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EX-32.1 - EXHIBIT 32.1 - POWIN ENERGY CORPex32_1.htm
EX-31.2 - EXHIBIT 31.2 - POWIN ENERGY CORPex31_2.htm
EX-31.1 - EXHIBIT 31.1 - POWIN ENERGY CORPex31_1.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, 2012

OR

o 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)

20550 SW 115th Ave
Tualatin, OR 97062
(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 o

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 x  No o
 
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 o  Accelerated filer o  Non-accelerated filer o  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 o  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, 2012, there were 162,172,538 shares of Common Stock, $0.001 par value, outstanding and 6,380 shares of Preferred Stock, $100 par value, outstanding.
 


 
 

 
 
POWIN CORPORATION
Index

PART I.     FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
3
  Condensed Consolidated Balance Sheets (unaudited)
3
  Condensed Consolidated Statements of Operations (unaudited)
4
  Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
5
  Condensed Consolidated Statements of Cash Flows (unaudited)
6
  Notes to Unaudited Condensed Consolidated Financial Statements
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
16
  Note Regarding Forward Looking Statements
16
  Overview
16
  Critical Accounting Policies
16
  Results of Operations
17
  Liquidity and Capital Resources 
19
  Off-Balance Sheet Arrangements
20
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
20
     
Item 4.
Controls and Procedures.
20



PART II.  OTHER INFORMATION

Item 1.
Legal Proceedings. 
21
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
21
     
Item 3.
Defaults Upon Senior Securities.
21
     
Item 4.
[REMOVED AND RESERVED]   
21
     
Item 5.
Other Information.  
21
     
Item 6.
Exhibits.
22
 
 
 

 
 
PART I.     FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
POWIN CORPORATION
Condensed Consolidated Balance Sheets

   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
       
ASSETS
           
Current Assets
           
Cash
  $ 2,113,067     $ 2,875,298  
Trade accounts receivable, net of allowances for doubtful accounts of
$63,577 and $63,577, respectively
    7,471,488       5,582,530  
Other receivables
    470,781       383,411  
Inventory, net
    3,687,694       3,048,863  
Prepaid expenses
    546,712       449,978  
Deposits
    60,116       60,019  
Deferred tax asset current portion
    177,308       177,308  
Total current assets
    14,527,166       12,577,407  
Intangible assets
    28,820       12,491  
Property and equipment, net
    2,106,216       1,960,047  
Deferred tax asset non-current portion
    257,440       257,440  
TOTAL ASSETS
  $ 16,919,642     $ 14,807,385  
LIABILITIES and STOCKHOLDERS' EQUITY
               
Current Liabilities
               
Trade accounts payable
  $ 8,456,067     $ 6,239,758  
Accrued payroll and other accrued liabilities
    508,810       301,162  
Notes payable-current portion
    100,000       100,000  
Total current liabilities
    9,064,877       6,640,920  
Long-Term Liabilities
               
Notes payable-less current portion
    350,000       375,000  
Total liabilities
    9,414,877       7,015,920  
Stockholders' Equity
               
Preferred stock, $100 par value, 25,000,000 shares authorized; 6,380 and
6,380 shares issued and outstanding, respectively
    638,000       638,000  
Common stock, $0.001 par value, 600,000,000 shares authorized;
162,172,538 and 162,172,538 shares issued and outstanding, respectively
    162,193       162,173  
Additional paid-in capital
    9,054,079       9,007,595  
Accumulated other comprehensive loss
    (12,109 )     (30,500 )
Accumulated deficit
    (2,240,254 )     (1,925,007 )
Non-controlling interest in subsidiaries
    (97,144 )     (60,796 )
Total stockholders' equity
    7,504,765       7,791,465  
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY
  $ 16,919,642     $ 14,807,385  
                 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
 
POWIN CORPORATION
Condensed Consolidated Statements of Operations

   
Three-months ended
March 31, 2012
   
Three-months ended
March 31, 2011
 
   
(Unaudited)
   
(Unaudited)
 
             
Sales - net
  $ 13,293,205     $ 10,951,429  
Cost of sales
    12,394,616       9,414,190  
    Gross profit
    898,589       1,537,239  
Operating expenses
    1,240,822       1,511,032  
    Operating income (loss)
    (342,233 )     26,207  
Other income (expense) non-operating
               
