 2011, compared to cash used from financing activities including net repayments of $650 thousand dollars to pay off the Company’s existing credit lines in the same period of 2010.


The ratio of current assets to current liabilities was 1.89 at March 31, 2011, compared to 2.19 at December 31, 2010.  Quick liquidity (current assets minus inventories divided by current liabilities) was 1.25 at March 31, 2011 compared to 1.53 at December 31, 2010.  At March 31, 2011, the Company had working capital of $6.5 million dollars compared to working capital of $6.5 million dollars at December 31, 2010.  Average day’s sales outstanding on trade accounts receivable at March 31, 2011, was 51 days compared to average days sales outstanding of 45 days at December 31, 2010.




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Liquidity and Capital Resources (Continued)


As discussed above, the Company on March 24, 2011 entered into a new line-of-credit with a bank with maximum borrowing capacity of $2,000,000.  The maturity date for the Company’s new line-of-credit is May 15, 2013.  The line-of-credit is secured by all receivables, inventory and equipment and, like the previous lines of credit, the new facility is not personally guaranteed by the Company’s majority stockholder or any shareholder.  Interest is the prime rate less three-fourth percent, which currently was 2.50% as of March 31, 2011.  Interest on the prior line-of-credit was the prime rate plus one-half percent.  The outstanding balances at March 31, 2011 and December 31, 2010 were zero, respectively.


The Company’s line-of-credit is subject to negative and standard financial covenants.  The negative covenants restrict the Company from incurring any indebtedness and liens except for trade debt incurred in the normal course of doing business such as: borrow money including capital leases; sell, mortgage, assign, pledge, lease, grant security interest in, or encumber any of the Company’s assets or accounts; engage in any business substantially different than what the Company is currently engaged; and, loan, invest or advance money or assets to any other person, enterprise or entity.  Other standard financial covenants consist of; current ratio of 1.25 to 1.00 tested at the end of each quarter; total liabilities to capital ratio of 2.50 to 1.00 tested at the end of each year; and operating cash flow to fixed charge ratio of not less than 1.25 to 1.00 tested at the end of each year.  At March 31, 2011 and December 31, 2010 the Company was in compliance with all covenants.


The Company’s management believes the current cash and cash flow from operations, including its line-of-credit, will be sufficient to meet anticipated cash needs, including cash for working capital and capital expenditures in the foreseeable future.  However, the Company may require additional cash resources due to changing business conditions or to take advantage of other future developments, which may require the Company to seek additional cash by selling additional equity securities or debt securities.  The sale of convertible debt securities or additional equity securities could result in additional dilution to the company’s stockholders.  The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.


The Company’s ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties  including: investors’ perception of, and demand for, securities of alternative manufacturing media companies; conditions of the U.S. and other capital markets in which we may seek to raise funds; and future results of operations, financial condition and cash flow.  Therefore, the Company’s management cannot assure that financing will be available in amounts or on terms acceptable to the Company, if at all.  Any failure by the Company’s management to raise additional funds on terms favorable to the Company could have a material adverse effect on the Company’s liquidity and financial condition.


Off-Balance Sheet Arrangements.


As of and for the three-months ended March 31, 2011, the Company had no off-balance sheet arrangements.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


The Company is a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.


Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures


Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, our principal executive and financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.





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Item 4.  Controls and Procedures (Continued).


Changes in Internal Control over Financial Reporting


There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings.


None


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.


Recent Sales of Unregistered Securities


In March 2011, the Company issued 75,000 shares of Common Stock to compensate a consulting firm, at $0.45 per share for a total expense to Legal & Professional expense of $33,750 which is reflected in Stockholders’ Equity as an increase of Common Stock of $75 (par at $0.001 times shares issued of 75,000) and Additional Paid in Capital of $33,675.


Equity Compensation Plan Information


In March 2011, the Company issued 20,000 shares of Common Stock to its Board of Director for their services on the board at $0.45 per share booking an expense of $9,000 which is reflected in Stockholders’ Equity as an increase of Common Stock of $20 (par at $0.001 times shared issued of 20,000), and Additional Paid in Capital of $8,980.  Each director received 5,000 shares of Common Stock for an aggregate of 20,000 shares of Common Stock issued.


Purchases of Equity Securities by the Issuer and Affiliated Purchasers


We did not purchase any of our shares of Common Stock or other securities during the three-month period ended March 31, 2011.



Item 3.  Defaults Upon Senior Securities.


None


Item 4.  [REMOVED AND RESERVED]



Item 5.  Other Information.


In April 2010, Company began the process of registering in the Republic of South Africa, so we can open a branch office.  The branch office will be responsible for identifying and pursuing new customer opportunities to further our OEM services and to introduce our current manufactured products into the Republic of South Africa.  In March 2011, our registration was approved.


As discussed under Results of Operations, in February 2011, we entered into a joint venture establishing a new company in Mexico under which we will hold an 85% controlling interest. The Mexico Company will provide manufacturing services to the Freightliner Corporation to support its Mexico operations.  In addition, the program will also provide other manufacturing services to others to further the growth of Powin Corporation.





15




Item 6.  Exhibits.



 

 

 

31.1

 

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32

 

Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934

 

 

 

101.INS

  

XBRL Instance Document.

 

 

101.SCH

  

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

  

XBRL Taxonomy Calculation Linkbase Document

 

 

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB

  

XBRL Taxonomy Label Linkbase Document

 

 

101.PRE

  

XBRL Taxonomy Presentation Linkbase Document



16





SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.



May 12, 2011


By /s/ Joseph Lu

Joseph Lu

Chief Executive Officer

(Principal Executive Officer)




By /s/ Ronald Horne

Ronald Horne

Chief Financial Officer

(Principal Financial Officer)











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