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EX-32.1 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.swet_10k-ex3201.htm
EX-32.2 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.swet_10k-ex3202.htm
EX-31.1 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.swet_10k-ex3101.htm
EX-31.2 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.swet_10k-ex3102.htm
EXCEL - IDEA: XBRL DOCUMENT - SOLAR WIND ENERGY TOWER, INC.Financial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

  

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the fiscal year ended December 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 000-53035

  

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(Exact name of registrant as specified in its charter)

 

Nevada 82-6008752
 (State or Other Jurisdiction of Incorporation or Organization)  (I.R.S. Employer Identification No.)
   
1997 Annapolis Exchange Parkway, Annapolis, MD 21401
(Address of Principal Executive Offices) (Zip Code)

 

(410) 972-4713

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class Name of each exchange on which registered
Common Stock, $0.0001 par value Over the Counter Bulletin Board

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes  x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(b) of the Act. o Yes  x No

 

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 and 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. x Yes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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). x Yes  o No

 

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

   

Large accelerated filer o   Accelerated filer o
     
Non-accelerated filer o   Smaller reporting company x
(Do not check if a smaller reporting company)    

 

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

 

The aggregate market value of the voting Common Stock held by non-affiliates (based upon the closing sale price of $0.03 per share on the (Over the Counter Bulletin Board) of the registrant as of June 30, 2012: $3,058,715.

 

Number of issued and outstanding shares of the registrant’s par value $0.0001 common stock as of March 29, 2013: 290,758,136

 

 

 
 

 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

FORM 10-K

INDEX

 

    Page
Part I
     
Item 1. Description of Business  4
     
Item 1A. Risk Factors 13
     
Item 1B. Unresolved Staff Comments 24
     
Item 2. Properties 24
     
Item 3. Legal Proceedings 24
     
Item 4. Mine Safety Disclosures 24
     
Part II
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25
     
Item 6. Selected Financial Data 28
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 36
     
Item 8. Financial Statements and Supplementary Data 36
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36
     
Item 9A. Controls and Procedures 36
     
Item 9B. Other Information 38
     
Part III
     
Item 10. Directors, Executive Officers and Corporate Governance 40
     
Item 11. Executive Compensation 41
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 43
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 44
     
Item 14. Principal Accounting Fees and Services 45
     
Part IV
     
Item 15. Exhibits, Financial Statement Schedules 46

 

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PART I

 

Cautionary Note Regarding Forward-Looking Statements

 

This Annual Report on Form 10-K (this "Annual Report") contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Annual Report other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any statements of the plan and objectives for future operations and any statement of assumptions underlying any of the foregoing.

 

In light of the significant uncertainties inherent in the forward-looking statements made in this Annual Report, particularly in view of the Company’s early stage of operations, the inclusion of this information should not be regarded as a representation by the Company or any other person that its objectives, future results, levels of activity, performance or plans will be achieved. These statements are further qualified by important factors that could cause actual results to differ materially from those contemplated in the forward-looking statements, including, without limitation, the following:

 

  · the Company’s ability to raise sufficient capital;

 

  · the passage of adverse or burdensome government regulation;

 

  · litigation and legal liability;

 

  · the Company’s ability to attract and retain qualified personnel;

 

  · reliance on third-party product providers;

 

  · the Company’s ability to attract and retain new customers and increase revenues;

 

  · the Company’s ability to market, commercialize and achieve market acceptance of its products;

 

  · the Company’s ability to protect its intellectual property;

 

  · changes in the competitive environment;

 

  · the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which the Company plans to operate, particularly given the global scope of the Company’s proposed businesses and the possibility of conflicting regulatory requirements across jurisdictions in which it proposes to do business;

 

  · environmental impacts of the Company’s planned operations and possible adverse publicity; and

 

  · political, social and economic conditions in the United States in general.

 

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or words of similar meaning. They may also use words such as “would,” “should,” “could” or “may.” Factors that may cause the Company’s actual results to differ materially from those described in forward-looking statements include the risks discussed elsewhere in this Annual Report under the caption “Risk Factors” and risk factors discussed in the documents filed by the Company with the SEC.

 

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This Annual Report may contain forward-looking statements that involve risks and uncertainties, including but not limited to the Company's ability to produce a cost-effective wind energy conversion device. Among the important factors that could cause actual events to differ materially from those indicated by forward-looking statements in this Annual Report are the failure of  the Company to achieve or maintain necessary zoning approvals with respect to the location of its proposed projects; to successfully complete its proposed projects on time and remain competitive; the inability of the Company to sell its planned products and/or services in the future, if needed, to finance the marketing and sales of its planned products and/or services, general economic conditions, and those risk factors detailed in this Annual Report.

 

All references in this Form 10-K that refer to the “Company,” “Solar Wind Energy Tower” (f/k/a Clean Wind Energy Tower, Inc.), “Solar Wind,” “we,” “us” or “our” are to Solar Wind Energy Tower Inc. and unless otherwise differentiated, its subsidiary, Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.) All references to “Solar Wind Energy (f/k/a Clean Wind Energy, Inc.)” are to our subsidiary, Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.)

 

ITEM 1.  DESCRIPTION OF BUSINESS

 

Corporate History

 

On December 29, 2010, Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.), a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”).  In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

The Company was incorporated under the laws of the State of Idaho on January 22, 1962, as Superior Mines Company.  In 1964, the Company’s name was changed to Superior Silver Mines, Inc.  On December 27, 2010, the Company reincorporated as a Nevada corporation.  Prior to the Merger, the Company had been dormant for a number of years and had no known mineral reserves.  On January 21, 2011, the Company changed its name from Superior Silver Mines, Inc. to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc.  along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

    

The Company’s executive offices are located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401.

 

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Overview

 

Our Company’s core objective and focus is to become a leading provider of clean efficient green energy to the world communities at a reasonable cost without the destructive residuals of fossil fuel, while continuing to generate innovative technological solutions for today and tomorrow’s electrical power needs.

 

Solar Wind has assembled a team of experienced business professionals, engineering and scientific consultants with the proven ability to bring the idea to market. Solar Wind has filed and been issued patents that the Company believes will further enhance this potentially revolutionary technology. Solar Wind is based in Annapolis, MD, and is traded on the OTCBB under the symbol ‘CWET’.

Solar Wind has, designed, engineered, developed and is preparing to construct large “Solar Wind Downdraft Towers” that use benevolent, non-toxic natural elements to generate electricity economically by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Solar Wind Downdraft Towers in the United States and abroad, the Company intends to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for electricity.

 

A Bold New Energy Solution

 

The United States and other nations are aggressively pursuing energy independence with clean, sustainable energy solutions. Solar Wind offers a bold new approach to overcome the current limitations of other known alternative energy sources. The Solar Wind Downdraft Tower combines dry air heated by the solar rays of the sun with water added as a catalyst to create a powerful natural downdraft.

 

Hybrid Solar/Wind Technology

 

We view ourselves as a hybrid solar/wind technology because the simplicity of our solution is the harnessing of the natural power of a downdraft created when water is introduced to hot dry air within the confines of our tower structure.

 

The Solar Wind Downdraft Tower

 

·Avoids the adverse effects associated with fossil and nuclear fuels.
·Is capable of Operating 24/7 and can outperform solar collectors that produce only when the sun shines in the daytime and wind turbines that produce only when the wind blows
·Has the capability of being operated with virtually no carbon footprint, fuel consumption or waste production.
·Has the potential to generate clean, cost effective and efficient electrical power without the damaging effects caused by using fossil or nuclear fuels, and other know alternative power sources.
·Uses benevolent non-toxic natural elements to generate electricity.

 

Technology

 

Innovative Renewable Energy Technology

 

The Solar Wind Downdraft Tower is a hollow cylinder reaching skyward into the hot dry atmosphere heated by the solar rays of the sun. The water introduced by the injection system evaporates and is absorbed by the hot dry air which has been heated by the solar rays of the sun. The air becomes cooler, denser and heavier than the outside warmer air and falls through the cylinder at speeds up to and in excess of 50 mph and is diverted into wind tunnels surrounding the base of the Tower where turbines inside the tunnels power generators to produce electricity.

 

5
 

  

In geographic areas where atmospheric conditions are conducive, the exterior of the Solar Wind Downdraft Tower may be constructed with vertical “wind vanes” that capture the prevailing wind and channel it to produce supplemental electrical power. This dual renewable energy resource enhances the capability and productivity of the Solar Wind Energy system.

 

Physical Principles

 

Evaporating water to create or diminish energy (for cooling) is a well-understood physical principle.  Evaporative coolers are used not just throughout the United States Southwest region (hot & arid), but widely in the power industry to cool gas, coal and nuclear power plants.

 

Similarly, cooling towers adorn the roofs of countless buildings in large cities, providing affordable energy.  Airline pilots are very familiar with downdrafts and diligently avoid downdrafts associated with thunderstorms, especially when near the ground, where downdrafts can force a 200 ton airplane dangerously downward.

 

Solar Wind’s Energy Tower uses the same fundamental physical principle of evaporative cooling which creates a downdraft. Cool, moist, dense air always falls through hot dry air.  What most people are unaware of is that the wind speed in an energy tower can exceed 50mph.

 

In summary, it is clear that Solar Wind’s Energy Tower creates and harnesses the downdraft, using widely applied and well-understood physical principles, to produce abundant electricity.

 

 

 

Abundant, Clean, Affordable Electricity Production

 

The Company has successfully managed to downsize the Tower, reducing capital costs and improving projected financial performance. The Company recently announced the completion of weather data models that confirm that the first Tower height can be lowered from 3,000 feet down to 2,250 feet. This development was made possible by utilizing our recently announced software which can calculate and predict energy production by our Solar Wind Downdraft Towers given local weather data. By feeding the weather data for southwestern Arizona / northern Mexico into the program, the Tower’s height and diameter can be adjusted along with the amount of water added as fuel to create a desired amount of energy. The outcome dictates the optimum size of the Tower’s height and width.

 

Under the most recent design specifications, the first San Luis Tower has a design capacity on an hourly basis, of up to 1250 megawatt hours, gross. Using a 60% capacity factor, the Tower’s potential hourly yield would be 600 megawatt hours from which approximately 18.5% will be used to power its operations, yielding approximately 500 megawatt hours available for sale to the power grid. Due to lower capacities during winter days, the average daily output for sale to the grid for the entire year is approximately 435 megawatt hours. Currently in California avoided costs are running approximately $0.11 per kilowatt hour. As an independent power producer of clean renewable energy the Company will not be selling power directly to consumers, but rather to the grid.

 

6
 

 

Intellectual Property

 

 The Company has filed numerous patent applications with the U.S. Patent Office to protect its intellectual property.  At this time the Company has retained the following patent as well as the patent applications that we feel are instrumental to the core development of our project:

  

A modified mobile base for large tower cranes incorporating a multi - Wheeled air ride suspension system for even load distribution on 20 or more wheels, with the ability to keep the tower plumb in all working conditions.

 

Improved Wind Energy Power Transmission System - To more effectively transmit energy via a new multi-stage variable hydraulic drive system that operates efficiently through a very broad range of wind and turbine speeds.

 

Energy Tower Having External Wind Capturing Capacity - To supplement the available energy of an energy tower by capturing existing winds aloft (800 to 4,000 ft).

  

Patent Allowance Notification

 

On February 14, 2012 the Company announced the Notice of Allowance of its patent application titled Efficient Energy Conversion Devices & Methods (U.S. Pat. App. No. 13/091,124) by the United States Patent and Trademark Office. The patent covers specific aspects of deploying multiple turbines in a wind tunnel coupled to a novel hydraulic system capable of maintaining high efficiency hydraulic to electric conversion under a wide variance of wind speeds. The ultimate goal is to maximize the capture and utilization of all available wind energy in any given wind tunnel, as well as providing a consistency of power output during any deviations in wind speed. The Company considers this patent to be a “Core Patent” providing a significant barrier to entry for any potential competitor.

    

Site Requirements

 

Solar Wind’s (f/k/a Clean Wind’s) planned Downdraft Tower requires very specific site conditions.  The location must provide appropriate climate and atmospheric conditions. The site must have access to reliable water sources, either fresh or salt water, in which case desalinization may be required.  The foundation for the Downdraft Tower should most appropriately be bedrock.  Additionally, the site should have access to rail service and other logistical ease of access.  The Company is investigating the feasibility of locating a Downdraft Tower in Arizona.

 

Considerations

 

The Downdraft Tower works best in hot, dry climates, near sea level, and near a reliable water source.  Prime production periods are daytime during spring, summer and fall, which closely aligns with electricity demand patterns. 

 

The External Wind Capture keeps working 24/7 including cold winter months and at night whenever a wind is blowing  -  from the surface up to 4,000 feet - where much stronger winds blow far more constantly (at least twice as often as on the surface and at much higher speeds).

 

There are a number of appropriate sites around the globe that are hot, dry, and near water adequate to support numerous Energy Towers that efficiently turn the sun’s energy into electricity.

 

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The Distinct Advantages

 

Solar Wind (f/k/a Clean Wind) enjoys one major advantage over all other wind energy producers: a constant, high speed downdraft that blows for more than half the year.  While ordinary wind turbine farms struggle with 20% to 30% capacity factors and wind speeds that are often useless or marginal (too low or too high), Solar Wind’s (f/k/a Clean Wind’s) Energy Tower can continuously channel 50 mph winds (or higher) into a controlled environment where the vast majority the wind’s energy can be captured to generate electricity. 

 

Power industry experts know that when computing wind power, the velocity is cubed (not squared).  Thus a 50 mph wind in a Solar Wind turbine will produce more than 15 times as much power as a 20 mph wind striking a conventional turbine.

 

Global Energy Generation Calculator

 

The Company has developed a software based analytical program to determine the energy generation capabilities of its Solar Wind Downdraft Towers based on the climate in geographic locations around the world, and has taken the appropriate steps to protect its intellectual property invention.

 

This essential tool has been under development by the Company for over one year and applies “known” scientific meteorology data of a specific area to the Solar Wind Downdraft Tower’s variables in order to determine and project energy outputs on a daily basis. Advancements in the scientific community over the last decade that predict and pin-point specific weather conditions provided significant insights to the development of this innovative tool.

 

This analytical tool, combined with our proprietary operating systems technology and existing core patents, clearly provides the Company with a unique opportunity to allow global positioning of this alternative solution to the world’s energy needs. Solar Wind can now rapidly respond to a request from virtually any country reasonably suitable to host a project and determine specifically where the Solar Wind Downdraft Tower should be located, the size of the Tower and the amount of electricity it can produce.

 

Development

 

The master development plan for a site requires a series of steps:

 

·explore, select, and qualify site for foundation integrity;
·negotiate and execute land lease (site) and rights of way (water pipeline, transmission line, highway and railway access);
·survey and identify any artifacts and cultural resources that may be impacted by site exploration, project construction or operation;
·acquire water rights;
·determine and design access to and availability of electrical grid, roads, rail transportation, sewer, water, and power for construction and operation;
·create project site plan for offices, storage buildings for construction equipment, etc.;
·coordinate and provide, to the extent possible, resource carry-over (i.e., buildings and facilities) to the locale after construction;
·determine the type and number of jobs created during study, construction and operational phases;
·determine the cost of the project (currently estimated at $4.5 billion); and
·determine electricity produced (currently estimated at $900 million annually).

      

Business Model

  

The Business Model is to create an Energy Compound of Towers to be developed individually with a common water supply and rail/water port for supplies and equipment delivery, and common component assembly plant and labor force.  Energy Compounds could actually be developed simultaneously in North America, N. Africa (to serve the European grid by piping direct current across the Med), India and the Mid-East.  The world market can support all the materials needed and can certainly use the electricity.  The cost per kilowatt is similar to that of a typical coal or gas-fired facility.  SWET has positioned itself to take advantage of this solution and bring the first project to market, thereby setting the stage for a global “game changing” opportunity.

 

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Project Partnering

 

The Company’s business plan involves “partnering” with various entities such as utilities, sovereign nations and independent power sources, to provide the ability to bring this solution to the market as rapidly as possible.

 

Each Solar Wind Downdraft Tower is its own independent project. Solar Wind Energy’s (f/k/a Clean Wind Energy’s) involvement in each project is to facilitate the Tower’s development with its expertise and intellectual property. Solar Wind will receive development fees, licensing fees, and royalties on power sales from each project and/or ownership interests.

  

Coordinated World Class Expertise

 

SWET has located a site for its first Tower here in the USA and received key patents to protect its techniques to extract the energy from the Solar Wind Downdraft Tower.  Some of the best consultants in the world have been and continue to support SWET's efforts to bring this first Downdraft Tower to market.