    Other income
    31,558       14,983  
    Interest – net
    (3,599 )     -  
    Other expense
    (15,067 )     (9,498 )
Total other income non-operating
    12,892       5,485  
Income (loss) before income taxes
    (329,341 )     31,692  
Income taxes expense
    -       7,200  
Net income (loss)
    (329,341 )     24,492  
Net loss attributable to non-controlling interest in subsidiary
    (21,505 )     (6,839 )
Net income (loss) attributable to Powin Corporation
    (307,836 )     31,331  
Earnings (loss) per share
               
    Basic
  $ (0.00 )   $ 0.00  
    Diluted
  $ (0.00 )   $ 0.00  
Weighted average common shares outstanding
               
    Basic
    162,172,538       161,982,990  
    Diluted
    162,172,538       174,146,748  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 
 
POWIN CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)

   
Three-months ended
March 31, 2012
   
Three-months ended
March 31, 2011
 
   
(Unaudited)
   
(Unaudited)
 
             
Net (loss) income
  $ (329,341 )   $ 24,492  
Other comprehensive income (loss)
               
    Foreign currency translation adjustment
    21,637       (13 )
                 
Comprehensive (loss) income
    (307,704 )     24,479  
Comprehensive loss attributable to non-controlling interest in
subsidiary
    (18,259 )     (6,839 )
Comprehensive (loss) income attributable to Powin Corporation
  $ (289,445 )   $ 31,318  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
 
 
 
5

 
 
POWIN CORPORATION
Condensed Consolidated Statements of Cash Flows

   
Three-months ended
March 31, 2012
   
Three-months ended
March 31, 2011
 
   
(Unaudited)
   
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net (loss) income
  $ (329,341 )   $ 24,492  
Adjustments to reconcile net income (loss) to net cash used in operating activities
               
    Depreciation and amortization
    92,698       92,721  
    Stock option compensation
    37,704       -  
    Shares issued for service
    -       33,750  
    Reserve for slow moving and obsolete Inventory
    88,000       -  
    Share based compensation
    8,800       9,000  
    Increase in trade accounts receivable
    (1,888,958 )     (2,386,766 )
    Increase in other receivables
    (87,370 )     (270,338 )
    Increase in inventories
    (726,831 )     (955,900 )
    Increase in prepaid expenses
    (96,734 )     (153,285 )
    (Increase) decrease in deposits
    (97 )     11,520  
    Increase in trade accounts payable
    2,216,309       2,098,884  
    Increase (decrease) in accrued payroll and other liabilities
    182,148       (191,072 )
Net cash  used in operating activities
    (503,672 )     (1,686,994 )
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisition of intangible assets
    (20,407 )     (315 )
Purchases of equipment
    (234,789 )     (105,850 )
Net cash used in investing activities
    (255,196 )     (106,165 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
Payment to equipment note payable
    (25,000 )     -  
Net cash used in financing activities
    (25,000 )     -  
Impact of foreign exchange translation on cash
    21,637       13  
Net decrease in cash
    (762,231 )     (1,793,146 )
Cash at beginning of period
    2,875,298       3,356,460  
Cash at end of period
  $ 2,113,067     $ 1,563,314  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Interest paid
  $ 3,599     $ -  
Income tax paid
  $ -     $ 250,000  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
6

 
 
POWIN CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Description of Business and Summary of Significant Accounting Policies
 
The Company, Powin Corporation (“Powin” or the “Company”), was formed as an Oregon corporation on November 15, 1990. 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 unaudited 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 unaudited condensed consolidated financial statements.  Operating results for the three-month period ended March 31, 2012, are not necessarily indicative of the results to be expected for other interim periods or for the full year ended December 31, 2012. These unaudited 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, 2011, as filed with the Securities Exchange Commission.

Principles of Consolidation
 
The accompanying unaudited condensed consolidated financial statements include the accounts of Powin Corporation and its wholly-owned subsidiaries, Quality Bending and Fabrication, LLC-, Powin Wooden Product Service, Inc., Channel Partner Program (“CPP”), Powin Renewable Energy Resources, Inc. (“PRER”), and majority owned (85%) joint venture, Powin Industries  SA de CV. All intercompany transactions and balances have been eliminated. Equity investments through which the Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments through which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.
 
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, 2012 and December 31, 2011, the Company had no cash equivalents.

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 up 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.

