EX-99.2 18 ex99_2.htm

 

EXHIBIT 99.2

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

The Board of Directors

Windstream Technologies, Inc.

North Vernon, Indiana

 

 

We have audited the accompanying balance sheets of Windstream Technologies, Inc. (the “Company”) as of December 31, 2012 and 2011 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

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

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

/s/ MaloneBailey, LLP

www.malone−bailey.com

Houston, Texas

 

August 16, 2013

(1)
 

WINDSTREAM TECHNOLOGIES, INC. FINANCIALS

 

 

 

WINDSTREAM TECHNOLOGIES, INC.
BALANCE SHEETS
          
ASSETS         
   March 31, 2013  December 31,  December 31,
   (unaudited)  2012  2011
          
CURRENT ASSETS               
Cash  $126,616   $4,022   $206,108 
Accounts receivable   153,068    24,933    7,100 
Inventories   309,182    295,023    —   
Prepaid expenses   77,717    77,717    40,500 
                
TOTAL CURRENT ASSETS   666,583    401,695    253,708 
                
Property and equipment, net of accumulated depreciation of $244,085, $202,303               
and $44,495, respectively   446,691    487,942    559,754 
                
OTHER ASSETS               
Deposits   7,500    7,500    7,500 
                
TOTAL ASSETS  $1,120,774   $897,137   $820,962 
                
LIABILITIES AND STOCKHOLDERS' DEFICIT               
                
CURRENT LIABILITIES               
Accounts payable  $1,014,597   $1,021,312   $511,243 
Accounts payable - related parties   49,140    41,705    —   
Accrued liabilities   640,866    512,730    42,983 
Deferred rent   64,240    61,098    47,197 
Deferred revenues   232,386    102,428    —   
Short term debt - related parties   304,000    253,000    —   
Short term debt - third parties   589,750    499,750    250,000 
Current maturities of note payable   468,604    351,453    117,151 
                
TOTAL CURRENT LIABILITIES   3,363,583    2,843,476    968,574 
                
LONG TERM LIABILITY               
 Note payable, non-current   931,396    1,048,547    1,282,849 
                
TOTAL LIABILITIES   4,294,979    3,892,023    2,251,423 
                
STOCKHOLDERS' DEFICIT               
                
Series A Convertible Preferred stock; $0 par value; 500,000 shares authorized;               
83,053, 83,053 and 0 shares issued and outstanding, respectively   740,000    740,000    —   
Seed 1 Convertible Preferred stock; $0 par value; 35,000 shares authorized;               
35,000, 35,000 and 35,000 shares issued and outstanding, respectively   35,000    35,000    35,000 
Seed 2 Convertible Preferred stock; $0 par value; 500,000 shares authorized;               
463,908, 463,908 and 463,908 shares issued and outstanding, respectively   1,521,353    1,521,353    1,521,353 
Common stock; $0 par value; 9,000,000 shares authorized; 955,000, 955,000 and               
955,000 shares issued and outstanding, respectively   3,132    3,132    3,132 
Additional paid in capital   381,645    341,748    182,155 
Accumulated deficit   (5,855,335)   (5,636,119)   (3,172,101)
                
TOTAL STOCKHOLDERS' DEFICIT   (3,174,205)   (2,994,886)   (1,430,461)
                
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $1,120,774   $897,137   $820,962 
                
                
The accompanying notes are an integral part of these financial statements

 

(2)
 

 

 

WINDSTREAM TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
             
    For the Three Months Ended March 31, 2013    For the Three Months Ended March 31, 2012    For the Year Ended December 31,    For the Year Ended December 31, 
    (unaudited)    (unaudited)    2012    2011 
                     
SALES  $356,749   $85,040   $237,237   $—   
                     
COST OF GOODS SOLD   227,448    122,791    428,374    —   
                     
GROSS PROFIT   129,301    (37,751)   (191,137)   —   
                     
OPERATING EXPENSES:                    
Research and development   —      654,253    1,181,094    1,627,132 
General and administrative expenses   309,196    333,499    1,525,535    1,072,885 
                     
TOTAL OPERATING EXPENSES   309,196    987,752    2,706,629    2,700,017 
                     
LOSS FROM OPERATIONS   (179,895)   (1,025,503)   (2,897,766)   (2,700,017)
                     
OTHER INCOME (EXPENSE)                    
Grant income   —      —      600,000    1,000,000 
Other income   —      —      5,915    12,215 
Interest expense, net   (39,321)   (20,618)   (172,167)   (93,508)
                     
