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<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 2 – ACQUISITION </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 25, 2011, the Company entered
into an Asset Purchase Agreement (the “Acquisition”) to acquire substantially all of the assets of Rochester Power
Saver Inc., consisting primarily of intellectual property and product designs for surge suppression and power conditioning devices.
Under the terms of the Acquisition, the Company paid 304,721 shares of its restricted common stock, $50,000 in cash for a total
consideration of $500,000 and will pay a 5% royalty on gross profits to the founders up to a maximum of $150,000 over the next
24 months following the closing of the acquisition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The purchase price was allocated as
follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%">Description</td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">Amount</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%">Bank account</td>
<td style="width: 3%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 18%; line-height: 115%; text-align: right">2,686</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Accounts receivable</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">9,850</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Inventory and equipment</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">4,479</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Intellectual property – product designs</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">482,985</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Total</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">500,000</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 4 – PREPAID EXPENSES</b></p>
<p style="font: 10pt/normal Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Prepaid expenses consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%; color: red; text-align: center"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 46%; line-height: 115%">Software licenses</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 23%; line-height: 115%; text-align: right">42,035</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 23%; line-height: 115%; text-align: right">38,299</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Other</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">68,105</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Consulting</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">145,251</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">296,062</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%">Total prepaid expenses</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">255,391</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">334,361</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 6 – SUBSCRIPTION RECEIVABLE</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The subscription receivable was collected
on March 21, 2012.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 7 – INVENTORIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories consist of parts and supplies
used in the development, manufacture and installation of wind turbines as well as finished goods. Inventories are stated at the
lower of cost, computed using the first-in first-out method, or market.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 9%; background-color: white; line-height: 115%"> </td>
<td style="width: 41%; background-color: #CCEEFF; line-height: 115%">Finished goods</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">762,757</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">690,682</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Parts and supplies</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">212,431</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">137,506</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Total Inventories</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">975,188</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">828,188</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Nature of Business</u></p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">XZERES Corp. (“XZERES” and the
“Company”) is located in Portland, Oregon and was originally incorporated in the state of New Mexico in January of
1984. The Company was engaged in the natural gas and asphalt businesses until 2007, at which time it liquidated its assets and
operations and distributed the net proceeds to its shareholders after paying its debts. On October 2, 2008, the Company re-domiciled
from New Mexico to Nevada in anticipation of pursuing the wind turbine business. The Company commenced operations in the wind turbine
business in the fiscal quarter ended May 31, 2010.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company formed two subsidiaries during
the year ended February 28, 2011. XZERES Energy Services Corp. was incorporated in Nevada in January, 2011 and XZERES Wind Europe
Limited was formed in Ireland in October, 2010.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is in the business of designing,
developing, and marketing small wind turbine systems and related equipment for electrical power generation, specifically for use
in residential, small business, rural electric utility systems, other rural locations, and other infrastructure applications. The
Company employs proprietary technology, including power electronics, alternator design, and blade design to increase performance,
reliability, and sound suppression. The Company also works with manufacturers of inverters, lightning protection equipment and
towers to integrate their equipment into the Company’s products.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Principles of Consolidation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The financial statements reflect the consolidated
results of XZERES Corp. and its wholly-owned subsidiaries XZERES Energy Services Corp. (a Nevada corporation) and XZERES Wind Europe
Limited (formed in Ireland). All material inter-company transactions have been eliminated in the consolidation.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basis of Presentation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying interim financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the period ended February 29, 2012
as amended. In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading
have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results expected
for the full year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Accounting Basis</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses the accrual basis of accounting
and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted
a February 28 fiscal year end.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Use of Estimates</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Fair Value of Financial Instruments</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s financial instruments consist
of cash and cash equivalents, accounts and notes receivable, inventories, inventory deposit, prepaid expenses, notes payable, due
to factor, accounts payable, accrued expenses, customer deposits, taxes payable and warranty reserve. The carrying amount of these
financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market
rates unless otherwise disclosed in these financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Concentration of Credit Risks</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company maintains its cash in institutions
insured by the Federal Deposit Insurance Corporation (FDIC). All deposit accounts at FDIC-insured institutions are insured up to
at least $250,000 per depositor. At certain times the Company’s balances exceed the insured amount.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Recent Accounting Pronouncements</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on the Company’s results of operation, financial position
or cash flows.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Revenue Recognition</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes revenue when products
are shipped from the factory and collection is reasonably assured.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">XZERES sells wind turbines to dealers and end
users directly. Dealers are required to sign an agreement with XZERES that requires the dealer to sell one unit the first year
and three units per year, thereafter. Dealers receive dealer pricing, a discount to the suggested retail price of the product.
Products sold directly to end users are sold at the retail price. To date, the Company has not offered any other price concessions
to its dealers, and has no post shipment obligations other than the warranty it provides.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Cash and Cash Equivalents</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">XZERES considers all highly liquid investments
with maturities of three months or less to be cash equivalents. The Company had cash of $89,048 and $236,682 at November 30, 2012
and February 29, 2012, respectively.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Advertising Costs</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s policy regarding advertising
is to expense advertising when incurred. XZERES incurred advertising expense of $17,461 and $29,983 during the quarter ended November
30, 2012 and 2011 respectively. For the nine months ended November 30, 2012 and 2011, Xzeres incurred advertising expense of $33,893
and $116,484 respectively.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Stock-Based Compensation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for employee stock-based
compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based
on their fair values. During the three months ended November 30, 2012 the Company did not make any grants of employee stock options.