 
7

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

Trade Accounts Receivable

Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus, trade accounts receivable do not bear interest.  Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Balances outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. The Company did not incur any bad debt expense for the three month ended March 31, 2012 and 2011.

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.

   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
       
Raw Materials
  $ 327,878     $ 356,371  
Work in Progress
    100,074       66,823  
Finished Goods
    3,500,946       2,778,873  
Reserve for slow moving and obsolete inventory
    (241,204 )     (153,204 )
    $ 3,687,694     $ 3,048,863  
                 
 
Property and Equipment

Property and equipment are carried at cost less accumulated depreciation. For financial reporting and income tax purposes, the costs of property and equipment are depreciated over the assets estimated useful lives, using principally the straight-line method for financial reporting purposes and an accelerated method for income tax purposes.  Costs associated with repair and maintenance of property and equipment are expensed as incurred.  Changes in circumstances, such as technological advances, changes to the Company’s business model or capital strategy could result in actual useful lives differing from the Company’s estimates.  In those cases where the Company determines that the useful life of property and equipment should be shortened, the Company would depreciate the asset over its revised remaining useful life thereby increasing depreciation expense. Depreciation expense for the quarters ended March 31, 2012 and 2011 was $88,620 and $92,721, respectively.
 
Intangible Assets

Identifiable intangible assets with finite lives are amortized over their estimated useful lives. They are generally amortized based on the associated projected cash flows in order to match the amortization pattern to the pattern in which the economic benefits of the assets are expected to be consumed. They are reviewed for impairment if indicators of potential impairment exist. Capitalized patent costs represent legal fees associated with filing and maintaining a patent application for the Company’s U-Cube product.  The Company accounts for its patents in accordance with ASC 350-30 and ASC 360.  The Company amortizes the capitalized patent costs on a straight-line basis over an estimated useful life of 5 years. Amortization expense for the quarters ended March 31, 2012 and 2011 was $4,078 and $0, respectively.

 
8

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

Impairment of Long-Lived and Intangible Assets

The Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset.  If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on discounted cash flows and, or external appraisals, as applicable.  The Company reviews long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. Considerable management judgment is necessary to estimate the fair value of the Company’s long lived 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, 2012 and December 31, 2011 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 purchase discounts and allowances, and includes freight in costs, warranty and rework costs.

Advertising

The Company expenses the cost of advertising as incurred.  For the quarters ended March 31, 2012 and 2011, the amount charged to advertising expense was $15,892 and $53,262, respectively.

 
9

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

Income Taxes

Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes.  In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes is required.  Additionally, the Company uses tax planning strategies as a part of its tax compliance program.  Judgments and interpretation of statutes are inherent in this process.

The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company recognizes a tax benefit from an uncertain tax position in the financial statements only when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s widely understood administrative practices and precedents.

Prior to July 8, 2008, the Company had elected under the Internal Revenue Code to be taxed as an S Corporation.  In lieu of corporation income taxes, the stockholder of an S Corporation is taxed on his proportionate share of the Company’s taxable income.  Due to the merger on July 8, 2008, the Company is now subject to Federal income tax.

Earnings (Loss) Per Common Share

Basic earnings (loss) per share is based on the weighted-average effect of all common shares issued and outstanding, and is calculated by dividing net income (loss) by the weighted-average shares outstanding during the year.  Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.  The Company excludes equity instruments from the calculation of diluted earnings (loss) per share if the effect of including such instruments is antidilutive.

As of March 31, 2012, and 2011, there were 0 and 11,031,758 warrants outstanding and 0 and 5,660 convertible preferred shares (convertible to 1,132,000 common shares), respectively, that are included in the computation of diluted earnings per share.

Foreign Currency Translation

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.  The functional currency is the Mexican Peso.  All transactions are translated into U.S. dollars for financial reporting purposes.  Balance Sheet accounts are translated at the end-of-period rates while income and expenses are translated at the average of the beginning and end of period rates.  The Mexico Peso Balance Sheet foreign currency exchange rate at March 31, 2012 and December 31, 2011 was 12.6251 and 13.6357, respectively. The income statement average rate was 13.1575 and 12.8689 for the quarter ended March 31, 2012 and 2011, respectively. At March 31, 2012 and December 31, 2011, the cumulative translation adjustment was $14,246 and $35,883, respectively. Gains and losses resulting from foreign currency translation were included in other comprehensive income (loss). For the three months ended March 31, 2012 and 2011, the foreign currency translation adjustment to other comprehensive income (loss) was $21,637 and $(13), respectively.
 