TOTAL OTHER INCOME (EXPENSE)   (39,321)   (20,618)   433,748    918,707 
                     
                     
NET LOSS  $(219,216)  $(1,046,121)  $(2,464,018)  $(1,781,310)
                     
                     
Net Loss Per Share - Basic and Diluted  $(0.23)  $(1.10)  $(2.58)  $(1.87)
                     
Weighted Average Shares Outstanding - Basic and Diluted   955,000    955,000    955,000    955,000 
                     
                     
The accompanying notes are an integral part of these financial statements 

 

(3)
 

 

WINDSTREAM TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
             

 

   For the  For the      
   Three Months  Three Months      
   Ended  Ended  For the Year  For the Year
   March 31,  March 31,  Ended  Ended
   2013  2012  December 31,  December 31,
   (unaudited)  (unaudited)  2012  2011
             
CASH FLOWS FROM OPERATING ACTIVITIES:                    
Net loss  $(219,216)  $(1,046,121)  $(2,464,018)  $(1,781,310)
                     
Adjustments to reconcile net income to net cash                    
used in operating activities:                    
Depreciation   41,782    37,364    157,808    38,305 
Stock option expenses   39,897    39,898    159,593    101,678 
                     
Changes in operating Assets and Liabilites:                    
Accounts receivables   (128,135)   (85,247)   (17,833)   (7,100)
Prepaid expenses   —      —      (37,217)   (40,500)
Inventory   (14,159)   —      (295,023)   —   
Other assets   —      —      —      (7,500)
Accounts payable   (6,715)   294,148    501,128    214,116 
Accounts payable related parties   7,435    —      41,705    —   
Accrued liabilities   128,135    (8,942)   469,747    62,461 
Deferred rent   3,142    —      13,901    9,412 
Deferred revenue   129,959    —      102,428    —   
NET CASH USED IN OPERATING ACTIVITIES   (17,875)   (768,900)   (1,367,781)   (1,410,438)
                     
                     
CASH FLOWS FROM INVESTING ACTIVITIES:                    
Cash paid for purchase of fixed assets   (531)   (35,131)   (27,055)   (340,733)
                     
NET CASH USED BY INVESTING ACTIVITIES   (531)   (35,131)   (27,055)   (340,733)
                     
CASH FLOWS FROM FINANCING ACTIVITIES:                    
Proceeds from short term debt   90,000    100,000    769,750    350,000 
Principal payments on short term debt   —      —      (520,000)   (100,000)
Proceeds from note payable   —      —      —      1,400,000 
Proceeds from short term debt - related parties   61,000    100,000    303,000    100,000 
Payments on short term debt - related parties   (10,000)   —      (50,000)   (100,000)
Proceeds from issuance of Series A Preferred Stock   —      410,000    690,000    —   
                     
NET CASH PROVIDED BY FINANCING ACTIVITIES   141,000    610,000    1,192,750    1,650,000 
                     
NET INCREASE (DECREASE) IN CASH   122,594    (194,031)   (202,086)   (101,171)
                     
CASH, Beginning of Period   4,022    206,108    206,108    307,279 
                     
CASH, End of Period  $126,616   $12,077   $4,022   $206,108 
                     
                     
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:               
Cash paid during the year for:                    
         Interest   6,490    1,920    68,257    10,759 
         Income taxes   —      —      —      —   
                     
NON CASH INVESTING AND FINANCING ACTIVITIES                    
Conversion of debt and accrued interest into Seed 2 Preferred Shares   —      —      —      546,353 
Fixed assets purchase on credit   —      —      58,941    231,253 
Series A Preferred shares issued to settle accrued expenses   —      —      50,000    —   
                     
The accompanying notes are an integral part of these financial statements

 

(4)
 

 

WINDSTREAM TECHNOLOGIES, INC

STATEMENTS OF CHANGES STOCKHOLDERS’ DEFICIT

 

 

   Series A Preferred Shares  Seed 1 Preferred Shares  Seed 2 Preferred Shares  Common Stock  Additional  Accumulated   
   Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Paid in Capital  Deficit  Total
                                  
Balance - December 31, 2010   —     $—      35,000   $35,000    297,336   $975,000    955,000   $3,132   $80,477   $(1,390,791)  $(297,182)
                                                        
Seed 2 Preferred shares issued upon conversion of convertible debt   —      —      —      —      166,572    546,353    —      —      —      —      546,353 
                                                        
Stock option expense   —      —      —      —      —      —      —      —      101,678    —      101,678 
                                                        
Not loss for the year   —      —      —      —      —      —      —      —      —      (1,781,310)   (1,781,310)
                                                        