For the three months ended November 30, 2012 and November 30, 2011, the Company recorded stock-based compensation expense of $6,747
and $86,836, respectively. Unrecognized expense of $423,862 remains to be recognized over the remaining vesting terms of the options.
The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants
and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services
provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value
of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged to expense
over the period during which services are rendered. The Company has also issued shares to outside consultants for various services
rendered. For the quarter ended November 30, 2012 and November 30, 2011, the Company recorded stock–based compensation expense
relating to non-employees in the amount of $390,692 and $11,813 respectively<font style="color: #00B050">. </font>For the nine
months ended November 30, 2012 and 2011, the Company recorded stock-based compensation relating to non-employees of $589,882 and
$35,439 respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Dividends</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has not adopted any policy
regarding payment of dividends.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 19, 2012 the Company sold
1,428,571 shares of the Series A Convertible Preferred stock at a price per share of $1.05 for total proceeds of $1,500,000. The
sale of the Series A Convertible Preferred stock included the issuance of 2,142,857 warrants. Based upon the Black Scholes pricing
module the warrants have a fair value of $0.2106 per warrant. The portion of the proceeds allocated to warrants is $345,000. The
Preferred shares are convertible into three shares of common stock. A deemed dividend of $259,285 was recorded which represents
the intrinsic value of the conversion feature on the date of issuance.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Income Taxes</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Income taxes are accounted for under
the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be recovered or settled. It is the Company’s policy to
classify interest and penalties on income taxes as interest expense or penalties expense. As of November 30, 2012, there have been
no interest or penalties incurred on income taxes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basic Income (Loss) Per Share</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic income (loss) per share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during
the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders
by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Outstanding warrants and options were
not included in the computation of diluted earnings per share for the quarter ended November 30, 2012 as their effect would have
been anti-dilutive.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Reclassifications</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain accounts and financial statement
captions in the prior periods have been reclassified to conform to the current period financial statements.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Principles of Consolidation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The financial statements reflect the consolidated
results of XZERES Corp. and its wholly-owned subsidiaries XZERES Energy Services Corp. (a Nevada corporation) and XZERES Wind
Europe Limited (formed in Ireland). All material inter-company transactions have been eliminated in the consolidation.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basis of Presentation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying interim financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the period ended February 29, 2012
as amended. In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading
have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results expected
for the full year.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Accounting Basis</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses the accrual basis of accounting
and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has
adopted a February 28 fiscal year end.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Use of Estimates</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Concentration of Credit Risks</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company maintains its cash in institutions
insured by the Federal Deposit Insurance Corporation (FDIC). All deposit accounts at FDIC-insured institutions are insured up
to at least $250,000 per depositor. At certain times the Company’s balances exceed the insured amount.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Recent Accounting Pronouncements</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on the Company’s results of operation, financial
position or cash flows.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Revenue Recognition</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes revenue when products
are shipped from the factory and collection is reasonably assured.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">XZERES sells wind turbines to dealers and
end users directly. Dealers are required to sign an agreement with XZERES that requires the dealer to sell one unit the first
year and three units per year, thereafter. Dealers receive dealer pricing, a discount to the suggested retail price of the product.
Products sold directly to end users are sold at the retail price. To date, the Company has not offered any other price concessions
to its dealers, and has no post shipment obligations other than the warranty it provides.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Cash and Cash Equivalents</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">XZERES considers all highly liquid investments
with maturities of three months or less to be cash equivalents. The Company had cash of $89,048 and $236,682 at November 30, 2012
and February 29, 2012, respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Advertising Costs</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s policy regarding advertising
is to expense advertising when incurred. XZERES incurred advertising expense of $17,461 and $29,983 during the quarter ended November
30, 2012 and 2011 respectively. For the nine months ended November 30, 2012 and 2011, Xzeres incurred advertising expense of $33,893
and $116,484 respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Stock-Based Compensation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for employee stock-based
compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based
on their fair values. During the three months ended November 30, 2012 the Company did not make any grants of employee stock options.
For the three months ended November 30, 2012 and November 30, 2011, the Company recorded stock-based compensation expense of $6,747
and $86,836, respectively. Unrecognized expense of $423,862 remains to be recognized over the remaining vesting terms of the options.