Note 2:  Recently Issued and Adopted Accounting Pronouncements

Accounting standards promulgated by the FASB change periodically. Changes in such standards may have an impact on the Company’s future financial statements. The following are a summary of recent adopted accounting developments.
 
 
10

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

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”).  ASU 2011-04 redefines many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS.  ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs.  This new guidance is effective for the Company beginning in the first quarter of 2012. The adoption of this standard did not materially impact the Company’s consolidated financial statement footnote disclosures.
 
In June 2011, the FASB issued new guidance on the presentation of comprehensive income. The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income from that of current accounting guidance. This new guidance is effective for years and interim periods beginning after December 15, 2011. The Company’s adoption of this accounting guidance did not have a material impact on its financial statements and related disclosures.
 
In September 2011, the FASB issued ASU No. 2011-08, Topic 350 - Intangibles - Goodwill and Other ("ASU 2011-08"), which amends Topic 350 to allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based the qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This guidance is effective for annual and interim goodwill tests performed for years beginning after December 15, 2011. The Company's adoption of ASU 2011-08 did not have a material impact on its financial statements and related disclosures.
 
In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12, Topic 220 - Comprehensive Income ("ASU 2011-12"), which indefinitely deferred certain provisions of ASU 2011-05, including the requirement to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. This amendment is effective for both annual and interim financial statements beginning after December 15, 2011. The Company's adoption of ASU 2011-12 did not have a material impact on its financial statements and related disclosures.


Note 3:  Customer and Supplier Concentration of Credit Risk
 
A significant portion of the Company’s revenue is derived from a small number of customers. For the three months ended March 31, 2012 and 2011, sales to the Company’s three largest customers accounted for 67% and 69% of net sales, respectively. No other customers accounted for more than ten percent of total net sales for the three months ended March 31, 2012 and 2011. As of March 31, 2012 and 2011, a total amount of $6,108,224 and $7,605,240 was owed by these customers, respectively.
 
For the three months ended March 31, 2012 and 2011, the Company purchased its products from a small number of vendors. If any of these vendors were to experience delays, capacity constraints or quality control problems, product shipments to the Company’s customers could be delayed, or the Company’s customers could consequently elect to cancel the underlying product purchase order, which would negatively impact the Company's revenue. For the three months ended March 31, 2012 and 2011, the Company purchased 60% and 77% of its inventory from three suppliers, respectively. As of March 31, 2012 and 2011, the Company owed these vendors in a total amount of $6,140,692 and $5,741,382, respectively.

 
11

 
 
Note 4:  Bank Loans

At March 31, 2012 the Company had a short-term line-of-credit with a bank with maximum borrowings available of $2,000,000 with a maturity date of May 15, 2013.  Interest on the line-of-credit is indexed to the prime rate less three-fourths of a point and was 2.50% at March 31, 2012.  The Company’s line-of-credit outstanding balances as of March 31, 2012 and December 31, 2011 were zero.

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, 2012 and December 31, 2011, the Company was in compliance with all covenants.

In June 2011, the Company entered into a five-year equipment note payable  with the same bank that holds the Company’s operating line-of-credit facility, with maximum borrowings available of $500,000 and a maturity date of June 21, 2016.  The interest rate on this equipment note payable is fixed at 3.05%.  The proceeds of this equipment note payable will be used to upgrade old outdated equipment and to add new state-of-the-art metal manufacturing equipment to the Company’s QBF and Mexico segments.  At March 31, 2012 and December 31, 2011, the Company’s equipment note payable balance was $450,000 and $475,000, respectively.  The Company has no covenants in respect to this equipment note payable, however it is secured by equipment purchased using this facility.
 
 
Note 5:  Stock Options

The Company records stock-based compensation expense related to stock options and the stock incentive plan in accordance with ASC 718, “Compensation – Stock Compensation”.

On June 15, 2011, the Company granted awards in the form of incentive stock options to its key employees for up to 1,170,000 shares of common stock.  In the three-month period ended March 31, 2012, two employees left the Company electing not to exercise their vested options and 40,000 incentive stock options were forfeited.  Awards are generally granted with an exercise price that approximates the market price of the Company’s common stock at the date of grant.