 

First Solar Wind Downdraft Tower

 

The first site is in San Luis, AZ on the Mexico/US border.  SWET has a temporary permit from the US Department of Interior, Bureau of Reclamation to conclude the necessary zoning and is preparing to conduct the site evaluations and proceed with the NEPA process. The Planning Commission recommended the project and the zoning, and on May 23, 2012 the City Council unanimously approved final zoning for one of the Towers first and on June 23rd, 2012, the zoning for the first Tower became final. The weather data has been updated for the first sites and final reports accurately calculate the Tower's output capacity 24/7. Those reports now support and validate SWET’s goal to develop its first Tower at the minimum size and design output possible, which preserves cash flow of 2:1 for debt service coverage. In November the San Luis City Council voted unanimously in favor of a zoning text amendment paving the way for a second Tower and assembly plant on site. SWET is pursuing final zoning approval for the second Tower.

 

Concurrently, we have been exploring other site opportunities and in October, the Company signed a Letter of Intent (“LOI”) to enter into a Definitive Agreement to purchase a 3,200 acre site in Mexico that has the ideal attributes required for the Company’s Downdraft Tower. The Company intends to build and operate two Solar Wind Energy Downdraft Towers on this site. The proposed property is located in a particularly exceptional area for the development of these projects as it possesses suitable access, along with the required topography. Both Solar Wind Energy and the current land owner have been in discussions regarding this project since the later part of 2011 and are working together diligently under the LOI towards the execution of a Definitive Agreement. The land purchase is subject to the seller providing clear title and unrestricted access to the property as well as acquiring all of the needed prerequisites and approvals for the implementation of the Downdraft Towers including access to the power grid and the Company securing a satisfactory Power Purchase Agreement.

 

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Customers

 

Energy produced by the Downdraft Tower could provide low cost electricity to the power grid. Solar Wind (f/k/a Clean Wind) plans to ultimately build and operate wind energy plants and sell the electricity either through contracts with utilities, which is the traditional method for independent power plants, or directly into the open market or electricity commodities market like a merchant plant similar to many natural gas fired power plants. The Company may also sell the power plants themselves to large customers or utilities and/or operate such plants for customers or utilities.

 

The sale of electricity to power brokers is more profitable than selling directly to the electricity commodities market. If the cost of the marketing infrastructure of selling green energy at a $0.02 per kWh premium is justified as opposed to the wholesale contracting of electricity at a lower price, then Solar Wind (f/k/a Clean Wind) plans to market the electricity to green energy brokers. The green power is energy from clean energy production sources like wind energy in which consumers are willing to pay a premium in order to promote clean energy. If Solar Wind (f/k/a Clean Wind) chooses to work through power brokers, it believes the potential exists to sell the environmental correct “green” power at a premium price being higher than conventional fuel sources. Power brokers usually receive a premium of $0.015 per kWh above the wholesale price paid on the open market. However, the market is new and subject to uncertainty including price fluctuations.

  

Markets

 

Wind energy experienced a 39% annual growth for the past five years according to the American Wind Energy Association, the industry’s trade organization based in Washington, D.C.  Recent national surveys show that approximately 40-70% of the population surveyed indicate a willingness to pay a premium for renewable energy. Although 10% of the respondents say they will participate in such a program, actual participation is estimated at 1%. Currently, more than a dozen utilities have green marketing programs. Public Service Company of Colorado, Central and South West Services Corporation of Texas, and Fort Collins Light and Power Company are leading the effort in wind related green electricity marketing.

 

The Company is investigating the feasibility of locating a Downdraft Tower in California.  California has three major regulated investor-owned utilities and many municipal utilities, all of which are required by state law to have renewable sources of generation in their resource portfolios, whether generated or purchased. Arizona utilities have similar requirements. Due to federal regulations requiring that transmission owners provide service on the same terms to all generators requesting service, known as “open access”, independent power producers (which the Company would be under its business model), are able to develop wind energy projects in areas where such resources are most prevalent and sell power to anyone interconnected with the transmission grid in California. California’s transmission grid is operated by a regional transmission organization (“RTO”), the California Independent System Operator (“CAISO”). Other states belong to other RTOs.

 

Competition

 

The Downdraft Tower project requires a large land base and specific conditions. Given these constraints and the increasing focus on renewable energy to offset the environmental problems caused by fossil fuels, the renewable energy industry is highly competitive.

 

In the markets where the Company plans to conduct its business, it will compete with many energy producers including electric utilities and large independent power producers. There is also competition from fossil fuel sources such as natural gas and coal, and other renewable energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. Deregulation and consumer preference are becoming important factors in increasing the development of alternative energy projects. The Company believes that governments and consumers recognize the importance of renewable energy resources in the energy mix, and are facilitating the implementation of wind and other renewable technologies through renewable portfolio standards and revenue and tax incentives.

 

Arizona and California are primarily served by large utilities, such as Southern California Edison Company, Pacific Gas & Electric Company, San Diego Gas & Electric Company, Arizona Public Service Company (“Arizona Public Service”) and UNS. All of these companies have non-regulated subsidiaries or sister companies that develop generating facilities. In addition, utilities from other states and countries have established large wind energy generating companies, such as Florida Power & Light Company, enXco, Inc. and PPM Energy, Inc. (now part of a large Spanish renewable company, Iberdrola Renovables, S.A.).

 

According to the Electric Power Research Institute, the past ten years have seen traditional energy costs increase while wind energy costs have declined.  The advances in technology, larger-scale and more efficient manufacturing processes, and increased experience in wind turbine operations has contributed substantially to this trend. This cost decline is paralleled with a several hundred fold increase in installed wind energy capacity. As a result, maintenance costs have fallen significantly. Wind energy sources comprise less than 1% of the current electricity generating industry.

 

A new assessment released by the National Renewable Energy Laboratory in 2010 shows that U.S. wind resources are even larger than previously estimated and potential capacity of the land-based wind resource is more than 10,000 GW, far exceeding the 300 GW required to meet 20% of the nation’s electrical demand with wind in 2030. This figure does not factor the potential of Downdraft Towers. The estimated levelized cost of new generation resources by the Energy Information Administration shows the cost of wind energy is competitive to other conventional means of energy generation. The cumulative capacity-weighted average price of wind power, including the production tax credit, was about 4.4 cents per kilowatt hour in 2009 — a price that competes with fossil fuel-generated electricity.

 

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Environmental

 

Various parties in the United States and other nations are pursuing clean energy solutions that use efficient and cost- effective renewable resources to serve society while avoiding the adverse effects associated with fossil and nuclear fuels, and also the obvious limitations of solar collectors that work only when the sun shines or wind turbines that work only when the wind blows.

 

The Solar Wind Downdraft Tower has the capability of being operated with virtually no carbon footprint, fuel consumption, or waste production. The technology has the potential to generate clean, cost effective and efficient electrical power without the damaging effects caused by using fossil or nuclear fuels, and other conventional power sources. The Company also believes that increasing emphasis on green technologies and governmental incentives in the energy industry should have a positive long-term effect on the Company's planned business and the wind energy industry in general.

 

Numerous federal and state environmental laws can affect the development of renewable energy, such as the California Environmental Quality Act. These laws require that certain studies be conducted to ensure that there are no significant adverse impacts on wildlife, humans and the environment generally. The significant impacts of wind energy projects are on visibility, noise, birds, wildlife habitat and soil erosion. Changes in environmental laws can pose significant expenses on renewable energy development.

    

International treaties and protocols, such as the Kyoto Protocol, have significantly impacted the development and implementation of renewable energy technologies. Certain countries and regions also have established emission trading programs. Under emission trading programs, utilities and factories are permitted to produce a certain level of emissions. If such an entity produces fewer emissions than its allotment, the entity may sell its excess allotment to parties exceeding their emissions allotments. To date, these mechanisms are at an early stage of development within the United States. Credit trading provides the potential for creating additional income for renewable energy producers, rationalizing of electricity prices for utilities and reducing the overall retail price for green power.

 

The Company believes that increasing emphasis on green technologies and governmental incentives in the energy industry should have a positive long-term effect on the Company’s planned business and the wind energy industry in general.

 

11
 

   

Industry Analysis

 

According to the American Wind Energy Association (“AWEA”), wind energy was the world’s fastest growing energy source during most of the 1990s, expanding at annual rates ranging from 25% to 35%. The AWEA estimates the global industry growth rate has averaged 32% over the five years from 2004 through 2008, with a growth rate of 39% in 2009. The U.S. wind industry broke all previous records by installing over 10,000 MW of new wind capacity in 2009.  Current installed capacity worldwide at the end of 2009 was 35,086 MW, compared to 25,076 MW at the end of 2008. The major contributing growth factor is the federal stimulus package passed in 2009 that extended a tax credit and provided other investment incentives for alternative energy sources. The U.S. Energy Information Administration attributes 1.9% of total electric generation in the nation to wind power.

 

Not factoring the Company’s planned Downdraft Tower product, World Energy Council expects new wind capacity worldwide to continue to grow. The continued evolution of this technology is evident with the existence of varying wind turbine designs. However, there is division in the wind industry between those who want to capitalize on the emerging respect the business community has for established, mature wind technology, and those who seek new technologies designed to bring about significant cost reductions. Solar Wind (f/k/a Clean Wind) chooses to seek new horizons beyond current perception and knowledge by developing new technologies that it believes will be capable of significantly reducing wind energy costs.

 

As wind energy technology gains wider acceptance, competition may increase as large, well-capitalized companies enter the business. Although one or more may be successful, the Company believes that its technological expertise and early entry will provide a degree of competitive protection.

 

Licensing and Regulation

 

In the U.S., many state governments have amended their utility regulations and significantly changed certain competition and marketing rules with respect to generation, transmission and distribution of electric energy. Among other things, deregulation allows consumers to purchase electricity from a source of their choice, and requires utilities to purchase electricity from independent power producers and to offer transmission to independent power producers at reasonable prices.

 

In California, deregulation legislation, such as the Assembly Bill 1890 and the Renewable Energy Program, were implemented in the mid-1990s to encourage the development of renewable power generation projects through various incentives. In addition, Assembly Bill 995 and Senate Bill 1038 were passed to further facilitate the development of renewable resources. In November 2008, the governor of the State of California signed Executive Order S-14-08 requiring that California utilities reach a 33% renewable energy goal by 2020, exceeding the previous legislative mandate that electric utilities supply 20% of their total retail power sales from renewable resources by 2010. In September 2009, the Governor signed Executive Order S-21-09, requiring the Air Resources Board under the California Environmental Protection Agency to adopt a regulation by July 1, 2010 requiring California’s load-serving entities to meet the 33% renewable energy goal through the creation and use of renewable energy sources to ensure reduction of greenhouse gas emissions.

 

In Arizona, access to the electricity market has been established through Arizona’s Retail Electric Competition Rules, which, in the Company’s opinion, provide a favorable environment for renewable energy generators. Electricity producers are subject to the Federal Public Utilities Regulatory Policies Act (“PURPA”) and state regulations. In addition, power producers must also meet standards set by the Arizona Corporations Commission (the “ACC”).

 

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The Federal Energy Policy Act of 2005 provided further benefits to independent power producers by requiring transmission companies to provide access to third parties at a reasonable price. On October 3, 2008, the President of the United States signed the Emergency Economic Stabilization Act of 2008 into law. This legislation contains a number of tax incentives designed to encourage both individuals and businesses to make investments in renewable energy, including an eight-year extension of the business solar investment tax credit (“ITC”). The ITC is a 30% tax credit on solar property effective through December 31, 2016. The American Recovery and Reinvestment Act of 2009 further extended the U.S.$0.021/kWh Production Tax Credit (“PTC”) through December 31, 2012, and provide an option to elect a 30% ITC or an equivalent cash grant from the U.S. Department of Energy.

 

Employees

 

As of March 25, 2013, the Company had a total of 3 full time employees. The Company anticipates that in 2013 it will need to hire additional staff in the areas of engineering, marketing, and administration.

 

ITEM 1A.  RISK FACTORS

 

The Company’s results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this annual report on Form 10-K. You should carefully consider all of these risks before making an investment decision.

 

Risks Related to Our Business and the Industry in Which We Compete

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

The report of our independent auditors dated April 1, 2013 on our consolidated financial statements for the year ended December 31, 2012 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our inability to generate sufficient cash flow to sustain our operations without securing additional financing, deficit accumulated during development stage, negative cash flows from operations and our limited cash balances and working capital deficit position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations.  Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertain.

 

We are an early development stage company.  We have not yet commenced with the construction of our Downdraft Towers or the production of electricity.

 

The Company has a limited operating history and has primarily engaged in operations relating to the development of its business plan.  As an early-stage entity, the Company is subject to many of the risks common to such enterprises, including the ability of the Company to implement its business plan, market acceptance of its proposed business, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, and uncertainty of the Company’s ability to generate revenues.  There can be no assurance that the Company’s activities will be successful or result in any revenues or profit for the Company, and the likelihood of the Company’s success must be considered in light of the stage in its development.  To date, the Company has generated no revenue and has generated losses.  

 

The Company believes it has engaged professionals and consultants experienced in the type of business contemplated by the Company; however, there can be no assurance that the predictions, opinions, analyses, or conclusions of such professionals will prove to be accurate.  In addition, no assurance can be given that the Company will be able to consummate its business strategy and plans or that financial or other limitations may force the Company to modify, alter, significantly delay, or significantly impede the implementation of such plans or the Company’s ability to continue operations.  If the Company is unable to successfully implement its business strategy and plans, investors may lose their entire investment in the Company.

 

13
 

 

Potential investors should also be aware of the difficulties normally encountered by new renewable energy companies. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the inception of the enterprise that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to construction, operation and distribution, and additional costs and expenses that may exceed current estimates.

 

Future financings will involve a dilution of the interests of the stockholders of the Company upon the issuance of additional shares of Common Stock or other securities.

 

We will need to engage in additional financings in the future.  There can be no assurances that such financings will ever be completed, but any such financings will involve a dilution of the interests of our stockholders upon the issuance of additional shares of Common Stock or other securities.  Attaining such additional financing may not be possible, or if additional capital may be otherwise available, the terms on which such capital may be available may not be commercially feasible or advantageous to existing shareholders.  We expect to issue shares of our Common Stock and/or other securities in exchange for additional financing.

 

We anticipate significant future capital needs and the availability of future capital is uncertain.

 

The Company has experienced negative cash flows from operations since its inception. The Company will be required to spend substantial funds to continue research and development. The Company will need to raise additional capital. The Company’s capital requirements will depend on many factors, primarily relating to the problems, delays, expenses and complications frequently encountered by development stage companies; the progress of the Company’s research and development programs; the costs and timing of seeking regulatory approvals of the Company’s products under development; the Company’s ability to obtain such regulatory approvals; costs in filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; the extent and terms of any collaborative research, manufacturing, marketing, or other arrangements; and changes in economic, regulatory, or competitive conditions or the Company’s planned business. To satisfy its capital requirements, the Company may seek to raise funds in the public or private capital markets. The Company may seek additional funding through corporate collaborations and other financing vehicles. There can be no assurance that any such funding will be available to the Company, or if available, that it will be available on acceptable terms. If adequate funds are not available, the Company may be required to curtail significantly one or more of its research or development programs or it may be required to obtain funds through arrangements with future collaborative partners or others that may require the Company to relinquish rights to some or all of its technologies or products under development. If the Company is successful in obtaining additional financing, the terms of the financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of Common Stock.

 

We have a history of losses.

 

We expect to incur non-capitalized development costs and general and administrative expenses prior to the completion of construction and commencement of operation of our proposed projects. We cannot predict if we will ever achieve profitability and, if we do, we may not be able to sustain or increase our profitability. If we cannot achieve or maintain profitability, we may not be able to continue to absorb the resulting financial losses. If we continue to suffer financial losses, our business may be jeopardized and our shareholders may lose all of their investment in our shares.

 

14
 

 

The Company’s strategies for development of the business might not be successful.

 

The Company is currently evaluating potential development strategies for its business. It may take several years, if ever, for the Company to achieve cumulative positive cash flow. The Company could experience significant difficulties in executing its business plan, including: inability to successfully implement the Company’s business plan; changes in market conditions; inability to obtain necessary financing; delays in completion of the Company’s projects or their underlying technologies; inaccurate cost estimates; changes in government or political reform; or the Company may not benefit from the proposed projects as the Company expected. The Company’s inability to develop and market the Company’s business successfully and to generate positive cash flows from these operations in a timely manner would have a material adverse effect on the Company’s ability to meet the Company’s working capital requirements.

 

We expect to rely upon strategic relationships in order to execute our business plan and the Company may not be able to consummate the strategic relationships necessary to execute its business plan.