The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants
and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services
provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value
of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged to expense
over the period during which services are rendered. The Company has also issued shares to outside consultants for various services
rendered. For the quarter ended November 30, 2012 and November 30, 2011, the Company recorded stock–based compensation expense
relating to non-employees in the amount of $390,692 and $11,813 respectively<font style="color: #00B050">. </font>For the nine
months ended November 30, 2012 and 2011, the Company recorded stock-based compensation relating to non-employees of $589,882 and
$35,439 respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Fair Value of Financial Instruments</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s financial instruments
consist of cash and cash equivalents, accounts and notes receivable, inventories, inventory deposit, prepaid expenses, notes payable,
due to factor, accounts payable, accrued expenses, customer deposits, taxes payable and warranty reserve. The carrying amount
of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing
market rates unless otherwise disclosed in these financial statements.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Dividends</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has not adopted any policy
regarding payment of dividends.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 19, 2012 the Company sold
1,428,571 shares of the Series A Convertible Preferred stock at a price per share of $1.05 for total proceeds of $1,500,000. The
sale of the Series A Convertible Preferred stock included the issuance of 2,142,857 warrants. Based upon the Black Scholes pricing
module the warrants have a fair value of $0.2106 per warrant. The portion of the proceeds allocated to warrants is $345,000. The
Preferred shares are convertible into three shares of common stock. A deemed dividend of $259,285 was recorded which represents
the intrinsic value of the conversion feature on the date of issuance.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Income Taxes</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Income taxes are accounted for under
the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected to be recovered or settled. It is the Company’s
policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of November 30, 2012, there
have been no interest or penalties incurred on income taxes.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basic Income (Loss) Per Share</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic income (loss) per share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during
the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders
by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Outstanding warrants and options
were not included in the computation of diluted earnings per share for the quarter ended November 30, 2012 as their effect would
have been anti-dilutive.</p>
250000
33893
116484
17461
29983
589882
35439
390692
11813
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The purchase price was allocated as
follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%">Description</td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">Amount</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%">Bank account</td>
<td style="width: 3%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 18%; line-height: 115%; text-align: right">2,686</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Accounts receivable</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">9,850</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Inventory and equipment</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">4,479</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Intellectual property – product designs</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">482,985</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Total</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">500,000</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
50000
500000
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 3 – ACCOUNTS RECEIVABLE</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts receivable is generated from
sales of wind turbine systems and power efficiency products. At November 30, 2012, accounts receivable were substantially comprised
of balances due from end customers and dealers.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of the February 29, 2012, the Company
has created an allowance for doubtful accounts equal to 2% of accounts receivable. While the Company has not experienced any customer
defaults to date, it has elected to begin reserving for potential bad debts.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 115%">Accounts receivable</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">368,578</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">1,059,750</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Less: Allowance for doubtful accounts</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(7,866</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(22,972</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Accounts receivable, net</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">360,712</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">1,036,778</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Notes receivable are generated from sales of wind turbine
systems. At November 30, 2012, notes receivable were comprised of balances from end customers. Terms of the notes receivable are
seven years at an annual interest rate of 4.5% with payments received on a monthly basis.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">While the Company has not experienced
any customer defaults to date, it has elected to begin reserving for potential bad debts.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 115%">Accounts receivable</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">368,578</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">1,059,750</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Less: Allowance for doubtful accounts</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(7,866</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(22,972</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Accounts receivable, net</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">360,712</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">1,036,778</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
0.045
368578
1059750
7866
22972
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Prepaid expenses consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%; color: red; text-align: center"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 46%; line-height: 115%">Software licenses</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 23%; line-height: 115%; text-align: right">42,035</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 23%; line-height: 115%; text-align: right">38,299</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Other</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">68,105</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Consulting</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">145,251</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">296,062</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%">Total prepaid expenses</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">255,391</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">334,361</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
42035
38299
68105
0
145251
296062
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 5 – DEFERRED FINANCING
COSTS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of warrants issued in
connection with the PO financing arrangements have been recorded as deferred financing costs. The warrants were fair valued at
$85,204 using the Black-Scholes pricing model. These costs are being amortized over the terms of the related loan agreements. Deferred
financing costs include due diligence, legal and banking fees.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Deferred financing costs consisted of
the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 115%">Deferred financing costs</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">85,204</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">0</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Less: accumulated amortization</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(33,537</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Deferred financing costs, net</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">51,667</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Amortization expense for the three
and nine month periods ended November 30, 2012 totaled $19,374 and $33,537, respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Deferred financing costs consisted of
the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 115%">Deferred financing costs</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">85,204</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">0</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Less: accumulated amortization</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(33,537</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Deferred financing costs, net</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">51,667</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
85204
85204
0
33537
0
33537
19374
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 9%; background-color: white; line-height: 115%"> </td>
<td style="width: 41%; background-color: #CCEEFF; line-height: 115%">Finished goods</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">762,757</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">690,682</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Parts and supplies</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">212,431</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">137,506</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Total Inventories</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">975,188</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">828,188</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
762757
690682
212431
137506
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 8 – PROPERTY AND EQUIPMENT</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment are being depreciated
over their estimated useful lives using the straight-line method of depreciation for book purposes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 9%; background-color: white; line-height: 115%"> </td>
<td style="width: 41%; background-color: #CCEEFF; line-height: 115%">Furniture</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">48,624</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">48,624</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Computer equipment</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">175,155</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">171,318</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Shop machinery and equipment</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">249,802</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">232,100</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Vehicles</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">10,998</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">10,998</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 20pt; line-height: 115%">Subtotal</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">484,579</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">463,040</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="padding-left: 10pt; line-height: 115%">Less: accumulated depreciation</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(182,762</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(116,033</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Property and equipment, net</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">301,817</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">347,007</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Depreciation expense totaled $22,529 and $12,617 for the
three months ended November 30, 2012 and 2011 respectively. For the nine months ended November 30, 2012 and 2011, depreciation
expense totaled $66,729 and $38,221 respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment are being depreciated
over their estimated useful lives using the straight-line method of depreciation for book purposes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 9%; background-color: white; line-height: 115%"> </td>
<td style="width: 41%; background-color: #CCEEFF; line-height: 115%">Furniture</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">48,624</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">48,624</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Computer equipment</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">175,155</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">171,318</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Shop machinery and equipment</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">249,802</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">232,100</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Vehicles</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">10,998</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">10,998</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 20pt; line-height: 115%">Subtotal</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">484,579</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right">463,040</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="padding-left: 10pt; line-height: 115%">Less: accumulated depreciation</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(182,762</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(116,033</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Property and equipment, net</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">301,817</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">347,007</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
48624
48624
249802
232100
484579
463040
182762
116033
175155
171318
10998
10998
66729
38221
22529
12617
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 10 – WEBSITE DEVELOPMENT
COSTS</b></p>
<p style="font: 10pt/normal Calibri, Helvetica, Sans-Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has capitalized certain
costs incurred in developing their website, which consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%; color: red; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 115%">Website development costs</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">21,175</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">21,175</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Less: Accumulated amortization</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(15,293</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(9,999</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Website development costs, net</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">5,882</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">11,176</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Calibri, Helvetica, Sans-Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company began amortizing the website
costs, using the straight-line method over the estimated useful life of 3 years, once it was put into service in September 2010.