The stock-based compensation expense included in general and administrative expense for the three-month periods ended March 31, 2012 and 2011 was $37,704 and $0, respectively. ASC 718. “Compensation-Stock Compensation” requires that only the compensation expense expected to vest be recognized.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table.  The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option.  The risk-free rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option.

The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
 
 
12

 
 
Note 5:  Stock Options (Continued)

The following assumptions were used to determine the fair value of the options at date of issuance:

Dividend yield
0
Expected volatility
86.8%
Risk-free interest rate
1.6%
Term in years
6.9
Forfeiture rate
10.3%


A summary of option activity during the period ended March 31, 2012 is presented below:

 
 
Options
   
Weighted
Average
Exercise Price
   
Average
Remaining
Contractual Life
(Years)
   
Aggregate
Intrinsic Value
 
                         
Option granted  June 15, 2011
    1,170,000     $ 1.02       6.92     $ -  
  Options forfeited or expired
    (80,000 )   $ -       -     $ -  
Outstanding at December 31, 2011
    1,090,000     $ 1.02       6.42     $ -  
  Options granted for the quarter ended March 31, 2012
    -     $ -       -     $ -  
  Options exercised
    -     $ -       -     $ -  
  Options forfeited or expired
    (40,000 )   $ -       -     $ -  
Outstanding at March 31, 2012
    1,050,000     $ 1.02       6.17     $ -  
Exercisable at March 31, 2012
    -     $ -       -     $ -  
                                 


There were no options exercised during the three-month period ended March 31, 2012.


Note 6:  Capital Stock

In March 2012, the Company granted 20,000 common shares to its Board of Directors for their services on the board, with an expense of $8,800 to the Company. As of March 31, 2012, the shares were not issued.

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.

In March 2011, the Company also 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.

 
13

 
 
Note 7:  Related Party Transaction

The facility rented by the QBF segment is owned by the Company’s two major shareholders and their real estate company Powin Pacific Properties LLC. On June 1, 2011, the Company entered into a 122 month lease and moved all the other operating segments into the one facility. Rent paid for the 3 months ended March 31, 2012 and 2011 was $188,721 and $46,782, respectively. Rental rates are deemed to be and were derived by local market rates for the rents when the contracts were entered.
 
The Company’s CEO and President, owns 45% in Logan Outdoor Products, LLC.  The Company has made sales to Logan Outdoor Products in the amount of $4,784,324 and $4,752,233 during the three months ended March 31, 2012 and 2011, respectively. The accounts receivable due from Logan Outdoor Products was $3,187,771 and $4,303,040 at March 31, 2012 and 2011, respectively.  The Company has determined its pricing based on the negotiated exchange amounts that reflect market prices for the products sold to Logan Outdoor Products.

The Company’s CEO and President, also owns 50% in CoSource USA, LLC.  The Company has made sales to CoSource USA in the amount of $33,056 and $2,312 during the three months ended March 31, 2012 and 2011, respectively. The accounts receivable due from CoSource USA was $37,129 and $56,992 at March 31, 2012 and 2011, respectively.  The Company has determined its pricing based on the negotiated exchange amounts that reflect market prices for the products sold to CoSource USA.

Minimum future lease payments under non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2012 are as follows:
 
Year
 
Lease Payment
 
2012 (9 months remaining)
  $ 566,163  
2013
    754,884  
2014
    723,696  
2015
    567,756  
2016
    567,756  
Thereafter
    2,577,949  
Total
  $ 5,758,204  
         

 
Note 8:  Merger of Entities under Common Control

Joint Venture

Effective January 1, 2012, the joint venture RealForce-Powin, entered into between POWIN Corporation and Shandong RealForce Enterprises Co., Ltd. in May 2011, was merged by POWIN Corporation. The Company maintained effective control due to contractual agreements and that the Company’s POWIN Energy segment was purchasing most of its energy products through the joint venture from Shandong RealForce Enterprises Co., Ltd.  In January 2012, the Company’s Board of Directors authorized the merge as it was determined that the joint venture was unnecessary given that Shandong RealForce Enterprises Co., Ltd., would sell directly to POWIN Energy.
 
Wholly-Owned Subsidiaries

Effective January 1, 2012, the business of Maco Lifestyles Company (including the names and entities of the Company’s wholly-owned subsidiaries, Maco Furniture and Gladiator Fitness and Outdoor Equipment, Inc.) was merged into Channel Partners Program (“CPP”), another one of the Company’s wholly-owned subsidiaries. All assets, liabilities, and equity interests were transferred to CPP. CPP initially recognized the assets and liabilities transferred at their then carrying amounts as of the date of transfer.