 

The Company plans to enter into and rely on strategic relationships with other parties, in particular to acquire rights necessary to develop and build proposed projects and to develop and build such projects. These strategic relationships could include licensing agreements, partnerships, joint ventures, or even business combinations. The Company believes that these relationships will be particularly important to the Company’s future growth and success due to the size and resources of the Company and the resources necessary to complete the Company’s proposed projects. The Company may, however, not be able to successfully identify potential strategic relationships. Even if the Company does identify one or more potentially beneficial strategic relationships, it may not be able to consummate these relationships on favorable terms or at all, obtain the benefits it anticipates from such relationships or maintain such relationships. In addition, the dynamics of the Company’s relationships with possible strategic partners may require the Company to incur expenses or undertake activities it would not otherwise be inclined to undertake in order to fulfill the Company’s obligations to these partners or maintain the Company’s relationships. To the extent the Company consummates strategic relationships; it may become reliant on the performance of independent third parties under such relationships. Moreover, certain potentially critical strategic relationships are only in the early stages of discussion and have not been officially agreed to and formalized. If strategic relationships are not identified, established or maintained, or are established or maintained on terms that become unfavorable, the Company’s business prospects may be limited, which could have a negative impact on the Company’s ability to execute the Company’s business plan, diminish the Company’s ability to conduct the Company’s operations and/or materially and adversely affect the Company’s business and financial results.

 

Project development or construction activities may not be successful and proposed projects may not receive required permits or construction may not proceed as planned.

 

The development and construction of our proposed projects will involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, legal, and other expenses before we can determine whether a project is feasible, economically attractive or capable of being built. Success in developing a particular project is contingent upon, among other things: (i) negotiation of satisfactory engineering, procurement and construction agreements; (ii) receipt of required governmental permits and approvals, including the right to interconnect to the electric grid on economically acceptable terms; (iii) payment of interconnection and other deposits (some of which may be non-refundable); (iv) obtaining construction financing; and (v) timely implementation and satisfactory completion of construction.

 

Successful completion of a particular project may be adversely affected by numerous factors, including: (i) delays in obtaining required governmental permits and approvals with acceptable conditions; (ii) uncertainties relating to land costs for projects on land subject to Bureau of Land Management procedures; (iii) unforeseen engineering problems; (iv) construction delays and contractor performance shortfalls; (v) work stoppages; (vi) cost over-runs; (vii) equipment and materials supply; (viii) adverse weather conditions; and (ix) environmental and geological conditions.

 

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The estimates and projections contained in this Annual Report may not be realized.

 

Any estimates or projections in this Annual Report have been prepared on the basis of assumptions and hypotheses, which the Company believes to be reasonable. However, no assurance can be given that the potential benefits described in this Annual Report will prove to be available.  Such assumptions are highly speculative and, while based on management’s best estimates of projected sales levels, operational costs, consumer preferences, and the Company’s general economic and competitive conditions in the industry, there can be no assurance that the Company will operate profitably or remain solvent.  To date, the Company has not operated profitably and has a history of losses.  If the Company’s plans prove unsuccessful, investors could lose all or part of their investment.  There can be no assurance that the Company will be able to generate any revenue or profits.

 

Our business is subject to significant government regulation and, as a result, changes to such regulations may adversely affect our business.

   

Although independent and small power producers may generate electricity and engage in wholesale sales of energy without being subject to the full panoply of state and/or provincial and federal regulation to the same extent as a public utility company, our planned operations will nonetheless be subject to changes in government regulatory requirements, such as regulations related to the environment, zoning and permitting, financial incentives, taxation, competition, pricing, and FERC and state PUC regulations on competition. The operation of our proposed projects will be subject to regulation by various U.S. government agencies at the federal, state and municipal level. There is always the risk of change in government policies and laws, including but not limited to laws and regulations relating to income, capital, sales, corporate or local taxes, and the removal of tax incentives. Changes in these regulations could have a negative impact on our potential profitability. Laws and tax policies may change and such changes may be favorable or unfavorable to the Company, which may result in the cancellation of proposed projects or reduce anticipated revenues and cash flow.

 

We may be unable to acquire or lease land and/or obtain the approvals, licenses and permits necessary to build and operate our proposed projects in a timely and cost effective manner, and regulatory agencies, local communities or labor unions may delay, prevent or increase the cost of construction and operation of our proposed projects.

 

In order to construct and operate our proposed projects, we need to acquire or lease land and obtain all necessary local, county, state and federal approvals, licenses and permits. We may be unable to acquire the land or lease interests needed, may not receive or retain the requisite approvals, permits and licenses or may encounter other problems which could delay or prevent us from successfully constructing and operating proposed projects.

 

Proposed projects may be located on or require access through public lands administered by federal and state agencies pursuant to competitive public leasing and right-of-way procedures and processes. The authorization for the use, construction and operation of our proposed projects and associated transmission facilities on federal, state and private lands will also require the assessment and evaluation of mineral rights, private rights-of-way and other easements; environmental, agricultural, cultural, recreational and aesthetic impacts; and the likely mitigation of adverse impacts to these and other resources and uses. The inability to obtain the required permits and, potentially, excessive delay in obtaining such permits due, for example, to litigation, could prevent us from successfully constructing and operating our proposed projects. Moreover, project approvals subject to project modifications and conditions, including mitigation requirements and costs, could affect the financial success of our proposed projects.

 

Our ability to manage our growth successfully is crucial to our future.

 

We are subject to a variety of risks associated with a growing business. Our ability to operate successfully in the future depends upon our ability to finance, develop, and construct future renewable energy projects, implement and improve the administration of financial and operating systems and controls, expand our technical capabilities and manage our relationships with landowners and contractors. Our failure to manage growth effectively could have a material adverse effect on our business or results of operations.

 

16
 

 

Notwithstanding the Recovery Act and other regulatory incentives, we may not be able to finance the development or the construction costs of building our planned projects.

 

We do not have sufficient funds from the cash flow of our operations to fully finance the development or the construction costs of building our proposed projects. Additional funds will be required to complete the development and construction of our proposed projects, to find and carry out the development of properties, and to pay the general and administrative costs of operating our business. Additional financing may not be available on acceptable terms, if at all. If we are unable to raise additional funds when needed, we may be required to delay development and construction of our proposed projects, reduce the scope of our proposed projects, and/or eliminate or sell some or all of our development projects, if any.

 

We may not be able to obtain access to the transmission lines necessary to deliver the power we plan to produce and sell.

 

We will depend on access to transmission facilities so that we may deliver power to purchasers. If existing transmission facilities do not have available transmission capacity, we would be required to pay for the upgrade of existing transmission facilities or to construct new ones. There can be no assurance that we will be able to secure access to transmission facilities at a reasonable cost, or at all. As a result, expected profitability on a proposed project may be lower than anticipated or, if we have no access to electricity transmission facilities, we may not be able to fulfill our obligations to deliver power or to construct the project or we may be required to pay liquidated damages.

 

Changes in interest rates and debt covenants and increases in turbine and generator prices and construction costs may result in our proposed projects not being economically feasible.

 

Increases in interest rates and changes in debt covenants may reduce the amounts that we can borrow, reduce the cash flow, if any, generated by our proposed projects, and increase the equity required to complete the construction of our proposed projects. The cost of wind turbines, generators and construction costs have increased significantly over the last four years. Further increases may increase the cost of our proposed projects to the point that such projects are not feasible given the prices utilities are willing to pay. There can be no assurance that we will be able to negotiate power purchase agreements with sufficiently profitable electricity prices in the future.

   

We may not be able to secure power purchase agreements.

 

We may not be able to secure power purchase agreements for our proposed projects. In the event that we do secure power purchase agreements, if we fail to construct our proposed projects in a timely manner, we may be in breach of our power purchase agreements and such agreements may be terminated.

 

The operation of our proposed projects may be subject to equipment failure.

 

After the construction of our proposed projects, the electricity produced may be lower than anticipated because of equipment malfunction. Unscheduled maintenance can result in lower electricity production for several months or possibly longer depending on the nature of the outage, and correspondingly, in lower revenues.

 

Changes in weather patterns may affect our ability to operate our proposed projects.

 

Meteorological data we collect during the development phase of a proposed project may differ from actual results achieved after the project is erected. While long-term precipitation patterns have not varied significantly, short-term patterns, either on a seasonal or on a year-to-year basis may vary substantially. These variations may result in lower revenues and higher operating losses.

 

17
 

 

Environmental damage on our properties may cause us to incur significant financial expenses.

 

Environmental damage may result from the development and operation of our proposed projects. The construction of our proposed initial Downdraft Tower involves, among other things, land excavation and the installation of concrete foundations. Equipment can be a source of environmental concern, including noise pollution, damage to the soil as a result of oil spillage, and peril to certain migratory birds and animals that live, feed on, fly over, or cross the property. In addition, environmental regulators may impose restrictions on our operations, which would limit our ability to obtain the appropriate zoning or conditional use permits for our project. We may also be assessed significant financial penalties for any environmental damage caused on properties that are leased, and we may be unable to sell properties that are owned. Financial losses and liabilities that may result from environmental damage could affect our ability to continue to do business.

 

Larger developers have greater resources and expertise in developing and constructing renewable energy projects.

 

We face significant competition from large power project developers, including electric utilities and large independent power producers that have greater project development, construction, financial, human resources, marketing and management capabilities than the Company. They have a track record of completing projects and may be able to acquire funding more easily to develop and construct projects. They have also established relationships with energy utilities, transmission companies, turbine suppliers, and plant contractors that may make our access to such parties more difficult.

 

Renewable energy must compete with traditional fossil fuel sources.

 

In addition to competition from other industry participants, we face competition from fossil fuel sources such as natural gas and coal, and other renewable energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. However, deregulation, legislative mandates for renewable energy, and consumer preference for environmentally more benign energy sources are becoming important factors in increasing the development of alternative energy projects.

 

The wind energy industry in California is highly competitive since wind plays an integral role in the electricity portfolio in California.

 

The Company is investigating the feasibility of locating a Downdraft Tower in California.  Since wind plays an integral role in the electricity portfolio in California and wind energy requires a significant amount of land resource, the wind energy industry in California is highly competitive. Wind developers compete for leased and owned land with favorable wind characteristics, limited supply of turbines and contractors, and for purchasers and available transmission capacity. There is no guarantee that we will be able to acquire the significant land resources needed to develop projects in California.

 

Our ability to hire and retain qualified personnel and contractors will be an important factor in the success of our business. Our failure to hire and retain qualified personnel may result in our inability to manage and implement our plans for expansion and growth.

 

Competition for qualified personnel in the renewable energy industry is significant. To manage growth effectively, we must continue to implement and improve our management systems and to recruit and train new personnel. We may not be able to continue to attract and retain the qualified personnel necessary to carry on our business. If we are unable to retain or hire additional qualified personnel as required, we may not be able to adequately manage and implement our plans for expansion and growth.

 

18
 

 

The market in which we operate is rapidly evolving and we may not be able to maintain our profitability.

 

As a result of the emerging nature of the markets in which we plan to compete and the rapidly evolving nature of our industry, it is particularly difficult for us to forecast our revenues or earnings accurately. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results of operations and financial condition.

 

We depend on key personnel, the loss of which could have a material adverse effect on us.

 

Our performance depends substantially on the continued services and on the performance of our senior management and other key personnel. Our ability to retain and motivate these and other officers and employees is fundamental to our performance.  The unexpected loss of services of one or more of these individuals could have a material adverse effect on us. We are not protected by a material amount of key-person or similar life insurance covering our executive officers and other directors. We have entered into employment agreements with our executive officers, but the non-compete period with respect to certain executive officers could, in some circumstances in the event of their termination of employment with the Company, end prior to the employment term set forth in their employment agreements.

  

Certain legal proceedings and regulatory matters could adversely impact our results of operations.

 

We may be subject from time to time to various claims involving alleged breach of contract claims, intellectual property and other related claims, and other litigations. Certain of these lawsuits and claims, if decided adversely to us or settled by us, could result in material liability to the Company or have a negative impact on the Company’s reputation or relations with its employees, customers, licensees or other third parties. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings could result in substantial costs and may require that the Company devotes substantial time and resources to defend itself. Further, changes in governmental regulations in the U.S. could have an adverse impact on our results of operations.

 

Our results may be adversely affected by the impact that disruptions in the credit and financial markets have on our customers and the energy industry.

    

Beginning in late 2008 and continuing throughout 2009, energy and utility companies faced difficult conditions as a result of significant disruptions in the global economy, the repricing of credit risk and the deterioration of the financial markets. Continued volatility and further deterioration in the credit markets may reduce our access to financing. These events could negatively impact our operations and financial condition and our ability to raise the additional capital necessary to finance our operations.

 

The effects of the recent global economic crisis may impact the Company’s business, operating results, or financial condition.

 

The recent global economic crisis has caused disruptions and extreme volatility in global financial markets and increased rates of default and bankruptcy, and has impacted levels of spending. These macroeconomic developments could negatively affect the Company’s business, operating results, or financial condition in a number of ways. For example, potential clients may delay or decrease spending with the Company or may not pay the Company.

 

The Company’s insurance coverage may not be adequate.

 

If the Company was held liable for amounts exceeding the limits of its insurance coverage in place at any given time or for claims outside the scope of that coverage, its business, results of operations and financial conditions could be materially and adversely affected.

 

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Our business is subject to extensive governmental regulation that could reduce our profitability, limit our growth, or increase competition.

 

Our planned businesses are subject to extensive federal, state and foreign governmental regulation and supervision, which could reduce our potential profitability or limit our potential growth by increasing the costs of regulatory compliance, limiting or restricting the products or services we plan to sell or the methods by which we plan to sell our products and services, or subjecting our businesses to the possibility of regulatory actions or proceedings.

 

In all jurisdictions the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, we may be precluded or temporarily suspended from carrying on some or all of our planned activities or otherwise fined or penalized in a given jurisdiction. No assurances can be given that our business will be allowed to be, or continue to be, conducted in any given jurisdiction as we plan.

 

Competition resulting from these developments could cause the supply of, and demand for, our planned products and services to change, which could adversely affect our results of operations and financial condition.

 

Our planned operations will expose us to various international risks that could adversely affect our business.

 

We are seeking to reach agreements for the provision of key aspects of our business with foreign operators, specifically in Mexico. Accordingly, we may become subject to legal, economic and market risks associated with operating in foreign countries, including:

 

·the general economic and political conditions existing in those countries;
·devaluations and fluctuations in currency exchange rates;
·imposition of limitations on conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;
·imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries;
·hyperinflation in certain foreign countries;
·imposition or increase of investment and other restrictions by foreign governments;
·longer payment cycles;
·greater difficulties in accounts receivable collection; and
·the requirement of complying with a wide variety of foreign laws.

  

Our ability to conduct business in foreign countries may be affected by legal, regulatory, political and economic risks.

 

Our ability to conduct business in foreign countries is subject to risks associated with international operations. These include:

  

·the burdens of complying with a variety of foreign laws and regulations;
·unexpected changes in regulatory requirements; and
·new tariffs or other barriers in some international markets.

   

We are also subject to general political and economic risks in connection with our international operations, including:

 

·political instability and terrorist attacks;
·changes in diplomatic and trade relationships; and
·general economic fluctuations in specific countries or markets.

  

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We cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S. or foreign countries upon our business in the future, or what effect any of these actions would have on our business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have a material adverse effect on our business in the future or may require us to significantly modify our current business practices.

 

The occurrence of natural or man-made disasters could adversely affect our financial condition and results of operations.

 

We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods and tornadoes, and pandemic health events such as H1N1 influenza, as well as man-made disasters, including acts of terrorism and military actions. The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas. Disasters also could disrupt public and private infrastructure, including communications and financial services, which could disrupt our normal business operations.

  

Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

   

Should we experience a local or regional disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack, pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations.

 

Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose operation of our projects or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster recovery scenario.

 

We plan to regularly assess and take steps to improve upon our existing business continuity plans and key management succession. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability.

 

Assertions by a third party that the Company infringes its intellectual property could result in costly and time-consuming litigation, expensive licenses or the inability to operate as planned.

 

The energy and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. There is a possibility of intellectual property rights claims against the Company. The Company’s technologies may not be able to withstand third-party claims or rights restricting their use. Companies, organizations or individuals, including the Company’s competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with the Company’s ability to provide the Company’s services or develop new products or services, which could make it more difficult for the Company to operate the Company’s business. Any litigation or claims, whether or not valid, could be time-consuming, expensive to litigate or settle and could divert the Company’s managements’ attention and financial resources. If the Company is determined to have infringed upon a third party’s intellectual property rights, the Company may be required to pay substantial damages, stop using technology found to be in violation of a third party’s rights or seek to obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, or at all, and may significantly increase the Company’s operating expenses or may require the Company to restrict the Company’s business activities in one or more respects.