Ongoing updates to the website are expensed as incurred.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Amortization expense was $1,765 and $1,765 for the three
months ended November 30, 2012 and 2011, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Amortization expense was $5,294 and $5,294 for the nine
months ended November 30, 2012 and 2011, respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has capitalized certain
costs incurred in developing their website, which consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%; color: red; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%; line-height: 115%">Website development costs</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">21,175</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">21,175</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Less: Accumulated amortization</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(15,293</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(9,999</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Website development costs, net</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">5,882</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">11,176</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
P3Y
5294
5294
1765
1765
5882
11176
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 9 – INTELLECTUAL PROPERTY</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Intellectual property consists of product
designs with an infinite life, including the designs for the recently acquired power efficiency products.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company annually, or more frequently
if events or changes indicate that the asset might be impaired, evaluates the fair value of the intellectual property to determine
whether events and circumstances warrant a revision to the fair value of these assets.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 2.5in; text-align: justify; text-indent: -2.5in"><b>NOTE
11 – ACCRUED EXPENSES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accrued expenses consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; color: red; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 9%; background-color: white; line-height: 115%"> </td>
<td style="width: 41%; background-color: #CCEEFF; line-height: 115%">Wages</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">113,971</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">113,551</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Miscellaneous</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">251,387</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 10pt; line-height: 115%">Total Accrued Expenses</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">365,358</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">113,551</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accrued expenses consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; color: red; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%; text-align: center"> </td>
<td style="line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 9%; background-color: white; line-height: 115%"> </td>
<td style="width: 41%; background-color: #CCEEFF; line-height: 115%">Wages</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">113,971</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 21%; background-color: #CCEEFF; line-height: 115%; text-align: right">113,551</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Miscellaneous</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">251,387</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 10pt; line-height: 115%">Total Accrued Expenses</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">365,358</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">113,551</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
365358
113551
113971
113551
251387
0
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 12 – CUSTOMER DEPOSITS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A customer deposit of 50% of the selling
price is sometimes made at the time a wind turbine is ordered. Deposits are reclassified to revenue once the unit is completed
and delivered. Customer deposits were $135,074 at November 30, 2012 and $520,458 at February 29, 2012.</p>
0.50
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 13 – WARRANTY RESERVE</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accrues for estimated future
warranty costs by establishing a reserve of 2% of fiscal year wind turbine sales and tower sales. The reserve is reduced over the
five year warranty period as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 87%; padding-left: 10pt; line-height: 115%">Year 1</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; line-height: 115%; text-align: right">0.1</td>
<td style="width: 3%; line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%">Year 2</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.3</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Year 3</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.4</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%">Year 4</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.5</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Year 5</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.7</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Total Warranty Reserve as a % of Sales</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">2.0</td>
<td style="line-height: 115%">%</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Warranty reserve activity was as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 20pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; line-height: 115%">Reserve balance, beginning</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 22%; line-height: 115%; text-align: right">100,136</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 22%; line-height: 115%; text-align: right">16,601</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Added to reserve</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">61,962</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">129,029</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Charges against reserve</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(27,384</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(58,612</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Reserve balance, ending</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">134,714</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">87,018</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accrues for estimated future
warranty costs by establishing a reserve of 2% of fiscal year wind turbine sales and tower sales. The reserve is reduced over the
five year warranty period as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 87%; padding-left: 10pt; line-height: 115%">Year 1</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; line-height: 115%; text-align: right">0.1</td>
<td style="width: 3%; line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%">Year 2</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.3</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Year 3</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.4</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%">Year 4</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.5</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Year 5</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">0.7</td>
<td style="line-height: 115%">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%">Total Warranty Reserve as a % of Sales</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">2.0</td>
<td style="line-height: 115%">%</td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Warranty reserve activity was as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 20pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; line-height: 115%">Reserve balance, beginning</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 22%; line-height: 115%; text-align: right">100,136</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 22%; line-height: 115%; text-align: right">16,601</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Added to reserve</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">61,962</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">129,029</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%">Charges against reserve</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(27,384</td>
<td style="line-height: 115%">)</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">(58,612</td>
<td style="line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%">Reserve balance, ending</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">134,714</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">87,018</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
134714
87018
16601
61962
129029
-27384
-58612
.02
.001
.003
.004
.005
.007
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 14 - FACTORING AGREEMENT-RELATED
PARTY</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 25, 2011, the Company entered
into a purchase and sale factoring agreement with a related party whereby the Company sells certain international accounts receivable
to the factor. Under the terms of this agreement, the factor makes advances to the Company based on certain international accounts
receivable. Interest is computed at 8% of the factored amount for the period the factored accounts receivable remain outstanding.