Balance - December 31, 2011   —      —      35,000    35,000    463,908    1,521,353    955,000    3,132    182,155    (3,172,101)   (1,430,461)
                                                        
Series A Preferred shares issued for cash   77,441    690,000    —      —      —      —      —      —      —      —      690,000 
                                                        
Series A Preferred shares issued for accrued expenses   5,612    50,000    —      —      —      —      —      —      —      —      50,000 
                                                        
Stock option expense   —      —      —      —      —      —      —      —      159,593    —      159,593 
                                                        
Not loss for the year   —      —      —      —      —      —      —      —      —      (2,464,018)   (2,464,018)
                                                        
Balance - December 31, 2012   83,053    740,000    35,000    35,000    463,908    1,521,353    955,000    3,132    341,748    (5,636,119)   (2,994,886)
                                                        
Stock option expense   —      —      —      —      —      —      —      —      39,897    —      39,897 
                                                        
Not loss for the three months ended   —      —      —      —      —      —      —      —      —      (219,216)   (219,216)
                                                        
Balance - March 31, 2013 (unaudited)   83,053   $740,000    35,000   $35,000    463,908   $1,521,353    955,000   $3,132   $381,645   $(5,855,335)  $(3,174,205)

 

The accompanying notes are an integral part of these financial statements

 

(5)
 

 

 

NOTE 1 – NATURE OF ORGANIZATION

 

Nature of Activities

 

Windstream Technologies, Inc. (the “Company”) was incorporated in California on July 21, 2008. The Company is engaged in the development and commercialization of wind driven electrical generation equipment. The Company has facilities in Indiana.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Fiscal Year

 

These financial statements have been presented by the Company in accordance with accounting principles generally accepted in the United States and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.

 

Use of Estimates

The preparation of these financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to recoverability of long-lived assets, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

 

Financial Instruments

The Company’s financial instruments consist principally of cash, accounts receivable, inventory, accounts payable, notes payable and related party debts. The Company believes that the recorded values of all of other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

 

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

 

Accounts Receivable

Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. There have been no write-offs during the various periods being reported on.

 

Inventories

Inventories are primarily raw materials. Inventories are valued at the lower of, cost as determined on a first-in-first-out (FIFO) basis, or market. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required. Costs of raw material inventories include purchase and related costs incurred in bringing the products to their present location and condition.

 

Property and Equipment

Property and equipment consists of manufacturing equipment, factory equipment, furniture and fixtures, leasehold improvements and tooling costs. These assets are recorded at cost and are being amortized on the straight-line basis over estimated lives of two to seven years. Repair and maintenance expenditures, which do not result in improvements, are charged to expense as incurred.

 

Long –Lived Assets

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicated that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

 

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. No impairment losses were recognized for the years ended December 31, 2012 and 2011 and the three months ended March 31, 2013 and 2012.

 

Deferred Revenues

The Company typically receives advance payments on certain individual sales. These advance payments are recorded as deferred revenue on the balance sheets and reclassified as revenue on the statement of operations only after the product has been delivered and the revenue has been earned.

 

Revenue Recognition

Sales revenue consists of amounts earned from customers through the sale of its primary products, the TurboMill and the SolarMill, power generation devices, which use alternative energy sources, primarily wind, to generate electricity. The Company also provides accessory products in support of these devices in the form of mounting equipment, data collection/monitoring equipment, batteries, inverters and various wiring solutions and accessories.

 

Grant income stems from the company’s participation in local and state manufacturing incentive programs.

 

Sales revenue is recognized when persuasive evidence of an arrangement exists, title to and risk of loss for the product has passed, which is generally when the products are shipped to its customers and collection is reasonably assured.

 

Grant income is recorded when received.

 

Cost of goods sold

Cost of goods sold consists primarily of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.

 

Income Taxes

In accordance with ASC 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of December 31, 2012 and 2011.

 

Stock Based Payments

We account for share-based awards to employees in accordance with ASC 718 “Stock Compensation”. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the period in which the related services are rendered.

 

Embedded conversion features

The Company evaluates embedded conversion features within convertible debt and convertible preferred stock under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

 

Research and Development

Costs incurred in developing the ability to create and manufacture products for sale are included in research and development. Once a product is commercially feasible and starts to sell to third party customers, the classification of such costs as development costs stops and such costs are recorded as costs of production, which is included in cost of goods sold. Research and development costs are expensed when incurred.