 

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The Company may also be required to develop alternative non-infringing technology that could require significant effort and expense or may not be feasible. In the event of a successful claim of infringement against the Company and the Company’s failure or inability to obtain a license to the infringed technology, the Company’s business and results of operations could be harmed.

 

The Company’s business will be adversely affected if the Company is unable to protect its intellectual property rights from unauthorized use or infringement by third-parties.

 

The Company intends to rely on a combination of trademark, patent, trade secret and copyright law, license agreements and contractual restrictions, including confidentiality agreements, invention assignment agreements and non-disclosure agreements with employees, contractors and suppliers, to protect the Company’s proprietary rights, all of which provide only limited protection.  The Company believes its intellectual property rights are valuable, and any inability to protect them could reduce the value of the Company’s products, services and brand. Various events outside of the Company’s control pose a threat to the Company’s intellectual property rights as well as to the Company’s products and services. The efforts the Company has taken to protect its proprietary rights may not be sufficient or effective, may not be enforceable or may be capable of being effectively circumvented. Any significant impairment of the Company’s intellectual property rights could harm the Company’s business or the Company’s ability to compete. Also, protecting the Company’s intellectual property rights is costly and time consuming.  The Company also seeks to maintain certain intellectual property as trade secrets. The secrecy could be compromised by outside parties, or by the Company’s employees, which would cause the Company to lose the competitive advantage resulting from these trade secrets.

  

Risks Related to Our Securities

 

There is little current trading of our shares.  Our stock price is likely to be highly volatile.

 

Although prices for our shares of Common Stock are quoted on the OTCBB, there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained.  The OTCBB is generally regarded as a less efficient and less prestigious trading market than other national markets.  There is no assurance if or when our Common Stock will be quoted on another more prestigious exchange or market. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

·changes in the communications technology industry and markets;
·volume and timing of subscriptions from major customers;
·competitive pricing pressures;
·our ability to obtain working capital financing;
·technological innovations or new competitors in our market;
·additions or departures of key personnel;
·our ability to execute our business plan;
·operating results that fall below expectations;
·loss of any strategic relationship;
·industry or regulatory developments;
·economic and other external factors; and
·period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock and for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.

 

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Because our Common Stock is likely to be considered a “penny stock,” our trading will be subject to regulatory restrictions.  

 

Our Common Stock is currently, and in the near future will likely continue to be, considered a “penny stock.”  The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market.  The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure and other requirements may adversely affect the trading activity in the secondary market for our Common Stock.

   

Limited future sales of our Common Stock in the public market could make it difficult to generate significant liquidity in our stock. 

 

As noted above, we will be obligated to file a registration statement with the SEC to cover resale of shares issued to the pre-Merger Solar Wind stockholders.  However, upon the effectiveness of this registration statement, most of the stock covered under the registration may not be immediately available for trading.  Due to a limitation in the number of shares traded on a regular basis, there may be significant swings in the bid and ask prices of our stock or there may not be any significant volume of the stock available to trade.

 

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our Common Stock. 

 

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.  Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time.  To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur.  In addition, shareholders must rely on sales of their Common Stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment.  Shareholders seeking cash dividends should not purchase our Common Stock.

 

Our officers, directors and principal stockholders can exert significant influence over us and may make decisions that are not in the best interests of all stockholders.  

 

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own a majority of our outstanding Common Stock.  As a result of such ownership, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control.  In particular, this concentration of ownership of our Common Stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us.  This, in turn, could have a negative effect on the market price of our Common Stock.  It could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock.

 

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Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.

 

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline. 

 

Our Articles of Incorporation, as amended, our Bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders.  In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.  PROPERTIES

 

The Company leases a suite of offices and shared support services at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 month to month basis.

 

ITEM 3.  LEGAL PROCEEDINGS

 

Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc.(f/k/a Clean Wind Energy Tower, Inc.)

 

On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) to the benefit of Hanover Holdings I, LLC. on February 29, 2012 and has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. Total claim amount is for $122,985.14. The Company does not believe any additional payments are due Hanover Holdings I, LLC and will vigorously defend its position.

   

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not party to any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

   

ITEM 4.  MINE SAFETY DISCLOSURE.

  

Not applicable.

 

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PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER   PURCHASES OF EQUITY SECURITIES.

 

Market information

 

The Company’s Common Stock is quoted on the OTC Bulletin Board under the symbol “SWET.OB”.  Historical high and low bid information for the Company’s Common Stock is not available to the Company.  The following table reflects the high and low sales prices for the Company’s Common Stock for each fiscal quarter during the fiscal years ended December 31, 2012 and 2011.  The sales prices were obtained from the OTC Bulletin Board.

 

Quarterly period  Low   High 
Fiscal year ended December 31, 2012:          
First Quarter  $0.03   $0.21 
Second Quarter  $0.02   $0.05 
Third Quarter  $0.01   $0.08 
Fourth Quarter  $0.01   $0.07 
           
Fiscal year ended December 31, 2011:          
First Quarter  $0.16   $0.27 
Second Quarter  $0.22   $0.32 
Third Quarter  $0.12   $0.27 
Fourth Quarter  $0.10   $0.22 

   

Record Holders

 

As of March 25, 2013, there were approximately 1,357 registered holders of record of the Company’s Common Stock.

   

Dividends

 

The Company has not paid any cash dividends to date, and has no intention of paying any cash dividends on the Common Stock in the foreseeable future.  The declaration and payment of dividends is subject to the discretion of the Company’s Board of Directors and to certain limitations imposed under Nevada law.  The timing, amount and form of dividends, if any, will depend upon, among other things, the Company’s results of operations, financial condition, cash requirements, and other factors deemed relevant by the Board of Directors.  The Company intends to retain any future earnings for use in its business.  The Company has never paid dividends on its Common Stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company does not maintain any equity compensation plans.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   

During the year ended December 31, 2012, the Company issued 850,000 shares of Common Stock to private placement investors at $0.10 per share for aggregate gross proceeds of $85,000.

 

Also, during the year ended December 31, 2012, the Company received $230,000 from the exercise of previously issued warrants at an exercise price of $0.10 per share.

 

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On April 10, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $68,500 (the "April 2012 Note"). The financing closed on April 18, 2012. The total net proceeds the Company received from this Offering was $65,500.

  

The April 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 12, 2013. The April 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing.. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

On May 3, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $42,500 (the "May 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $40,000.

  

The May 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The May 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the May 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

On June 19, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "June 2012 Note"). The financing closed on June 27, 2012. The total net proceeds the Company received from this Offering was $30,000.

 

The June 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 21, 2013. The June 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the June 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the June 2012 Note, the Company has no right of prepayment.

 

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On July 25, 2012, the Company issued a Convertible Promissory Note (the “July 2012 Note”) to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. JMJ provided $45,000 to the Company on the Effective Date and $22,500 on October 3, 2012.

 

The maturity dates are one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Note bears interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

On August 3, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "August 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $30,000.

  

The August 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The August 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the August 2012 Note, the Company has no right of prepayment.

 

On November 9, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "November 2012 Note"). The financing closed on November 9, 2012. The total net proceeds the Company received from this Offering was $30,000.

  

The November 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 13, 2013. The November 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the November 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the November 2012 Note, the Company has no right of prepayment.

 

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During the month of November 2012, the Company issued an aggregate of $50,000 convertible notes payable to investors. The total net proceeds the Company received from this offering was $50,000.The Notes bear interest of 8% per annum. All interest and principal must be repaid on December 31, 2014. The Note is convertible into common stock, at the holder’s option, at a conversion rate of $0.015 per common share.

 

On December 17, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "December 2012 Note"). The financing closed on December 17, 2012. The total net proceeds the Company received from this Offering was $30,000.

  

The December 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on September 19, 2013. The December 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the December 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the December 2012 Note, the Company has no right of prepayment.

 

Issuance of the above securities are exempt from the registration requirements under Rule 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 as promulgated under Regulation D.

  

ITEM 6.  SELECTED FINANCIAL DATA

  

This item is not applicable to smaller reporting companies.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Some of the statements contained in this Annual Report that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Annual Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

  

·our ability to raise capital when needed and on acceptable terms and conditions;
·our ability to attract and retain management, and to integrate and maintain technical information and management information systems;
·the intensity of competition;
·general economic conditions; and
·other factors discussed in “Risk Factors.”

    

All written and oral forward-looking statements made in connection with this Annual Report on Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

 

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes thereto.

 

Overview

 

Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) (the “Company” formerly known as Superior Silver Mines, Inc.) was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc.  The Company reincorporated as a Nevada corporation on December 27, 2010.  The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.), a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”).  In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

The Company was incorporated under the laws of the State of Idaho on January 22, 1962, as Superior Mines Company.  In 1964, the Company’s name was changed to Superior Silver Mines, Inc.  On December 27, 2010, the Company reincorporated as a Nevada corporation.  Prior to the Merger, the Company had been dormant for a number of years and had no known mineral reserves.  On January 21, 2011, the Company changed its name from Superior Silver Mines, Inc. to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc.  along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

 

The Company plans to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from “SSVM” to” CWET” and in conjunction with the March 11, 2013 name change the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from “CWET” to” SWET”.

  

Until the consummation of the Merger, the Company’s purpose was to seek, investigate and, if such investigation warranted, acquire an interest in business opportunities presented to it by persons or firms who, or which, desire to seek the perceived advantages of a publicly registered corporation.  Because the Company had no operations and only nominal assets until the Merger, it was considered a shell company under rules promulgated by the U.S. Securities and Exchange Commission.

 

Plan of Operation

  

Our Company’s core objective and focus is to become a leading provider of clean efficient green energy to the world communities at a reasonable cost without the destructive residuals of fossil fuel, while continuing to generate innovative technological solutions for today and tomorrow’s electrical power needs.

 

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As a development stage company, Solar Wind has yet to earn revenues from its operations.  Solar Wind is developing plans to design and construct large Downdraft Towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically by integrating and synthesizing numerous proven as well as emerging technologies.  In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity. From our inception in July 2010, we have completed the following milestones, among others:

  

·Filed numerous patent applications with the U.S. Patent Office in connection with the development of the wind technologies.
·Received Notice of Allowance of its patent application titled Efficient Energy Conversion Devices & Methods (U.S. Pat. App. No. 13/091,124) by the United States Patent and Trademark Office. The patent covers specific aspects of deploying multiple turbines in a wind tunnel coupled to a novel hydraulic system capable of maintaining high efficiency hydraulic to electric conversion under a wide variance of wind speeds. The ultimate goal is to maximize the capture and utilization of all available wind energy in any given wind tunnel, as well as providing a consistency of power output during any deviations in wind speed. The Company considers this patent to be a “Core Patent” providing a significant barrier to entry for any potential competitor.
·Executed agreements with three strategic world class companies with industry experience to assist in developing our Downdraft Tower.
·Identified and executed agreements with key industry consultants.
·Carbon Credit Assessment - Retained Green Giant Venture Fund to assessing the potential of CWET’s emission reduction project on the worldwide carbon markets and estimating the expected revenue generation, providing access to Carbon Finance. Green Giant Venture Fund initial estimates, developed under the appropriate United Nations Framework Convention on Climate Change (UNFCCC)/CDM Methodology and the Verified Carbon Standard (VCS), reflect that CWET’s project will reduce 5.7 Million tons of CO2 per year. These estimates are calculated 10 years forward resulting in a yearly value of $17.1 M USD, and total value over the 10-year crediting period of $170 Million USD for each individual Downdraft Tower.
·The Company selected a site located in San Luis, Arizona to pursue the construction of their innovative green renewable energy Downdraft Tower Facility. The San Luis location incorporates plans for two (2) Downdraft Towers and a component parts Assembly Plant. As designed, the Company anticipates that each Downdraft Tower could generate enough electricity to power up to 1,600,000 homes using the guidelines set forth in the California Statewide Residential Appliance Saturation Study, 2004.

  

Critical Accounting Policies and Estimates

 

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our consolidated financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

 

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

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General

 

The Company’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue, if any, and expenses, and the disclosure of contingent assets and liabilities.

 

Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

 

Development stage entity

 

The Company is considered to be a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915.  For the period from July 26, 2010 (date of inception) through December 31, 2012, the Company has not generated any revenues to date, has no significant assets and has incurred losses since inception from developing its business and planned operations. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

Basic and diluted net loss per share

 

We utilize ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. In accordance with ASC 260, the basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is adjusted for the potential dilution that could occur if stock options, warrants, and other convertible securities were exercised or converted into common stock. Potentially dilutive securities were not included in the calculation of the diluted net loss per share as their effect would be anti-dilutive.

 

Income taxes

 

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Temporary difference between taxable income reported for financial reporting purposes primarily relate to the recognition of debt costs and stock based compensation expenses. The adoption of ASC 740 “Income Taxes” did not have a material impact on the Company’s consolidated results of operations or financial condition.

   

Revenue Recognition

 

The Company has generated no revenues to date. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.

 

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Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. The Company did not have any revenue during the period ended December 31, 2012.

    

Fair Value of Financial Instruments

 

The Company adopted the provisions under FASB for Fair Value Measurements, which define fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company’s adoption of these provisions did not have a material impact on its consolidated financial statements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company has categorized its financial assets and liabilities measured at fair value into a three-level hierarchy in accordance with these provisions.

 

In January 2010 the FASB issued Update No. 2010-05 “Compensation—Stock Compensation—Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement to have any material impact on its financial position, results of operations or cash flows.

 

Accounting for Derivatives

 

In 2011 and 2012, we issued convertible notes payable that contained certain conversion features which we identified as embedded derivatives. Therefore, in accordance with ASC 815-40, we reclassified the fair value of the conversion feature from equity to a liability at the date of issuance.  Subsequent to the initial issuance date, we are required to adjust to fair value the derivative as an adjustment to current period operations.

 

New Accounting Pronouncements

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

 

RESULTS OF OPERATIONS

   

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2012 TO THE YEAR ENDED DECEMBER 31, 2011

 

Revenue

 

The Company has not generated revenue since inception.

 

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Operating Expenses

   

Research and Development

 

During the year ended December 31, 2012, we incurred $180,916 of research and development expenses as compared to $362,850 for the year ended December 31, 2011; a decrease of $181,934, or 50%.  The Company anticipates continued research and development as products are developed dependent on funding availability.

 

Selling and Administrative

 

During the year ended December 31, 2012, we incurred $2,021,555 of selling and administrative expenses as compared to $1,713,895 for the year ended December 31, 2011; an increase of $307,660, or 18%.  The Company added additional staff and costs associated to our increase Company development activities.

 

Depreciation

 

During the year ended December 31, 2011, we purchased office and other equipment.  Depreciation for the year ended December 31, 2012 was $4,480 as compared to $2,197 for the year ended December 31, 2011.

 

Other Income/Expense

 

Interest expense

 

For year ended December 31, 2012, we incurred $545,451 as interest expense relating to our issued notes payable as compared to $182,929 for the same period last year.  In connection with the issuances, we incurred noncash charge to interest of $172,116 due to the excess of fair value of the conversion feature over the note proceeds compared to $127,787 for the prior year.  In addition, we amortized a debt discount associated with the notes of $255,543 for the year ended December 31, 2012 compared to $52,222 for the year ended December 31, 2011.

 

Loss on settlement of debt

 

During the year ended December 31, 2012, we issued 22,500,000 shares of our common stock in settlement of $150,000 of outstanding debt. In connection with the issuance, we incurred $829,530 as noncash loss for the year ended December 31, 2012 as compared to nil for the same period last year. Net with the above described loss, we realized a gain on settlement of debt of $42,015 in connection with the issued Hanover note.

 

Loss on modification of debt

 

In conjunction with the issuance of our October 2011 convertible note, we agreed to modify the conversion terms of our preexisting note issued in July 2011 from a 48% to a 69% discount formula.  As such, we incurred a noncash charge to operations of $88,849 as debt modification for the year ended December 31, 2011 as compared to nil for the current year.

 

Gain on change in fair value of derivative liabilities

 

Each reporting period, we are required to adjust to fair value the conversion features of our convertible notes.  For the years ended December 31, 2012 and 2011, we reported a gains on change in fair value of $174,719 and $89,241, respectively.

 

Net Loss

 

As a result of the activities described above, we incurred a net loss of $3,365,198 for the year ended December 31, 2012 as compared to a net loss of $2,261,479 for the year ended December 31, 2011.

 

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Liquidity and Capital Resources

 

We have financed our operations since inception primarily through private offerings of our equity securities and debt financing.