Based on this arrangement, the Company is liable to the factor if the accounts receivable are not collected. Payments are due
on the Note as receivables are collected. The agreement was initially due to expire on January 15, 2012, and was extended to December
15, 2012. The Company and the related party have mutually agreed to further extend expiration beyond December 15, 2012.</p>
2012-12-15
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 15 – STOCKHOLDERS’
EQUITY</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ending February
29, 2012, the following share-related transactions occurred:</p>
<p style="font: 10pt/normal Calibri, Helvetica, Sans-Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">3,277,637 common shares were sold to unrelated third parties in a private placement at $1.05 per share for net proceeds of $3,164,611.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">304,721 common shares valued at $450,000 were issued to acquire assets.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">466,310 common shares were sold to unrelated third parties in a private placement at an average of $1.02 per share for net proceeds of $474,000.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">1,250,000 common shares were sold to unrelated third parties in a private placement at an average of $0.80 per share for net proceeds of $1,000,000.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">625,000 common shares were sold to unrelated third parties in a private placement at an average of $0.40 per share for net proceeds of $250,000.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">3,714,050 common shares were sold to unrelated third parties in a private placement at an average of $0.40 per share for net proceeds of $1,485,620.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Times New Roman, Times, Serif">●</td>
<td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: justify">479,880 common shares were issued for consulting services to multiple providers. The shares were valued at various market prices ranging between $0.49 and $1.05 per share. The combined value of the shares totaled $290,434. Of the total value, $168,454 was expensed during the year end February 29, 2012, and $121,980 was recorded as prepaid consulting and is being written off over the remaining terms of the contracts.</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the nine months ended November
30, 2012, the following equity-related transactions occurred:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">1,715,362 common shares were issued
for consulting services to multiple providers. The shares were valued at various market prices ranging between $0.32 and $0.45
per share. The combined value of the shares was $698,422. Of the total value, $545,023 was expensed during the period.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Total common shares issued and outstanding
at November 30, 2012 were 27,215,776.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 16, 2012, the Board of Directors
established a Series A Convertible Preferred stock, par value $.001 per share. The number of designated shares of Series A Convertible
Preferred stock is 2,000,000.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 19, 2012 the Company sold
1,428,571 shares of the Series A Convertible Preferred stock at a price per share of $1.05 for total proceeds of $1,500,000. The
sale of the Series A Convertible Preferred stock included the issuance of 2,142,857 warrants. Based upon the Black Scholes pricing
module the warrants have a fair value of $0.2106 per warrant. The portion of the proceeds allocated to warrants is $345,000. The
Preferred shares are convertible into three shares of common stock. A deemed dividend of $259,285 was recorded which represents
the intrinsic value of the conversion feature on the date of issuance.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 18 – STOCK WARRANTS AND
OPTIONS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has granted 695,000 warrants
during fiscal year 2013 related to purchase order financing facilities. The Company granted 2,142,857, 5,207,649 and 2,584,318
stock warrants in connection with private placements during fiscal year 2013, fiscal 2012 and fiscal 2011, respectively and an
additional 1,250,000 warrants in fiscal 2012 to advisors for a total of 9,136,967 warrants issued. The Company has accounted for
these warrants as equity instruments in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Company’s Own Stock, and as such, were classified in stockholders’ equity. The Company
has estimated the fair value of the warrants issued at $4,025,069 as of the grant dates using the Black-Scholes option pricing
model.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has also granted 775,000
and 1,700,000 stock options, net of terminations, to employees during fiscal 2012 and fiscal 2011, respectively. The Company has
estimated the fair value of the options as of the grant dates at $2,096,889 using the Black-Scholes option pricing model. Compensation
expense is being recognized over the vesting periods of the options which range from immediate vesting to vesting over four years.
Fifteen percent of total issued and outstanding common shares are available for stock options.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Key assumptions used by the Company
in the Black-Scholes pricing model are summarized as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: center">Private Placement Warrants</td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center">Employee Stock</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center">Options</p></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 7%; line-height: 115%"> </td>
<td style="width: 35%; line-height: 115%">Stock Price</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 26%; line-height: 115%; text-align: center">$0.35-$1.05</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 26%; line-height: 115%; text-align: center">$0.45-$2.20</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Exercise Price</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">$0.80-$1.50</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">$.80-$1.25</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Expected volatility</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">73.4% - 98%</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">73.4% - 98%</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Risk-free rate</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">0.16% - 2.62%</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">2.0-3.37%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Vesting period</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">-</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">0-4 years</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Expected term</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">3-5 years</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">7 years</td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A Stock Price of $0.45 to $1.05 was
used in valuing the warrants and a range of $0.45-$2.20 for valuing the options. The stock price was based on the per share issuance
prices from recent unrelated third party private placements. Volatility was computed based on the average volatility of similar
companies in the wind turbine business. The risk-free interest rate is the Treasury Constant Maturity Rate on the date of grant
for a period equivalent to the expected term of the instrument. The expected term is the same as the contractual term for the above
valuations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The warrants issued in connection with
the private placements were valued at $3,610,400 and have been accounted for as an equity transaction. Options issued to employees
are classified as compensation expense. Stock option expense recognized in net earnings amounted to $6,747 and $48,395 for the
three and nine months ended November 30, 2012<font style="color: red">. </font>Stock option expense recognized in earnings for
the three and nine months ended November 30, 2011 was $86,836 and $394,768 respectively<font style="color: red">.</font> As of
November 30, 2012, there was $ 578,255 of unrecognized compensation expense related to non-vested share awards that we expect
to recognize over a weighted average period of 3.5 years.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Key assumptions used by the Company
in the Black-Scholes pricing model are summarized as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: center">Private Placement Warrants</td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center">Employee Stock</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center">Options</p></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 7%; line-height: 115%"> </td>
<td style="width: 35%; line-height: 115%">Stock Price</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 26%; line-height: 115%; text-align: center">$0.35-$1.05</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 26%; line-height: 115%; text-align: center">$0.45-$2.20</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Exercise Price</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">$0.80-$1.50</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">$.80-$1.25</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Expected volatility</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">73.4% - 98%</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">73.4% - 98%</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Risk-free rate</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">0.16% - 2.62%</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">2.0-3.37%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Vesting period</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">-</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: center">0-4 years</td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Expected term</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">3-5 years</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: center">7 years</td></tr>