 

(6)
 

  

Basic and Diluted Net Loss per Share

The Company computes loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using treasury stock method, and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. Common stock equivalents pertaining to the convertible debt, options, warrants and convertible preferred shares were not included in the computation of diluted net loss per common share because the effect would have been anti-dilutive due to the net loss for the years ended December 31, 2012 and 2011 and for the three months ended March 31, 2013 and 2012, respectively.

 

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and trade receivables. The Company places its cash with high credit quality financial institutions. At times such cash may be in excess of the FDIC limit. With respect to trade receivables, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited.

 

Related parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

Fair Value Measurements

As defined in ASC 820 “Fair Value Measurements”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

 

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

Recently Adopted Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

(7)
 

 

NOTE 3 – GOING CONCERN

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred losses and has negative working capital. In addition, the Company generated negative cash flow from operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

 

If necessary, the Company will pursue additional equity and/or debt financing while managing cash flows from operations in an effort to provide funds to meet its obligations on a timely basis and to support future business development.

 

The financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 4 – PREPAID EXPENSES

 

Prepaid expenses as of March 31, 2013, December 31, 2012 and 2011 refer to advance payments for inventory purchases.

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following as of:

 

    March 31, 2013   December 31, 2012    December 31, 2011 
               
Equipment  $125,039  $125,039   $119,539 
Factory equipment   15,800   15,800    15,800 
Furniture and fixtures   7,888   7,888    7,888 
Leasehold improvements   64,582   64,582    51,806 
Tooling   477,467   476,936    409,216 
               
 Total   690,776   690,245    604,249 
               
Less accumulated depreciation   (244,085)   (202,303)    (44,495) 
               
Net property, plant and equipment  $446,691  $487,942   $559,754 

 

 

Depreciation expense for the periods ended as follows amounted to:

 

    

 March 31,

2013

 

March 31,

2012 

      December 31,  2012       December 31, 2011 
                
Depreciation Expense  $ 41,782 $ 37,364  $ 157,808  $ 38,305 

 

  

NOTE 6 – SHORT TERM DEBT

 

On various dates in 2011, the Company issued notes totaling to $450,000 of which $100,000 was to a related party (member of the Board of Directors). The notes bear interest ranging from 8% to 18% and are due on demand. During the year ended December 31, 2011, the Company fully repaid $200,000 of the existing notes, including the note issued to the related party. As of December 31, 2011 and 2012, the outstanding balance on the above notes amounted to $250,000.

 

On various dates in 2012, the Company issued notes totaling to $1,072,750 of which $303,000 were to related parties (Company President and a member of the Board of Director). The notes bear interest ranging from 5% to 18%. Except for three notes totaling to $420,000 which have a term ranging from 1 to 3 months, the remaining notes are due on demand. During the year ended December 31, 2012, the Company fully repaid $570,000 of the existing notes, including a partial payment of $50,000 for a note issued to a related party. As of December 31, 2012, the outstanding balance on the above notes amounted to $502,750.

 

During the three months ended March 31, 2013, the Company president advanced to the Company an additional $61,000 to fund operations. The Company subsequently repaid $10,000 of the total amount that was advanced.

 

On February 25, 2013, the Company entered into a working capital revolving line of credit with a bank, with a credit limit of $500,000, for use in financing overseas sales of the Company’s products. The Company’s draws under the line are transaction specific and are guaranteed by the Export Import Bank, a U.S. government entity. Draw downs on the line are used to meet the working capital needs of the Company to purchase materials and fund the labor and overhead to manufacture specific products for export to specific customers. The line accrues interest at a fixed rate of 6.6% and expires in March 2014. At March 31, 2013, the outstanding balance on the line was $90,000.

 

A summary of debt activity during the periods presented is set forth below:

 

   Third parties  Related parties

Proceeds from short term notes

Repayments of short term notes

 

$ 350,000

(100,000)

 

$ 100,000

(100,000)

Balance at December 31, 2011  $250,000   $—   

Proceeds from short term notes

Repayments of short term notes

   

769,750

(520,000)

    

303,000

(50,000)

 
Balance at December 31, 2012  $499,750   $253,000 

       

 
Draw downs from line of credit   90,000    - 
Proceeds from short term notes   -   61,000 
Repayment of short term notes   -    (10,000) 
Balance at March 31, 2013  $589,750   $304,000 

 

(8)
 

 

 NOTE 7 - NOTE PAYABLE

 

In July 2011, the Company entered into a $1,400,000 note agreement with the City of North Vernon, Indiana. Interest accrues at 5.5% and the note matures on August 1, 2016. As of March 31, 2013 and December 31, 2012 and 2011, the full amount of the note was outstanding.