 
14

 
 
Note 9:  Contingencies
 
During the ordinary course of business, the Company encounters various legal claims which, in the opinion of management, will not materially affect the Company’s financial position, results of operations or cash flows.
 
The Company’s wholly-owned subsidiary, Powin Renewable Energy Resources, Inc. , an Oregon corporation (“Powin Renewable”) has been named as a defendant in Global Storage Group, LLC v. Virgil L. Beaston and Powin Renewable Energy Resources, Inc., Case No. 1202-1712 in the Circuit Court of the State of Oregon for the County of Multnomah on February 8, 2012. The complaint alleges, as to Powin Renewable, the misappropriation of trade secrets and intentional interference with existing or prospective economic relationship arising from the alleged breach by the co-defendant Virgil L. Beaston of the Operating Agreement of Global Storage Group, LLC. Mr. Beaston is an employee of Powin Renewable. Damages are sought in the amount of $30 million with a prayer for injunctive relief and leave to seek punitive damages. The Company and Powin Renewable believe there is no basis for the allegations and intends to defend against the action.
 
 
Note 10:  Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through May 21, 2012, the date the financial statements were issued.
 

 
 
 
 
 
15

 

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, 2011 as filed with the Securities and Exchange Commission on April 10, 2012, 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 distribute 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 significant accounting policies are summarized in Note 1 of our unaudited condensed consolidated financial statements.




 
 
 
16

 
 
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, 2012 and 2011, in dollars of sales revenue and its key segments of revenue.

For the three-months ended March 31, 2012
                                           
   
OEM
   
QBF
   
Mexico
   
Wooden
   
CPP
   
Energy
   
2012
Consolidated
 
Sales
    11,566,136       1,492,297       31,612       78,388       99,510       25,261       13,293,204  
Cost of sales
    10,560,345       1,597,270       140,948       -       76,468       19,583       12,394,614  
Gross profit (loss
    1,005,791       (104,973 )     (109,336 )     78,388       23,042       5,678       898,590  
Operating expense
    802,549       36,474       33,262       100,376       99,726       168,436       1,240,823  
Other income (expense)
    (12,399 )     26,058       (767 )     -       -       -       12,892  
Income (loss) before income tax
    190,843       (115,389 )     (143,365 )     (21,988 )     (76,684 )     (162,758 )     (329,341 )
Income tax on consolidated income (loss)
                                              -  
Consolidated net loss
                                                    (329,341 )
Net loss attributable to non-
controlling interest in subsidiary
                                                    (21,505 )
Net loss attributable to Powin Corporation
                                              (307,836 )
                                                         
Accounts receivable
    6,517,588       826,672       -       51,500       65,073       10,655       7,471,488  
Inventory
    1,107,176       1,706,372       -       -       161,857       712,289       3,687,694  
Property and equipment - net
    254,934       1,104,555       663,147       70,638       12,942       -       2,106,216  
Accounts payable
    7,829,370       284,269       -       11,417       44,353       286,659       8,456,067  


For the three-months ended March 31, 2011
   
OEM
   
QBF
   
Mexico
   
Wooden
   
CPP
   
Energy
   
2011
Consolidated
 
Sales
    9,195,657       1,488,067       -       105,488       85,937       76,280       10,951,429  
Cost of sales
    7,909,085       1,393,102       -       -       63,265       48,738       9,414,190  
Gross profit
    1,286,572       94,965       -       105,488       22,672       27,542       1,537,239  
Operating expense
    786,632       331,594       45,590       91,174       137,076       118,966       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       (110,975 )     (91,424 )     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  
                                                         
Accounts receivable
    6,747,540       545,344       -       85,330       41,083       -       7,419,297  
Inventory
    2,057,075       1,080,396       -       -       265,248       -       3,402,719  
Property and equipment - net
    96,658       969,535       -       20,194       9,088       -       1,095,475  
Accounts payable
    6,835,137       83,774       -       517       28,388       3,887       6,951,703  

 
17

 
 
Results of Operations (Continued)

As discussed in Note 8, the Maco and the Gladiator segment were merged into the CPP segment with any remaining furniture inventory to be sold under CPP’s internet sales program. The Realforce segment operations have been merged into the Company’s Energy segment. Above information for the three-month period ended March 31, 2011 was retroactively restated for comparison to the reportable segments as of March 31, 2012.

