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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;XZERES
Corp. (&amp;#147;XZERES&amp;#148; and the &amp;#147;Company&amp;#148;) is located in Wilsonville, 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.&lt;font style="color: #1f497d"&gt; &lt;/font&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="color: #1f497d; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;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.&lt;/font&gt;&lt;/p&gt;

&lt;p style="color: #1f497d; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;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&amp;#146;s products.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>No authoritative reference available.</ElementDefenition><ElementReferences>No definition available.</ElementReferences><IsTotalLabel>false</IsTotalLabel><UnitID>0</UnitID><Label>Nature of Business</Label></Row><Row FlagID="0"><Id>3</Id><IsAbstractGroupTitle>false</IsAbstractGroupTitle><LabelSeparator>

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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;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.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>Disclosure of accounting policy regarding (1) the principles it follows in consolidating or combining the separate financial statements, including the principles followed in determining the inclusion or exclusion of subsidiaries or other entities in the consolidated or combined financial statements and (2) its treatment of interests (for example, common stock, a partnership interest or other means of exerting influence) in other entities, for example consolidation or use of the equity or cost methods of accounting.  The accounting policy may also address the accounting treatment for intercompany accounts and transactions, noncontrolling interest, and the income statement treatment in consolidation for issuances of stock by a subsidiary.</ElementDefenition><ElementReferences>Reference 1: http://www.xbrl.org/2003/role/presentationRef

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 -Name Regulation S-X (SX)

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 -Name Accounting Principles Board Opinion (APB)

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Reference 7: http://www.xbrl.org/2003/role/presentationRef

 -Publisher SEC

 -Name Regulation S-X (SX)

 -Number 210

 -Section 02, 03

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Reference 8: http://www.xbrl.org/2003/role/presentationRef

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Reference 10: http://www.xbrl.org/2003/role/presentationRef

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 -Name FASB Interpretation (FIN)

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Reference 11: http://www.xbrl.org/2003/role/presentationRef

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Reference 14: http://www.xbrl.org/2003/role/presentationRef

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 -Publisher AICPA

 -Name Accounting Research Bulletin (ARB)

 -Number 51

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Reference 16: http://www.xbrl.org/2003/role/presentationRef

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 -Publisher FASB

 -Name Accounting Standards Codification

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 -Publisher FASB

 -Name Accounting Standards Codification

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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;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 (&amp;#147;SEC&amp;#148;), and should be read in conjunction
with the audited financial statements and notes thereto contained in the Company&amp;#146;s Form 10-K filed with the SEC as of and
for the period ended February 28, 2013, 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
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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (&amp;#147;GAAP&amp;#148;
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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;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.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>Disclosure of accounting policy for the use of estimates in the preparation of financial statements in conformity with generally accepted accounting principles.</ElementDefenition><ElementReferences>Reference 1: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Accounting Standards Codification

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

 -Publisher AICPA

 -Name Statement of Position (SOP)

 -Number 94-6

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Value of Financial Instruments&lt;/u&gt;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company&amp;#146;s financial instruments consist of cash and cash equivalents, accounts and notes receivable, inventories, inventory
deposits, 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.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>Disclosure of accounting policy for determining the fair value of financial instruments.</ElementDefenition><ElementReferences>Reference 1: http://www.xbrl.org/2003/role/presentationRef

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 -Name Accounting Standards Codification

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Reference 3: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Statement of Financial Accounting Standard (FAS)

 -Number 107

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 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009.  This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.



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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company recognizes revenue when products are shipped from the factory and collection is reasonably assured.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;XZERES
sells wind turbines and power efficiency products 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.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>Disclosure of accounting policy for revenue recognition. If the entity has different policies for different types of revenue transactions, the policy for each material type of transaction is generally disclosed. If a sales transaction has multiple element arrangements (for example, delivery of multiple products, services or the rights to use assets) the disclosure may indicate the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. The disclosure may encompass important judgment as to appropriateness of principles related to recognition of revenue. The disclosure also may indicate the entity's treatment of any unearned or deferred revenue that arises from the transaction.</ElementDefenition><ElementReferences>Reference 1: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Accounting Standards Codification

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Reference 2: http://www.xbrl.org/2003/role/presentationRef

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 -Publisher SEC

 -Name Staff Accounting Bulletin (SAB)

 -Number Topic 13

 -Section B

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Accounting Standards Codification

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Reference 5: http://www.xbrl.org/2003/role/presentationRef

 -Publisher AICPA

 -Name Accounting Principles Board Opinion (APB)

 -Number 22

 -Paragraph 8, 12, 13

 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009.  This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.