 

Interest and principal payments are expected to be paid as follows:

 

2013 $ 234,303
2014 $ 234,303
2015 $ 234,303
2016 $ 1,182,351

 

 The Company was unable to pay the interest and principal payments due on August 1, 2012 and is in default of such payment.  The Company was able to negotiate payment terms with the City of North Vernon, Indiana, which allowed the Company to delay scheduled repayments of the loan

 

In May 2013, the Company made a $25,000 principal payment.

 

NOTE 8 – CONVERTIBLE NOTE PAYABLE

 

On September 15, 2010, the Company received proceeds from a note payable in the amount of $500,000 from a third party. The note bore interest at 8% and was due in full on September 15, 2012. The note was convertible to shares of the Company’s common stock at $3.28 per share. On November 12, 2011, the note holder converted the note as well as $46,353 of accrued interest to 166,572 shares of Seed 2 preferred stock. As of March 31, 2013 and December 31, 2012 and 2011, no amounts were outstanding under this note.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

As of March 31, 2013, the Company owed $49,140 to the Company president for expenses incurred on behalf of the Company. As of December 31, 2012, the balance due for expenses incurred was $41,705. These amounts are non-interest bearing, unsecured and due on demand.

 

NOTE 10 – COMMON STOCK AND PREFERRED STOCK

 

Common Stock

The Company has 9,000,000 shares of common stock authorized and 955,000 shares were issued and outstanding as of March 31, 2013 and December 31, 2012 and 2011.

 

The holders of common stock have dividend rights, liquidation rights and voting rights of one vote for each share of common stock.

 

In January 2010, the Company issued fully vested 955,000 common shares to employees for services provided to the Company and recorded the stock-based compensation of $3,132, which is equivalent to the fair value of the shares at the date of the grant.

 

Convertible Preferred Stock

 

The Company has 1,035,000 total shares of preferred stock authorized in the following classes:

 

Seed 1 Preferred Stock 35,000 shares authorized

Seed 2 Preferred Stock 500,000 shares authorized

Series A Preferred Stock 500,000 shares authorized

 

The holders of all classes of preferred stock are entitled to receive noncumulative dividends at the following rates:

 

Seed 1 Preferred Stock $.08 per share per annum

Seed 2 Preferred Stock $.2624 per share per annum

Series A Preferred Stock $.7128 per share per annum

 

The holders of all preferred shares have the right to vote for each share of common stock into which such share of preferred stock could then be converted.

 

Each share of each series of preferred stock is convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares of common stock as determined by dividing the original issue price for each such series of preferred stock by the conversion price applicable to such in effect on the date the certificate is surrendered for conversion.

 

In fiscal years 2008 and 2009, the Company issued 10,000 shares of Seed 1 Preferred Stock to settle a debt with a balance of $10,000 and 25,000 shares for cash at $1.00 per share for total gross proceeds of $25,000.

 

In fiscal years 2009 and 2010 the Company issued 297,636 shares of Seed 2 Preferred Stock for cash at $3.28 per share for total gross proceeds of $975,000.

 

On November 12, 2011, the Company issued 166,572 shares of Seed 2 Preferred Stock in order settle a $500,000 convertible note and $46,353 of accrued interest.

 

In fiscal year 2012, the Company issued 77,441 shares of Series A Preferred stock for cash at $8.91 per share for total gross proceeds of $690,000. An additional 5,612 of Series A Preferred stock were issued to a vendor to settle $50,000 in outstanding trade payables.

 

NOTE 11 – STOCK OPTIONS

 

In fiscal 2010, the Company issued 172,500 options to purchase common stock to various employees for services rendered. These options were granted with an exercise price ranging from $0.65 to $0.90 per share, have a contract term of ten years and are vested for a period of five years or immediately. The options have a fair value of $565,770 which was calculated using the Black-Scholes option pricing model.

 

In fiscal 2012, the Company issued 32,500 options to purchase common stock to various employees and consultants for services rendered. These options were granted with an exercise price of $.90 per share, have a contract term of ten years and are vested for a period of five years. The options have a fair value of $289,572 which was calculated using the Black-Scholes option pricing model.