Consolidated net revenues for the three-month period ended March 31, 2012, were up 21.4% or approximately $2.3 million dollars from the same period of 2011. The Company’s OEM segment net revenues increased 25.8% or approximately $2.4 million dollars, the QBF segment net revenues increased 0.3% or approximately $4.2 thousand dollars, the Company’s Mexico operations began generating revenues in this quarter ended March 31, 2012, with $31.6 thousand dollars reported, the Wooden segment net revenues decreased 25.7% or approximately $27 thousand dollars, the CPP segment net revenues increased 15.8% or approximately $14 thousand dollars, the Energy segment net revenues decreased 66.9% or $51 thousand dollars,

The OEM segment sales increased is due to new customers and, a long-time customer’s sales to a major national chain store rebounding in the first quarter of 2012; however, the OEM segment is seeing an impact on its margin due to increased manufacturing costs in China and cost of freight.

The QBF segment sales increased due to greater demands from it major customer and a new customer in support of the Company’s Energy segment. However, the Company’s QBF segment’s net revenues would have been 107.8% or approximately $779 thousand dollars over the same period of 2011, had this segment not had a one-time sale related to a new product it manufactured for a new customer that was sold throughout Costco stores during the month of January 2011. QBF gross profit decreased 210.5% or $200 thousand dollars. The decrease was primarily due to its manufacturing inefficiencies and recording a charge of approximately $88 thousand for obsolete inventories.  The Company is in the process of updating QBF’s manufacturing equipment, reviewing all costing methods and procedures to correct this subsidiary’s gross margins.

The Wooden segment sales continue to be down but management expects sales to rebound as the Company’s OEM segment sales continue to rebound.

The Powin Energy segment revenue in the three-month period ended March 31, 2012, did not materialize as expected and reported by the Company on FORM 10-K for the year ended 2011 and posted with the SEC on April 10, 2012, due to a major customer not securing the funding as needed, which required the Company to hold its shipments.  However, management is confident this major customer will secure funding in the second quarter of 2012. Further, Powin Energy secured initial purchase orders from highly recognized brand name customers in the first quarter for lighting and battery products:
 
 
·
Powin Energy fulfilled two purchase orders for cylindrical, rechargeable batteries from a global battery company and we expect follow up orders during Q2 and beyond.
 
·
Powin Energy secured a lighting specification for a large grocery chain that is performing retrofits in the jewelry section of their stores.  We are fulfilling the initial order and expect continuing orders in Q2 and beyond.
 
Other significant milestones for Powin Energy during Q1:
 
 
·
Powin Energy has been selected to participate in the Pacific Northwest Smart Grid Demonstration, a DOE funded event that will bring enormous attention to Powin Energy.  We will be exposed to many prospective customers and stakeholders as we demonstrate the benefits of our energy storage product to the utility sector.
 
·
Powin Energy was the subject of featured articles in both the Portland Daily Journal of Commerce and Sustainable Business Oregon publications.
 
·
Powin Energy introduced new battery products consisting of battery cells, cylindrical, and electric bicycle batteries.

 
18

 
 
Results of Operations (Continued)

 
·
Powin Energy initiated the integration of a fully mobile grid scale energy storage system that will be tested and evaluated by several utility companies and Pacific Northwest National Laboratory.
 
·
Powin Energy introduced a low cost lighting retrofit kit to replace energy consuming T-12 fluorescent lamps with more energy efficient T-8 lamps.

Consolidated cost of sales are up 31.7% or approximately $2.9 million dollars for the three-month period ended March 31, 2012, when compared with the same period in 2011.  As a percent of net revenue, consolidated cost of sales was 93.2% for the three-month period ended March 31, 2012, compared to 86% for the same period in 2011.

Consolidated gross profits decreased $639 thousand dollars ending at 6.8% of net revenues for the three-month period ended March 31, 2012, compared to 14% for the same period in 2011. The decrease in gross profit is attributed to continued inefficiencies in the Company’s QBF and Mexico segments and, the OEM segment gaining new customers but with lower margins.