 

Working Capital

 

Our working capital deficit increased by ($388,062) during the year ended December 31, 2012 from a working capital deficit (current liabilities in excess of current assets) of $1,348,290 at December 31, 2011 to a working capital deficit of $1,736,352 at December 31, 2011. The increase in working capital deficit for the year ended December 31, 2012 is due to a combination of reasons, of which the significant factors include:

 

·Cash had a net decrease from working capital by $38,571 for the year ended December 31, 2012. The most significant uses and proceeds of cash were:

    

·Approximately $877,600 of cash consumed in operating activities;
·A repayment of $110,000 of convertible notes payable;
·Proceeds of $85,000 from issuance of Private Placement Memorandum Subscription for the Company’s Common stock
·Proceeds of $332,500 from issuance of Convertible Promissory Notes
·Proceeds of $301,500 from issuance of Notes Payable
·Proceeds of $230,000 from exercise of warrants

  

Of the total current assets of $13,761 as of December 31, 2012, cash represented $13,761. Of the total current assets of $52,332 as of December 31, 2011, cash represented $52,332.

 

Proceeds from the issuance of common stock

 

During the year ended December 31, 2012, the Company received $85,000 from the issuance of Private Placement Memorandum Subscriptions for the sale of its common stock.

 

Proceeds from the exercise of warrants

 

During the year ended December 31, 2012, the Company received $230,000 from the exercise of warrants at an exercise price of $0.10 per share.

 

Proceeds from the issuance of convertible promissory notes

 

During the year ended December 31, 2012, the Company received a gross amount of $332,500 from the issuance of Convertible Promissory Notes and paid $31,000 in processing fees to the attorneys.

     

Proceeds from the issuance of notes payable

 

During the year ended December 31, 2012, the Company received a gross amount of $335,000 from the issuance of Notes and paid $33,500 in processing fees to the attorneys.

 

Cash flow analysis

 

Cash used in operations was $877,571 during the year ended December 31, 2012. During the year ended December 31, 2012, our primary capital needs were for operating expenses, including funds to support our business strategy, which primarily includes working capital necessary to fund operations and reducing our trade payables.

 

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Cash provided from financing activities was $839,000 comprised of sale of our common stock for net proceeds of $85,000, exercise of warrants of $230,000, issuance of notes payable of $301,500 and issuance of convertible notes payable of $332,500, net of repayments of convertible notes of $110,000.

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss from operations of $(3,365,198) for the year ended December 31, 2012, accumulated deficit of $(6,464,834) and total current liabilities in excess of current assets of $(1,736,352) as of December 31, 2012.

 

The Company is in a development stage and does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

Management expects that global economic conditions will continue to present a challenging operating environment through 2013. To the extent permitted by working capital resources, management intends to continue making targeted investments in strategic operating and growth initiatives. Working capital management will continue to be a high priority for 2013.

 

While we have been able to manage our working capital needs with the current credit facilities, additional financing is required in order to meet our current and projected cash flow requirements from operations. We cannot predict whether this new financing will be in the form of equity or debt. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments.

   

Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

 

Our independent registered public accounting firm’s report on our December 31, 2012 consolidated financial statements included in this Form 10-K states that our difficulty in generating sufficient cash flow to meet our obligations and sustain operations raise substantial doubts about the our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

Inflation

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

 

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Off-Balance sheet Arrangements

 

We do not maintain off-balance sheet arrangements nor do we participate in any non-exchange traded contracts requiring fair value accounting treatment other than the operating leases as disclosed in Item 2, Properties and Notes to Consolidated Financial Statements (Note 10).

  

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

This item is not applicable to smaller reporting companies.

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

See the Financial Statements and Notes thereto commencing on Page F-1.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company has carried out an evaluation under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed so that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. The Company’s disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2012, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in the reports that the Corporation files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. This determination was due to the lack of segregation of duties and the Company’s failure to implement the necessary internal controls.

 

Notwithstanding  the existence of material weaknesses, management concluded that the financial statements in this Annual Report on Form 10-K fairly present in all material respects the Company’s financial position, results of operations and statement of cash flows for the periods and dates presented.

 

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Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that:

 

·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
   
·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorization of management and directors; and
   
·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

  

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. This assessment was based on criteria established in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2012.

    

These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.

 

In light of this material weakness, we performed additional analyses and procedures in order to conclude that our financial statements for the year ended December 31, 2012 included in this Annual Report on Form 10-K were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the year ended December 31, 2012 are fairly stated, in all material respects, in accordance with GAAP.

  

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

   

Plan for Remediation of Material Weaknesses

 

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees and engage outsourced accounting professionals, which will enable us to implement adequate segregation of duties within the internal control framework.

 

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Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Group have been detected.  These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended December 31, 2012 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.  OTHER INFORMATION

  

Warrant Agreement

 

On January 12, 2012 the Company entered into a Warrant Agreement providing the holder the right to purchase, at any time, up to December 31, 2012 (as extended) and up to $1,000,000 worth of the Company's common stock valued at an exercise price calculated by taking the daily closing bid price of the Company's common stock reported on the OTCBB, at the date of exercise and discounting that closing bid price by 20%, provided, however, the exercise price shall in no event be lower than $0.10 per share nor greater than $0.40 per share.  The Warrant Agreement is non-cancelable by the Company and is non-callable. The Warrant Agreement expired on December 31, 2012.

     

Financing

 

During the month of January 2013, the Company issued an aggregate of two convertible promissory notes to investors in the aggregate principal amount of $14,000. The total net proceeds the Company received from this Offering was $14,000.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The Note is convertible into common stock, at holders’ option, at a conversion rate of $0.015 per common share.

 

On January 25, 2013, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "January 2013 Note"). The financing closed on January 25, 2013. The total net proceeds the Company received from this Offering was $30,000.

 

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The January 2013 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 29, 2013. The January 2013 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the January 2013 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the January 2013 Note, the Company has no right of prepayment.

 

On February 29, 2012, the Company entered into a Note Purchase Agreement pursuant to which the Company issued a secured convertible note in the amount of $335,000 due on June 23, 2012 with fixed interest of $12,563 per month beginning thirty days from issuance along with defined principal payments.  The Note is secured by certain assets of the Company.

  

Subsequent issuances

 

In January 2013, the Company issued an aggregate of 4,021,505 shares of common stock in settlement of $35,280 outstanding notes payable.

 

In February 2013, the Company issued an aggregate of 6,590,067 shares of common stock in settlement of $68,660 outstanding notes payable.

 

In February 2013, the Company issued an aggregate of 281,553 shares of common stock for services rendered of $5,597.

 

On March 11, 2013, the Company changed its name to “Solar Wind Energy Tower Inc.” In addition, effective March 11, 2013, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET to SWET. The new CUSIP for the Company is 834116V 105.

 

On January 31, 2013, the Company entered into Securities Purchase Agreements with six accredited investors (the “2013 Investors”) providing for the sale by the Company to the 2013 Investors of Convertible Debentures (the "2013 Notes") in the aggregate amount of $239,000. In addition, as previously disclosed in the Form 8-K Current Report filed on January 3, 2013, Ronald W. Pickett, Stephen L. Sadle and Robert P. Crabb, officers and directors of the Company, converted accrued salary in the aggregate amount of $280,000 into the 2013 Notes resulting in a total offering of $519,000.   The financing closed on January 31, 2013.

 

The 2013 Notes mature December 31, 2014 (the "Maturity Date") and interest associated with the 2013 Notes is 8% per annum, which is payable on the Maturity Date.  The 2013 Notes are convertible into shares of common stock of the Company, at the 2013 Investors’ option, at a conversion price of $0.015.  

 

As of the date of the 2013 Notes, the Company is obligated on the 2013 Notes issued to the holders in connection with the offering. The 2013 Notes are debt obligations arising from other than in the ordinary course of business, which constitute direct financial obligations of the Company.

 

The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) for the private placement of these securities pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

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PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth the names of the Company’s directors, executive officers, and key employees, and their positions with the Company, as of December 31, 2012:

 

Name Age Position(s) Term of Office (Directors)
Ronald W. Pickett* 65 President, Chief Executive Officer, Chairman and Principal Accounting Officer Annual meeting
Stephen Sadle* 67 Chief Operating Officer and Director Annual Meeting
Robert P. Crabb* 65 Secretary, Chief Marketing Officer and Director Annual meeting
H. James Magnuson 59 Director Annual meeting
Arthur P. Dammarell 68 Director Annual meeting

 

  * Appointed pursuant to the terms of the Merger Agreement.

 

None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years and that is material to the evaluation of the ability or integrity of any of the Company’s directors, director nominees or executive officers.

   

The following is a brief account of the business experience during the past five years (and, in some instances, for prior years) of each director and executive officer.

 

Ronald W. Pickett, President and Chief Executive Officer, Chairman and Principal Accounting Officer

 

Mr. Pickett joined the Company on December 29, 2010 in connection with the Merger. Mr. Pickett brings over 40 years of construction, development and innovative technology skills and expertise to the team. He has founded numerous companies from startup and including three from inception through the public ownership process. Mr. Pickett also has an understanding of government, legislative, and permitting practices. Since December, 2007, Mr. Pickett has been an independent real estate development consultant. Until March, 2008, Mr. Pickett was a director of, and until December, 2007, Mr. Pickett was President and CEO of, Telkonet, Inc. (“Telkonet”) (OTCBB: TKOI.OB), a company that develops, manufactures and sells energy efficiency and smart grid networking technology. Until January, 2009, Mr. Pickett was President and a director of Microwave Systems Technology Inc. (“Microwave Systems”), a company that provided Internet/phone/video/wifi services in the New York City area. Until February, 2010, Mr. Pickett was Vice Chairman of Geeks on Call Holdings, Inc. (“Geeks on Call”) (PINK: GOCH.PK), a company that provided quick-response, on-site computer solutions and remote/telephone technical support. We took into account his prior experience in operating public and private enterprises in the development and construction of alternative energy projects and believe Mr. Pickett’s past experience in these fields gives him the qualifications and skill to serve as a director.

 

Stephen Sadle, Chief Operating Officer, Director

 

Mr. Sadle joined the Company on December 29, 2010 in connection with the Merger. Mr. Sadle is an entrepreneur with over 40 years of diversified experience in management, contracting and heavy infrastructure development, interfacing with both the government and private sectors. He is experienced in Web-based vertical extranet applications and has developed operating extranets in the construction and transportation industries. Mr. Sadle served as co-founder, Chief Operating Officer and Director of Telkonet. He was also founder and president of a successful local construction company and was awarded the Small Businessman of the Year Award for the Washington Metropolitan Area. Since July, 2007, Mr. Sadle has been an independent real estate consultant. From 2000 until July, 2007, Mr. Sadle was Senior Vice President and a director of Telkonet. We took into account his prior work with infrastructure construction and development and believe Mr. Sadle’s past experience in these fields gives him the qualifications and skill to serve as a Chief Operating Officer.

 

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Robert P. Crabb, Secretary and Chief Marketing Officer, Director

 

Mr. Crabb joined the Company on December 29, 2010 in connection with the Merger. Mr. Crabb has over 40 years of public and private sector experience including 15 years in the insurance industry including, sales and sales management with MetLife and independent property and casualty brokerage. His entrepreneurial expertise includes marketing consulting, corporate management and commercial/residential real estate development. He has served in a corporate governance capacity as secretary to a number of start-up companies. Since September, 2007, Mr. Crabb has been an independent real estate development consultant. Until September, 2007, Mr. Crabb was Secretary of Telkonet, until February, 2009, Mr. Crabb was Secretary of Microwave Systems, and until October, 2009, Mr. Crabb was Secretary of Geeks on Call. The Company believes Mr. Crabb’s past experience in corporate compliance gives him the qualifications and skill to serve as a director.

  

H. James Magnuson, Director

 

Mr. Magnuson has served as a member of the Company’s Board of Directors since 2007. Mr. Magnuson resigned as the Company’s Vice President effective December 29, 2010 pursuant to the terms of the Merger Agreement. Since 1979, Mr. Magnuson has been an attorney engaged in the private practice of law in Coeur d’Alene, Idaho, and received his BS degree from the University of Idaho and his Juris Doctorate from Boston College. The Company believes Mr. Magnuson’s background in providing legal services gives him the qualifications and skill to serve as a director.

 

Arthur P. Dammarell, Director

 

Mr. Dammarell has served as a member of the Company’s Board of Directors since 2006. From 2000 through March 2006, Mr. Dammarell was the principal financial officer, treasurer and a director of Nova Oil, Inc. (now Nova Biosource Fuels, Inc.). He received his BA degree in Urban and Regional Planning from Eastern Washington University. The Company took into account his prior work in both public and private organizations providing consulting on development project financing and believe Mr. Dammarell’s past experience in these fields gives him the qualifications and skill to serve as a director.

 

Section 16(a) Beneficial Ownership Reporting

 

Based solely upon a review of the copies of the forms furnished to the Company and written representations from officers and directors of the Company that no other reports were required, during the year ended December 31, 2010, all filing requirements under Section 16(a) of the Exchange Act applicable to its officers, directors and greater than 10% beneficial owners were complied with on a timely basis.

 

Code of Ethics

 

The Company has adopted a Code of Conduct and Ethics that applies to all directors, officers and employees of the Company, including its principal executive officer, principal financial officer and principal accounting officer. The Company does not have a separately-designated standing audit committee or a committee performing similar functions.  Because the Company does not have an audit committee, the company has not yet determined whether any of its directors qualifies as an audit committee financial expert. Currently, the Company Board of Directors review the Company’s 10-K and financial statements.

  

ITEM 11.  EXECUTIVE COMPENSATION

 

The following table and related footnotes show the compensation incurred and or paid during the fiscal years ended December 31, 2012 and 2011, to all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last completed fiscal year.  No other executive officers received compensation in excess of $100,000 for such fiscal years.

 

41
 

 

Summary Compensation Table

 

Name and principal position   Year  Salary ($)   Bonus ($)   Stock awards ($)   Non-equity incentive plan compensation   Nonqualified deferred compensation earnings ($)   All other Compensation ($)   Total  ($) 
Ronald W. Pickett,   2012    

200,000 (2)

   $   $   $   $   $    200,000 
President, Chief Executive Officer, Chairman and Principal Accounting officer (1)   2011    (2)                       199,266 
Stephen L. Sadle   2012    

175,000 (4)

                        175,000 
Chief Operating Officer (3)   2011    

146,723 (4)

                        146,723 

 

  (1) Appointed as President, Chief Executive Officer and Chairman effective December 29, 2010 pursuant to the terms of the Merger Agreement.

 

  (2)

Included in the amount is $100,236 and $103,382 of accrued salaries for Mr. Pickett for the years ended December 31, 2012 and 2011, respectively. In addition, the amount paid during the years ended December 31, 2012 and 2011 amounted to $81,467 and $18,221, respectively. $150,000 of the accrual has been converted into a note payable during the year ended December 31, 2012.

  

  (3) Appointed as Chief Operating Officer effective December 29, 2010 pursuant to the terms of the Merger Agreement.

 

  (4) Included in the amount is $102,263 and $101,971 of accrued salaries for Mr. Sadle for the years ended December 31, 2012 and 2011, respectively. In addition, the amount paid during the years ended December 31, 2012 and 2011 amounted to $75,292 and $31,672, respectively. $100,000 of the accrual has been converted into a note payable during the year ended December 31, 2012

 

Director Compensation Table

 

The following table and related footnotes show the compensation incurred and or paid during the fiscal year ended December 31, 2012 to the Company’s directors for their service as directors. 

 

Name  

Fees earned

or paid in cash

($)

   

Stock awards

($)

   

Option awards

($)

   

Non-equity

incentive plan

compensation

($)

   

Nonqualified deferred

compensation earnings

($)

   

All other

compensation

($)

   

Total

($)

 
Robert P. Crabb (1)   $ 60,000 (2)   $ 0     $ 0     $ 0     $ 0     $ 0     $ 60,000  
H. James Magnuson   $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Arthur P. Dammarell   $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  

 

  (1) Appointed as director effective December 29, 2010 pursuant to the terms of the Merger Agreement.

 

  (2) Solar Wind has accrued salary for Mr. Crabb for his services as an executive officer of Solar Wind  for the year ended December 31, 2012 in the amount of $60,000 and the balance at December 31, 2012 amounted to $19,161.

 

  (3) Amount paid during the year ended December 31, 2012 amounted to $23,289 and $30,000 has been converted into a note payable during the year ended December 31, 2012.

 

42
 

 

Narrative to Summary Compensation Table and Director Compensation Table

 

During the year ended December 31, 2012, the Company provided no stock options, warrants, or stock appreciation rights.  On December 29, 2010, pursuant to the Merger, Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.) became a wholly-owned subsidiary of the Company.  Solar Wind has employment agreements with its officers as described below.  Solar Wind has accrued salaries for all its executives from inception through December 31, 2012 and the balance amounted to $292,364 at December 31, 2012, net of issued convertible notes issued in December 2012 as part payment.  

 

No officer or director has outstanding unexercised options, stock that has not vested, or equity incentive plan awards.  The Company maintains no employee benefits plans.