 

Stock option activity is presented in the table below:

 

   Number of Shares  Weighted average Exercise Price  Weight average Contractual Term (years)  Aggregate Intrinsic Value
                       
 Outstanding at December 31, 2010    172,500    0.83    9.75    —   
                       
 Granted    —      —      —      —   
                       
 Outstanding at December 31, 2011    172,500    0.83    8.75    —   
                       
 Granted    32,500    0.9    10.00    —   
                       
 Outstanding at December 31, 2012    205,000    0.85    7.95    —   

 

 

The Company recognized stock compensation expense as follows for all periods presented:

 

Three months ended March 31, 2013 $ 39,897
Three months ended March 31, 2012 $ 39,898
Year ended December 31, 2012 $ 159,593
Year ended December 31, 2011 $ 101,678

 

The fair value of the options granted during the various periods was estimated at the date of grant using the Black-Scholes option-pricing model and the following assumptions:

 

Year Options were granted

 

  2012 2010  
Market value of stock on grant date  8.91 3.28
Risk-free interest rate 1.39%   1.54 to 3.14%
Dividend Yield 0% 0%  
Volatility Factor 300% 300%  
Weighted average expected life 7.5 years 5 to 7.5 years  
Expected forfeiture rate 0% 0%  

 

(9)
 

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company leases various facilities under a non-cancelable operating lease expiring on September 30, 2013. The current minimum monthly rental payment is $4,750 plus various expenses incidental to use of the property. The Company has an option to extend the lease for one twelve month period at slightly higher monthly rent.

 

The Company also leases a research facility in New Albany, Indiana under a sixty-five month lease expiring March 30, 2015. The Company evaluated the lease under FASB ASC 840-20 “Operating Leases” and notes that the lease qualifies as an escalating lease. Therefore, rent expense was calculated on a straight-line basis, and was determined to be $3,124 per month. The Company’s deferred rent liability for the three month period ended March 31, 2013 and for the years ended December 31, 2012 and December 31, 2011 were $64,240, $61,098, and $47,197, respectively.

 

Future minimum lease commitments at December 31, 2012 are as follows:

 

2013 $ 88,910
2014 $ 58,624
2015 $ 15,479
Total $ 163,013

 

 

Rent expense for all periods presented are as follows:

  

Three months ended March 31, 2013 $ 44,263
Three months ended March 31, 2012 $ 37,618
Year ended December 31, 2012 $ 95,981
Year ended December 31, 2011 $ 51,741

 

Litigations

 

Various lawsuits, claims and other contingencies arise in the ordinary course of the Company’s business activities. While the ultimate outcome of the aforementioned contingencies are not determinable at this time, management believes that any liability or loss resulting therefrom will not materially affect the financial position, result of operations or cash flows of the Company.

 

NOTE 13 – INCOME TAXES

 

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.

 

During the three months ended March 31, 2013 and the years ended December 31, 2012 and 2011, the Company incurred net losses, and, therefore, had no tax liability. The net deferred asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $2,465,962, $2,287,301 and $54,157, respectively as of March 31, 2013, December 31, 2012 and 2011, and will expire in years 2020 through 2032.

 

Deferred tax assets consist of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability.

 

As of March 31, 2013, December 31, 2012 and 2011, deferred tax assets consisted of the following:

 

      March 31, 2013     December 31,  
          2012     2011  
      (Unaudited)              
Net operating loss carryforwards     $ 863,087     $ 800,556     $ 18,955  
Valuation allowance         (863,087)       (800,556)       (18,955)  
      $ -     $ -     $ -  

 

NOTE 14 – MAJOR CUSTOMERS

 

During the three months ended March 31, 2013, three customers accounted for 100% of revenue.

 

During the same period in 2012, two customers accounted for 55.8% of revenues.

 

For the year ended December 31, 2012, two customers accounted for 67.93% of revenue.

 

 

NOTE 15 – SUBSEQUENT EVENTS

 

On May 22, 2013 (“Closing Date”), Windaus Global Technology, Inc. (“Windaus”) entered into a “Share Exchange Agreement” (“the Agreement”) by and among, Windaus and the Company and certain shareholders of the Company. Pursuant to the Agreement, Windaus agreed to exchange the outstanding common and preferred stock of the Company held by the Company shareholders for common shares of common stock in Windaus on approximately a 1:25.80 basis. At the Closing Date, there were approximately 955,000 shares of the Company’s common stock and 581,961 shares of the Company’s preferred stock outstanding. In addition, shares issuable under outstanding options of the Company will be exercisable into shares of common stock of Windaus, pursuant to the terms of such instruments. The shares of the Company’s common stock and preferred stock will be exchanged for approximately 39,665,899 new shares of Windaus common stock, par value of $0.001 per share.  Also 13,410,972 shares will be reserved for options to be exercised in the future under the Company’s stock option plan. At the closing, Windaus had approximately 24,000,000 shares of common stock issued and outstanding and no preferred stock. As of the date of the filing of Windaus most recent Form 8-K, the holders of the majority shares of common and preferred stock of the Company have exchanged their shares into a majority of the issued and outstanding shares of Windaus’ common stock. As a result of the Agreement, and other transactions contemplated by Windaus, the Company is now a majority owned subsidiary of Windaus and the transaction is expected to be accounted for as a reverse merger.