Consolidated operating expenses for the three-month period ended March 31, 2012, decreased 17.9% or approximately $270 thousand dollars from the same period in 2011. Higher operating expenses in 2011 was primarily due to more activities and operating costs to support the Company’s start-up subsidiaries Mexico, CPP, and Powin Energy. 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.

For the three-months ended March 31
   
2012
   
2011
   
Change
   
% Change
 
Salaries & Related
  $ 806,513     $ 757,354     $ 49,159       6.5%  
Advertising
    15,892       53,262       (37,370 )     -70.2%  
Professional Services
    233,071       317,988       (84,917 )     -26.7%  
All Other
    185,346       382,428       (197,082 )     -51.5%  
   TOTAL
  $ 1,240,822     $ 1,511,032     $ (270,210 )     -17.9%  
                                 


Liquidity and Capital Resources

For the three-month period ended March 31, 2012, cash used in operating activities was $504 thousand dollars compared to $1,687 thousand dollars used during the same period in 2011. Cash used in investing activities was $255 thousand dollars in the three-month period ended March 31, 2012, to replace manufacturing equipment, compared to $106 thousand dollars used in investing activities in the same period of 2011, to replace equipment. Cash used in financing activities was $25 thousand dollars in the three-month period ended March 31, 2012, to pay down the Company’s existing notes. The Company did not require and did not use cash from financing activities in the same period of 2011.

The ratio of current assets to current liabilities was 1.63 at March 31, 2012, compared to 1.89 at December 31, 2011.  Quick liquidity (current assets minus inventories divided by current liabilities) was 1.20 at March 31, 2012 compared to 1.33 at December 31, 2011.  At March 31, 2012, the Company had working capital of $5.5 million dollars compared to working capital of $5.9 million dollars at December 31, 2011.  Average day’s sales outstanding on trade accounts receivable at March 31, 2012, was 45 days compared to average days sales outstanding of 42 days at December 31, 2011.

As discussed above, the Company at March 31, 2012 had a line-of-credit with a bank with maximum borrowing capacity of $2,000,000. The maturity date for the Company’s 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 at the prime rate less three-fourths of a percent, which currently was 2.50% as of March 31, 2012.  The outstanding balances at March 31, 2012 and December 31, 2011 were zero.

 
19

 
 
Liquidity and Capital Resources (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 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, 2012 and December 31, 2011 the Company was in compliance with all covenants.

The Company’s management believes the current cash, 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 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, 2012, 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.

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.
 
 
20

 
 
PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

In February 2012, Our subsidiary, Powin Renewable Energy Resources, Inc. , an Oregon corporation (“Powin Renewable”) has been named as a defendant in Global Storage Group, LLC v. Virgil L. Beaston and Powin Renewable Energy Resources, Inc., Case No. 1202-1712 in the Circuit Court of the State of Oregon for the County of Multnomah ( February 8, 2012.  The complaint alleges, as to Powin Renewable, the misappropriation of trade secrets and intentional interference with existing or prospective economic relationship arising from the alleged breach by the co-defendant Virgil L. Beaston of the Operating Agreement of Global Storage Group, LLC. Mr. Beaston is an employee of Powin Renewable. Damages are sought in the amount of $30 million with a prayer for injunctive relief and leave to seek punitive damages.  We believe there is no basis for the allegations and  we intend to defend against the action.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Equity Compensation Plan Information

In March 2012, the Company granted 20,000 shares of Common Stock to its Board of Director for their services on the board at $0.44 per share booking an expense of $8,800 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 $8,780.  Each director received 5,000 shares of Common Stock for an aggregate of 20,000 shares of Common Stock issued. At March 31, 2012, the shares were not 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, 2012.


Item 3.  Defaults Upon Senior Securities.

None

Item 4.  [REMOVED AND RESERVED]


Item 5.  Other Information.

None.
 
 
21

 

Item 6.  Exhibits.

31.1
Certification of the Chief Executive Officer and Chief Financial 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 Chief Executive Officer and Principal Executive Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
   
32.1
Certification of the Chief Financial Officer and Principal Financial Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
 
 
 
 
 
 
 
22

 
 
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 21, 2012
 

  By /s/ Joseph Lu  
 
Joseph Lu
 
 
Chief Executive Officer
 
 
and Interim Chief Financial Officer
 
  (Principal Executive Officer and Principal Financial Officer)  
     
     
 
By /s/ Jingshuang Liu
 
 
Jingshuang Liu
 
 
President and Director
 
 


 
 
23