 

Name   Position(s)   Term   Salary   Bonus   Severance
Ronald W. Pickett   President, Chief Executive Officer   3 years; renewable for 1 year on mutual consent   $200,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.
Stephen Sadle   Chief Operating Officer   3 years; renewable for 1 year on mutual consent   $175,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.
Robert P. Crabb   Secretary, Chief Marketing Officer   3 years; renewable for 1 year on mutual consent   $60,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.

 

The foregoing descriptions of the employment agreements do not purport to be complete and are qualified in their entirety by reference to such employment agreements which are included as exhibits to this Form 10-K, were filed with the SEC on Form 8-K on December 30, 2010.

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Security ownership of certain beneficial owners

 

The following table sets forth, as of March 25, 2013, the beneficial ownership of our common stock by:

 

  (1) each person or entity who is known by us to beneficially own more than five percent (5%) of our common stock;

 

  (2) each of our directors;

 

  (3) each Named Executive Officer; and

 

  (4) all of our directors and executive officers as a group.

  

Set forth below is certain information, as of March 25, 2013, with respect to each person (including any group as that term is used in section 13(d)(3) of the Exchange Act) who is known to the Company to be the beneficial owner of more than five percent of the Company’s Common Stock.  Unless otherwise indicated, the address of each beneficial owner is c/o Solar Wind Energy Tower Inc., 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 and the nature of beneficial ownership is direct.

 

43
 

 

Name of
Beneficial Owner
  Amount and Nature of Beneficial Ownership   Percent of Class (1) 
Ronald W. Pickett   82,235,000    27.9%
Stephen Sadle   64,916,667    22.3%
Robert P. Crabb   14,400,000    5.0%

 

  (1) Based upon 290,758,136 shares of Common Stock outstanding as of March 25, 2013.

  

Security ownership of management

 

Set forth below is certain information, as of March 25, 2013, as to the Company’s Common Stock beneficially owned by all directors, each of the named executive officers, and directors and executive officers of the Company as a group. Unless otherwise indicated, all beneficial ownership is direct.

 

Name of Beneficial Owner  Title of Beneficial Owner  Amount and Nature of Beneficial Ownership   Percent of Class (1) 
Ronald W. Pickett  President, Chief Executive Officer and Chairman   82,235,000(3)   27.3%
Stephen Sadle  Chief Operating Officer and Director   64,916,667(3)   21.8%
Robert P. Crabb  Secretary, Chief Marketing Officer and Director   14,400,000(3)   4.9%
H. James Magnuson  Director   1,811,114(2)   * 
Arthur P. Dammarell  Director   525,500    * 
Directors and executive officers as a group (6 persons)  ---   163,888,281    54.0%

 

* Less than 1%.

 

  (1) Based upon 290,758,136 shares of Common Stock outstanding as of March 25, 2013.

 

  (2) Includes 1,368,891 shares held in trust for the benefit of Mr. Magnuson’s relatives. As trustee, Mr. Magnuson has the power to vote such shares, but disclaims any beneficial ownership in the shares.

 

  (3) Includes common shares issuable upon conversion of convertible notes payable of 10,000,000, 6,666,667 and 2,000,000 shares to Mr. Pickett, Mr. Sadle and Mr. Crabb, respectively.

  

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

  

On January 31, 2013, the Company entered into Securities Purchase Agreements with six accredited investors (the “2013 Investors”) providing for the sale by the Company to the 2013 Investors of Convertible Debentures (the "2013 Notes") in the aggregate amount of $239,000. In addition, as previously disclosed in the Form 8-K Current Report filed on January 3, 2013, Ronald W. Pickett, Stephen L. Sadle and Robert P. Crabb, officers and directors of the Company, converted accrued salary in the aggregate amount of $280,000 into the 2013 Notes resulting in a total offering of $519,000.   The financing closed on January 31, 2013.

 

The 2013 Notes mature December 31, 2014 (the "Maturity Date") and interest associated with the 2013 Notes is 8% per annum, which is payable on the Maturity Date.  The 2013 Notes are convertible into shares of common stock of the Company, at the 2013 Investors’ option, at a conversion price of $0.015.  

 

As of the date of the 2013 Notes, the Company is obligated on the 2013 Notes issued to the holders in connection with the offering. The 2013 Notes are debt obligations arising other than in the ordinary course of business, which constitute direct financial obligations of the Company.

 

Transactions with Related Persons

 

Except as set forth below, since January 1, 2010, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or will be a party in which the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years; and in which any director, executive officer, other stockholders of more than 5% of the Company’s Common Stock or any member of their immediate family had or will have a direct or indirect material interest.

 

44
 

 

Indemnification Agreements

 

On March 30, 2011, the Company entered into Indemnification Agreements with directors Thomas Smith, H. James Magnuson and Arthur P. Dammarell, and executive Ronald Pickett, President and Chief Executive Officer and Chief Financial Officer.

 

Employment Contracts and Termination of Employment and Change-In-Control Arrangements

 

On December 29, 2010, pursuant to the Merger, Solar Wind Energy (f/k/a Clean Wind Energy) became a wholly-owned subsidiary of the Company.  Solar Wind Energy (f/k/a Clean Wind Energy) has employment agreements with its executive officers.  Each of the employment agreements was entered into on September 22, 2010 and amended on November 22, 2010.

 

The Indemnification Agreements provide that the Company will indemnify the Company's officers and directors, to the fullest extent permitted by law, relating to, resulting from or arising out of any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation by reason of the fact that such officer or director (i) is or was a director, officer, employee or agent of the Company or (ii) is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.. In addition, the Indemnification Agreements provide that the Company will make an advance payment of expenses to any officer or director who has entered into an Indemnification Agreement, in order to cover a claim relating to any fact or occurrence arising from or relating to events or occurrences specified in this paragraph, subject to receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized under this Agreement.

 

Director Independence

 

We believe that director Arthur P. Dammarell is “independent” as that term is defined in Rule 303A.02 of the NYSE Listed Company Manual.  For such director there were no transactions, relationships or arrangements not disclosed in Item 13 above, that were considered by the Board of Directors under the applicable independence definitions in determining that the director is independent.

 

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

The aggregate fees billed to us by RBSM LLP, our independent registered public accounting firm for professional services rendered during the fiscal years ended December 31, 2012 and 2011 are set forth below.

 

(1) Audit Fees

 

RBSM LLP (“RBSM”) has billed us audit fees of $50,000 and $45,600 during 2012 and 2011, respectively. These fees would relate to the audit of our annual consolidated financial statements and the review of the interim consolidated financial statements and services in connection with statutory and regulatory filings or engagements.

 

(2) Audit-Related Fees

 

RBSM billed us audit-related fees in the aggregate amount of $6,100 and $13,300 during 2012 and 2011, respectively. These fees relate to the audit of our subsidiary, Solar Wind Energy’s (f/k/a Clean Wind Energy’s) September 30, 2010 financial statements and review of the Form 8-K and review of the Company’s registration statements filed with the SEC.

 

(3) Tax Fees

 

No fees of this sort were billed by RBSM during 2012 or 2011.

 

(4) All Other Fees

 

No fees of this sort were billed by RBSM during 2012 and 2011.

 

45
 

 

PART IV

 

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

  

(a) Documents filed as part of this report.
     
  (1) Financial Statements. The following consolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K:
     
    Report of Independent Registered Public Accounting Firm
     
    Consolidated Balance Sheet as of December 31, 2012 and 2011
     
    Consolidated Statements of Operations for the Years ended December 31, 2012, 2011 and for the Period from July 26, 2010 (date of inception) through December 31, 2012
     
    Consolidated Statements of Changes in Stockholders’ Deficit for the period from July 26, 2010 (date of inception) through ended December 31, 2012
     
    Consolidated Statements of Cash Flows for Years ended December 31, 2012 and 2011 and for the Period from July 26, 2010 (date of inception) through December 31, 2012
     
    Notes to Consolidated Financial Statements
     
  (2) Financial Statement Schedules.
     
    Additional Schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
     
  (3) Exhibits required to be filed by Item 601 of Regulation S-K.

  

 

 

46
 

 

Exhibits Index

 

Exhibit   Description
     
2.1    Agreement and Plan of Merger, dated as of December 29, 2010, by and among Superior Silver Mines, Inc., Superior Silver Mines Acquisition Corp., and Clean Wind Energy, Inc. (1)
2.2   Plan of Domestication of Superior Silver Mines, Inc., dated December 21, 2010 (1)
2.3   Nevada Articles of Domestication of Superior Silver Mines, Inc., dated December 27, 2010 (1)
2.4   Idaho Statement of Domestication of Superior Silver Mines, Inc., dated December 22, 2010 (1)

2.5

2.6

 

Articles of Merger by and between Clean Wind Energy Tower, Inc. and Superior Silver Mines, Inc. (2)

Articles of Merger by and between Solar Wind Energy Tower Inc. and Clean Wind Energy Tower, Inc. (6)

3.1   Articles of Incorporation of Clean Wind Energy Tower, Inc. (1)
3.2   Amended Bylaws of Clean Wind Energy Tower, Inc. (3)

4.1

4.2

4.3

 

Form of Common Stock Certificate (4)

Form of Securities Purchase Agreement entered with the 2013 Investors (5)

Form of Convertible Debentures (5)

10.1   Letter Agreement between Clean Wind Energy, Inc. and Source Capital Group, Inc., dated November 22, 2010 (1)
10.2   Deed of Lease, dated December 1, 2010, by and between CKP One, LLC and Clean Wind Energy, Inc. (1)
10.3   Lease Agreement, dated October 20, 2010, and effective November 1, 2010, by and between Office Suites PLUS at Annapolis and Clean Wind Energy, Inc. (1)
10.4    Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ronald Pickett, and Amendment dated November 22, 2010 (1)
10.5    Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Stephen Sadle, and Amendment dated November 22, 2010 (1)
10.6    Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Robert Crabb, and Amendment dated November 22, 2010 (1)
10.7    Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and John W. Hanback, and Amendment dated November 22, 2010 (1)
10.8    Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Itzhak Tepper, PE, and Amendment dated November 22, 2010 (1)
10.9    Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ownkar Persaud, and Amendment dated November 22, 2010 (1)
10.10   Form of Director and Officer Indemnification Agreement (4)
14.1   Code of Business Conduct and Ethics
21.1   Subsidiaries of the Registrant (4)
31.1   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald W. Pickett
31.2   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald W. Pickett
32.1   Certification of Ronald W. Pickett pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of  Ronald W. Pickett pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.LAB   XBRL Label Linkbase Document
101.PRE   XBRL Presentation Linkbase Document
101.DEF   XBRL Definition Linkbase Document

 

 

  (1) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 30, 2010 and incorporated herein by reference.
  (2) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on January 21, 2011 and incorporated herein by reference.
  (3) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 28, 2010 and incorporated herein by reference.
 

(4)

 

Filed with the registrant's Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 12, 2011 and incorporated herein by reference.

  (5) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on February 13, 2013 and incorporated herein by reference.
  (6) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on March 11, 2013 and incorporated herein by reference.

 

 

47
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

  SOLAR WIND ENERGY TOWER INC. (f/k/a CLEAN WIND ENERGY TOWER, INC.)  
       
Dated: April 1, 2013 By: /s/ Ronald W. Pickett  
    Name: Ronald W. Pickett  
    President, Chief Executive Officer and Principal Accounting Officer  

  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

  

Dated: April 1, 2013 By: /s/ Ronald W. Pickett  
    Name: Ronald W. Pickett  
    President, Chief Executive Officer (PEO), Director  

 

Dated: April 1, 2013 By: /s/ Robert P. Crabb  
    Name: Robert P. Crabb  
    Director  

 

Dated: April 1, 2013 By: /s/ Stephen L. Sadle  
    Name: Stephen L. Sadle  
    Director  

 

Dated: April 1, 2013 By: /s/ H. James Magnuson  
    Name: H. James Magnuson  
    Director  

 

Dated: April 1, 2013 By: /s/ Arthur P. Dammarell  
    Name: Arthur P. Dammarell  
    Director  

    

 

 

48
 

  

Solar Wind Energy Tower Inc.

(f/k/a Clean Wind Energy Tower, Inc.)

(A Development Stage Company)

Index to Consolidated Financial Statements

  

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-2
     
Consolidated Balance Sheets as of December 31, 2012 and 2011   F-3
     
Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and for the period from July 26, 2010 (date of inception) through December 31, 2012   F-4
     
Consolidated Statements of Changes in Stockholders’ Deficit for the period from July 26, 2010 (date of inception) through December 31, 2012   F-5
     
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and for the period from July 26, 2010 (date of inception) through December 31, 2012   F-8
     
Notes to Consolidated Financial Statements   F-9 to F-27

 

 

 

 

 

 

 

 

 

 

F-1
 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Shareholders

Solar Wind Energy Tower, Inc.

 

 

We have audited the accompanying consolidated balance sheets of Solar Wind Energy Tower, Inc. (the “Company”), a development stage company as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2012 and for the period from July 26, 2010 (date of inception) through December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to the above present fairly, in all material respects, the financial position of Solar Wind Energy Tower, Inc. as of December 31, 2012 and 2011, and the consolidated results of operations, and cash flows for each of the two years in the period ended December 31, 2012 and for the period from July 26, 2010 (date of inception) through December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company is a development stage company and is incapable of generating sufficient cash flow to sustain its operations without securing additional financing, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

  

  /s/ RBSM LLP

 

 

New York, New York

April 1, 2013

 

 

F-2
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2012 AND 2011

 

   2012   2011 
ASSETS          
Current assets:          
Cash  $13,761   $52,332 
Total current assets   13,761    52,332 
           
Property and equipment, net   6,764    11,244 
           
Other assets:          
Deposits   2,300    9,330 
           
Total assets  $22,825   $72,906 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $211,487   $478,355 
Accrued liabilities and expenses   486,596    627,650 
Advances from stockholders/officers   185,000    5,000 
Note payable   268,270     
Convertible notes payable, net of unamortized debt discount of $123,525 and $57,778, respectively   68,975    52,222 
Derivative liabilities   529,785    237,395 
Total current liabilities   1,750,113    1,400,622 
           
Long term debt:          
Convertible notes payable, net of unamortized debt discount of $43,326   6,674     
Convertible notes payable, related party, net of unamortized debt discount of $262,094   17,906     
Total long term debt   24,580     
           
Commitments and contingencies        
           
Stockholders' deficit:          
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2012 and 2011        
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 279,865,011 and 210,850,519 shares issued and outstanding as of December 31, 2012 and 2011, respectively   27,987    21,085 
Common stock to be issued   420,000    480,000 
Additional paid in capital   4,264,979    1,270,835 
Accumulated deficit during development stage   (6,464,834)   (3,099,636)
Total stockholders' deficit   (1,751,868)   (1,327,716)
           
Total liabilities and stockholders' deficit  $22,825   $72,906 

  

See the accompanying notes to the consolidated financial statements

 

F-3
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

 

           For the period 
           From July 26, 2010 
           (date of inception) 
   For the years ended December 31,   Through 
   2012   2011   December 31, 2012 
OPERATING EXPENSES:               
Research and development   180,916    362,850    617,325 
Selling, general and administrative   2,021,555    1,713,895    4,500,048 
Depreciation   4,480    2,197    6,677 
Total operating expenses   2,206,951    2,078,942    5,124,050 
                
Loss from operations   (2,206,951)   (2,078,942)   (5,124,050)
                
Other income (expense):               
Interest expense   (545,451)   (182,929)   (728,380)
Loss on modification of debt       (88,849)   (88,849)
Loss on settlement of debt   (787,515)       (787,515)
Gain on change in fair value of derivative liabilities   174,719    89,241    263,960 
                
Loss before provision for income taxes   (3,365,198)   (2,261,479)   (6,464,834)
                
Provision for income taxes (benefit)            
                
NET LOSS  $(3,365,198)  $(2,261,479)  $(6,464,834)
                
Net loss per common share, basic and fully diluted  $(0.01)  $(0.01)     
                
Weighted average number of common shares outstanding, basic and fully diluted   244,446,234    226,844,313      

  

See the accompanying notes to the consolidated financial statements

 

F-4
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2012

 