Reference 6: http://www.xbrl.org/2003/role/presentationRef

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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;XZERES
considers all highly liquid investments with maturities of three months or less to be cash equivalents. The Company had cash of
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Reference 3: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Accounting Standards Codification

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 -URI http://asc.fasb.org/extlink&amp;oid=6507016



Reference 4: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Accounting Standards Codification

 -Topic 230

 -SubTopic 10

 -Section 50

 -Paragraph 1

 -URI http://asc.fasb.org/extlink&amp;oid=6367179&amp;loc=d3e4273-108586



Reference 5: http://www.xbrl.org/2003/role/presentationRef

 -Publisher SEC

 -Name Regulation S-X (SX)

 -Number 210

 -Section 02

 -Paragraph 1

 -Article 5



Reference 6: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Accounting Standards Codification

 -Topic 305

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 -URI http://asc.fasb.org/subtopic&amp;trid=2122427



Reference 7: http://www.xbrl.org/2003/role/presentationRef

 -Publisher SEC

 -Name Financial Reporting Release (FRR)

 -Number 203

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Reference 8: http://www.xbrl.org/2003/role/presentationRef

 -Publisher AICPA

 -Name Technical Practice Aid (TPA)

 -Number 2110

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Reference 9: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Statement of Financial Accounting Standard (FAS)

 -Number 95

 -Paragraph 7, 8, 9, 10

 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009.  This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.



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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company&amp;#146;s policy regarding advertising is to expense advertising when incurred. XZERES incurred advertising expense of $8,778
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Reference 3: http://www.xbrl.org/2003/role/presentationRef

 -Publisher AICPA

 -Name Statement of Position (SOP)

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

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Reference 5: http://www.xbrl.org/2003/role/presentationRef

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Reference 6: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Emerging Issues Task Force (EITF)

 -Number 02-16

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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 5pt 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation &amp;#150;
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.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 5pt 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company follows ASC Topic 505-50, formerly EITF 96-18, &amp;#147;&lt;i&gt;Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services&lt;/i&gt;,&amp;#148; 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
directly to compensation expense or prepaid expense and additional paid-in capital over the period during which services are rendered.
For the quarter ended May 31, 2013 and May 31, 2012, the Company recorded stock based compensation of ($ 274,960) and $44,424
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Reference 2: http://www.xbrl.org/2003/role/presentationRef

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Reference 3: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Statement of Financial Accounting Standard (FAS)

 -Number 132R

 -Paragraph 5, 6, 7, 9, 11, 12, 13

 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009.  This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.



Reference 4: http://www.xbrl.org/2003/role/presentationRef

 -Publisher FASB

 -Name Statement of Financial Accounting Standard (FAS)

 -Number 123R

 -Paragraph 4, 9-15, A240

 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009.  This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.



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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;The
Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;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 issuance date.&lt;/font&gt;&lt;/p&gt;</NonNumbericText><FootnoteIndexer /><CurrencyCode /><CurrencySymbol /><IsIndependantCurrency>false</IsIndependantCurrency><ShowCurrencySymbol>false</ShowCurrencySymbol><DisplayDateInUSFormat>false</DisplayDateInUSFormat></Cell></Cells><ElementDataType>nonnum:textBlockItemType</ElementDataType><SimpleDataType>na</SimpleDataType><ElementDefenition>No authoritative reference available.</ElementDefenition><ElementReferences>No definition available.</ElementReferences><IsTotalLabel>false</IsTotalLabel><UnitID>0</UnitID><Label>Divends</Label></Row><Row FlagID="0"><Id>14</Id><IsAbstractGroupTitle>false</IsAbstractGroupTitle><LabelSeparator>

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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;Property
and equipment are stated at cost. Depreciation is computed on the straight line method over the estimated useful lives of the
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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;&amp;#160;&lt;/font&gt;&lt;/p&gt;

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&lt;p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"&gt;&lt;font style="font: 10pt Times New Roman, Times, Serif"&gt;Income
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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&amp;#146;s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As
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