</table>
<p style="margin: 0pt"></p>
0.35
1.05
0.80
1.50
0.734
0.98
0.0016
0.0262
P0Y
P3Y
P5Y
0.45
2.20
0.80
1.25
0.734
0.98
0.02
0.337
P0Y
P4Y
P7Y
0
1480806
3610400
4025069
775000
1700000
578255
2142857
5207649
695000
1250000
2584318
2142857
P3Y6M
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 16 – INCOME TAXES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">For the period ended November 30, 2012,
Xzeres has incurred net losses from continuing operations and, therefore, has no tax liability. The net deferred tax asset generated
by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $18,837,000
at November 30, 2012, and will expire beginning in the year 2029. The cumulative tax effect at the expected rate of 34% of significant
items comprising our net deferred tax amount is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The provision for Federal income tax consists of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2011</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Federal income tax benefit attributable to:</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 7%; line-height: 115%"> </td>
<td style="width: 43%; line-height: 115%">Current operations</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">1,686,000</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">2,003,000</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Less: valuation allowance</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(1,686,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(2,003,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Net provision for Federal income taxes</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The cumulative tax effect at the expected
rate of 34% of significant items comprising our net deferred tax amount is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Deferred tax asset attributable to:</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 7%; line-height: 115%"> </td>
<td style="width: 43%; padding-left: 10pt; line-height: 115%">Net operating loss carryover</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">6,439,000</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">4,753,000</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 10pt; line-height: 115%">Less: valuation allowance</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(6,439,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(4,753,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Net deferred tax asset</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="color: black">Due to the
change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of </font>$18,837,000<font style="color: black">
for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating
loss carry forwards may be limited as to use in future years.</font></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The provision for Federal income tax consists of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2011</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Federal income tax benefit attributable to:</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 7%; line-height: 115%"> </td>
<td style="width: 43%; line-height: 115%">Current operations</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">1,686,000</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">2,003,000</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Less: valuation allowance</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(1,686,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(2,003,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Net provision for Federal income taxes</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The cumulative tax effect at the expected
rate of 34% of significant items comprising our net deferred tax amount is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Deferred tax asset attributable to:</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%; text-align: right"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 7%; line-height: 115%"> </td>
<td style="width: 43%; padding-left: 10pt; line-height: 115%">Net operating loss carryover</td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">6,439,000</td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 2%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%">$</td>
<td style="width: 21%; line-height: 115%; text-align: right">4,753,000</td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 10pt; line-height: 115%">Less: valuation allowance</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(6,439,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">(4,753,000</td>
<td style="background-color: #CCEEFF; line-height: 115%">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Net deferred tax asset</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
18837000
0.34
2029
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Aggregate minimum annual rental payments
under the non-cancelable operating lease are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="width: 13%; background-color: white; line-height: 115%"> </td>
<td style="width: 66%; background-color: #CCEEFF; line-height: 115%; text-align: right">Year ended February 28, 2013</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 17%; background-color: #CCEEFF; line-height: 115%; text-align: right">72,564</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">2014</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">37,152</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 10pt; line-height: 115%; text-align: center">Total</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">109,716</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
72564
37152
109716
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 17 - SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING INFORMATION</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%; font-weight: bold"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2011</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 3%; background-color: white; line-height: 115%"> </td>
<td style="width: 53%; background-color: #CCEEFF; line-height: 115%">Shares issued to acquire assets</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 19%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">0</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 19%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">249,871</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Shares issued in payment of accrued expense</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">42,283</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Warrants issued in connection with private placements</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">0</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">1,480,806</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Deemed Dividend</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">259,285</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%; font-weight: bold"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2011</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 3%; background-color: white; line-height: 115%"> </td>
<td style="width: 53%; background-color: #CCEEFF; line-height: 115%">Shares issued to acquire assets</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 19%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">0</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 19%; border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">249,871</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Shares issued in payment of accrued expense</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">42,283</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Warrants issued in connection with private placements</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">0</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">1,480,806</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Deemed Dividend</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">259,285</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">0</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
0
249871
450000
42283
0
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 19 – CONVERTIBLE NOTE
PAYABLE</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The $100,000 convertible note payable
is dated June 14, 2012 and bears interest at 8%. Unpaid principal and accrued interest are due on the maturity date of March 18,
2013. After 180 days, unpaid note principal and accrued interest can be converted to common stock at the option of the lender
at 58% of the average of the lowest three trading prices for the common stock during the ten trading day period ending on the
latest complete trading day prior to the conversion date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Unpaid principal and accrued interest are due