   Preferred stock   Common stock   Common to be Issued   Additional Paid In   Deficit Accumulated During Development     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stage   Total 
Balance, date of inception (July 26, 2010) adjusted for recapitalization      $    20,955,199   $2,096       $   $191,565   $   $193,661 
Recapitalization and direct costs resulting in reverse merger:                                             
Shares to be issued to Solar Wind Energy's stockholders                   300,000,000    30,000            30,000 
Shares to be issued for consulting services rendered in connection with reverse merger                   6,100,000    427,000            427,000 
Net loss                               (838,157)   (838,157)
Balance, December 31, 2010           20,955,199    2,096    306,100,000    457,000    191,565    (838,157)   (187,496)
Recapitalization and direct costs resulting in reverse merger:                                             
Shares issued to Solar Wind Energy's stockholders           300,000,000    30,000    (300,000,000)   (30,000)            
Shares issued for consulting services rendered in connection with reverse merger           100,000    10    (100,000)   (7,000)   6,990         
Shares issued for consulting services rendered at $0.20 per share           100,000    10            19,990        20,000 
Shares to be issued in connection with PPM Subscription at $0.10 per share                   1,200,000    120,000            120,000 
Shares issued in connection with PPM Subscription at $0.10 per share           1,200,000    120    (1,200,000)   (120,000)   119,880         
Shares issued in connection with PPM Subscription at $0.10 per share           7,290,000    729            728,271        729,000 
Accrued warrants to be issued referring brokers in connection with PPM Subscription at $0.10 per share                           (29,400)       (29,400)
Subtotal      $    329,645,199   $32,965    6,000,000   $420,000   $1,037,296   $(838,157)  $652,104 

 

 

F-5
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2012

 

   Preferred stock   Common stock   Common to be Issued   Additional Paid In  

Deficit Accumulated During

Development

     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stage   Total 
Balance forward      $    329,645,199   $32,965    6,000,000   $420,000   $1,037,296   $(838,157)  $652,104 
Shares issued for consulting services rendered at $0.27 per share           24,422    2            6,591        6,593 
Broker's finder’s fees paid in connection with PPM Subscription                           (9,800)       (9,800)
Shares issued for consulting services rendered at $0.20 per share           13,787    1            2,756        2,757 
Shares to be issued in connection with PPM Subscription at $0.10 per share           1,050,000    105    600,000    60,000    104,895        165,000 
Shares issued for consulting services rendered at $0.12 per share           150,000    15            17,985        18,000 
Shares issued for consulting services rendered at $0.12 per share           50,000    5            5,995        6,000 
Shares forfeited and cancelled by some Solar Wind Energy's stockholders acquired in connection with the merger upon resignation           (120,600,000)   (12,060)           12,060         
Shares issued for consulting services rendered at $0.18  per share           517,111    52            93,057        93,109 
Net loss                               (2,261,479)   (2,261,479)
Balance, December 31, 2011      $    210,850,519   $21,085    6,600,000   $480,000   $1,270,835   $(3,099,636)  $(1,327,716)

 

 

F-6
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2012

 

   Preferred stock   Common stock   Common to be Issued  

Additional

Paid In

  

Deficit

Accumulated

During

Development

     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stage   Total 
Balance, December 31, 2011      $    210,850,519   $21,085    6,600,000   $480,000   $1,270,835   $(3,099,636)  $(1,327,716)
Shares issued in connection with PPM Subscription at $0.10 per share           600,000    60    (600,000)   (60,000)   59,940         
Shares issued for accrued expenses at $0.13 per share           261,556    26            34,441        34,467 
Shares issued for future services           21,500,000    2,150            (2,150)         
Shares issued for consulting services rendered           7,751,176    776            289,872        290,648 
Sale of common stock at $0.10 per share           850,000    85            84,915         85,000 
Shares issued in connection with the exercise of warrants at $0.10 per share           2,300,000    230            229,770        230,000 
Shares issued in settlement of debt           35,751,760    3,575            1,221,595        1,225,170 
Beneficial conversion feature reclassified to equity upon repayment of convertible notes                           209,487        209,487 
Stock based compensation                           866,274        866,274 
Net loss                               (3,365,198)   (3,365,198)
Balance, December 31, 2012      $    279,865,011   $27,987    6,000,000   $420,000   $4,264,979   $(6,464,834)  $(1,751,868)

 

See the accompanying notes to the consolidated financial statements

 

F-7
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           For the period 
           From July 26, 2010 
           (date of inception) 
   For the year ended December 31,   through 
   2012   2011   December 31, 2012 
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net loss  $(3,365,198)  $(2,261,479)  $(6,464,834)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation   4,480    2,197    6,677 
Amortization of debt discounts   255,543    52,222    307,765 
Amortization of financing costs   59,500        59,500 
Non cash interest   172,116    127,787    299,903 
Stock based compensation   1,156,921    146,459    1,730,380 
Loss on settlement of debt   787,515        787,515 
Loss on debt modification       88,849    88,849 
Gain from change in fair value of derivative liabilities   (174,719)   (89,241)   (263,960)
Changes in operating assets and liabilities:               
Prepaid expenses       29,697     
Advances from stockholders/officers   10,000    (42,000)   15,000 
Accounts payable and accrued expenses   216,271    701,898    1,292,876 
Net cash used in operating activates   (877,571)   (1,243,611)   (2,140,329)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Net cash acquired from reverse merger           223,586 
Purchase of property and equipment       (13,441)   (13,441)
Payment of long term deposit           (9,330)
Net cash (used in) provided by investing activities       (13,441)   200,815 
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
Proceeds from issuance of subsidiary's common stock           75 
Proceeds from sale of common stock   85,000    1,004,200    1,089,200 
Proceeds from exercise of warrants   230,000        230,000 
Proceeds from issuance of note payable   301,500        301,500 
Proceeds from issuance of convertible notes payable   332,500    110,000    442,500 
Repayments of convertible notes payable   (110,000)       (110,000)
Net cash provided by financing activities   839,000    1,114,200    1,953,275 
                
Net increase (decrease) in cash   (38,571)   (142,852)   13,761 
Cash, beginning of period   52,332    195,184     
                
Cash, end of period  $13,761   $52,332   $13,761 
                
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
                
Interest paid  $98,778   $   $98,778 
Income taxes paid  $   $   $ 
                
Non cash investing and financing activities:               
Accrued warrants to be issued referring brokers in connection with PPM subscription at $0.10 per share  $   $   $29,400 
Shares forfeited and cancelled by some Solar Wind Energy's stockholders acquired in connection with the merger upon resignation  $   $   $12,060 
Notes payable issued in settlement of accounts payable  $268,270   $   $268,270 
Convertible notes payable issued in settlement of accrued officer salaries  $280,000   $   $280,000 
Common stock issued in settlement of debt  $1,225,170   $   $1,225,170 

  

See the accompanying notes to the consolidated financial statements

 

F-8
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

NOTE 1 – NATURE OF OPERATIONS

 

Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) (the “Company”, “we”, “us”, “our”) (formerly known as Superior Silver Mines, Inc.) was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc. The Company reincorporated as a Nevada corporation on December 27, 2010. The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.), a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc), a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”).  In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  As a result of the reverse merger, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  Accordingly, the Company’s historical financial statements are those of Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc.  along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.

  

Until the consummation of the Merger, the Company’s purpose was to seek, investigate and, if such investigation warranted, acquire an interest in business opportunities presented to it by persons or firms who, or which, desire to seek the perceived advantages of a publicly registered corporation. Because the Company had no operations and only nominal assets until the Merger, it was considered a shell company under rules promulgated by the U.S. Securities and Exchange Commission.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Fair Value of Financial Instruments

  

Our short-term financial instruments, including cash, other assets and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their current maturity.

 

F-9
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

Long-Lived Assets

 

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10 (formerly Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets). Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset using a discount rate determined by management to be commensurate with the risk inherent to our current business model.

 

Net Loss per Common Share

 

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and the exercise of the Company's stock options and warrants. Fully diluted shares as of December 31, 2012 and 2011 were 286,418,391 and 228,671,064, respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition

 

The Company has generated no revenues to date. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Stock Based Compensation

 

The Company account for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock awards. We estimate the fair value of stock using the stock price on date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount recognized in our consolidated statements of operations.

 

Stock-based compensation expense in connection with stock granted to consultants in exchange for services rendered for the years ended December 31, 2012 and 2011 was $1,156,921 and $146,459, respectively.

 

F-10
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

Income Taxes

   

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to the recognition of debt costs and stock based compensation expense. The adoption of ASC 740-10 did not have a material impact on the Company's results of operations or financial condition.

 

Research and development

 

In accordance with ASC 730, “Research and Development”, the Company expenses all research and development costs as incurred. The Company had incurred $180,916, $362,850 and $617,325 research and development costs for the years ended December 31, 2012, 2011 and for the period from July 26, 2010 (date of inception) through December 31, 2012, respectively. The company expects the research and development costs to increase in the future as it continues to invest in the infrastructure that is critical to achieve our business goals and objectives.

 

Property, plant and equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred.

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, cash and cash equivalents includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash and cash equivalents.

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has reset provisions to the exercise price if the Company issues equity or a right to receive equity, at a price less than the exercise prices.

 

Development stage entity

   

The Company is considered to be a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915. For the period from July 26, 2010 (date of inception) through December 31, 2012, the Company has not generated any revenues to date, has no significant assets and has incurred losses since inception from developing its business and planned operations. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

F-11
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

Reclassification

 

Certain reclassifications have been made to conform with the prior period’s data to the current presentation. These reclassifications had no effect on reported net loss.

 

Recently Issued Accounting Pronouncements

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

 

NOTE 3 – GOING CONCERN MATTERS

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $(3,365,198) for the year ended December 31, 2012, accumulated deficit of $(6,464,834) and total current liabilities in excess of current assets of $(1,736,352) as of December 31, 2012.

   

The Company’s ability to continue existence is dependent upon commencing its planned operations, management’s ability to develop and achieve profitable operations and/or upon obtaining additional financing to carry out its planned business. The Company intends to fund its business development, acquisition endeavors and operations through equity and debt financing arrangements. During the year ended December 31, 2012, certain shareholders of the Company have committed to meeting operating expenses. However, there can be no assurance that these arrangements will be sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

 

The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 4 – ACCRUED LIABILITIES AND EXPENSES

 

Accrued liabilities and expenses as of December 31, 2012 and 2011 consist of the following:

 

   2012   2011 
Accrued payroll  $292,365   $472,221 
Accrued payroll taxes payable   18,330    18,330 
Accrued stock purchase warrants   29,400    29,400 
Accrued lawsuit (Note 6 below)   122,985     
Accrued interest and other   23,516    107,699 
Total  $486,596   $627,650 

 

F-12
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

NOTE 5 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

Advances from shareholders are comprised of the following:

 

   2012   2011 
Cash advances  $15,000   $5,000 
Fair value of common stock pledged as collateral by shareholder (see below)   170,000     
Total  $185,000   $5,000 

 

As described below, the Company issued a Secured Convertible Promissory Note on February 29, 2012. In connection with the issuance, a shareholder pledged 10,000,000 shares of the Company's common stock. On March 8, 2012, upon notice of default, the escrow agent transferred the pledged common shares to the note holder. The fair value of the common shares pledged was recorded as a related party obligation as of March 31, 2012 with a corresponding reduction in the carrying value of the Note Payable (see Note 6).

 

NOTE 6 – NOTE PAYABLE

 

On February 29, 2012, the Company entered into a Note Purchase Agreement and a Pledge and Security Agreement with Hanover Holdings I, LLC ("Hanover"), providing for the sale of an Original Issue Discount Secured Convertible Promissory Note in the principal amount of $335,000 (the "Note"). The financing closed on March 2, 2012. The Note contained an original issue discount of 10% representing $33,500.

 

The Note bears interest at the rate of 15% per annum. Subject to the prepayment provisions in the Note, the principal plus interest amount of the Note is to be repaid subject to an amortization schedule which provides that the Company pay (i) $47,562.50 thirty days from the date of the Note, (ii) $62,562.50 sixty days from the date of the Note, (iii) $112,562.50 ninety days from the date of the Note and (iv) $162,562.50 one hundred twenty days from the date of the Note. The Company may prepay the Note in full at the Company’s sole option and discretion by providing to Hanover three prior trading days’ written notice, in full. The Company is required to pay off all principal, interest and any other amounts owing prior to any such prepayment. In order to facilitate the closing of this financing, a shareholder pledged 10,000,000 shares to Hanover.

 

On March 8, 2012, the Company received a notice of default, sighting Section 5(a) (ii) requiring the Company's common stock trading price not to fall below the volume-weighted average price of $0.08 per share for any given trading day. As such, the escrow agent transferred the 10,000,000 shares of the Company's common stock to the note holder. Should the proceeds arising from the sale of the Company's common stock not satisfy the total due under the agreement, the note holder has further recourse including the right to convert balances owed under the Note into restricted shares of common stock, at Hanover’s option, at a conversion price equal to 45% of the lowest trading price for the common stock at any time during the prior 10 trading days immediately preceding the date of the notice of such conversion.

 

On December 27, 2012, the Company was served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described the convertible promissory note and has failed to honor a notice of conversion issued by the note holder on or about September 7, 2012. Total claim amount is for $122,985.14. The Company does not believe any additional payments are due Hanover Holdings I, LLC and will vigorously defend its position. Upon receiving the Complaint, the Company reclassified the demanded amount of $122,985 to accrued expenses and recognized a gain on settlement of debt of $42,015.

 

 The original issue discount of $33,500 was charged as interest during the year ended December 31, 2012.

 

F-13
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

On June 20, 2012, the Company issued three promissory notes payable in aggregate of $268,270 in settlement of outstanding accounts payable. The notes mature earlier of (1) one year from the date of issuance, (2) completion of any major financing event or events in which the Company receives aggregate proceeds of $2,000,000 or more, or (3) any liquidation or reorganization, merger or recapitalization of the Company, bear an interest rate of 8% per annum due at maturity and are unsecured.

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable are comprised of the following:

 

   2012   2011 
Convertible note payable, due April 30, 2012; net of unamortized debt discount of $19,333  $   $25,667 
Convertible note payable, due April 30, 2012; net of unamortized debt discount of $16,183       16,317 
Convertible note payable, due July 5, 2012, net of unamortized debt discount of $22,262       10,238 
Convertible note payable, due March 21, 2013, net of unamortized debt discount of $5,091   12,409     
Convertible note payable, due July 11, 2013, net of unamortized debt discount of $26,301   23,699     
Convertible note payable, due May 6, 2013, net of unamortized debt discount of $15,978   19,022     
Convertible note payable, due October 3, 2013, net of unamortized debt discount of $18,904   6,096     
Convertible note payable, due August 13, 2013, net of unamortized debt discount of $26,399   6,101      
Convertible promissory notes, due December 31, 2014, net of unamortized debt discount of $43,326   6,674      
Convertible promissory note, due September 19, 2013, net of unamortized debt discount of $30,852   1,648      
Total   75,649    52,222 
Less short term portion   (68,975)   (52,222)
Long term portion  $6,674   $ 

 

On July 27, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $45,000 (the "Note"). The financing closed on August 8, 2011. The total net proceeds the Company received from this Offering on August 8, 2011 was $42,500.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 42% discount (subsequently modified to 69% discount) to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 135% if prepaid 91 days following the closing through 120 days following the closing, (iii) 140% if prepaid 121 days following the closing through 151 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment. In connection to the debt modification, the Company recorded a loss on debt modification of $88,849 during the year ended December 31, 2011.

 

F-14
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

During the year ended December 31, 2012, the Company paid off the above described Note in full by cash.

 

On August 31, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on August 31, 2011. The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 52% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

During the year ended December 31, 2012, the Company paid off the above described Note in full by cash.

   

On October 6, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 5, 2012. The Note is convertible into common stock, at Asher’s option, at a 69% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

  

During the year ended December 31, 2012, the Company paid off the above described Note in full by cash.

 

On April 10, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $68,500 (the "Note"). The financing closed on April 18, 2012. The total net proceeds the Company received from this Offering was $65,500.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 12, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

F-15
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing.. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

During the year ended December 31, 2012, the Company issued an aggregate of 6,077,938 shares of its common stock in settlement of the convertible note payable and related interest.

 

On May 3, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $42,500 (the "Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $40,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

During the year ended December 31, 2012, the Company issued an aggregate of 5,525,470 shares of its common stock in settlement of the convertible note payable and related interest.

 

On June 19, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on June 27, 2012. The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 21, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

During the year ended December 31, 2012, the Company issued an aggregate of 1,648,352 shares of its common stock in settlement of $15,000 of the outstanding convertible note payable. The remaining outstanding convertible note payable amounted to $17,500 at December 31, 2012.

 

F-16
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

On July 25, 2012, the Company issued a Convertible Promissory Note (the “Note”) to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. JMJ provided $50,000 to the Company on the Effective Date. The net proceeds the Company received from this offering was $45,000.

 

The maturity date is one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Note bears interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

On August 3, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $35,000 (the "Note"). The financing closed on August 3, 2012. The total net proceeds the Company received from this Offering was $30,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 6, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

On October 3, 2012, the Company issued a $25,000 Convertible Promissory Note (the “Note”) to JMJ Financial (“JMJ”) under the July 25, 2012 described transaction. The total proceeds the Company received from this offering was $22,500.