 

Between April 1, 2013 and May 30, 2013, the Company president advanced the Company an additional $1,000 to fund operations. The Company subsequently repaid $17,500 of the total amount that was advanced.

 

In May 2013, the company issued 4.36 million common shares for consulting services.

 

On June 1, 2013, WindStream entered into subscriptions agreements with five accredited investors for the issuance of convertible promissory notes in the aggregate principal amount of $550,000, which are convertible into shares of common stock of the Company at $0.25 per share, and warrants entitling the holder to purchase up to an aggregate of 1,600,000 of shares of common stock of the Company at $0.25 per share. The notes bear interest at 8% and are due in one year. In connection with one of the five debt issuances, the company paid finder’s fees of $42,000 as well as 140,000 common stock warrants at$0.05 per share. All warrants vest immediately and have a term of three years.

 

On July 4, 2013, the Company entered into subscription agreements with an accredited investor for the issuance of 5,000,000 shares of common stock at $0.05 per share, for an aggregate purchase price of $250,000.

 

In July 2013, the Company entered into subscription agreements with accredited investors for the issuance of 1,800,000 shares at $0.25 per share together with warrants to purchase 1,500,000 shares at $0.50 per share for an aggregate purchase price of $450,000. The warrantes vest immediately and have a term of three years.

 

On August 5, 2013, the Company entered into subscription agreements with an accredited investor for the issuance of 200,000 shares at $0.25 per share together with warrants to purchase 50,000 shares at $0.50 per share for an aggregate purchase price of $50,000. The warrants vest immediately and have a term of three years.

 

In August, 2013, the Company issued warrants to various investors entitling the holders to purchase up to an aggregate of 1,100,000 of shares of common stock of the Company at $0.25 per share. The warrants vest immediately and have a term of three years,

 

(10)
 

 

          WINDSTREAM TECHNOLOGIES, INC.             
          Unaudited Combined Pro Forma Balance Sheet at            
          March 31, 2013            

 

             
ASSETS            
             
         Pro Forma  Adjusted Pro
   Windaus  Windstream  Adjustments  Forma Totals
             
CURRENT ASSETS                    
Cash  $—     $126,616   $—     $126,616 
Accounts receivable   —      153,068    —      153,068 
Inventories   —      309,182    —      309,182 
Prepaid expenses   —      77,717    —      77,717 
                     
TOTAL CURRENT ASSETS   —      666,583    —      666,583 
                     
Property and equipment,  net of accumulated depreciation   —      446,691    —      446,691 
                     
OTHER ASSETS                    
Deposits   —      7,500    —      7,500 
                     
TOTAL ASSETS  $—     $1,120,774   $—     $1,120,774 
                     
LIABILITIES AND STOCKHOLDERS' DEFICIT                    
                     
CURRENT LIABILITIES                    
Accounts payable  $18,391   $1,014,597   $—     $1,032,988 
Accounts payable - related parties   8,454    49,140    —      57,594 
Accrued liabilities   607    640,866    —      641,473 
Deferred rent   —      64,240    —      64,240 
Deferred revenues   —      232,386    —      232,386 
Short term debt - related parties   20,420    304,000    —      324,420 
Short term debt - third parties   11,500    589,750    —      601,250 
Current maturities of note payable   —      468,604    —      468,604 
                     
TOTAL CURRENT LIABILITIES   59,372    3,363,583    —      3,422,955 
                     
LONG TERM LIABILITY                    
Note payable, non-current   —      931,396    —      931,396 
                     
 TOTAL LIABILITIES
   59,372    4,294,979    —      4,354,351 
                     
STOCKHOLDERS' DEFICIT                    
                     
Series A Convertible Preferred stock; $0 par value; 500,000 shares authorized;                    
83,053 shares issued and outstanding   —      740,000    (740,000)   —   
Seed 1 Convertible Preferred stock; $0 par value; 35,000 shares authorized;                    
35,000 shares issued and outstanding   —      35,000    (35,000)   —   
Seed 2 Convertible Preferred stock; $0 par value; 500,000 shares authorized;                    
463,908 shares issued and outstanding   —      1,521,353    (1,521,353)   —   
Common stock   84,552    3,132    2,677,998    2,765,682 
Additional paid in capital   55,157    381,645    (580,726)   (143,924)
Accumulated deficit   (199,081)   (5,855,335)   199,081    (5,855,335)
                     