on the maturity date of March 18, 2013. The note is convertible after 180 days from the issue date. Unpaid note principal and accrued
interest can be converted to common stock at the option of the lender at 58% of the average of the lowest three trading prices
for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.</p>
0.08
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 22 – SUBSEQUENT EVENTS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="color: black">In accordance
with ASC Topic 855-10, </font>the Company has analyzed its operations subsequent to November 30, 2012 to the date these financial
statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial
statements.</p>
2013-03-18
2013-08-01
0.58
66330
45552
255391
334361
115565
43309
451629
303806
134714
87018
479880
1715362
304721
3277637
466310
1250000
625000
3714050
3164611
474000
1000000
250000
1485620
168454
545023
121980
290434
698422
0.49
0.32
1.05
0.45
1.02
0.80
0.40
0.40
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 20 – NOTES PAYABLE</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 25, 2012, the Company entered
into a purchase order (PO) financing agreement which has provided $510,000 in debt financing, and which we will seek to increase
up to a total of $750,000 in debt financing. This agreement will enable us to receive a portion of the funds owed by customers
in advance of when the customer is required to pay the balance (usually prior to shipment or delivery). We will be required to
submit customer orders as collateral for the funds received under the agreement. Once the products are shipped and the end customer
pays the remaining balance, those funds are then used to pay back the amount of the particular PO financed. The amount repaid is
then available for us to borrow against other of our accounts receivable. The agreement calls for a 12% annual interest rate on
any funds outstanding. As additional consideration for the financing agreement, we issued the financing parties warrants to purchase
up to 95,000 shares of our common stock, exercisable at any time during three years from the date of issue, at an exercise price
of $0.80 per share. As orders continue to increase, we may seek to further increase the amount under this financing. There are
no guarantees we will be successful at increasing the amounts available under this PO Financing agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 6, 2012, the Company entered
into a purchase order (PO) financing agreement which has provided $1,500,000 in debt financing. This agreement will enable us to
receive a portion of the funds owed by customers in advance of when the customer is required to pay the balance (usually prior
to shipment or delivery). We will be required to submit customer orders as collateral for the funds received under the agreement.
Once the products are shipped and the end customer pays the remaining balance, those funds are then used to pay back the amount
of the particular PO financed. The amount repaid is then available for us to borrow against other of our accounts receivable. The
agreement calls for a 16% annual interest rate on any funds outstanding. As additional consideration for the financing agreement,
we issued the financing party warrants to purchase up to 600,000 shares of our common stock, exercisable at any time during the
24 months from the date of issue, at an exercise price of $0.35 per share. As orders continue to increase, we may seek to further
increase the amount under this financing. There are no guarantees we will be successful at increasing the amounts available under
this PO Financing agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Purchase Order Financing Notes Payable
are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%; font-weight: bold"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 2%; background-color: white; line-height: 115%"> </td>
<td style="width: 58%; background-color: #CCEEFF; line-height: 115%">Notes payable due within five days of receipt by Company, in whole or in part, portion of funds collected on collateral sales order, or at note holder’s discretion, Company may submit a new collateral sales order with value equal to or in excess of principal outstanding. Borrowings must be paid by Maturity Date which ranges from December 31, 2012 to May 15, 2013. Interest rate is 1% per month.</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 17%; background-color: #CCEEFF; line-height: 115%; text-align: right">510,026</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 17%; background-color: #CCEEFF; line-height: 115%; text-align: right">-</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; color: red"> </td>
<td style="line-height: 115%; color: red"> </td>
<td style="line-height: 115%; color: red; text-align: right"> </td>
<td style="line-height: 115%; color: red"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Notes payable due in even installments of principal and interest over the twelve month length of $1,500,000 revolving credit facility collateralized by Company sales orders. Company may Company may submit new sales orders to drawdown as long as amount outstanding does not exceed facility amount. All obligations to the lender must be paid by the later of August 1, 2013 or 180 days after the last drawdown date. Interest rate is 16% per year.</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">1,500,000</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">-</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Totals</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">2,010,026</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">-</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Purchase Order Financing Notes Payable
are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="line-height: 115%; font-weight: bold"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">November 30, 2012</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: center">February 29, 2012</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 2%; background-color: white; line-height: 115%"> </td>
<td style="width: 58%; background-color: #CCEEFF; line-height: 115%">Notes payable due within five days of receipt by Company, in whole or in part, portion of funds collected on collateral sales order, or at note holder’s discretion, Company may submit a new collateral sales order with value equal to or in excess of principal outstanding. Borrowings must be paid by Maturity Date which ranges from December 31, 2012 to May 15, 2013. Interest rate is 1% per month.</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 17%; background-color: #CCEEFF; line-height: 115%; text-align: right">510,026</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 17%; background-color: #CCEEFF; line-height: 115%; text-align: right">-</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; color: red"> </td>
<td style="line-height: 115%; color: red"> </td>
<td style="line-height: 115%; color: red; text-align: right"> </td>
<td style="line-height: 115%; color: red"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%">Notes payable due in even installments of principal and interest over the twelve month length of $1,500,000 revolving credit facility collateralized by Company sales orders. Company may Company may submit new sales orders to drawdown as long as amount outstanding does not exceed facility amount. All obligations to the lender must be paid by the later of August 1, 2013 or 180 days after the last drawdown date. Interest rate is 16% per year.</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">1,500,000</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; background-color: #CCEEFF; line-height: 115%; text-align: right">-</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%">Totals</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">2,010,026</td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; line-height: 115%; text-align: right">-</td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Reclassifications</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain accounts and financial statement
captions in the prior periods have been reclassified to conform to the current period financial statements.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Nature of Business</u></p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">XZERES Corp. (“XZERES” and the
“Company”) is located in Portland, Oregon and was originally incorporated in the state of New Mexico in January of
1984. The Company was engaged in the natural gas and asphalt businesses until 2007, at which time it liquidated its assets and
operations and distributed the net proceeds to its shareholders after paying its debts. On October 2, 2008, the Company re-domiciled
from New Mexico to Nevada in anticipation of pursuing the wind turbine business. The Company commenced operations in the wind turbine
business in the fiscal quarter ended May 31, 2010.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company formed two subsidiaries during
the year ended February 28, 2011. XZERES Energy Services Corp. was incorporated in Nevada in January, 2011 and XZERES Wind Europe
Limited was formed in Ireland in October, 2010.</p>
<p style="font: 10pt Calibri, Helvetica, Sans-Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is in the business of designing,
developing, and marketing small wind turbine systems and related equipment for electrical power generation, specifically for use
in residential, small business, rural electric utility systems, other rural locations, and other infrastructure applications.