 

The maturity date is one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Note bears interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

F-17
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

On November 9, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on November 9, 2012. The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 13, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

During the month of November 2012, the Company issued an aggregate of seven convertible promissory notes to investors in the aggregate principal amount of $50,000. The total net proceeds the Company received from this Offering was $50,000.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The Note is convertible into common stock, at holders’ option, at a conversion rate of $0.015 per common share.

 

On December 17, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on December 17, 2012. The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on September 19, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

The Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.

 

As of March 9, 2012, the Company paid all outstanding (2011) Asher notes (aggregate of $77,500). At the dates of note payoffs, the Company marked to market the fair value of the debt derivatives and determined a fair value of $209,487. The Company recorded a gain from change in fair value of debt derivatives of $27,908. The fair value of the embedded derivatives of $209,487 were transferred to equity at the date of note(s) liquidation.

 

F-18
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 192.54 to 192.77%, (3) weighted average risk-free interest rate of 0.08 to 0.06%, (4) expected life of 0.23 to 0.32 year, and (5) estimated fair value of the Company’s common stock of $0.181 to $0.313 per share.

 

At the inception of the 2012 Notes, the Company determined the aggregate fair value of $536,541 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 196.08% to 219.80%, (3) weighted average risk-free interest rate of 0.13 % to 0.19%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.015 to $0.043 per share.

 

The determined fair value of the debt derivatives of $536,541 was charged as a debt discount up to the net proceeds of the note with the remainder $(172,116) charged to current period operations as non-cash interest expense.

 

At December 31, 2012, the Company marked to market the fair value of the debt derivatives and determined a fair value of $265,729. The Company recorded a gain from change in fair value of debt derivatives of $176,490 for the years ended December 31, 2012. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41%, (3) weighted average risk-free interest rate of 0.11% to 0.25%, (4) expected life of 0.10 to 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0167 per share.

  

The charge of the amortization of debt discounts and costs for the years ended December 31, 2012 and 2011 was $255,352 and $52,222, respectively, which was accounted for as interest expense. Also, the Company has accrued interest expense of $17,857 as of December 31, 2012.

 

NOTE 8 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY

 

During the month of December 2012, the Company issued an aggregate of $280,000 convertible promissory notes to officers and key employees in settlement of accrued salaries.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The convertible promissory notes are convertible into common stock, at the holders’ option

at $0.15 per common share.

 

Due to the nature of the notes described in Note 7 above, the Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the notes and to fair value as of each subsequent reporting date.

 

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41% to 200.80%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.165 to $0.167 per share.

 

The determined fair value of the debt derivatives of $262,285 was charged as a debt discount up to the net proceeds of the note.

 

F-19
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

At December 31, 2012, the Company marked to market the fair value of the debt derivatives and determined a fair value of $264,056. The Company recorded a loss from change in fair value of debt derivatives of $1,771 for the years ended December 31, 2012. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0167 per share.

  

The charge of the amortization of debt discounts and costs for the year ended December 31, 2012 was $191, which was accounted for as interest expense. Also, the Company has accrued interest expense of $33 as of December 31, 2012.

 

NOTE 9 – DERIVATIVE LIABILITIES

 

During 2011 and 2012, the Company issued an aggregate of $110,000 and $651,000 Convertible Promissory Notes that mature from April 30, 2012 to December 31, 2014, respectively. The Notes bear various interest rates and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rates of 30% to 69% discount to the market price of the lowest three trading prices of the Company’s common shares during the ten-day period ending one trading day prior to the date of the conversion.

   

The Company has identified the embedded derivatives related to the convertible notes. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of notes and to fair value as of each subsequent reporting date.

 

At the inception of the notes in 2012 and 2011, the Company determined the aggregate fair value of $798,826 and $237,787 of embedded derivatives, respectively. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 196.08% to 221.52%, (3) weighted average risk-free interest rate of 0.05 to 0.20%, (4) expected life of 0.67 to 2.00 year, and (5) estimated fair value of the Company’s common stock of $0.0165 to $0.20 per share.

 

The determined fair value of the debt derivatives at the inception date in 2012 and 2011 of $798,826 of $237,787 was charged as a debt discount up to the net proceeds of the note with the remainder $(172,116) and $(127,787) charged to the operations during 2012 and 2011 as non-cash interest expense, respectively.

 

At December 31, 2011, the Company marked to market the fair value of the debt derivatives and determined a fair value of $237,395. The Company recorded a gain from change in fair value of debt derivatives of $89,241. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 185.84%, (3) weighted average risk-free interest rate of 0.02 to 0.06%, (4) expected life of 0.33 to 0.51 year, and (5) estimated fair value of the Company’s common stock of $0.18 per share.

 

As of March 9, 2012, the Company paid all outstanding 2011 Notes. At the dates of note payoffs, the Company marked to market the fair value of the debt derivatives and determined a fair value of $209,487. The Company recorded a gain from change in fair value of debt derivatives of $27,908. The fair value of the embedded derivatives of $209,487 were transferred to equity at the date of note(s) liquidation.

 

The fair value of the embedded derivatives at March 9, 2012 was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 192.54 to 192.77%, (3) weighted average risk-free interest rate of 0.08 to 0.06%, (4) expected life of 0.23 to 0.32 year, and (5) estimated fair value of the Company’s common stock of $0.181 to $0.313 per share.

 

F-20
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

At December 31, 2012, the Company marked to market the fair value of the debt derivatives and determined a fair value of $529,785. The Company recorded a gain from change in fair value of debt derivatives of $174,719 for the years ended December 31, 2012. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 200.41%, (3) weighted average risk-free interest rate of 0.11% to 0.25%, (4) expected life of 0.10 to 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0167 per share.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Office Leases Obligations

 

The Company leases a suite of offices and shared support services at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 month to month basis.

 

Rental expenses charged to operations for the year ended December 31, 2012 was $71,366.

 

Employment and Consulting Agreements

 

The Company has employment agreements with certain of its key employees which include non-disclosure and confidentiality provisions for protection of the Company’s proprietary information.

 

The Company has consulting agreements with outside contractors to provide marketing and financial advisory services. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice.

 

On December 29, 2010, pursuant to the Merger, Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.) became a wholly-owned subsidiary of the Company. Solar Wind has employment agreements with its executive officers. Each of the employment agreements was entered into on September 22, 2010 and amended on November 22, 2010.

 

 

Name   Position(s)   Term   Salary   Bonus   Severance
Ronald W. Pickett   President, Chief Executive Officer   3 years; renewable for 1 year on mutual consent   $200,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.
Stephen Sadle   Chief Operating Officer   3 years; renewable for 1 year on mutual consent   $175,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.
Robert P. Crabb   Secretary, Chief Marketing Officer   3 years; renewable for 1 year on mutual consent   $60,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.

 

The foregoing descriptions of the employment agreements do not purport to be complete and are qualified in their entirety by reference to such employment agreements which are included as exhibits to this Form 10-K, were filed with the SEC on Form 8-K on December 30, 2010.

 

In connection with the private placement subscription the Company has also agreed to issue to the referring brokers, five-year warrants to purchase an aggregate of 98,000 shares of common stock at an exercise price of $0.10 per share. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.00%, a dividend yield of 0%, and volatility of 247%. The amount of $29,400 attributed to the value of the warrants to be issued and has been accrued for as of December 31, 2011, which is charged to additional paid-in capital.

 

F-21
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

Litigation

 

Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc.(f/k/a Clean Wind Energy Tower, Inc.)

 

On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) to the benefit of Hanover Holdings I, LLC. on February 29, 2012 and has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. Total claim amount is for $122,985. The Company does not believe any additional payments are due to Hanover Holdings I, LLC and will vigorously defend its position.

   

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not party to any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

NOTE 11 – STOCKHOLDERS' EQUITY

 

Preferred stock

 

The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of December 31, 2012 and 2011, the Company did not have any preferred stock issued and outstanding.

 

Common stock

 

The Company has authorized 500,000,000 shares of common stock, with a par value of $0.0001 per share. As of December 31, 2012 and 2011, the Company has 279,865,011 and 210,850,519, respectively, shares of common stock issued and outstanding.

 

During the years ended December 31, 2012, the Company issued an aggregate of 261,556 shares of common stock for accrued expenses of $34,467.

 

During the year ended December 31, 2012, the Company issued an aggregate of 21,500,000 shares of common stock for future services of $1,745,690. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the year ended December 31, 2012, the Company recorded $866,274 as stock based compensation.

 

During the year ended December 31, 2012, the Company issued an aggregate of 7,751,176 shares of common stock for services rendered of $290,647.

 

During the year ended December 31, 2012, the Company issued an aggregate of 22,500,000 shares of common stock in settlement of $150,000 previous incurred payables. In connection with the issuance, the Company recorded a loss on settlement of debt of $822,500.

 

During the year ended December 31, 2012, the Company issued an aggregate of 13,251,760 shares of common stock in settlement of $126,000 of convertible notes payable and related accrued interest.

 

F-22
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

During the year ended December 31, 2012, the Company issued an aggregate of 600,000 shares of common stock for common stock subscriptions for $60,000 proceeds, which received in 2011 and 2,300,000 shares of common stock for in connection with a warrant agreement entered into on January 12, 2012 for $230,000.

 

During the year ended December 31, 2012, the Company issued 850,000 of common stock for net proceeds of $85,000. 

 

During the year ended December 31, 2011, the Company issued 955,320 shares of Common Stock to consultants for services performed and rendered; 855,320 shares were expense in the year ended December 31, 2011 and 100,000 shares were accrued for in fiscal year 2010. These shares were valued at $153,459, which approximated the fair value of the shares when they were issued; the expense recognized in the year ended December 31, 2011 is $146,459 and $7,000 of expenses were recognized in fiscal year 2010.

 

During the year ended December 31, 2011, the Company issued 9,540,000 shares of Common Stock to private placement investors at $0.10 per share for aggregate gross proceeds of $954,000. In connection with the private placement subscription the Company has also agreed to issue to the referring brokers, five-year warrants to purchase an aggregate of 98,000 shares of common stock at an exercise price of $0.10 per share. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.00%, a dividend yield of 0%, and volatility of 247%. The amount of $29,400 attributed to the value of the warrants to be issued and has been accrued for as of December 31, 2011, which is charged to additional paid-in capital.

 

Also, during the year ended December 31, 2011, the Company received $60,000 from an investors in connection with the private placement subscription. The equivalent 600,000 shares of Common Stock at $0.10 were not yet issued at the end of the year ended December 31, 2011.

 

During the year ended December 31, 2011, the Company issued 300,000,000 shares of common stock to the shareholders of its Subsidiary, Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.) pursuant to the Merger on December 29, 2010, in exchange for their Solar Wind Energy, Inc. (f/k/a Clean Wind Energy, Inc.) Common Stock. These issuances of shares were made in reliance upon an exemption from registration under Section 4 (2) of the Securities Act, and Regulation D promulgated thereunder.

 

On September 20, 2011, the Company received notice from an attorney representing John W. Hanback (Chief Technology Officer), Itzhak Tepper (PE Chief Structural Engineer) and one additional employee located at the Company’s research facility (collectively, the “Former Employees”) whereby the Former Employees have claimed that they have been constructively discharged from their employment and have terminated their employment agreements. The Company considers the notice from the Former Employees as a resignation by such Former Employees and has notified the Former Employees that such resignation has been accepted. As a result of such resignation, the Company has cancelled all stock certificates issued at the time of Merger which represents an aggregate of 120,600,000 shares of common stock held by the Former Employees that would have been earned out on the first anniversary of their employment agreements.

 

On December 29, 2010, the Company agreed to issue to Source Capital 6,000,000 shares for providing financial advisory services to Solar Wind in connection with the Merger and for on-going financial services. These shares have not been issued as of December 31, 2012 and the shares to be issued were made in reliance upon an exemption from registration under Section 4 (2) of the Securities Act, and Regulation D promulgated thereunder.

 

F-23
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

Warrants

 

On January 12, 2012, the Company entered into a Warrant Agreement with Paradigm Concepts, Inc. (the "Warrant Holder"), pursuant to which the Company issued to Warrant Holder one certificate (the “Warrant Certificate”) providing the Warrant Holder with the right to purchase, at any time until the earliest occurrence of either (a) after the underlying common stock issuable in the exercise of the warrants being declared registered and effective by the SEC on a registration statement filed by the Company, or, (b) 5:30 P.M. Pacific Daylight Savings Time on July 12, 2012. The Warrant Certificate is exercisable up to $1,000,000 worth of restricted shares of common stock of the Company (the “Warrant Shares”) valued at exercise price calculated by taking the daily closing bid price of the Company’s common stock as reported on the OTCBB, on the date of the exercise of the warrants, and discounting that closing bid price by 20%; provided, however, the exercise price may in no event be lower than $0.10 per share nor greater than $0.40 per share. The Warrant is non-cancelable by the Company and non-callable.

 

On December 31, 2012, Warrant Agreement expired.

 

NOTE 12 – INCOME TAXES

 

The Company utilizes ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

 

For the period from July 26, 2010 (date of inception) through December 31, 2012, the Company had available for U.S federal income tax purposes net operating loss carryovers of approximately $3,455,000, which expiring through the year of 2032. The net operating loss carryovers may be subject to limitations under Internal Revenue Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the Company it is more likely than not that the benefits will not be realized.

 

The income tax provision (benefit) for the years ended December 31, 2012 and 2011 consists of the following:

 

   2012   2011 
Federal:          
Current  $   $ 
Deferred   1,209,000    821,450 
    1,209,000    821,450 
State and local:          
Current        
Deferred   187,000    127,000 
    187,000    127,000 
           
Change in valuation allowance   (1,396,000)   (948,450)
           
Income tax provision (benefit)  $   $ 

 

 

F-24
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

The provision for income taxes differ from the amount of income tax determined by applying the applicable U.S statutory rate to losses before income tax expense for the year ended December 31, 2012 and 2011as follows:

   

   December 31,
2012 and 2011
 
Statutory federal income tax rate   (35.0%)
Statutory state and local income tax rate (8.25%), net of federal benefit   (5.4%)
Change in valuation allowance   40.4%
Effective tax rate   0.00%

     

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:

  

   December 31, 
   2012   2011 
Deferred tax assets (liabilities):          
Stock based compensation issued and to be issued for services rendered  $1,157,000   $231,500 
Net operating loss carry forward   1,108,000    716,950 
Less: valuation allowance   (2,265,000)   (948,450)
Net deferred tax asset  $   $ 

  

The Company has not yet filed its tax returns for the period from July 26, 2010 (date of inception) through December 31, 2012.

 

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

 

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s consolidated financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

 

All tax years for the Company remain subject to future examinations by the applicable taxing authorities.

 

NOTE 13 – FAIR VALUE MEASUREMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

·Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
·Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
·Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable. 

 

F-25
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of December 31, 2012:

 

    Level 1     Level 2     Level 3     Total  
Long-term investments   $              
Total   $                –     $     $     $  
                               
Derivative liabilities           529,785     529,785  
Total   $     $     $ 529,785     $ 529,785  

  

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the nine months ended December 31, 2012.

 

Years ended December 31, 2012 and 2011: 

 

  Derivative Liability  
Balance, December 31, 2010  $ 
      
Transfers in upon initial fair value of derivative liability   237,787 
Adjustment for debt modification   88,849 
Mark-to-market at December 31, 2011   (89,241)
      
Balance, December 31, 2011  $237,395 
      
Transfers in (out) at mark-market value on date of payoff or conversion   (331,717)
      
Transfers in upon initial fair value of derivative liability   798,826 
      
Gain from change in fair value of derivative liability   (174,719)
      
Balance, December 31, 2012  $529,785 
      
Total gain for the period included in earnings relating to the liabilities held at December 31, 2012  $174,719 

 

Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.

 

F-26
 

 

SOLAR WIND ENERGY TOWER INC.

(f/k/a Clean Wind Energy Tower, Inc.)

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

 

NOTE 14 – SUBSEQUENT EVENTS

 

Subsequent issuances of common stock

 

In January 2013, the Company issued an aggregate of 4,021,505 shares of common stock in settlement of $35,280 outstanding notes payable

 

In February 2013, the Company issued an aggregate of 6,590,067 shares of common stock in settlement of $68,660 outstanding notes payable

 

In February 2013, the Company issued an aggregate of 281,553 shares of common stock for services rendered of $5,597.

 

Subsequent financing

 

During the month of January 2013, the Company issued an aggregate of two convertible promissory notes to investors in the aggregate principal amount of $19,000. The total net proceeds the Company received from this Offering was $14,000.

 

The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The Note is convertible into common stock, at holders’ option, at a conversion rate of $0.015 per common share.

 

On January 25, 2013, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on January 25, 2013. The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 29, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

 

  

 

 

 

 

 

 

 

 

 

F-27