                     
TOTAL STOCKHOLDERS' DEFICIT   (59,372)   (3,174,205)   —      (3,233,577)
                     
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $—     $1,120,774   $—     $1,120,774 

 

(11)
 

 

 

 

              WINDSTREAM TECHNOLOGIES, INC.             
              Unaudited Combined Pro Forma Statements of Operations --            
              Three Months Ended March 31, 2013            

 

             
   Windaus  Windstream     Pro Forma
   Global Energy  Technologies,  Pro Forma  Adjusted
   Inc.  Inc.  Adjustments  Combined Totals
                     
Sales  $—     $356,749   $—     $356,749 
                     
Cost of goods sold        227,448    —      227,448 
Gross Profit   —      129,301    —      129,301 
                     
Operating expenses                    
General and administrative expenses   26,845    309,196    (26,845)   309,196 
                     
Total operating expenses   26,845    309,196    (26,845)   309,196 
                     
LOSS FROM OPERATIONS   (26,845)   (179,895)   26,845    (179,895)
                     
Interest expense, net   (372)   (39,321)   372    (39,321)
                     
Net loss   (27,217)   (219,216)   27,217    (219,216)
                     
Net Loss Per Share - Basic and Diluted  $(0.00)  $(0.01)  $—     $(0.00)
                     
Weighted Average Shares Outstanding - Basic and Diluted   24,000,000    39,665,899    —      63,665,899 

 

(12)
 

 

 

 

 

              WINDSTREAM TECHNOLOGIES, INC.             
              Unaudited Combined Pro Forma Statements of Operations --            
              Year ended December 31, 2012            

 

             
   Windaus  Windstream     Pro Forma
   Global Energy  Technologies,  Pro Forma  Adjusted
   Inc.  Inc.  Adjustments  Combined Totals
                     
Sales  $5,200   $237,237   $(5,200)  $237,237 
Cost of goods sold   1,875    428,374    (1,875)   428,374 
Gross Profit   3,325    (191,137)   (3,325)   (191,137)
                     
Operating expenses                    
Research and development   —      1,181,094    —      1,181,094 
General and administrative expenses   80,556    1,525,535    (80,556)   1,525,535 
                     
Total operating expenses   80,556    2,706,629    (80,556)   2,706,629 
                     
LOSS FROM OPERATIONS   (77,231)   (2,897,766)        (2,897,766)
                     
OTHER INCOME (EXPENSE)                    
Grant income   —      600,000    —      600,000 
Other income   —      5,915    —      5,915 
Interest expense, net   (235)   (172,167)   235    (172,167)
                     
                     
Net loss   (77,466)   (2,464,018)   77,466    (2,464,018)
                     
Net Loss Per Share - Basic and Diluted  $(0.00)  $(0.06)  $—     $(0.04)
                     
Weighted Average Shares Outstanding - Basic and Diluted   24,000,000    39,665,899    —      63,665,899 

 

(13)
 

 

Notes to Unaudited Pro Forma Consolidated Financial Statements

Windaus Global Energy, Inc. entered into a Share Exchange Agreement with WindStream Technologies, Inc., whereby Windaus Global Energy, Inc. exchanged 69.2% of its outstanding shares of common stock for 100% of the outstanding shares of WindStream Technologies, Ltd. common stock and preferred stock. As of the closing date, WindStream Technologies, Ltd. will operate as a wholly owned subsidiary of Windaus Global Energy, Inc.

As a result of the Share Exchange Agreement, each outstanding share of WindStream Technologies, Ltd. common stock and preferred stock shall be transferred, conveyed and delivered to Windaus Global Energy, Inc. in exchange for 39,665,899 newly-issued shares of common stock of Windaus Global Energy, Inc.

As of the closing date of the Share Exchange Agreement, the former shareholders of WindStream Technologies, Inc. held approximately 62.3% of the issued and outstanding common shares of Windaus Global Energy, Inc.  The issuance of 39,665,899 common shares to the former shareholders of WindStream Technologies, Inc. was deemed to be an acquisition for accounting purposes.  The number of shares outstanding and per share amounts have been restated to recognize the recapitalization as reflected in proforma adjustments.

The proforma consolidated balance sheets of Windaus Global Energy, Inc. and WindStream Technologies, Inc.  are presented here as of March 31, 2013.  The proforma consolidated statements of operations for Windaus Global Energy, Inc. and WindStream Technologies, Inc. are presented here as of the year ended December 31, 2012 and the three months ended March  31, 2013.