The Company employs proprietary technology, including power electronics, alternator design, and blade design to increase performance,
reliability, and sound suppression. The Company also works with manufacturers of inverters, lightning protection equipment and
towers to integrate their equipment into the Company’s products.</p>
2686
9850
4479
482985
150000
21175
21175
-15293
-9999
0.08
-5185131
-5892154
-1775094
-2130515
-4913547
-5892154
-1517594
-2130515
0
0
0
0
-4913547
-5892154
-1517594
-2130515
-151461
-40573
-34171
-12940
-4762086
-5851581
-1483423
-2117575
5317087
6675191
1707015
2368517
426826
1765190
198135
554556
671626
1259057
154708
562266
165766
283012
61869
87120
4052869
3367932
1292303
1164575
555001
823610
223592
250942
3192991
2488959
1689259
676509
3747992
3312569
1912850
927451
-45299
0
1785
0
259285
0
259285
0
-259285
-147634
-293610
-45299
3765588
4730961
7500
237051
197500
2125265
147823
5165512
-114573
-103462
50000
93034
21539
53462
-3753350
-4921109
47696
-27106
-385384
196708
-32822
340723
140863
-266411
1757577
-73114
-71605
40066
-147000
-426264
80000
668200
-1142576
225000
541487
7866
105560
108614
1500000
1500000
423862
345000
304721
0.05
0.02
0.2106
9136967
2096889
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 21 – COMMITMENTS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Operating Leases</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company leases its office and manufacturing
facilities under a lease which expires in July, 2013. The lease provides for the payment of taxes and operating costs, such as
insurance and maintenance in addition to the base rental payments. The lease is renewable for an additional three year term.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Aggregate minimum annual rental payments
under the non-cancelable operating lease are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="width: 13%; background-color: white; line-height: 115%"> </td>
<td style="width: 66%; background-color: #CCEEFF; line-height: 115%; text-align: right">Year ended February 28, 2013</td>
<td style="width: 2%; background-color: #CCEEFF; line-height: 115%"> </td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="width: 17%; background-color: #CCEEFF; line-height: 115%; text-align: right">72,564</td>
<td style="width: 1%; background-color: #CCEEFF; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%; text-align: right">2014</td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%; text-align: right">37,152</td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="background-color: white; line-height: 115%"> </td>
<td style="background-color: #CCEEFF; padding-left: 10pt; line-height: 115%; text-align: center">Total</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%">$</td>
<td style="border-bottom: black 2.25pt double; background-color: #CCEEFF; line-height: 115%; text-align: right">109,716</td>
<td style="background-color: #CCEEFF; line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Rent expense totaled $70,941 and $74,379
for the three months ended November 30, 2012 and 2011, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Rent expense totaled $235,656 and $211,443
for the nine months ended November 30, 2012 and 2011, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Lawsuits</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 22, 2012, we were served
with a lawsuit by Hobbes & Towne Inc. an employee recruiting firm, seeking damages in the amount of $105,000. The suit was
filed on February 22, 2012 in the Court of Common Pleas, Chester County, Pennsylvania. The dispute arises out of an employee recruiting
contract for engineering staff.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 21, 2012, the Company was served
with a lawsuit by XC Associates, Inc. (XC), which was filed in U.S. District Court, Northern District of New York on May 16, 2012.
XC was a vendor we had prepared to bring on as a key supplier of blades in early 2011. After numerous delays in delivering initial
product to us, we disengaged from XC as a potential supplier. XC initially claimed we owed a balance of approximately $50,000 for
initial tooling. We refused the claim. XC has now filed a suit claiming lost business among other damages, totaling approximately
$729,000. We intend to vigorously contest these claims, and may assert counterclaims seeking damages for business disruption caused
by XC’s failure to perform.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 25, 2012, we were served with
a lawsuit by ESAM, Inc,, a manufacturing firm, seeking damages in the amount of $134,959. The suit was filed in the Circuit Court
of the State of Oregon for the County of Josephine. The dispute arises due to delayed payment to the vendor due to the Company’s
working capital constraints</p>
2000000
1686000
2003000
-1686000
-2003000
0
0
6439000
4753000
6439000
4753000
0
0
2013-07-31
P3Y
235656
211443
70941
74379
105000
729000
134959
50000
510000
1500000
750000
0.12
.16
95000
600000
P3Y
P24M
0.80
0.35
2010026
510026
1500000
0.12
.16
2012-12-31
2013-05-15
26563601
19165262
27215776
20063345